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Concerns as Nigeria Misses Zero Gas Flare Out Target

-By Fred Ojiegbe

The loss of billions of dollars through gas flaring has continued despite the target by the Federal Government to end the practice this year and at a time the government revenues are stretched by the impact of the decline in oil price caused by the COVID-19 pandemic.

Former Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, had during a mid-term review of the activities of the ministry between August 2015 and August 2017 announced government’s commitment to end gas flaring by 2020, ten years ahead of the 2030 target set by the United Nations, to stop gas flaring.
Gas flaring is the practice of burning natural gas associated with crude oil extraction by oil companies.

Nigeria has the largest proven gas reserves in Africa and the 9th largest in the world (as at 2018) with about 201 trillion cubic feet of natural gas that is 900 times the country’s total oil reserves.

President Muhammadu Buhari

Despite the large proven and unproven gas reserves the country holds, daily gas production remains low and even some of the meagre volume that is produced are still flared.

Data from the Department of Petroleum Resources (DPR) show that the percentage of gas flared in Nigeria has been reducing since 2002 and stood at 10 per cent in 2018. However, in terms of volume of gas flared, the country still ranks in the top 10 gas flaring countries in the world with 7.4 billion cubic feet of gas flared in 2018. Total gas flared in Nigeria accounted for 6.9 per cent of the top 10 gas flaring countries in 2018.

Economic Cost of Flaring
According to a report by leading audit firm, PwC Nigeria, the Nigerian economy lost a whooping N233 billion to gas flaring in 2018. This represented 3.8 per cent of the total global flare same year.

The report launched recently and titled, “Assessing the Impact of Gas Flaring on the Nigerian Economy: Part 1,” showed that while the total economic cost of the flaring in 2018 stood at N233 billion, the total cost of the environmental effect was N28.76 billion.

The report further revealed that the N233 billion lost could have been used to finance some priority developmental projects in the country, such as healthcare, capital expenditure, housing, electricity, roads, rehabilitation of airports and aerodrome, among others.

According to the report, the monetary economic value addition that could have been recovered from the derivatives of natural gas flared in 2018 totaled $2.73bn.

Shifting the Goal Post
Nigeria has been making frantic efforts, setting and shifting deadlines towards ending gas flaring. The country’s unsuccessful attempts could be traced back to 1969 when the military government led by General Yakubu Gowon directed oil companies to end gas flaring within five years. The 1974 phase-out plan fell through following forcing the government to extend the deadline to 1979 with the enactment of the Associated Gas Reinjection Act 1979. But the multinational oil firms also failed to meet the 1979 dateline, thus pushing the civilian administration led by Alhaji Shehu Shagari to defer the zero-gas flaring deadline to 1984. Although, routine gas flaring was outlawed since 1984, according to Section 3 of Nigeria’s Associated Gas Reinjection Act 1979, the practice has continued unabated till date as the oil companies choose to pay fine.

According to energy experts, one of the reasons the milestones set by the government to reduce gas flare have not been achieved is because oil and gas companies had, before the passage of a new gas flare regulation of 2018, found it cheaper to pay the pittance as gas flare penalties- amounting to no more than a few cents per thousand standard cubic feet of gas flared per day, rather than to invest in the expensive infrastructure, required to reduce the gas flares.

President Muhammadu Buhari in his capacity as the Minister of Petroleum Resources signed the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018 (“the Regulations”) into law, a regulation which sought to minimize the environmental and social impact caused by flaring natural gas, protect the environment, prevent waste of natural resources and create social and economic benefits from gas flare capture. The effective commencement date of the Regulations was 5 July 2018.

The key highlights of the law showed that the regulations prohibit producers from flaring gas from any facility operated by such producer, except pursuant to a certificate issued by the Minister based on the provisions of the Associated Gas Reinjection Act. This prohibition also applies to routine flaring or venting of natural gas, except flaring for safety reasons, by Permit Holders.

The regulations also established a new gas flaring payment regime for gas flared within an OML area or a Marginal Field. According to the law, “Companies that produce at least 10,000 barrels of oil per day shall be liable to a flare payment of $2 per 28.317 standard cubic meters (1,000 standard cubic feet (scf)) of gas flared. However, companies which produce less than 10,000 barrels per day shall be liable to a flare payment of $0.5 per 28.317 standard cubic meters (1,000 standard cubic feet (scf)) of gas flared. This is a significant increase from the erstwhile flat penalty of N10 per 1,000 scf of gas flared that has been in force since January 1998.”
in the new regulation, the Minister reserves the right to revoke any issued Gas Flare Certificate for failure by the Producer to comply with the regulations. In addition, Permit to Access Gas Flare can be withdrawn under certain circumstances.

The Regulations further stipulated a penalty of N50,000 or an imprisonment term of not more six months “where an authorized agent of a Producer supplies inaccurate or incomplete Flare Gas Data to the Department of Petroleum Resources. The Regulations also imposed an additional daily penalty of $2.50 per 1,000 scf of gas flared or vented within the OML, where a Producer fails to meet the several requirements including supplying accurate Flare Gas Data.”

The Regulations was issued to govern and implement the Nigeria Gas Flare Commercialization Programme (NGFCP), which is aimed at harnessing Nigeria’s flare gas for sustainable value and wealth creation.

However, there are some concerns as to whether government can realize its desired objectives, given the claim by some Producers that a significant amount of the gas currently being flared is due to safety reasons, which the Regulations allow. There is also the claim that some of the flare out projects are already part of a Field Development Program that the National Petroleum Investment Management Services (NAPIMS) has approved.

Prior to 2018, it made more sense to flare and pay a penalty of several cents per MSCF, because there was no stringent enforcement. However, with the increase in the penalty to $2.00 (per MSCF/D) for companies producing more than 10,000 bpd, and $0.50 for companies producing less, the new regulation and the increase in penalties might be responsible for the discrepancies.

Ibe Kachikwu

Why Targets Failed
Speaking recently on why the 2020 zero gas flare target might not be feasible, the Programme Manager, Nigerian Gas Flare Commercialisation Programme (NGFCP), Justice Derefaka, admitted that the government was experiencing slips hence a slight adjustment of the timeline.

“We have gone back to the drawing board to come up with a robust timeline, where we will actualize some of it. The Federal Government has said it would end gas flaring by 2020, but the United Nations’ deadline is 2030. Not all the flare sites will go by 2020. Some will go and the rest after,” he said.

“The reason is that we are not looking to construct long pipelines. But we are looking at scalable technology that can be used to harness flare”

Derefaka said that the government’s gas commercialization plan would sustainably create value around gas flaring to save lives, the environment and enable the government to generate revenue.

The PwC report, while highlighting some challenges in meeting the 2020 deadline to achieve zero gas flaring listed delay in passing other components of the Petroleum Industry Bill (PIB); absence of infrastructural support; and below optimal punitive measures, as some of those challenges.

Experts suggest that to reduce gas flaring, Nigeria needs to plant 7.5 million hectares of trees; which will absorb 638 million cubic tons of carbon from flaring and other sources of carbon emission.