Policy and Targets
Background and the Role of Reductions in Meeting Environmental and Economic Objectives
The volume of gas flared in Ecuador increased from 0.8 bcm in 2012 to 1.2 bcm in 2016. After falling to 0.9 bcm in 2018, flare gas volumes started to increase again, surpassing 1.2 bcm in 2021, when the flaring intensity reached its highest level since 2012. During this period, oil production fell slightly. There were 62 individual flare sites in the last flare count conducted in 2019.
Gas flaring volume and intensity in Ecuador, 2012–21
Petroamazonas, a state-owned upstream oil company, endorsed the World Bank’s Zero Routine Flaring by 2030 initiative in 2015 (World Bank, n.d.)., followed by the endorsement in 2019 by the Ministry of Energy and Non-Renewable Natural Resources (Ministerio de Energía y Recursos Naturales no Renovables [MERNNR]). Ecuador also participates in the Global Methane Initiative (n.d.).
In 2019, Ecuador submitted its updated first NDC to the UNFCCC. It committed to an unconditional reduction of 12 percent of its GHG emissions by 2025 from the levels in the business-as-usual scenario. In 2012, the energy sector accounted for 47 percent of GHG emissions in Ecuador. Mitigation strategies in the NDC include energy efficiency and gas utilization for power generation and LPG production. Flaring reduction is classified under energy efficiency improvement.
The National Strategy on Climate Change 2012–2025 integrates mitigation initiatives to address climate change through 2025 and coordinates climate change actions in various priority sectors, including the energy sector. The National Development Plan 2017–2021 sets as objectives for the oil and gas industry the promotion of good management practices for pollution reduction, conservation, mitigation, and adaptation to the effects of climate change.
Historically, more than half of associated gas in Ecuador has been flared. Petroamazonas has been responsible for most oil production and hence gas flaring. Its main flaring reduction initiative, the Optimization of Power Generation and Energy Efficiency Program (Optimización de la Generación Eléctrica y Eficiencia Energética en el Sistema Interconectado Petrolero) has been under way since 2009. It builds on previous efforts and aims to use associated gas for electricity generation, reduce the consumption of largely imported diesel, and produce LPG. At the end of 2020, Petroamazonas merged with Petroecuador, a national oil company that had been in charge of midstream and downstream activities. The merged company, known as Petroecuador, continues to pursue the flaring reduction initiative.
Targets and Limits
No evidence regarding targets and limits could be found in the sources consulted.
Legal, Regulatory Framework, and Contractual rights
Primary and Secondary Legislation and Regulation
The main law governing the oil and gas sector is the Hydrocarbons Law, 1978, which was amended in 2010 as part of major sector reform. Article 34 stipulates that associated gas can be used by operators only for development, production, and transport operations or re-injection into deposits, with prior authorization from the Ministry of Hydrocarbons. In 2018, the Ministry of Hydrocarbons merged with two other ministries (mining and electricity) to create the Ministry of Energy and Nonrenewable Natural Resources (Ministerio de Energía y Recursos Naturales no Renovables [MERNNR]). Article 35 indicates that MERNNR can approve the use of associated gas for industrial or commercial purposes.
Article 57 of Executive Decree 1215, 2001, states that operators must prioritize the re-injection of associated gas for enhanced oil recovery. Any gas not used for these purposes should be used, preferably for electricity generation, subject to a technical and economic assessment. The Hydrocarbon Operations Regulation, 2018, defines MERNNR’s authority with respect to the use of associated gas in development and production operations, its transportation, flaring, and for injection or re-injection purposes.
Ministerial Agreement No. 050, 2011, updates air quality and air emission standards of the Unified Text of Secondary Environmental Legislation (Texto Unificado de Legislación Secundaria de Medio Ambiente). Ecuador’s Organic Code on the Environment, 2017, supersedes all previous environmental legislation and consolidates most environmental legislative matters under one law.
Gas flaring and venting are matters of national jurisdiction. Article 34 of the Hydrocarbons Law, 1978, states that MERNNR manages, authorizes, and controls gas obtained from oil exploration and development and production at the national level.
Associated Gas Ownership
The state exclusively owns subsoil hydrocarbon resources in Ecuador, which it allows domestic and foreign oil and gas companies to invest in via bidding rounds. There are various upstream contract types. The most common are technical service contracts for exploration and exploitation and participation contracts (following the principles established for PSCs), in which the contractor and the state share production (or its value). Contractors have rights to oil and gas according to the contract terms (Article 32 of the Hydrocarbons Law, 1978). Article 34 of the Hydrocarbons Law, 1978, vests natural gas produced in association with oil in the state. Article 36 stipulates that the Ministry of Hydrocarbons (now MERNNR) may require fields with a high gas-to-oil ratio to deliver associated gas free of charge to Petroecuador, which will pay only the expenses incurred by operators to deliver gas.
Regulatory Governance and Organization
Until mid-2020, the Agency for the Regulation and Control of Hydrocarbons (Agencia de Regulación y Control Hidrocarburifero) regulated the exploration, exploitation, industrialization, refining, transportation, and commercialization of hydrocarbons. In 2020, it merged with the regulators overseeing the mining and electricity sectors to create the Agency for the Regulation and Control of Energy and Nonrenewable Natural Resources (Agencia de Regulación y Control de Energía y Recursos Naturales no Renovables [ARC]). This merger of regulatory agencies aligns with the merger of ministries to create MERNNR. The ARC assumed the responsibilities, obligations, and practices of the Agency for the Regulation and Control of Hydrocarbons.
Petroecuador is the only entity authorized to buy and sell oil, gas, and refined products. It is also responsible for most of the oil and gas production in Ecuador. The company is also tasked with negotiating and signing contracts with other companies on behalf of the government.
The Ministry of Environment oversees some special provisions under its jurisdiction, in its role of monitoring and auditing the environmental management of all industrial activity. The Undersecretariat of Climate Change serves as the coordinating and facilitating unit for climate finance.
Regulatory Mandates and Responsibilities
Article 11 of the Hydrocarbons Law, 1978 states that the Agency for the Regulation and Control of Hydrocarbons (now ARC) is the technical and administrative body responsible for regulating technical and operational activities in the oil and gas sector. Although independent, ARC works closely with the Vice Ministry of Hydrocarbons within MERNNR. ARC’s mission is to ensure the optimal use of hydrocarbon resources and ensure public investment and productive assets in the oil and gas sector by regulating and controlling operations and related activities.
MERNNR is responsible for executing, planning, and administering government energy policy. Articles 50, 71, 72, and 73 of the Hydrocarbon Operations Regulation, 2018, which state that MERNNR’s authorization is required for the use of associated gas in development and production operations, its transportation, flaring, and for injection or re-injection into reservoirs.
The Vice Ministry of Hydrocarbons manages the assignment, administration, and modification of oil and gas acreage areas and contracts. The Directory of Operations and Production is responsible for planning, managing, and evaluating the oil and gas sector regulations and policies.
Monitoring and Enforcement
ARC has wide-ranging authority to conduct financial and technical audits of oil and gas operations and inspect exploration, production, refining, storage, transportation, and distribution sites to ensure compliance with laws, regulations, contracts, plans, and budgets. Article 42 of the Environmental Rules for Hydrocarbon Activities, 2001 states that the Ministry of Environment’s Undersecretariat for Environmental Quality is responsible for monitoring and supervising operators to ensure they fulfill their obligations with respect to their environmental management plans, including emissions. Audits are carried out at least every two years to monitor the environmental aspects of operators’ activities or when noncompliance with an environmental management plan has been detected.
Flaring or Venting without Prior Approval
Article 39 of the Hydrocarbons Law, 1978 states that operators cannot waste, vent, or flare natural gas without authorization from MERNNR. Exceptions for flaring and venting without prior approval under special circumstances such as emergency conditions could not be identified in official documents.
Authorized Flaring or Venting
According to Article 72 of the Hydrocarbon Operations Regulation, 2018 flaring must be included in technical analysis and approved by MERNNR. Article 73 reiterates that flaring must be technically justified and at a minimum level. Article 57 of Executive Decree 1215, 2001 also mentions that flaring is allowed with prior approval if full use is not technically and economically feasible.
Article 50 of the Hydrocarbon Operations Regulations, 2018 requires operators to seek the approval of MERNNR before development and production activities by presenting the operations program with technical or economic justifications. The operations program should include estimated volumes of associated gas for various destinations as described in section 7 above. MERNNR’s authorization allows flaring of the volumes of associated gas so estimated in the operations program.
Article 57 of Executive Decree 1215, 2001, requires operators to have an approved Environmental Management Plan establishing feasible technical alternatives to gas flaring for emission reduction and control. It also requires prioritization of associated gas for re-injection and enhanced oil recovery. If re-injection is not possible, a technical and economic analysis should be carried out to identify the best use of the gas, preferably for electricity generation. If the technical and economic conditions do not allow full use in certain facilities, unused gas may be flared, with prior authorization from MERNNR.
Measurement and Reporting
Measurement and Reporting Requirements
Article 73 of the Hydrocarbon Operations Regulation, 2018 requires operators to measure the volume of gas flared and report the results to ARC. It ensures compliance with volumes from technical documents approved by MERNNR. Article 87 of the Hydrocarbon Operations Regulation, 2015, states that annual emission reports are due to ARC the first month of each subsequent year. The report should describe the use and flaring of associated natural gas.
Articles 30 and 57 of Executive Decree 1215, 2001 require operators to monitor their emissions, including from flaring. Emissions from flares must comply with maximum limits set in table 3 of annex 2 of the decree.
Measurement Frequency and Methods
Article 73 of the Hydrocarbon Operations Regulation, 2018, requires operators to perform chromatographic analysis of the gas flared and report the results to ARC annually. Reports should be submitted to the Ministry of the Environment with the following frequency:
- monthly for drilling operations based on daily discharge and weekly emissions analysis
- quarterly for all other operational phases, facilities, and activities based on quarterly discharges for emissions
- annually for flares located in storage facilities.
Flared volumes are calculated as the difference between total fluid production and gas used onsite (for power generation and reinjection, for example). Gas flow rates are measured with sensors or estimated based on the gas-to-oil ratio and other production characteristics. Article 5 of the ministerial Agreement 091, 2007, states that vertical flare or vent stacks are not required to measure and report emissions; instead, operators can use the equation provided in the agreement to establish the minimum height needed to facilitate the dispersion of contaminants and heat.
No evidence regarding record-keeping requirements could be found in the sources consulted.
Data Compilation and Publishing
Petroamazonas used to issue annual management reports that included information on gas flaring reduction achieved in their Optimization of Power Generation and Energy Efficiency Program. Reports from 2016, 2017, and 2019 are available online. After the merger of Petroecuador and Petroamazonas, at the end of 2020, this reporting was expected to continue under Petroecuador.
Fines, Penalties, and Sanctions
According to Article 77 of the Hydrocarbons Law, 1978 ARC can sanction operators for noncompliance with laws, regulations, contracts, or budgets that govern oil and gas operations. Penalties are based on an assessment of the severity of the offense, negligence, damage, economic loss to the state, and other pertinent matters.
Article 57 of Executive Decree 1215, 2001 gives operators 30 days in which to take corrective actions if flaring of associated gas is not in compliance with air quality regulations. Article 90 states that the Ministry of Environment will apply sanctions for noncompliance in accordance with Article 77 of the Hydrocarbons Law, 1978. The fines imposed by ARC or the Ministry of Environment are up to the following:
- 500 times the unified basic remuneration for the first-time violation
- 500–1,000 times the unified basic remuneration for the second-time violation
- 1,000–2,000 times the unified basic remuneration for the third-time violation.
In 2020, the unified basic remuneration was equal to US$400.
Article 90 of Executive Decree 1215, 2001, provides the following nonmonetary sanctions:
- Operators may be removed from the register that allows them to provide services, thereby revoking operators’ rights.
- The Ministry of Environment may temporarily suspend the operator’s activities until there is compliance.
Article 57 of Executive Decree 1215, 2001 states that flares should achieve complete gas combustion. The location, height, and direction of flares should be designed to minimize emissions and heat impact on the environment. At each gas flaring site, emissions will be periodically monitored.
Fiscal and Emission Reduction Incentives
No evidence regarding fiscal and emission reduction incentives could be found in the sources consulted.
Use of Market-Based Principles
No evidence regarding the use of market-based principles to reduce flaring, venting, or associated emissions could be found in the sources consulted.
Negotiated Agreements between the Public and the Private Sector
No evidence regarding negotiated agreements between the public and the private sector could be found in the sources consulted.
Interplay with Midstream and Downstream Regulatory Framework
Flared volumes of associated gas at each site are relatively small and subject to production fluctuations. With the Optimization of Electrical Generation and Energy Efficiency Program, Petroecuador aims to reduce associated gas flaring. Gas is allocated to centralized electricity generation facilities in the Amazon region (Oriente Basin) and distributed through an interconnected system for public and private companies.