The ongoing reforms in the oil and gas industry have afforded the country, for the first time, to focus on gas. Until recently, there was no specific legal or organisational framework for the exploitation and development of natural gas reserves in the country.
Petroleum experts believe that gas is going to be the fuel of the 21st century, and as a result, predicted that it will overtake oil by 2025. This development has forced the Nigerian government to determine to grow the gas sector by pursuing the Petroleum Industry Bill (PIB), recognising the huge financial loss associated with gas flaring and other environmental damages are likely to follow.
The PIB demands comprehensive gas programmes from companies involved in oil and gas production in the country. According to the bill, a licence or lease for the production of oil and gas whether onshore or offshore, shall not be granted to any applicant unless the application is accompanied by a comprehensive programme for the utilisation or reinjection of the country’s natural gas.
It also states that the utilisation programme shall be in consonance with the Gas Master Plan, Domestic Gas Supply Obligation and the national policies as may be made in respect of the gas sector from time to time by the government.
Section 247 of the bill sets the pace by saying that, “The Inspectorate shall take such measures as appropriate to create franchise areas for gas processing facilities in Nigeria to support the National Gas Master Plan.”
If given parliamentary endorsement in its current form, the PIB will provide for the establishment of nine agencies accountable for the operations of the oil and gas sector. Among the nine agencies would be the Upstream Petroleum Inspectorate (UPI), and the Downstream Petroleum Regulatory Agency (DPRA).
While the minister would still be in charge of making regulations on gas matters, as regards granting permits to flare or vent gas, the UPI and DPRA, which would be formed from the unbundled Department of Petroleum Resources (DPR) would be entrusted with the role of regulating the gas sector in accordance with the Gas Master Plan, the PIB, and other relevant policies of the Federal Government. The UPI would be regulating the domestic gas utilisation plans and in the process be monitoring gas flare measurement.
Alongside the DPRA, the UPI would also seek to implement the Gas Management Model by ensuring the balanced growth of domestic gas projects.
If the PIB is passed this year, the government would be making giant strides to end gas flaring in the country this year as contained in Section 252 of the draft which states that, “Oil and gas operators with flared gas resources shall within six months of the commencement of this Act categorise all of their flared gas resources (daily flare quantity, reserve, location, composition) and submit this data along with gas utilisation plans to the Inspectorate for the gas they intend to utilise before the flare out deadline.”
Also Section 253 (1)(a) further prohibits gas flaring by stating that, “No person shall direct, permit or otherwise aid, empower or authorise whosoever or any company engaged in oil and gas operations to flare or vent gas.”
However, section 253(1)(b) provides an exception to the rule, as it states that “The minister may grant a permit of not more than 100 days, or such longer period as approved by the minister, to flare or vent gas in cases of start-up, equipment failure, shut down, safety flaring or due to inability of gas customer to off-take.”
As regards the penalty, section 253(1)(c) says “Any licensee or lessee who flares or vents gas without the permission of the Minister in the circumstances mentioned in subsection (1)(b) of this section shall be liable to pay a fine which shall not be less than the value of gas.”
The bill also introduced flaring measurements and reporting programmes, such that the volumes of gas flared from any facility that is a part of oil and gas operations shall be measured using the metering equipment specified from time to time by the Inspectorate that is to be established to regulate the sector.
According to section 255(2) “Within three months from the effective date, each licensee or lessee shall install the metering equipment specified in regulation on every facility in its operations from which gas is flared or vented.”
In view of the prevailing economic and political environment, it was uncertain how the Federal Government intends to enforce the new deadline, given that all previous set targets, the last of which was December 31, 2010, were not met by the oil producing companies. Besides, the attempt to increase the penalty for flaring of gas from 10kobo per 1000 British Thermal Units (Btu) to N1.50/1000btu failed to yield results as investigation revealed that it was more economical for the operating companies to pay the fines than to stop the flares.
Though regulatory authorities are claiming that flaring has reduced considerably in the country, verifiable data from credible environmental agencies show that close to 50 per cent of the total gas produced in Nigeria is still being flared. This only sums up to huge economic waste, as the gas ought to be re-injected for use in other projects, such as the power projects.
The most frequent excuse offered by companies is the absence of gas gathering facilities in the country, while also complaining of lack of funds to engage in such investments.
Though it may be conceded that gas development projects may be rather capital intensive in nature, the limited number of projects in the country, whether on stream, ongoing or proposed since the coming into force of the Associated Gas Re-injection Act in 1979 raises questions on the willingness and actual intent of the companies to reduce or eliminate gas flaring in the country.
The Federal Government, which has hitherto displayed a nonchalant attitude on the issue of gas flaring over the years, is now claiming that with the rolling out of the Gas Master Plan (GMP) and the passage of the PIB, things will begin to fall place.
But whether the essence of the GMP is to develop gas for domestic and export market, and bring about efficient and sustainable utilisation of the country’s gas resources will be tested with the success of the PIB.
Information from Nigerian Tribune was used in this report.