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Minister of International Development Anne Kristin Sydnes

Introduction at the International seminar on Gas Flaring

Oslo, 18 and 19 June 2001

Your Excellency,
Ladies and gentlemen,

Welcome to Oslo and to Lysebu. I am very pleased that you have taken the time to attend this seminar at which we will be discussing how we can use natural gas currently going to waste to alleviate poverty.

Background, context and points of departure

As Norwegian Minister of International Development, it is the development perspective of better utilization of gas which is my concern, bearing in mind the closely related environmental issues. Around a quarter of the world’s population are living in extreme poverty. By the year 2015, the aim is to reduce this proportion by half. This is the most important development target agreed on by the international community.

Access to energy is fundamental to development and poverty reduction - yet often an overlooked theme in the development debate. This has puzzled me. - All the major challenges in development cooperation are, in one way or another, associated with energy. Therefore, e nergy wasted means development opportunities lost.

Gas flaring is increasingly being recognized as a major waste of resources and a harmful influence on the environment, both for the people living close to the production sites and for the global environment. We do not know exactly how much gas is being flared, and this is a problem in itself. We reckon that the total quantity, outside the former Soviet Union, is around 105 billion cubic meters of gas per year. This is equivalent to the annual consumption of natural gas in the UK and Scandinavia, and it amounts to nearly half of commercial energy use in sub-Saharan Africa, not counting South Africa.

Flaring contributes significantly to greenhouse gas accumulation. Flaring-related emissions of CO ₂ - in the order of 200 million tons of CO ₂ equivalent emissions per year - account for 30% of total emissions in a country like the UK.

As regards Russia and the other states of the former Soviet Union, we do not know how high the figures are. But if we use the same ratio of flaring to total oil supply as in the case of Nigeria, total flaring volumes may be in the order of 60-70 billion cubic meters of gas per year, corresponding to about 120-140 million tons of CO ₂ equivalent emissions. These estimates do not include the gas that is being vented - only the gas being flared. As you know, venting is considerably more harmful to the environment than flaring. These are uncertain figures, but give some direction for our discussions.

In any event, flaring is a major waste of resources and it represents a significant contribution to global warming. Therefore it calls for our full attention.

The good news is that many countries and petroleum companies have achieved a great deal already. Norway, the United Kingdom and Canada have reduced flaring considerably through regulatory measures and economic incentives. In Nigeria a series of projects is being implemented and others are on the drawing board. These projects will hopefully bring Nigeria close to the target of a total phase-out of flaring. I have a distinct impression that the oil industry is increasingly concerned with flaring, both because it is bad for their image and because it represents a business opportunity loss. Governments want to see alternative use of gas, both for environmental and developmental reasons.

So, although the problem still persists and causes harm to us all, we have reason to be optimistic and pro-active. We should take advantage of what we already know about this problem and the positive momentum I believe exists - and establish the principle that flaring is unacceptable. It is against the global common good. I think we should discuss whether we could set a target year for a global phase-out of this practice.

This is not an easy challenge. We must proceed through collective action. We must involve the petroleum industry, national governments, development and environment agencies and non-governmental organizations. It is fashionable to talk of partnerships these days, and real partnership is exactly what I think we need. I have seen too little of this.

My hope is that this seminar will help identify the major obstacles to the sustainable use of associated gas, in ways that can benefit us all - but particularly the poor. I would like for this seminar to focus on flaring and poverty reduction. - The main reason simply being that a large proportion of current and future flaring takes place in poor countries where improved energy supplies can contribute significantly to economic growth and social progress - and will do so in the future.

The links between flaring and poverty are diverse and call for a variety of policies and measures. It is my conviction that poverty is the single most important challenge facing the world today, both in moral and in political terms. It is unbearable for poor people and the rest of us. We must all do our part to reduce and, over time, to eliminate this menace. We must address it in different ways and from all possible angles . The way in which we manage our petroleum resources is one of these ways, and flaring provides one of many good angles. Let me offer some of my ideas on these issues.

We can distinguish between challenges at several different levels of the petroleum value chain, some with indirect links to poverty and others that are more direct. There are three main levels where measures are needed to address the primary challenge of gas flaring.

1. upstream, where investments are needed in order to contain gas flaring, either through re-injection or by making the gas available in the market for processing or for direct sales at home or abroad,
2. midstream, where gas should be used in large power plants or energy-intensive industry, and
3. downstream, where gas should be directly supplied to households and small-and-medium-sized businesses in urban and rural areas. I will pay special attention to the role of gas for rural development.

Upstream

Taking up-stream measures first, the objective should be to employ the best available technology to contain associated gas currently being flared. Sound policies and regulatory frameworks are important in order to promote investment in flaring reduction. This includes gas flaring provisions in petroleum contracts, taxation and other financial incentives, as well as environmental regulations and mandatory technical standards. In many cases, partnership and dialogue between the petroleum industry and national governments have played an important role here and I am sure that the representatives from Nigeria can elaborate on this later. I’ll be looking forward to that.

I would also like to mention the important role to be played by both the bilateral and the multilateral development agencies. They can assist national petroleum authorities in building the institutional capability needed to design and implement efficient policies and legislation for flaring.

But how is all this linked to poverty? – one might ask. – Admittedly, the link is indirect, but nonetheless it is critically important. Without investment and better practices upstream, the waste of resources will continue. Reduced flaring will mean progress in combating climate change, a threat to which the poorest countries are the most vulnerable of all.

We all regret the lack of international agreement on concrete actions to curb greenhouse gas emissions and the failure to put the Kyoto Protocol into effect. Here, at least, we have an opportunity to take action. Reduced flaring can make a difference in and of itself, and show the way in terms of how we address other aspects of the climate change problem.

Now, whether or not higher revenues from petroleum exports actually benefit the poor is an open question. It involves, among other things, petroleum revenue management, and is a complex matter related to redistribution of wealth.. Here in Norway we have struggled with managing large petroleum revenues for more than two decades. It may not be the toughest problem to deal with in this world, but still... As you all know, petroleum wealth and abundance of resources are no guarantee of development, nor for poverty alleviation. The historical evidence is clear and irrefutable. Unfortunately, in most developing countries, neither the poor parts of the population nor the individual countries have benefited from petroleum exports as we might have expected. Paradoxically, these countries generally score lower on economic and social indicators than countries without such resources, and often the trend is negative over time.

This paradox requires serious attention. I know from my background in the oil industry that the industry is concerned about these issues. Many companies have a strong desire to help change this pattern, not only at the project and community level where the companies operate, but also in relation to national economic and social development, that is the Norwegian experience at least.

Gas for electricity generation

Moving further downstream - midstream, if you wish - the link with poverty reduction is more direct. Gas for electricity is a case in point. In countries where flaring continues to be a problem, gas is actually often the best and least costly choice of energy carrier for the expansion of power systems. This is in purely economic terms, not including the environmental benefits. As we know, provision of electricity at a reasonable cost is a critical factor for economic and social development. Therefore, countries with access to cheap gas have an advantage compared to countries with few indigenous energy supplies. But access to primary energy supplies is not enough. You also need to have a relatively efficient electricity sector that can purchase the gas and supply the electricity to a functioning market. Again, this is an area where there are major political, regulatory and institutional challenges. We need a long term perspective and should work together to meet the many challenges.

Rural development

Providing access to gas directly to the rural and urban poor represents a possible direct link between flaring and poverty . Close to two billion people do not have access to modern energy. It should be the number one priority in energy sector assistance to help rectify this. Natural gas and renewable energy sources can play a central role in improving energy access and thereby help to lift significant numbers of people out of poverty. A particular challenge is to provide modern energy to rural communities in order to spur productivity growth of locally based enterprises and improve social conditions. There is ample evidence, for example, that electrification provides immediate and significant benefits to health care and primary education. This demonstrates the vital link between energy and poverty reduction.

As Minister of International Development from a country which itself is rich in petroleum resources, it is my duty to actively explore how energy access can be improved globally. In countries with petroleum resources, but with persistent poverty, the issue of flaring has to be on the agenda as part of the question of how access to modern energy can be extended to the poor. Flaring must be seen as part of the failure to provide marginalized groups with affordable access to energy.

I am encouraged by recent advances in technology, which improve the prospects of providing affordable energy to poor, rural communities. New and innovative policy instruments and regulatory regimes can encourage investments by entrepreneurs specializing in providing local energy services.

I do believe that the problem of flaring is a good place from which to enter into some very tangible and deliverable commitments, with explicit links to the challenge of improving energy access for the poor. Needless to say, real progress can only be achieved in partnership with - among others - those institutions, industries and governments that are represented here today.

Priorities in Norwegian development cooperation

Let me take this opportunity to say a few more words about Norwegian energy sector assistance and how it relates to the issues and challenges I have mentioned.

Norwegian development assistance within the energy sector has focused on petroleum and power sector reforms and the strengthening of institutions. We are working in close contact with energy sector institutions in a number of countries on establishing institutional frameworks and capabilities - critical to sustainable use of associated gas. We have a great deal of experience in this field. By and large, this type of cooperation has been effective and appreciated by our partner countries. We have also actively supported energy programs through the international development banks and other agencies. A good example of this is the World Bank’s Africa Gas Initiative.

But we are not being complacent. We are not effective enough. We do not always get the dialogue and climate of cooperation that we are aiming for. In our development assistance we are constantly seeking new ways to contribute to poverty reduction and to identify how we can play a part. As I have already said, energy must be a vital part of any poverty reduction strategy. For this reason I recently initiated the development by my Ministry of a new strategy for our energy sector assistance. I will give energy assistance greater priority and we need to be even more focused - particularly on the challenge of expanding energy access for the poor.

Gas flaring fits well into this. It is a distinct problem area, but it calls for measures that are central to all economic development: sound legal and regulatory frameworks and strong and capable public sector institutions. And, as I have tried to illustrate here today, the links to poverty, though often indirect, are strong.

The environmental dimension

I have said little about the environmental dimension of gas flaring. Some would say that flaring is primarily an environmental problem. I agree that it is an important problem, mainly in relation to global warming. I am looking at how we can establish an energy dialogue with selected developing countries similar to our human rights dialogue with a number of countries.

In the context of economic development, the mechanisms under the Kyoto Protocol can play an important role. The Clean Development Mechanism and other "green funding mechanisms" can help "buy down the costs" of flaring-related projects, particularly for rural energy provision. Strategies and responses by the petroleum industry, including internal emissions targets or trading schemes, are also important in an environmental context.

I am very glad that the Secretariat of the Climate Change Convention (UNFCCC) is represented here today. I think it is vital that the Secretariat is actively involved in efforts to curb flaring, whether our prime motivation is poverty reduction or environmental protection.

Conclusion: expectations for the seminar

In conclusion, I hope that this seminar will feed into a concerted effort to get the problem of gas flaring under control and to ensure that the benefits reach those most in need of them. Global warming is a common problem. Doing something about it would yield benefits for all of us. Still, the good that would come out of eliminating gas flaring could and should be most significant for the poor.

We should all help deliver this good to whom it truly belongs.

Good luck to all of you – and thank you for your attention.