Ending Nigeria’s Wasteful Habit of Gas Flaring

Nigeria could not net about N523 billion worth of revenue from the volume of gas hydrocarbon companies flared between 2015 and 2016, thus indicating how wasteful she has been with the prized resource she ironically needs to grow her economy, writes Chineme Okafor

Natural gas is now often regarded as the new oil, but Nigeria appears quite ignorant of this and still burns a lot of it away in her oil fields.

Recently, the Department of Petroleum Resources (DPR) disclosed that the country lost N523 billion to gas flaring between 2015 and 2016, to simply indicate that the frequently burning oil fields in the Niger Delta are economic incomes burning off into the atmosphere.

DPR’s disclosure of such financial loses also included the forfeiture of 3,500 megawatts (MW) of electricity to the unwholesome practice, yet the country struggles to maintain a daily electricity generation capacity of 4,000MW.

It came just when the Nigerian National Petroleum Corporation (NNPC) stated that the percentage of gas flared in the country has been cut down to 10, dropping 26 per cent points from 36 in the last 10 years.

NNPC’s Chief Operating Officer, Upstream, Mallam Bello Rabiu, who disclosed this, noted that, as at 2006, Nigeria was flaring 2.5 billion standard cubic feet (bscf) of gas, and consuming just about 300 million standard cubic feet (mscf) gas per day.

Notwithstanding, the DPR stated that, in 2015, Nigeria lost $850 million (N306 billion) to gas flaring, while the NNPC in a separate report indicated that monetary losses to the practice in 2016 was N217 billion.

The NNPC also explained that oil and gas firms operating in Nigeria’s oil fields flared a total of 244.84bscf gas in 2016 alone. These losses were in addition to reports that oil majors in the country had failed to pay about $14.298 billion to the country as penalty for flaring gas between April 2008 and October 2016, a period of eight years.

The country, according to the DPR, also lost about $400 million worth of carbon credit to the practice within these periods.

Long Years of Failed Attempts

Nigeria enacted the first regulatory framework to cut down gas flaring in the Associated Gas Reinjection Act of 1979. As part of its provisions, the Act required every oil and gas producing company in Nigeria to submit to the minister for petroleum detailed programmes in relation to the re-injection of produced associated gas or programmes for the use of produced associated gas.

It also provided for the deadline for gas flaring in Nigeria as stipulated by the government to be 31 December 1974, this has, however, been extended a number of times between 1974 through a couple of amendments, which now make the final deadline of 2020 quite uncertain.

In that regard, Nigeria has continued to burn off gas from her oil fields and losing economic benefits associated with gas.

The law also provided for application for permits to be granted by the minister for as long as the applicant paid the amount prescribed by the minister, without providing for strict measures to ensure its effectiveness. Also, penalties for gas flaring have been quite low, thus ensuring that flares are done with less concern to the penalties.

The current Petroleum Industry Governance Bill (PIGB) which metamorphosed from the Petroleum Industry Bill (PIB), and has been on the floors of the National Assembly for years now, is also expected to address the issue of gas flaring.

The bill reportedly has in it, provisions for gas flaring measurement, that is, a specified number of days for which a permit would be issued to an applicant as well as the requirement for a gas flaring plan to be submitted by all oil and gas operating companies.

Economic Strength

In 2015, energy experts projected that the economic strength in gas was fast heading towards exceeding that of oil, and on the back of Qatar’s achievements with it, advised the federal government to give serious attention to it.

Similarly, frontend economic evaluations of the gas industry by these experts, referenced the country’s takes from the Nigeria Liquefied Natural Gas (NLNG) Limited, which as a joint venture gas company between the country and oil firms, has paid a lot of value to the country from gas that could have been flared.

Before now, the government had in a bid to boost the country’s gas sector has set up the ‘Gas Master Plan’ which is a strategic framework towards achieving a wholly competitive market-driven domestic gas sector.

The plan also sought to drive investment towards provision of gas grid infrastructure, with the intention to make gas available all the time to industries across major industrial hubs in the country. Its overall goal was to drive Nigeria’s economic growth through gas, and not necessarily oil.

It also sought to have the country’s electricity generation grow with improved gas supplies to gas power generation plants, which make up about 80 per cent of Nigeria’s power generation capacity. This was also planned to encourage further investments in power generation being that gas, which is primarily a cheap fuel source would be made available at all times to the generation plants.

Beyond the benefits to electricity generation for the country, experts have also said the country’s gas resources can be deployed to the transport sector as Compressed Natural Gas (CNG) for both heavy-duty and lightweight haulage of people and goods across the country, sent to homes and other commercial centres as Liquefied Natural Gas (LNG) to replace other sources of heating and cooking fuels, as well as used in fertiliser blending plants to improve the country’s food production from its farms.

Way to Go

Following from the repeated call for a priority attention to gas, the government has said it was shifting its focus on oil to gas, and would, in this light, enact new policy for a standalone gas industry.

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, stated at a function in November 2016, that new terms that will provide business clarity around Production Sharing Contract (PSC) for gas will be initiated by the government to make exploration and production of gas separate from oil.

Kachikwu also said the government had developed a draft national gas policy, which will include new and improved penalties to discourage flaring and wastage of gas. He said gas had a big place in the government’s ‘7BigWins’ policy direction for the country’s oil and gas sector.

He, however, explained that the government would prioritise gas as a stand-alone business, separate from oil, in the new policy, and that the new PSC gas terms were designed to ensure robust gas production and supply growth over a long-term period for the country.

According to him, government will also clear the bottlenecks in gas production and utilisation as reported in the old Petroleum Act, and discourage Greenfield investments without clear-cut plans for gas.

“Government has developed a draft national gas policy which will be released to stakeholders for consultation.

“The draft gas policy promotes a competitive business environment for both current and new investors, it articulates our vision for the sector and sets policy goals, strategies and implementation plans for our medium to long term targets for gas,” Kachikwu said then at a function in Abuja.

He added that, “In order to ensure robustness in gas supply over a long-term, the following initiatives will be pursued – gas terms for PSCs will be produced before the end of 2016, exploration and development of new gas supply sources from inland and offshore basins will be actively encouraged, a national gas flare commercialisation plan will commence in the first quarter 2017.”

The minister explained that government planned to make Nigeria an attractive gas based industrial nation, with specific attention on meeting local gas demands and then developing a significant presence in the international market.

“Emphasis is tilting towards local application. The priority of the government is the utilisation of natural gas for domestic needs with the power sector as key priority end user. 

“Demands from the industrial, commercial and transportation sectors will also be focused on,” Kachikwu noted.

He, however, stated that the gas growth plan would be led by the private sector while the government would set the environment and support investors with appropriate infrastructure to bring their projects to fruition.

“Our policy challenge is therefore to develop a policy, the institutions and legal and regulatory frameworks that is attractive to private sector.

“Over the years, we have really focused on oil and neglected gas, but having seen the recession today, it is clear to us that if we develop a two window of economic earnings, a lot of emphasis will move to gas,” the minister added.

Providing more details into the draft policy, Kachikwu stated that there would be a lot of institutional reforms in the sector.

He said it would address issues that are critical to government and investors such as gas flaring, pricing, wholesale gas market development and basis for licensing activities throughout the gas value chain.

“A simplified licensing regime will be introduced for different activities including but not limited to constructing and operating gas processing plants, liquefaction plants, gas storage facilities, transportation network operation and distribution networks and retail trading of gas.

“There will be a liberalised entry into the midstream. In order to move the market towards wholesale competition, producers will be encouraged to focus their investments and activities more on the upstream while entering into the midstream will be liberalised and incentivised to allow private sector players to invest in process, transport and storage of gas,” he said.

According to him: “The new fiscal policy we are working on will make gas a stand-alone separate from oil and not consolidated on oil taxation.

“Our intention is to retain the current pricing framework for a limited period. It will end when sufficient gas volumes are built up to a level that will underpin a competitive gas market. Under such condition, wholesale gas price will be market led.”

He said on the planned increase of gas flaring penalty: “We will be increasing the gas flaring penalties to an appropriate level sufficient to de-incentivise the practice of gas flaring. Our focus really will not be on penalisation, we will seek quite frankly to simply stop it and not you throwing money at us.”