Nigerian government have raised their commitment to end or reduce Gas flaring in Nigeria. Federal government have setup legal framework that will guild the plan with penalties for those who will default. Flare Gas Prevention of Waste and Pollution Regulations plan has been approved by President Muhammadu Buhari and gazetted. Nigerian Gas Flare Commercialisation Programme (NGFCP) Ministerial Steering Committee will manage the program.
FGN is also receiving pressure from some pressure groups from in and outside the country to end Gas flaring in the country.
What is Gas Flare?
Gas flaring is a combustion device to burn associated, unwanted or excess gases and liquids released during normal or unplanned over-pressuring operation in many industrial processes, such as oil-gas extraction, refineries, chemical plants, coal industry and landfills.
What is the purpose of gas flaring?
Flaring is undertaken as a way to remove dangerous gasses with lower harm to the environment. It is used in safely regulating pressure in chemical plants, as well as handling natural gas release in wells. Alternatives, such as piping the gas to a plant or on-site capture and use, are of great interest.
The policy position of the Federal Government of Nigeria (FGN) is that gas flaring is unacceptable. In this regard, the FGN has initiated a number of actions to reaffirm its commitment to ending the practice of gas flaring in our oil fields. Specifically, the FGN has ratified the Paris Climate Change Agreement, and is a signatory to the Global Gas Flaring Partnership (GGFR) principles for global flare-out by 2030 whilst committing to a national flare-out target by year 2020.
Furthermore, in recognition that flared gas could be harnessed to stimulate economic growth, drive investments and provide jobs in oil producing communities and indeed for Nigerians through the utilization of widely available innovative technologies, the Federal Executive Council (Nigeria’s cabinet) has approved the Nigerian Gas Flare Commercialisation Programme (“NGFCP”). This programme was launched by the Minister of State for Petroleum Resources (“Minister”) on December 13, 2016. Gas or LPG Business will revive in Nigeria too.
The NGFCP is designed as the strategy to implement the policy objectives of the FGN for the elimination of gas flares with potentially enormous multiplier and development outcomes for Nigeria. The objective of the NGFCP is to eliminate gas flaring through technically and commercially sustainable gas utilization projects developed by competent third party investors who will be invited to participate in a competitive and transparent bid process. The commercialisation approach has been considered from legal, technical, economic, commercial and developmental standpoints. It is a unique and historic opportunity to attract major investment in economically viable gas flare capture projects whilst permanently addressing a 60 year environmental problem in Nigeria.
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The NGFCP is a special program jointly developed by the Ministry of Petroleum Resources (MPR), the Department of Petroleum Resources (DPR) and the Nigerian National Petroleum Corporation (NNPC). It is managed from the Office of the Honorable Minister of State for Petroleum Resources, Ministry of Petroleum Resources (MPR), Federal Capital Territory (FCT) Abuja, Nigeria through a Steering Committee. It is established to implement the National Gas Policy commitments for stricter regulation on flaring and to provide a pathway to ultimate flare-out.
Groups Voice on End Gas Flaring
One of the groups that protested for Federal government to end gas flaring in Nigeria is the Ijaw Youth Council (IYC). They called on the Federal Government and oil and gas companies operating in the Niger Delta region to end the incessant gas flaring by 2020.
A statement signed by its spokesman, Daniel Dasimaka, urged the Federal Government to effectively utilise the commercial benefits of the gas that is being flared in the region.
The statement asserted that despite efforts to curb gas flaring and venting in Nigeria, the issue remains a major problem bedeviling the Niger Delta people.He said: “Poor regulation and poor oil field practices have led to environmental, health, social and security problems in the Niger Delta region and for Nigeria. Flaring and venting often constitute a waste of economically-valuable resources and contribute significantly to global warming.”
The Flare Gas Prevention of Waste and Pollution Regulations Legal Framework
The legal framework provide to support the government’s plan to reduce Green House Gas (GHG) emissions through flaring and venting of natural gas.
Under the regulations, the Nigerian Gas Flare Commercialisation Programme (NGFCP) would also be implemented. The NGFCP would in line with its objectives, introduce new payment regime or penalties for gas flaring.
According to the document, the operational principle adopted in the NGFCP was that of the ‘polluter pays’ principle which is similar to carbon tax. The regulations also imposed significant obligations on producers and gas flare out projects for the reporting of data in respect of activities related to gas flaring.
Within the objectives of the regulations, Nigeria would reduce the environmental and social impacts of flaring natural gas; protect the environment especially that of the Niger Delta region which has been the most impacted; prevent waste of natural resources; and create social and economic benefits from gas flare capture.
According to the regulation, its contents are consistent with the dictates of Nigeria’s Petroleum Act which indicates that the government could take all flare gas free of cost at the flare and without payment of royalty.
An introductory note on the regulation stated that it now: “Prohibits flaring and venting of gas except further to a certificate issued by the minister (of petroleum resources) in limited circumstances.”
It further explained that: “The current meagre flare payments (penalties) of N10 per thousand standard cubic feet is increased, in the case of any one producing 10,000 barrels of oil or more, to $2.0 USD per thousand standard cubic feet of gas and, in the case of anyone producing less than 10,000 barrels of oil per day, to $0.50 USD per thousand standard cubic square feet of gas.”
Also, the regulation noted that there are mandatory additional payments by gas producers of $2.50 for failure to produce accurate flare data; failure to provide access to flares or flare sites; failure to sign a connection agreement.
It further stated that: “In the event of continuous or egregious breaches, there is a possibility of suspension of operations, or a termination of the producer’s license.”
With the NGFCP, the government plans to provide flare gas buyers with access and title to flare gas for fuel and or feedstock for their gas utilisation projects.
The programme will provide a structure and platform that will enhance the bankability of such projects; present a market-driven solution; reduce gas flaring; as well as provide benefits to Niger Delta communities and the Nigerian economy.
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GAS FLARE PENALTIES
The Federal Government of Nigeria increased the penalty for gas flaring to $2 per 1,000 standard cubic feet of gas, SCF, from N10 per 1,000 SCF of the commodity flared.
Government also stipulated a fine of N50,000 or a six months jail term or both, for anyone who provides inaccurate flare data.
The new gas flare regulation stipulates that in the case of any organisation producing 10,000 barrels of oil or more, the gas flare penalty had been increased to $2 per thousand standard cubic feet of gas and, in the case of anyone producing less than 10,000 barrels of oil per day, it had been increased to $0.50 per thousand standard cubic square feet of gas, irrespective of whether it is routine or non-routine flaring.
KEY HIGHLIGHTS OF THE REGULATION
The Right of Access to Flare Gas
Section 2 of the Regulation reiterates the right of the Federal Government of Nigeria to take or access associated gas free of cost at the flare without payment of royalties. This provision already exists in Nigeria’s Federal jurisprudence by virtue of Paragraph 35(b)(i) of the First Schedule to the Petroleum Act. Section 2, therefore, incorporates the already existing provision into the Regulation. It is also noteworthy from the wordings of the section that only the Federal Government has the right to take or access flare gas. However, as is clear from subsequent provisions of the Regulation, the Federal Government can exercise this right by authorizing “Qualified Applicants” to take flare gas on its behalf.
The Prohibition Against Gas Flaring
Section 12 of the Regulation in clear terms prohibits the routine flaring of gas by producers or permit holders unless pursuant to a certificate issued by the Minister further to the provisions of the Associated Gas Re-Injection Act. Section 12 also provides that there shall be no gas flaring from any Greenfield project (i.e. projects where no oil & gas production has commenced).
Payments for Gas Flaring
In keeping with the “Polluter pays principle”, producers which produce 10,000 barrels of oil or more per day will be liable to the Federal Government for a gas flare payment of $2.00(N613)/28.317 standard cubic meters (one thousand cubic feet) of gas flared within any OML or designated marginal field. Where production is less than 10,000 barrels, the gas flare payment is $0.50 28.317 standard cubic meters. These new gas flare payments represent a significant increase on the previous gas flare payment of N10/Mscf. The Federal Government hopes to de-incentivize the practice of gas flaring through the imposition of significantly higher payments. It is expected that this will be a veritable tool to not only disincentivize gas flaring but further ensure significant downslide of Nigeria on the world’s top gas flaring countries.
Flare Gas Data and Records
The Regulation introduces various provisions that mandate the keeping of gas flare data and records by the Producers and Permit Holders and provides a timeline for submission to the DPR. A Producer shall maintain and submit a record of all natural gas produced in association with crude oil. However, Producers and Permit Holders are mandated to maintain daily logs of gas flaring which should be submitted to the DPR within 21 days. Both participants are also mandated to prepare and submit annual reports to the DPR with the content of the annual report for each participant being different. Under the regulation, the DPR is also obligated to publish annual records of flare gas data on its website.
The Regulation also provides for penalties in the event that a Producer or Permit Holder breaches the provisions in respect of the keeping and submission of flare gas records and data. A producer is liable to pay an additional sum of $2.50/28.317 standard cubic meters (one thousand cubic feet) for each day the default continues. On the other hand, a Permit Holder runs the risk of getting his permit revoked for failure to keep proper flare gas records and failure to submit such records within the stipulated timeframe.
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Fees and Contractual Arrangements
The Regulation provides for a number of fees to be paid by a Qualified Applicant and a Permit Holder.
- The Data Prying, Data leasing and Award Fees are to be paid by a Qualified Applicant to the Federal Government pending the grant of the Permit.
- After the grant of the Permit and the assumption of the position of a Permit Holder, the Handling Fee is to be paid to the Producer for operating and maintaining the transferred interconnection assets under the approved Connection Agreement.
- A Guarantee Fee will also be paid under an approved Deliver or Pay Agreement.
All Permit Holders will have to enter into Connection Agreements with the Producers in respect of the connection of the respective facilities of the parties for the delivery and off-take of flare gas.
The parties will also enter into Deliver or Pay Agreements under which the Producer guarantees the delivery of the contracted quantity of flare gas at the agreed volume and composition range.
A Permit Holder will also in addition have to enter into a Gas Supply Agreement with the Federal Government albeit through a state entity, most likely the NNPC.
Although not specifically stated in the Regulation, there are other Agreements and approvals which can be expected to govern the parties:
Permit Holder and the Federal Government
- Milestone Development Agreement
- Performance bond
- Environmental Impact Assessment approval to be given by the relevant State government and the Federal government.