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Nigeria’s New Gas Flare Agenda

It is not clear if any record exists of how much gas Nigeria has flared since oil production began in fields in the Niger Delta region around 1956, but it is evident that the practice which is as old as oil production in the country has for long been enmeshed in controversies due largely to its devastating impact on the economy and environment.

Reports indicate that gas flaring has remained a part of oil exploratory activities of companies in the country and while there is no specific law that prohibits it, even when its negative impacts are gravely felt in most communities in the Niger Delta region, the country has often declared it intention to end it but has always failed.

In this regards, an existing law to regulate gas flaring in Nigeria has remained ineffective because it hardly prohibits gas flaring, and at best, only provided paltry monetary penalties for defaulters.

In reality, the Petroleum Act of 1969 has remained the key law that regulates oil and gas production in Nigeria, but then, the Associated Gas Re-injection Act 1979 (as amended) was the first anti-gas flaring regulatory framework the country ever initiated, to amongst other objectives, phase out gas flaring and respond to the environmental impacts of the practice.

The Act compelled oil producing companies in the country to submit initial plan for gas re-injections, as well as details of the implementation. It equally mandated oil companies to submit to the oil minister preliminary programmes for practical use of all associated gas they produce as well as projects they have to re-inject gas produced with oil but not utilised in an industrial project, not later than April 1, 1980.

It in fact, the Act made it mandatory for oil companies to submit these detailed plans latest by October 1, 1980, yet this did not end the practice of flaring gas in the Niger Delta, and it continued until the government recently initiated a fresh move through the Nigeria Gas Flare Commercialisation Programme (NGFCP) to monetise flared gas fields and completely end the practice next year – 2020.

The NGFCP Guidelines

With the launch of the NGFCP and Flare Gas (Prevention of Waste and Pollution) Regulations in 2018 by the government, and issuance of guidelines for its implementation, it signposted the country’s readiness to address gas flare issue using commercial methods.

It explained that the NGFCP was huge on its prospects and would give third party investors access to utilise gas currently being discharged to flare stacks and convert same into Flare-Gas-to-Market-Products (FG-2-MP).

According to the government, the programme was equally designed to propel Nigeria’s climate change action plan. It explained it would be market-driven to allow bidders have flexibility of choosing which flare sites to bid for.

In fact, the government noted it was expecting up to $3.5 billion worth of inward investments by third party investors to drive the programme and achieve its targets by 2020.

As part of its plan, the programme enunciated a competitive bidding process which includes the issuance of a permit to access flare gas to successful bidders, as well as rights to permit holder to exclusively offtake such quantities of flare gas at one or more flare sites, for use in an approved flare gas commercialisation project.

Furthermore, the permit according to the guidelines would only be given to entities that do not hold oil mining leases (OML) or those with allocations in marginal oil field in the country, but the upstream oil companies keen on partaking in the programme could still apply for the permit but through an existing or incorporated mid-stream entity established for the purpose.

Similarly, permit holder would have to design and construct the producer’s gas connection assets which are the necessary facilities to transport the flare gas to the delivery point. This would be done at the cost of the permit holder, and would include pipelines; equipment; machinery; and measuring stations.

In addition to the economic benefits the government expects would come with the programme, the guidelines also included that permit holders would be required to manage community relations in their respective operations using standard community development plans which would be signed with local communities.

Excluding any safety flaring or non-routine flaring, which would be done at minimal rates, the guidelines also indicated that holders of the gas flare commercialisation permit would be prohibited from engaging in any routine flaring or expelling of natural gas within their operational vicinities.

They would also strictly adhere to the measurement, management and reporting obligations approved in the programme, and in this regards frequently provide information with respect to flare gas data to the Department of Petroleum Resources (DPR) within 30 days of such request by DPR and on an annual basis. The annual submission would have happen every March 31, of each year.

This according to the guideline would be in addition to the quarterly and annual reconciliations of all data on gas production, utilisation and flaring with the DPR.

Impacts of NGFCP Guidelines

According to the government, the fresh guidelines presents for upstream oil companies opportunities and challenges, adding that it would prohibit them from flaring gas from any of its facility except they are issued certificates for continued flaring by the oil minister in line with the provisions of the Associated Gas Re-injection (Continued Gas Flaring) Act (AGFA).

In addition, the programme places an absolute limit on routine flaring of gas except for safety purposes, from any Greenfield oil project. It would also provide gas flaring penalty rates based on the level of production within an OML or marginal field.

Beyond that, any failure to maintain and provide accurate records of flare gas, or even comply with reporting obligations; install metering facilities; and provide a qualified permit holder access to a flare site or flare gas, will equally attract additional penalty payment of $2.50 per 28.317 standard cubic metre for gas flared. This will apply for each day of non-compliance to such reporting standard.

However, if continued non-compliance is observed, the regulation permits the oil minister to suspend the operations of a recalcitrant oil firm or even revoke its oil lease.

Apart from the penalties, oil companies whose OMLs or marginal fields blocks are captured and subjected to permit to access flare gas, would however be allowed certain payments from the holder of a permit on such field. That payment, it explained would come in the form handling fee for connection facilities, as well as a guarantee fee to guarantee offtake of its allocated flare gas volumes.

Government’s Expectations

Explaining its expectations from the NGFCP, the government disclosed it would put out a total of 178 gas flare sites it has so far identified to be commercially acquired by investors under the programme.

It noted that using the NGFCP, it would target to ensure Nigeria exit the immoral practice of flaring gas at its oil fields next year, but added the self-imposed target was not sacrosanct.

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, shortly after inaugurating committees to take charge of the next phase of the NGFCP after interested bidders submitted their Statements of Qualification (SOQs), had said the government really wanted gas flaring to end, and that after 2020, it would become a punishable act.

“The design of the NGFCP as conceptualised by our development partners is an innovative, robust and scalable approach to gas flare reduction – a game changer, first of a kind, consistent with the climate change action plans anticipated in the Paris Climate Change Accords which could be replicable in many other gas flaring countries around the world with Nigeria setting the pace,” said Kachikwu.

According to him, if followed firmly, the NGFCP will lead Nigeria out of gas flaring in 2020, in addition to providing her good monies.

Apart from Kachikwu’s explanations of the expectations, the chairman of ministerial steering committee for the NGFCP, Mr. Rabiu Suleiman, stated in his presentation that 38 new flare sites were discovered by the programme to bring the total number of flare sites in Nigeria to 178, when the earlier documented 140 in the database of the DPR are added.

Suleiman, explained that over 225 Statements of Qualifications (SOQs) had been received in response to the request for qualification (RfQ) the programme put out. He noted that $1,000 per flare site was paid by bidders to access them, with over 800 Expressions of Interests (EOIs) harvested.

“Post issuance of the RfP, there will be a bidders’ conference designed for qualified applicants (QAs), upstream producers, technology providers, off-takers and financial institutions – both local and international. The conference is designed to address all questions raised outside the programme Frequently Asked Questions (FAQs) and to facilitate business-to-business (B2B) discussions amongst participants,” said Sulaiman.

On how the programme would function as well as measures to curtail its derailment by oil companies who may prefer to continue to flare gas due to the meagre penalties imposed by the government, Suleiman said the government would take all flare gas free of cost at the flare header and without payment of royalty, adding that all flare gas taken by the government would to be subjected to competitive bids.

He further explained that: “The current meagre flare payments 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 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 per thousand standard cubic square feet of gas.

“And, this is irrespective of whether the flaring is routine or non–routine flaring, unless in cases of force majeure event. There are mandatory additional payments by the producer of $2.50/1000scf within the oil mining lease or marginal field for each day the producer breaches and, or fails to meet the regulations for failure to produce accurate flare data; failure to provide unfettered access to flares or flare sites; failure to sign a connection agreement.”

“In the event of continuous or egregious breaches, there is a possibility of suspension of operations, which could mean curtailment of production, or a termination of the producer’s license,” Suleiman, added.