Assessing Investment & Financial flows for Mitigation in the OIL & GAS Sector UNDP I&FF Methodology Guidebook: Mitigation

Relevance of Oil & Gas sector  Energy sector is primary source of global greenhouse gas (GHG) emissions  ~ 70% of carbon dioxide (CO2), methane (CH4), & nitrous oxide (N2O) emissions  Energy-related emissions - 87% of total GHG emissions in Turkmenistan in 2004  Oil & Gas upstream emissions represent 50%+ of total GHG emissions (mostly fugitive)  Energy sector emissions have grown more rapidly than those from any other sector since 1970, & will continue to be the largest source of global GHG emissions.

 Define scope & boundaries for the assessment  Define the institutional framework  Specify the time horizon for the analysis: recommended, base year 2005 recommended  Build on existing model or projection for the sector where possible 1. Establish key parameters of the assessment

Turkmenistan: Scope of Assessment:  Exploration & ProductionY  Drilling  Flaring  TransportationY  Processing & Refining?  Demand side efficiency?  Industry, Transport, Residential/Commercial? 1. Establish key parameters of assessment Define boundaries for the assessment

1. Establish key parameters of assessment SubsectorsData availability Investment (baseline & prior 10 years) Priority in mitigation scenario HighMediumLowRank Gas extraction Gas transport Gas distribution Oil extraction/Flaring Oil/Petroleum refining (Oil or Gas) Storage Examples of subsectors for screening & prioritization

Subsector: Oil & gas production 1. Establish key parameters of assessment

 Identify preliminary set of mitigation options, i.e.:  Efficiency measures at refineries  Substitution of gas-pumping units  Collection instead of flaring, etc.  Select analytical approach:  Development of simple speadsheets  Use of existing energy models  Sector projectsions/trends  To arrive at an estimate of projected demand & supply in the sector 1. Establish key parameters of assessment Identify preliminary mitigation options and select analytical approach

 Data collection, rely on national accounts data  The System of National Accounts (SNA) constitutes the primary source of information about the economy.  Systems of integrated environmental & economic accounts (SEEA) were developed to address statistical gaps.  Other sources: GHG Inventories, National Communications etc. REGIONAL CENTRE: PLEASE PROVIDE EXAMPLES OF INVESTMENT TYPES & FINANCIAL TYPES (PUBLIC PROGRAMMES) 2. Compile historical I&FF data and other input data for scenarios

 Compile annual IF&FF data at the appropriate level of disagregation (according to the national circumstances):  By investment type i.e.: Reconstruction of oil refineries, disagregation possible: At the national level By region By refinery? (e.g. reconstruction of the Turkmenbashinsky complex)  By investment entity Government Public corporations Private corporations (domestic) Private corporation (foreign) ODA 2. Compile historical I&FF data and other input data for scenarios Data collection, rely on national accounts data

 Oil & gas production volumes by site  Oil & gas consumption by sector & fuel  Inventory of large oil & gas infrastructure, including commissioning & expected retirement/upgrade timescales  Capital infrastructure investment data  O&M data for key infrastructure  Oil & gas price & subsidy data  GHG emissions data for oil & gas sector  Power generation efficiencies  Transmission & distribution losses  National resource assessments for oil & gas  Overview of oil & gas concessions & field ownership structure  Socio-Economic growth forecasts (population/GDP)  National energy forecast models  Forecasts for oil & gas production  Forecast oil & gas demand & export  National resource assessments by fuel  Forecast sector investment data  Forecast upgrades for end of life equipment  Forecasts for price support & subsidies  Emissions projections for sector  Cost forecasts for new & emerging technologies Historical Data ( )Forecast Data ( ) 2. Compile historical I&FF data and other input data for scenarios Data collection

2. Compile historical I&FF data and other input data for scenarios Data collection, rely on national accounts data Examples of I&FF data disaggregation in each sub-sector

 Define the physical basis for the Baseline Scenario  A baseline scenario: description of what is likely to occur in the absence of ADDITIONAL policies to address climate change; expected socioeconomic trends (e.g., population growth & migration, economic growth), technological change (if relevant), & expected business-as-usual investments in the sector 3. Define Baseline Scenario

3. Define baseline scenario  Characterizing each relevant energy supply & energy end-use subsector over the assessment period  Assuming no new climate change policies are implemented  Baseline scenario reflects  Current sectoral & national plans  Expected socioeconomic trends  Expected investments in the subsectors Define baseline scenario

3. Define baseline scenario Define physical basis for the Baseline Scenario  Information should be disaggregated by:  Year (starting 10 years before the Base Year)  Source (by corporations & government)  Type (national funds, foreign direct investment, official development assistance)

 Compile annual estimates, disaggregated by investment entity, source, investment flow type, & financial flow type  Calculate the total investment cost in real, unannualized terms over the planning period  Estimate annual investment costs associated with the new plan  Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds) 4. Derive I&FF for baseline scenario

Estimate annual I&FF Cumulative investment ( ) Funding entity categorySource of funds (billion 2005 $)(%) HouseholdsDomestic funds Governments Domestic funds (budgetary) Foreign borrowing (loans) Foreign aid (ODA) Corporations Domestic equity Foreign investment Domestic debt Foreign borrowing Government support Foreign aid (ODA) Total Adding costs to baseline scenario

 Mitigation scenario: incorporates measures to reduce GHG emissions  The mitigation scenario should describe expected socioeconomic trends, technological change (if relevant), measures to mitigate GHG emissions, & the expected investments in the sector given implementation of the mitigation measures 5. Define Mitigation scenario

5. Define mitigation scenario Category of Mitigation Measure Energy Supply MeasuresEnergy End-Use Measures Reduce Combustion Emissions Reduce Fugitive Emissions Reduce Combustion Emissions Reduce Energy Demand Improve efficiency of oil extraction Efficiency improvements in oil refinery processes Switch from flaring to capture/utilization Improve efficiency of own energy consumption (lower carbon fuels or alternative energy sources) Energy conservation measures Reduce emissions in gas transport process Leaks detection & measuring, leak repair plan, Oil and Gas Sector Mitigation Measures

5. Define mitigation scenario Two approaches to define Mitigation Scenario  Approach #1: assume an end point for oil & gas supply emissions  E.g. setting a target in 2030 for accumulated emissions from the oil & gas sector  Approach #2: assume a set of technologies for oil & gas exploration & production:  E.g. Review national potential for oil & gas policy that articulate a set of technological options, such as renewable energy, & other carbon-reducing options to meet future energy demand

 Compile annual estimates, disaggregated by investment entity, source, investment flow type, & financial flow type  Estimate annual investment costs associated with the alternative mitigation options  Calculate the total investment cost in real, unannualized terms over the planning period  Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds) 6. Derive I&FF for Mitigation Scenario

6. Derive I&FF for mitigation scenario Project I&FF associated with the Mitigation Scenario Adding costs to mitigation scenario Cumulative infrastructure ( ) Unit cost Facility/Technology Improved efficiency of oil extraction by switching from flaring to capture/utilization (# units)(2005 $/unit) Reducing emissions in gas transport process by detecting and reparing leaks (# pieces)(2005 $/piece)...(# ….)(2005 $/…) Total

Projecting investments 6. Derive I&FF for mitigation scenario Adding costs to mitigation scenario Cumulative investment ( ) Funding entity category Source of funds(billion 2005 $)(%) Households Equity & debt Governments Domestic funds (budgetary) Foreign borrowing (loans) Foreign aid (ODA) Corporations Domestic equity Foreign investment Domestic debt Foreign borrowing Government support Foreign aid (ODA) Total

 Subtract the baseline annual I&FF, by entity & source, from the mitigation annual I&FF, by entity & source  Subtraction of the Baseline Scenario from the Mitigation Scenario  Sum incremental amounts over all years, by entity & source 7. Estimate changes in annual I&FF needed to implement adaptation

[ Subtract the baseline annual I&FF from the mitigation annual I&FF 7. Estimate changes in annual I&FF needed to implement mitigation  For each chosen oil & gas mitigation option, the analysis should identify the incremental investment (total dollars) by source (domestic funds, ODA, FDI etc.) up through 2030 to support the respective oil & gas management option

[ Summarizing incremental investments 7. Estimate changes in annual I&FF needed to implement mitigation REGIONAL CENTRE: PLEASE INSERT COUNTRY FIGURES FOR THE TEST RUN Investment (billion 2005 $) Cumulative ( )Incremental Funding entity category Source of fundsBaseline scenario Mitigation Scenario Households Equity & debtBaseline valueMitigation value Mitigation minus Baseline value Governments Domestic funds (budgetary) Foreign borrowing (loans) ……… Foreign aid (ODA) ……… Corporations Domestic equity …..… Foreign investment ……… Domestic debt ……… Foreign borrowing ……… Government support ……… Foreign aid (ODA) ……… Total Sum (Baseline) Sum (Mitigation) Sum (Mitigation minus Baseline)

 Determine policy instruments & measures to encourage changes in I&FF  Identify the entities that are responsible for the significant incremental changes in I&FF  Determine the predominant sources of their funds, particularly important to distinguish between public & private sources of finance 8. Evaluate policy implications

Assess policy options and summarize the projected I&FF for the key sector 8. Evaluate policy implications

 For more information on synthesizing results, documentation & the completion of the report, please refer to the Reporting Guidelines 9. Synthesize results and complete report

Q&A CLARIFICATIONS ? ? ? ? ? ? ? ? ?

Additional Information Possible models and methods NameDeveloperPlatform Metho- dology Cost (US$)/ Licensing Web Site/ Contact Description CO2DBIIASA,WindowsDatabaseFree C.ATWWW.IIASA.A sa.ac.at Database of CO2 emitting energy technologies ENERGY COSTING TOOL UNDPExcelAccountingFree RGMINORU.TA ORG Estimates the amounts & types of energy investments required to meet the Millennium Development Goals ENPEP Argonne National WindowsVarious Depends on modules used & type of institution. L.GOV Suite of Models for Integrated Energy/Environment Analysis HOMER National Renewable Energy Windows Optimizati on Free omer Design of off- & on-grid electrification options LEAP Stockholm Environment Institute Windows Physical Accounting, Simulation Free to qualified users from developing countries. YCOMMUNITY. -US.OR Integrated Energy/Environment Analysis …………………