1
This work is written and prepared by the author Omeke Chukwuebuka (Llb)
as a final year requirement on his five year Law programme at the University of
Nigeria, Enugu Campus (UNEC). An effort to add to intellectual prowess, promote
literary attitude among a vast majority of audience as well as to give a different and
well coordinated insight into the Nigerian ever growing gas flaring menace, thus
inspires this write up.
Any attempt at plagiarism is strictly disallowed without due
acknowledgement of the authorship.
TITLE PAGE
A CRITIQUE ON THE LEGAL REGIME GOVERNING
GAS FLARING IN NIGERIA
DEDICATION
This research work is dedicated to those whom their ineffable love and support
inspired and encouraged its actualization-
Sir, Prof and Lady B.C.O. Omeke,
Chinenye Mmaduabuchi,
Nnenna Omeke.
2
TABLE OF CONTENTS
Abstract - - - - - - - xv
CHAPTER ONE: GENERAL INTRODUCTION
1.1. Background of the Study
1.2. Statement of the Problem
1.3. Literature Review
1.4. Objectives of the Study
1.5. Methodology
CHAPTER TWO: EFFECTS AND RESPONSES TO GAS FLARING
2.1. Impacts of Gas Flaring
2.2. Responses by the Government
2.3. Responses by Oil Companies
2.4. Judicial Response
2.5. International Responses
CHAPTER THREE: APPRAISAL OF THE RELEVANT LAWS
GOVERNING GAS FLARING IN NIGERIA
3.1. Petroleum (Drilling and Production) Regulations 1969
3.2. Associated Gas Re-Injection Act, 1979
3.3. Associated Gas Re-Injection (Continued Flaring of Gas) Regulations 1984
3.4. Associated Gas Re-Injection (Amendment) Act, 1985
CHAPTER FOUR: PHASE-OUT INITIATIVES
4.1. Possible Gas Utilisation Programmes
4.2. Fiscal Regimes for Gas Utilisation
4.3. Natural Gas Projects
4.4. Associated Gas Re-Injection Bill, 2010
4.5. Petroleum Industry Bill (PIB) 2010
4.6. Basis for Impediments on Gas Commercialisation
CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS
5.1. Conclusion
5.2. Recommendations
Bibliography
3
ABSTRACT
Nigeria is ranked within the top 10 countries of the world with the largest proven
deposits of natural gas. However, it flares much more than the combined energy
needs of sub-Saharan Africa in a day only second to Russia on a global ranking.
This phenomenon has brought socio-economic losses together with health related
problems to the Nigerian people due to the huge amount of carbon emissions lost to
the atmosphere. The flaring of this gas is deemed to be a colossal waste of
resources, particularly in a country experiencing huge energy shortages and also
due to the estimated capital lost on a daily basis as a result of continued flaring.
This project work thus makes a critical review on the adequacy or otherwise of the
legal regimes provided to tackle the ever growing menace of gas flaring as well as
appraise the available initiatives made towards a zero gas flaring actualisation. It
also seeks to assess the country‘s commitment to end the flaring practice. The
project is prepared with the intention to contribute towards resolving this national
and obnoxious problem. The methodology adopted for the project is both
descriptive and analytical. However, it is not devoid of certain comprehensive
research endeavours carried out with the aim of proffering a cognitive
understanding of the topic. Chapter one gives a brief introduction to the concept of
gas flaring, its historical background and position the law takes on the issue. The
consequences envisaged by the practice of gas flaring by oil companies as well as
the approaches taken by institutions concerned are discussed in its chapter two.
Chapter three makes an enumeration and appraisal of the laws that govern the issue
of gas flaring in Nigeria. Chapter four looks into the available ways which the
problem of gas flaring could be contained or rather theoretically obliterated. The
present agitations made by the government and the National Assembly, the options
of gas utilisation along with already established fiscal regimes are treated in this
chapter. The work is concluded on chapter five with recommendations on the
efforts towards a zero gas flare socio-economic regime.
4
CHAPTER ONE
GENERAL INTRODUCTION
Gas flaring refers to the burning of natural gas that is associated with crude oil
when it is pumped up from the ground. Flaring basically consists in burning
precious resources instead of using them.1 Gas flaring wastes a potentially valuable
source of energy as much as it adds significant carbon emissions to the atmosphere
which leads to health and environmental disorders. An array of technologies to
capture or use the associated natural gas exists as alternatives to flaring.
The unutilised gas could be applied towards other productive purposes such
as power generation and liquefied natural gas projects. Other uses include gas re-
injection processes to boost oil production, domestic cooking gas, gas to liquid
projects and other production processes such as the manufacture of fertilizers and
plastic products.
In petroleum‐producing areas where there are insufficient investments made
towards infrastructures to utilise natural gas, flaring is employed to dispose of
associated gas. In Nigeria, when oil companies began production in the 1960‘s, the
cheapest way to separate the identified product, crude oil, from the associated
natural gas was to burn the gas. Gas flaring by oil companies in the Niger Delta
1 Wikipedia, the Free Encyclopaedia, ―Gas Flare‖. http://en.wikipedia.org/wiki/Gas_flare. Retrieved 9 May,
2012.
5
region of Nigeria constitutes one of the worst forms of environmental degradation.
The practice has continued primarily due nonchalance on the part of government
which acts as both regulator and partner to the oil companies.
The Senate President, Senator David Mark, indirectly acknowledged the
compromised position of the government with regards to gas flaring.2 He identified
three critical issues. First, the so-called laws on gas flaring are more like mere
policies and not serious legislations. Second, government lacks the will to
implement even the unserious laws; and third, the penalty is too meagre making it
cheaper for the oil companies or operators to flare gas and pay the meagre penalty.
With blatant disregard to the various legislations dealing on the issue of gas
flaring in Nigeria, oil companies shamefully engage in its practice on a daily and
annual routine causing harm to local health through its harmful emissions. This
abysmal environmental condition together with the deliberate effusion of insouciant
attitude by the oil companies and the perpetual wavering of deadlines by the
Government leaves out the questions ―is there a way forward‖.
1.1. Background of the Study.
Gas flaring has been a contentious issue in Nigeria right from the beginning of
commercial exploitation of crude oil in the country. The gas that is flared in the oil
fields of the Niger Delta is called associated gas because it comes out of the earth
2 S. Ojeifo, Nigeria: Mark-FG Lacks the Will to stop Gas Flaring, Thisday, 25 November, 2008 p.23.
6
along with the target crude oil and is separated from the crude so as to make that
commodity useful. In Nigeria over 50% of the gas associated with crude oil
extracted is flared. This is considered reprehensible because of its impacts, its
wastefulness and its continuous and routine manner. Gas flaring is a sad metaphor
for a profligate nation that eats her chickens and the eggs and yet expects more eggs
in future.3
From research, 168 billion cubic meters of natural gas is flared yearly
worldwide. It is equivalent to 25% of gas consumption in the USA and 30% of EU
gas consumption. 13% of the gas flared in the world comes from Nigeria alone and
stands at about 23 billion cubic meters per year.4 This quantity is enough to meet
Nigeria‘s energy needs and leave a healthy balance for export. The Minister of
Petroleum, Mrs. Diezani Alison-Madueke had disclosed in 2010 that the volume of
gas being flared was 1.5 billion cubic feet of gas per day (bcf/d).5 There is a
production of about 3 billion cubic feet of natural gas as co-product of raw crude oil
and out of this number approximately 2.2 billion cubic feet of the total natural gas
3 B., Nnimmo, ―Gas flaring: Assaulting Communities, Jeopardising the World. A paper presented at the
National Environmental Consultation hosted by the Environmental Rights Action in conjunction with the
Federal Ministry of Environment, Abuja 2008. 4 B., Nnimmo, Ibid., p.3.
5 N.J., Ikoro, ―The Socio-Economic Implications of Gas Flaring in Nigeria‖. http://ogbakingdom.com/the-
socio-economic-implications-of-gas-flaring-in-nigeria-by-nwokezi-john-ikoro/. Retrieved 2 May 2012.
7
produced jointly in the country by the multi-transnational companies6 is flared
daily.7
Gas flaring in Nigeria could be traced to have commenced at the end of the
colonial rule when Shell BP started exploring for oil in the Niger delta in the 1930s.
The first field was found in 1956 and the first export was made in 1958. Flaring
began right at the start and so did the recognition of its unacceptability.8 In the run-
up to Independence in 1960, the Secretary of States for the Colonies, Lord Horne on
being questioned in reference to the wastage of energy and natural resources by
Shell BP gave an official response that
Until there is this worthwhile market and until there are
facilities (e.g. pipelines and storage tanks) to use the gas, it is
normal practice to burn off this by-product from the oil
wells.9
Government‘s staggering on the gas flare issue commenced in 1969. That was when
the first major move was made by the Nigerian State to halt gas flaring in the
country. At that time General Yakubu Gowon ordered that corporations should set
up infrastructure to utilise associated gas within five years of their commencement
of operations. When the oil companies paid scant attention to this order the
6 Shell Petroleum Development Company (SPDC); Nigeria Agip Oil Company (NAOC), TOTAL/Elf
Petroleum Nigeria Limited (EPNL); EXXON MOBILE Producing Unlimited; TEXCO (Oversea) Nigeria
Petroleum and CHEVRON Nigeria Limited. 7 Loc. Cit.
8 The unacceptability of the practice and the massive profits to be amassed by Shell BP under the
unsuspecting nose of Nigerians were officially recognised by the British. 9 ‗Nigerian Oil and Natural Gas Industry‘, File DO 177/33, UKJ National Archives.
8
government then moved the deadline to 1979 but could not enforce it before it was
overthrown in 1975.
Through the Associated Gas Re‐Injection Act No. 99 of 197910
, the Nigerian
government required oil corporations operating in Nigeria to guarantee zero flares
by January 1, 1984. The Act allowed some conditions for specific exemptions or
the payment of a fee of US $0.003 (0.3 cents) per million cubic feet, which
increased in 1988 to US $0.07 per million cubic feet, and in January 2008 to US
$3.50 for every 1000 standard cubic feet of gas flared. This is still considered
meagre and not a deterrent for companies, which find it easier to just pay the fine.
It is worthwhile noting that in recent year‘s oil companies in Nigeria have
been charged a total of between 20 million and 50 million Naira annually for flaring
associated gas. A recent study carried out for the Bureau of Public Enterprises of
Nigeria estimated that each year the country loses between US$500 million and
US$2.5 billion to gas flaring.11
Oil companies nonetheless have continued to flare gas, merely paying
nominal fines for breaking this law. Subsequent Federal legislation repeatedly
pushed back the deadline to end gas flaring indefinitely and sequentially starting
from year-end 2007, then 2008, then 2010. As of January 2010, the Nigerian
10
S. 3 Associated Gas Re‐Injection Act No. 99 of 1979 ACT CAP 26 L.F.N. 1990 ACT CAP. A 25 L.F.N.
2010. 11
Global Gas Flaring Reduction Initiative. ―Regulation of Associated Gas Flaring and Venting - a Global
Overview and Lessons‖. Report No.3, (World Bank, March 2004), p. 64.
9
National Assembly was proposing a new deadline of 2012 which has now been
confirmed in the Bill yet to become law. This deadline has received many reactions
from the public with agitations towards its adequate compliance.
The National Union of Petroleum and Natural Gas Workers (NUPENG)
urged the Federal Government to ensure the deadline for gas flaring does not
exceed Dec. 31.12
But the December 2012 deadline is also very doubtful with
Nigeria still rated the second worst gas flaring nation in the world, after Russia.13
1.2. Statement of the Problem
The continued act of gas flaring in the Niger-Delta, which has reached world record
levels, is directly linked to the activities of the multinational companies in concert
with Nigerian National Petroleum Corporation (the state owned oil company). It is
surprising that despite the act of gas flaring being declared illegal in 1984, as
promulgated under the Associated Gas Reinjection Act of 1979, gas flaring
continues unabated.
12 http://www.punchng.com/news/nupeng-urges-fg-to-enforce-dec-31-deadline-on-zero-gas-flaring/.
Retrieved on 1 May 2012. 13 World Bank Gas Flaring Reduction Partnership, ―Regulation of Associated Gas Flaring and Venting: A
Global Overview and Lessons from International Experience,” World Bank, Report No. 3, Apr. 2004.
10
Prior to 1999, exploration for gas in Nigeria was limited and much of the gas
was flared. As at 2004, approximately 42.6% of associated gas was flared as against
70% in 1999.14
Recognising the huge financial loss resulting from the flaring of associated
gas and the resultant environmental damage, the Federal Government of Nigeria
promulgated an amendment of the Associated Gas Re-injection Act which obligated
all oil producing companies in the country to submit detailed plans for gas
utilisation.15
The Government‘s aggressive targets to attain zero flaring in order to
reduce pollution and monetise its gas reserves has had very little effects despite the
available laws, incentives and projects provided specifically provided to achieve
this purpose.
Additionally, based on report from the Global Gas Flaring Reduction
(GGFR),16
gas flares are a significant source of greenhouse gas emissions and emits
particulate matter, sulphur dioxide, nitrogen dioxide, as well as carcinogenic
substances17
such as benz[a]pyrene, dioxin, benzene and toluene, which can cause
severe health effects such as respiratory illness, asthma, blood disorders and cancer
especially for those residing near the flaring sites.
14
K. Dosekun and G. Oyabole, ―The International Comparative Legal Guide to: Gas Regulation 2007‖.
Published by the Global Legal Group, London 2007. p. 131-138 at 131. 15
Ss. 1 and 2, Associated Gas Re-Injection Act CAP 26 L.F.N. 1990 ACT CAP. A 25 L.F.N. 2010. 16 GGFR (Global Gas Flaring Reduction Public-Private Partnership). 30 August, 2002 ―Report on
consultations with Stake Holders. Word Bank- GGFR-Report 1. 17
Carcinogenic substances are substances capable of causing cancer.
11
The continued flaring of gas has reached an alarming height and despite the
available legal regimes, the effectiveness of these laws is like a drop of water in an
ocean evidenced in its on-going trend through the years. However, its immediate
abatement through every possible means will most infallibly be appreciated by
Nigerians.
This research work shall make an appraisal of the legislative efforts made by
the government towards ending gas flaring in Nigeria; assess its efficacy together
with an appreciation of the utilisation initiatives and proffer means to its proper
implementation for a zero flare actualisation.
1.3. Literature Review.
Nigeria currently flares a large amount of its gas. The Department of Petroleum
Resources (DPR) has said that since 2000, liquid fuels and gas flares accounted for
most of the emissions from Nigeria at 37% and 40% respectively.
Worried about the environmental consequences of gas flares in the country,
the Federal Government, a few years ago, once directed oil producing companies to
shut-in oil fields where the gas being produced and flared was considerably more
than the crude oil produced. The measure was said to have led to a drastic reduction
12
in the volume of gas being flared from the 2.5bcf/d to about 1.5 bcf/d in 2010.18
The exploration for oil over the years continues to pose several environmental
challenges resulting from flaring of gas associated with it.19
Adole Tracy20
is of the view that the absence of an efficient regulatory
framework, inaccessibility to domestic and international markets and limited
finances to undertake gas flaring reduction projects are major reasons for the
continuous flaring of gas globally. However, in Nigeria, all these reasons seem to
hold true in addition to inadequate capabilities and overlapping responsibilities of
government institutions, unclear operational procedures and political instability and
corruption.
According to Ishisone,21
the limited studies in addition to low level of
environmental awareness of gas flaring impacts in the country, is one of the major
reasons the Nigerian Government lacks an efficient gas flaring regulatory policy.
He also stated several others reasons such as lack of the political will to formulate
and enforce coherent policies because of political instability and corruption and
18
N. Amanze-Nwachuku, “24% of Nigeria’s Gas Still Being Flared” (ThisdayLive, March 2012).
http://www.thisdaylive.com/articles/24-of-nigeria-s-gas-still-being-flared/110729/. Retrieved 3 May
2012. 19
M. Ishisone, Gas Flaring in the Niger Delta: The Potential Benefits of its Reduction on the Local Economy
and Environment. http://nature.berkley.edu/ classes/es196/project/. (Retrieved 28 February, 2012). 20
T. Adole, ―A GIS Based Assessment of the impact of Gas Flaring on Vegetation Cover in Delta State,
Nigeria”. Thesis presented for part-fulfilment of the degree of Master of Science, University of East
Anglia Norwich (August, 2011) p.3. 21
M. Ishisone, loc. cit.
13
failure of the government to redeem its financial obligation under the existing joint
venture.
The Energy Sector Management Assistance Programme (ESMAP)22
attributed the continued flare of gas to lack of a strong and consistent fiscal, legal,
and regulatory framework and institutions to interface with international investors
together with inadequate or lack of necessary technology for gathering and
harvesting associated gas. In addition, the report on -Strategic Gas Plan for Nigeria-
concluded that apart from eliminating all the above factors, the Nigerian
government needs to overhaul its power sector, in order to create an avenue for the
utilisation of the associated gas(AG) produced.
S.O. Aghalino,23
in his paper stated that the flaring of gas in Nigeria is a
national problem and one is ill at ease to realise that the practice had been sustained
this long because of the skewed argument the oil industry has always canvassed.
The argument that the technology needed to mitigate gas flaring is possibly beyond
their reach, hence their demand for sufficient time to acquire it is not tenable
because oil firms are not just realising the effects of gas flaring. In any case, the
technology is there for them to acquire. While the above explanations may appear
plausible, it is relevant to stress that the colossal flaring of gas in Nigeria should be
22
Energy Sector Management Assistance Programme (ESMAP). ―Nigeria Strategic Gas Plan‖. ESM Report. Vol. 279 (2004) p.4.
23 S.O. Aghalino, ―Gas Flaring, Environmental Pollution and Abatement Measure in Nigeria.‖ Journal of
Sustainable Development in Africa. Vol. 11, No.4, (2009) pp.219-238 at p.225
14
attributed the more to the laxity in the implementation of Nigerian environmental
laws.24
This contrasts sharply with what is obtainable in Europe and North
America.25
The Nigerian government in the pursuit of phasing out gas flaring has
enacted a number of regulations for monitoring flaring volumes and enforcing
operational procedures. Despite the introduction of these regulations more than 20
years ago, these regulatory policies have mostly been unsuccessful in achieving
their set objectives. According to Abdulkareem,26
these policies and regulations are
very poor and inefficient due to the fact that the government puts profits
maximisation ahead of the environment and the wellbeing of its citizens. Another
factor responsible for the failure of these policies is the very insignificant fines
imposed as a penalty for gas flaring which the multi-national oil companies are
willing to pay as it is more economical to flare and pay fine than to stop flaring of
associated gas.27
Congruently, Ukala E.28
is of the view that with the new gas-flaring
deadline, the gas-flaring problem may have, yet again, only obtained a temporary
24
Ibid. P.226. 25
For example, data collected by the Alberta Energy and Utilities Board in Canada shows that in 1996, about
92% of gas was conserved or used in some other ways. The remaining 8% were flared which is in tune
with environmental requirement in Canada 26
A. S. Abdulkareem, ―Evaluation of Ground Level Concentration of Pollutant due to Gas Flaring by
Computer Simulation: A Case Study of Niger-Delta Area of Nigeria‖. Leonardo Electronic Journal of
Practices and Technologies. Vol 6 (2005). pp29 - 42. 27
M. Ishisone, loc. Cit p.15. 28
E. Ukala, ―Gas Flaring in Nigeria‗s Niger Delta: Failed Promises and Reviving Community Voices‖.
15
political response. The high-level deference toward Shell is likely to stall the
process to end gas flaring and when such deference is continuously conferred on an
oil company, it is difficult to achieve social change because the government
continually relies on the oil companies stipulations. He further suggested for the
adoption of a customary arbitration method as possible solution to stopping gas
flaring and that if the customary-arbitration approach is not adopted, then oil
companies will continue flaring gas until the courts are impartial and the rule of law
becomes meaningful.
Moreover, oil companies will only stop flaring gas when the Nigerian
government provides them with an incentive to do so which includes imposing a
strict and high penalty for violation of gas-flaring laws. Thus, as long as the
Nigerian government protects the oil companies, the oil companies will persist in
gas flaring, and environmental degradation.29
However, it would appear the issue of gas flaring attracts little attention from
scholars in Nigeria probably because when compared to other effects of oil
production such as oil spills, which has immediate degradation effects on the
environment, the issue of the impacts of gas flaring is not readily visible. The legal
regime has not been of much help as it has been engulfed by corrupt practices
Journal of Energy, Climate, and Environment. Vol. 97 (2011) pp.97-126 at p.108. 29
Ibid p.126.
16
prevalent in Nigeria where the government is more interested in the fees imposed
on the oil companies than on implementation of laws put in place.
1.4. Objectives of the Study
The objectives of this study revolves around the legal framework governing gas
flaring in Nigeria and to find adequate perspective to examine its efficacy in
conjunction with phase out initiatives presently available. The objectives of the
study are as outlines hereunder:
Make an assessment/appraisal of efforts made towards curbing gas flaring in
Nigeria so far by all sectors involved.
To proffer possible avenues to reduced gas flaring through effective
regulatory measures based on sound legal framework and laudable phase-out
initiatives.
To show how gas could be utilised and applied towards other productive
purposes such as power generation and liquefied natural gas projects like the
Nigeria Liquefied Natural Gas Project (NLNG).
To assess whether the bills presently in the House of Assembly could
actualise a zero gas flare regime as envisaged.
1.5. Methodology
17
The methodology adopted for this project is both descriptive and analytical.
However, it is not bereft of certain comprehensive research endeavours carried
out with the aim of proffering a cognitive understanding of the topic.
18
CHAPTER TWO
EFFECTS AND RESPONSES TO GAS FLARING
Gas flaring contributes to climate change, which has serious implications in an
environment. Harmful substances which are associated with gas flaring pose
deleterious threat to individual health as well as to the climatic and economical
conditions of a state. According to estimates made by the Global Gas Flaring
Reduction (GGFR),30
Nigeria is one of the highest emitter of greenhouse gases in
Africa and among the highest CO2 emitters in the world.
The menace occasioned by flaring of gas has not been without certain
reformative reactions by the bodies concerned. These institutions include the oil
companies, the Nigerian government, international organisations as well as the
judiciary. This chapter discusses the impacts/effects which accompany gas flaring
in the regions where it is most prevalent and in Nigeria at large. The efforts made
towards abating gas flaring shall be discussed as well.
2.1. Impacts of Gas Flaring
Gas flaring in the country has contributed more greenhouse gases to the Earth‘s
atmosphere than all other sources in sub-Saharan Africa combined. As such, it is a
serious but unnecessary contributor to climate change, the impacts of which are
30
GGFR (Global Gas Flaring Reduction), ―Report on Consultations with Stakeholders”. World Bank-
GGFR Report 1. (Washington, D.C., 2002). http://www .worldbank.org/. Retrieved on 5 May 2012.
19
already being felt in the regions with food insecurity, increasing risk of disease and
the rising costs of extreme weather damage. 31
A study by the U.S Department of Energy calculated a release of 11 million
metric tonnes (mmt) of atmospheric carbon by Nigeria‘s flares in 1998, 12 Mmt in
2001 and more than 300 mmt since 1963. Thus, gas flaring in the Niger Delta
region of Nigeria makes up some 20% of the world total.32
Nigeria‘s gas flares
contribute about 70 mmt of carbon dioxide emissions a year which, according to a
joint World Bank/United Nations Development Programme report is a ―substantial
proportion of worldwide greenhouse gas‖.33
Flaring natural gas creates particulate emissions (soot), fugitive methane
emissions, nitrogen oxides, sulphur dioxide, and a number of other harmful
emissions. Beyond the impact of gas flaring on the atmosphere, local environmental
impacts of flaring are substantial at large-scale flare sites. Assessments show larger
concentrations of nitrogen oxide (NOx) are found within one to three km from
flaring sites. Sulphur Dioxide (SO2), Carbon Monoxide (CO) and various unburned
31
O.O.I. Orimoogunje & A. Ayanlade , et al. ―Perception on Effect of Gas Flaring on the Environment‖.
Research Journal of Environmental and Earth Sciences 2, Vol. 4 (October 5, 2010), pp. 188-193, p. 189. 32
J. Huang, ―Natural Gas Burns and Communities Cry Foul II: Markets Define Policy, in World Power:
Global Energy Politics & Issues”. Independent News Desk (12 November, 2002)
http://www.artsandmedia.net/cgi-bin/dc/newsdesk/200211/12_flaring_2. Retrieved on 9 May 2012. 33
See ―Nigeria Strategic Gas Plan,‖ Joint UNDP/World Bank Energy Sector Management Assistance
Programme (ESMAP), ESM279, Report 279/04, February 2004.
20
hydrocarbon emissions can be present within five to 15 km from flare sites.34
For
instance, flaring at Izombe flow stations in Imo State caused about 100 percent loss
in the yield of crops cultivated about 200 meters away, about 45 percent loss for
those 600 meters away, about 10 percent loss for those in kilometre away.35
Black carbon particles, known as soot, are released with smoke resulting
from the incomplete combustion of flared gas. The two combine to form what is
called ‗black smoke‘. Excessive black smoke can create visual discomfort for
nearby residents.
Sulphur and nitrogen emissions are known to create acid rain problems that
can poison watersheds and vegetation, and corrode buildings. Local residents
complain of respiratory problems such as asthma and bronchitis. Reports have
shown that the flares contribute to acid rain and villagers complain of the rain
corroding their buildings.36
In addition to atmospheric pollution, gas flaring creates thermal and noise
pollution near the flare. Local residents, especially those living in the Niger-Delta
regions also complain about the roaring noise. Gas flaring has been a huge bar
against efforts at the human capital development of the Niger Delta through disease
34
M. Farina, ―Flare Gas Reduction: Recent Global Trends and Policy Considerations‖. GE Energy, Global
Strategy and Planning. (January, 2011), p. 22. 35
D. W. Okezie, and A.O. Okeke, ―Flaring of Associated Gas in Oil Industry: Impact on Growth,
Productivity and Yield of Selected Farm Crops, Izombe Flow Station Experience‖. NNPC Workshop
(Portharcourt, 1987) p. 15. 36
Friends of the Earth. ―Gas Flaring in Nigeria”. Media Briefing (October, 2004). P 2.
21
and related impacts. Life expectancy in the Niger Delta is lower than what obtains
elsewhere in Nigeria that is endowed with such natural resources.37
A chemical approach made by Nwankwo and Ogagarue38
has therefore,
shown that waters in a gas flared environment contain higher concentrations of
harmful metals such as barium, cyanide, selenium, cadmium, chromium, iron,
manganese and copper which are in concentration levels that are above World
Health Organisation (WHO) maximum permissible limits.
Ishicei and Sanford39
demonstrated the effects of gas flares on plant growths.
They found that growth was generally suppressed, that flares diminished the value
of agricultural productivity and output reduction could be high. Continued
degradation through gas flares renders the Niger Delta extremely vulnerable to the
impacts of climate change with a projected loss of 50% ability to produce cereals by
the year 2020 and with an expected rise to 80% loss by 2050.40
2.2. Responses by the Government
Worried about the environmental consequences of gas flares in the country, the
Federal Government has made efforts to contain or rather abate its practice by oil
37
Ibid. p. 4. 38
C.N. Nwankwo and D.O. Ogagarue, Effects of Gas Flaring on Surface and Ground Waters in Delta State
Nigeria. ―Journal of Geology and Mining Research”. Vol. 3 No.5 (May 2011) pp. 131-136. 39
Isichei and Sanford, ―The Effects of Waste Gas Flares on the Surrounding Vegetation in Southern-Eastern
Nigeria‖. J. Appl. Ecol. (1976) No.13 pp.177-187. 40
B. Nnimmo. ―Gas Flaring: Assaulting Communities, Jeopardising the World. A paper presented by at the
National Environmental Consultation hosted by the Environmental Rights Action in conjunction with the
Federal Ministry of Environment, Abuja 2008.
22
companies. The efforts of the government are encapsulated in ending flaring and
addressing environmental issues; to facilitate development of power sector in
particular and to facilitate growth in industries among others.41
Accordingly, the government has put in place some initiatives to abate gas
flaring. These include the establishment of the National Fertilizer Company of
Nigeria (NAFCON), Aluminium Smelter Company of Nigeria (ALSCON) and the
Liquefied Natural Gas Project (NLNG) which perhaps is the most ambitious gas
project in the country. There is also the West African Gas Project.
Natural gas is also used to power most of the National Electric Power
Authority‘s thermal stations. Also, the $3.8bn NLNG facility on Bonny Island,
which was completed in September 1999, is expected to process 252.4 billion cubic
feet of LNG annually42
. The government is also into joint venture arrangement with
other multinational oil companies with regards to the West Africa Gas Project so as
to provide gas for electricity generation and to support industrial expansion and
economic development in the sub-region.
The Escravos Gas Project (EGP), in which the NNPC holds a 60 percent
share and Chevron Texaco 40 percent, is another project that has expanded
41 B. Okogun, ―Current Efforts to Enhance Natural Gas Utilisation and Reduce Gas Flaring in Nigeria‖.
From http://www2ife.org/orgnic/files/ggralgiers2004. Retrieved 6 May 2012. 42
S. Ollerearnshaw, ―LNG: the Nigerian Experience‖. A Paper presented by the Managing Director and
Chief Executive, Nigeria LNG Limited Lagos, Nigeria at the 12th
International Conference on Liquefied
Natural Gas December 1997, p. 3.
23
Nigeria‘s natural gas industry.43
The first phase of the EGP (EGP- 1) processes 165
Million metric cubic feet per day (Mmcf/d) of associated natural gas, which is
supplied to domestic market by pipelines. The proposed $580 million Ajaokuta-
Abuja-Kaduna Pipeline will supply natural gas to central and Northern Nigeria.
Apart from the drive toward increase in gas utilisation, there are extant
legislations aimed at reducing gas flaring in Nigeria. The Petroleum (Drilling and
Production) Regulation44
provides that licensee or leasee of an Oil Mining License
(OML) must submit feasibility study, programme or proposal for gas utilisation not
later than five years after the commencement of production.
The Associated Gas Re-injection Decree45
mandated oil producing
companies to submit proposals for utilisation of natural gas. They were expected to
stop gas flaring from 1st of January 1984. The Decree could not be enforced for it
was totally unrealistic in terms of the time frame for its implementation. The
Associated Gas Re-injection (Amendment) Decree,46
introduced a penalty charge of
two kobo/1000 standard cubic feet (scf) of gas flared at the fields where authority to
flare was not granted.47
The Associated Gas Framework Agreement (AGFA) was
43
Centre for Energy Economics (CEE). ―Gas Monetisation in Nigeria‖. Bureau of Econimic Geology, Jackson
School of Geosciences, the University of Texas at Austin. www.beg.utexas.edu/energyecon/new-
era/case_studies/Gas_Monetization_in_Nigeria.pdf. Retrieved 4 June 2012. 44
Decree No. 51 of 1969. 45
Decree 99 of 1979. 46
Decree 7 of 1985. 47
The penalty however graduated steadily. In 1990, the penalty was increased to fifty kobo/ 1000 standard
cubic feet. This was further raised to ten Naira/1000 standard cubic feet in 1998.
24
introduced in 1991/1992 as a fiscal incentive for natural gas utilisation involving
broad-based package such as processing, production, transmission and supply of
gas to the NLNG. These almost laudable legislations were followed by similar
legislations which only resulted in the flare-out date being shifted continually.
In addition to legislation and fiscal incentives, government has established
the certain institutions to aid and co-ordinate gas development in the country. This
includes the Nigerian Gas Company (NGC) – a subsidiary of the Nigeria National
Petroleum Corporation (NNPC) with responsibility for gas gathering and
transmission in the country. This subsidiary company also deliver natural gas to
areas in River State for the state Rural Electrification Board, Afam Power station
and to Sapele Thermal Board Station (Ogorode Power Station)48
Gas pipelines in various parts of the company supply large quantities of gas
to several power stations. The government is still in the process of abating gas
flaring with the latest deadline for flare-out as 31, December 2012.
2.3. Responses by Oil Companies
Shell Petroleum Development Company of Nigeria Ltd (SPDC) was the first
company to re-inject gas at Oguta in 1978. Subsequently, Agip‘s Obiafu-Obikon
48
D. Etete, ―Investment Prospect in the Petroleum Sector‖. Report of the National Economic Summit.
Spectrum, (Ibadan: Spectrum, 1995) pp.161-181, p. 176.
25
Gas Re-injection Project was commissioned in 1981 in response to Decree No. 99
of 1979.49
In a paper presented at a seminar on gas flaring held in Oslo, Norway, the
External Relations Director SPDC Nigeria Basil Omiyi, gave an account of gas
utilisation activities of the company from 1963 to 1999 which majorly includes
supply of gas to different power station and others institutions such as National
Electric Power Authority (NEPA), Ajaokuta Steel Company etc.50
Shell states that
in the period 2002-2010 SPDC‘s flaring has decreased by about 50%.
The company mentioned that the reason for this is that since 2000, SPDC has
spent over USD (US dollars) 3 billion on installing associated gas gathering
infrastructure at 32 flow stations. These projects reduced continuous flaring by
more than 30%. This 30% result was already achieved in 2005. The rest of the
decrease is a result of reduced production since 2006 in Nigeria and, to a lesser
extent, the installation of gas gathering equipment in 2010.51
In 2007, SPDC promised ―to shut down production from any fields where
there is no prospect of a solution for gathering the associated gas by 2009‖. In May
2009, SPDC stated that it would need to invest another USD 3 billion to gather
49
Yakubu. ―Gas Flare may not end in 2004, says shell‖. The Guardian Newspaper, Wednesday June 20th
2004. p. 21. 50
B. Omiyi, ―Shell Nigeria Corporate Strategy for Ending Gas Flaring‖. A paper presented at a seminar on
gas flaring and poverty alleviation in Oslo, Norway. (June; 2001). 51
J. Donovan, ―shell primitive gas flaring in Nigeria‖. Royal Dutch Shell Plc.com; News and Information on
Royal Dutch Shell Plc. http://royaldutchshellplc.com/2011/06/14/shell-primitive-gas-flaring-in-nigeria/.
Retrieved on 6 May 2012.
26
some 85% of the total associated gas produced in its operations. Wikileaks revealed
a statement in October 2009 by the Shell Executive Vice President for Shell
Companies in Africa, Ms. Ann Pickard. She stated that the SPDC-flares could be
out by 2011.52
According to report by Shell, flaring in total dropped by more than half
between 2002 and 2010 from over 0.6 billion cubic feet a day (bcf/d) to less than
0.3 bcf/d.53
Thus, Shell is of the opinion that whenever the security situation allows
it to produce more oil, its gas flaring might increase again.
Chevron currently holds a 40% interest in 13 Nigerian concessions that it
operates under a joint-venture arrangement with the NNPC, with daily production
averaging 524,000 barrels of crude oil, 206 million cubic feet of natural gas and
5,000 barrels of liquefied petroleum gas (LPG).54
Chevron is the largest stakeholder
and the lead corporation on the World Bank-led West Africa Gas Pipeline (WAGP).
Chevron has stated that the WAGP will lead to reduced gas flaring, as it allows
access to markets and provides the ability to deliver gas to end users.
The Director of NNPC and Chevron‘s joint venture, Mr. Supo Shadiya,
recently set a new date of 2012 for ending flaring of all associated onshore and
52
Ibid. 53
Shell in Nigeria; ―Gas Flaring‖. Published by Shell Companies in Nigeria: Shell Petroleum Development
Company of Nigeria Limited, Shell Nigeria Exploration and Production Company Limited and Shell
Nigeria Gas Limited. April, 2011. 54
Justice in Nigeria Now, ―The True Cost of Chevron: Chevron in Nigeria‖.
http://justiceinnigerianow.org/about-chevron. Retrieved 8 May 2012.
27
offshore gases from the company‘s western operations.55
In 2005, Chevron Nigeria
Limited (CNL) adopted a new approach to community engagement in the Delta,
called the Global Memorandum of Understanding (GMOU), which outlines
agreements with local communities on jobs and other social welfare programs that
the company will provide.56
The LNG projects embarked by different oil companies operating in Nigeria
in conjunction with NNPC proffer avenues at efforts directed towards abating gas
flaring by these companies. The West African Gas Pipeline (WAGP) is being
developed by Chevron, SPDC and NNPC. The Nigeria Liquefied Natural Gas
(NLNG) Limited is jointly owned by Agip (10.4%), NNPC (49%), Shell (25.6%),
and TotaFinaElf (15%). Escravos Gas-Gathering Project is a joint venture project
between NNPC (60%) and ChevronTexaco (40%) to recover associated gas from
offshore fields. West Niger Delta LNG is the second LNG plant to be developed by
Chevron Texaco, Conoco, and ExxonMobil.
Oso NGL Project is an NNPC (49%) and ExxonMobil (51%) joint venture
project that converts associated wet gas into natural gas liquids (NGLs). The
project‘s current production capacity is 50,000 barrels per day. There is also the
Brass LNG Project which is a joint venture project between NNPC (49%), Chevron
55
Ibid. 56
Ibid. However, the people of Obe-Nla in the Ilaje Local Government Area of Ondo State have threatened
to shut down CNL operations in its domain, claiming that CNL has failed to implement its GMOU and that
CNL has excluded their community in its welfare programmes.
28
(17%), Conoco Philips (17%) and Agip (17%) for the construction of a $3 billion
LNG plant. Notwithstanding all these gas flaring reduction projects, the set deadline
to eliminate gas flaring in Nigeria is still to be met.
2.4. Judicial Response
Despite the laws governing gas flaring, gas flaring remains widely practiced in
Nigeria without being addressed by the courts due to scarcity of cases on that
matter. Most litigation with the oil companies had been majorly on oil pollution and
the sorts. Until 2005, Niger Delta citizens and residents sought to use the Nigerian
courts for addressing the menace of gas flaring. This was in the case of Jonah
Gbemre v. Shell Petroleum Development Co. & Ors57
brought before Justice C.V.
Nwokorie of the Benin High Court.
Jonah Gbemre, on behalf of the Iwherekan Community in Delta State,
brought suit against Shell Petroleum Development on the grounds that Shell‗s gas-
flare practices violated the fundamental rights of the people, which are guaranteed
under sections 33(1) and 34(1) of the Constitution of the Federal Republic of
Nigeria, 1999, and the African Charter on Human and Peoples Rights Act.58
Secondly, the plaintiff argued that Shell‗s failure to engage in an assessment of the
57
(2005) AHRLR 151. See also the recent climate change cases of Shell v. Ijaw Aborigines of Bayelsa State
(2011) LPELR-SC.290/2007 where the court awarded the amount of 1.5 billion US Dollars as
compensation for economic hardship and environmental degradation of the appellants communities by the
respondents oil production activities. 58
Cap. A9, Volume 1, Laws of the Federation of Nigeria, 2010.
29
effects of gas flares in the Niger Delta region violated the Environmental Impact
Assessment Act, 59
section 2(2). The third argument was that the Associated Gas
Re-Injection Act, section 3(2) (a) (b),60
which permits gas flaring, is inconsistent
with Section 33(1) and 34(1) of the 1999 Nigerian Constitution and as such, the Re-
Injection Act should be deemed void.
Consequently, the plaintiff sought an injunctive relief to stop Shell from
flaring gas. In November 2005, the High Court responded to this matter by holding
that the Court has the inherent jurisdiction to grant leave to the applicants who are
bona fide citizens and residents of the Federal Republic of Nigeria, to apply for the
enforcement of their fundamental rights to life and dignity of the human person as
guaranteed by sections 33 and 34 of the Constitution of the Federal Republic of
Nigeria, 1999 which guaranteed rights to clean, poison-free, pollution-free healthy
environment.
The court also held that the actions of the defendants in continuing to flare
gas in the applicants‘ community are a gross violation of their fundamental right to
life and dignity of human person. That the said sections of the Associated Gas Re-
Injection Act and the Associated Gas Re-Injection (Continued Flaring of Gas)
Regulations are inconsistent with the applicant‘s rights to life and/or dignity of
human person as enshrined in the Constitution and articles of the African Charter
59
Cap. E12, Vol. 6, L.F.N., 2010. 60
Cap. A25, Vol. 1, L.F.N., 2010.
30
on Human and Peoples‘ Rights (Ratification and Enforcement) Act,61
and are
therefore unconstitutional, null and void by virtue of section 1(3) of the same
Constitution.
Although this decision was laudable, victory on the stoppage of gas flaring
was only short lived, as Shell violated the court‗s order and continually engaged in
flaring gas. Shell refused to comply with the court‗s order, arguing, inter alia, that
the High Court failed to apply proper judicial procedure and Shell lacked adequate
resources to liquefy gas flares. In December 2005, Mr. Gbemre filed suit against
Shell on the grounds that Shell failed to comply with the court‗s order. This has
been the only attempt by the court to address the gas flaring menace and it is hoped
that if the oil companies do not comply with the flare-out date, more litigations will
follow suit.
2.5. International Responses.
Attempts at accelerating flare reduction made by the international community have
been to launch new international sector agreement focused specifically on gas
flaring reduction. The voluntary programme currently sponsored by the Global Gas
Flaring Reduction Partnership (GGFR) is a model. The GGFR work programme
focuses on four areas of activity to assist the reduction of gas flaring and venting in
its partner countries: (1) commercialising associated gas, including domestic market
61
Ss. 4, 16 and 24 of the African Charter on Human and Peoples‘ Rights (Ratification and Enforcement)
Act, cap A9, Vol 1, L.F.N., 2010.
31
development and access to international markets, (2) developing legal and fiscal
regulations for associated gas, (3) implementing the flaring and venting reduction
standard that has been developed by the partnership, and (4) capacity building
related to carbon credits for flaring and venting reduction projects.
Signatories to the partnership are required to undertake commitments to
reduce gas flaring in exchange for preferential access to new clean technology
funds, including any that may be focused on gas flare reduction. 62
GGRF partners
include Shell BP, Chevron, Conoco- Phillips, Eni, ExxonMobil, Maersk Oil & Gas,
Marathon, Shell, STATOIL, Total; European Union, OPEC Secretariat, World
Bank Group and associated country partners.63
In 2002, the GGFR released a report on Kyoto Mechanisms for Flaring
Reductions and concludes that gas flaring reduction projects starting from the year
2000 onward may be eligible under the Clean Development Mechanism (CDM) and
Joint Implementation mechanisms.
The work program in Nigeria has continued to focus on supporting the on-
going dialogue between the Nigerian government, the oil and gas operators and
other relevant stakeholders in developing a rational approach to flare reduction
through the ―Nigeria Flare Reduction Committee" (NFRC), which was first set up
62
Global Gas Flare Reduction Public-Private Partnership. ―Partnership Kicks off Work Program for 2010-
2012‖. The News Flare, Issue No. 10, January - July 2010. 63
Wärtsilä and governments of Algeria (Sonatrach), Angola, Azerbaijan, Cameroon, Canada (CIDA), Chad,
Ecuador, Equatorial Guinea, France, Gabon, Indonesia, Kazakhstan, Khanty-Mansiysk (Russia), Mexico
(Pemex), Nigeria, Norway, Qatar, United States; with other companies and countries expected to join.
32
in October 2007. Based on several data assessments and studies of realistic options
for flaring reduction, the NFRC has developed a number of options to reduce gas
flaring reduction, and is now waiting for an opportunity to present these options to
the new Minister of Petroleum Resources.64
64
Ibid. p. 4.
33
CHAPTER 3
APPRAISAL OF THE RELEVANT LAWS GOVERNING
GAS FLARING IN NIGERIA.
The Nigerian government in the pursuit of phasing out gas flaring has enacted a
number of laws for monitoring flare volumes and enforcing operational procedures.
Despite the introduction of these laws more than 20 years ago, they have mostly
been unsuccessful in achieving their set objectives. The policies and regulations are
very poor and inefficient due to the fact that the government puts profits
maximisation ahead of the safety of the environment and the wellbeing of its
citizens. Another factor suggested to be responsible for the failure of these policies
is the very insignificant fines imposed as penalty for gas flaring and thus, the multi-
national oil companies are willing to pay as it is more economical to flare and pay
fine than to stop flaring of associated gas.65
This segment of the work surveys the sections of the laws which had been
promulgated specifically to regulate the recurring gas flaring menace and make an
assessment of such provisions with reference to its efficacy in relation to the
remedies sought to be mitigated.
65
M. Ishisone, ―Gas Flaring in the Niger Delta: The Potential Benefits of its Reduction on the Local
Economy and Environment”. http://nature.berkley.edu/ classes/es196/project. (Retrieved 28 February,
2012).
34
3.1. Petroleum (Drilling and Production) Regulations 196966
This regulation is a subsidiary legislation to the Petroleum Act.67
Under the
Petroleum (Drilling and Production) Regulations 1969 as promulgated in the Act,
Regulation 42 pursuant to section 9 of the Act provides that:
not later than five years after the commencement of production from
the relevant area, the licensee or lessee shall submit to the minister, any
feasibility study, programme or proposals that he may have for the
utilization of any natural gas, whether associated with oil or not, which
has been discovered in the relevant area.68
Prior to its promulgation, exploitation of natural gas was not given adequate
consideration especially as it relates to gas flaring. The concern of the country at
that time was basically on the grant and regulation of concessions and licences
together with the huge revenue which followed such activities. For this reason,
matters of gas utilisation were merely contained under a single section of a
regulation.
This insouciant attitude of the law makers led to a dilatory approach to gas
utilisation and flaring by the oil companies who paid little regard to the regulation.
Thus, the act was of little effect and moreover, oil companies paid no regard to its
observance because there was not much agitation at that time.
66
Petroleum (Drilling and Production) Regulations No. 51 of 1969. 67
CAP. 350 L.F.N. 1990 ACT CAP. P10 L.F.N. 2010. 68
This is now contained under Regulation 43 in the amended Petroleum (Drilling and Production)
Regulations S. I. No. 9, 2006.
35
3.2. Associated Gas Re-Injection Act, 197969
This was the first attempt made by the government to tackle gas flaring specifically
and directly in a whole legislation. The Act banned gas flaring and mandated oil
companies to submit a plan on gas utilisation and gas reinjection program by 1980.
Section 2(1) of the Act provides thus:
Not later than 1st October, 1980, every company producing oil
and gas in Nigeria shall submit to the minister, detailed
programmes and plans for either-
(a) the implementation of programmes relating to the re-
injection of all produced associated gas; or
(b) schemes for viable utilization of all produced associated gas.
The fact that some of the gas produced in association with oil has been
earmarked for some alternative utilisation does not exempt compliance with the
provisions of the Act.70
By this legislation no company was to flare gas after January 1984 without
special permission from the Minister of Petroleum Resources.71
At the same time
section 3(2) of the Act empowers the Ministers to disregard the application of the
general prohibition in respect of a particular field of fields by issuing a certificate, if
the minister is satisfied that utilisation or re-injection of the produced gas is not
appropriate or feasible in that field(s). In doing so the minister is required to
69
No.99 Cap. A26 L.F.N.1990, Act Cap. A25 L.F.N. 2010. 70
S. 2(2) Associated Gas Re-Injection Act Cap. A26 L.F.N.1990, Act Cap. A25 L.F.N. 2010. 71
S. 3(1) Ibid.
36
(a). Specify such terms and conditions, as he may in his discretion choose
to impose, for the continued flaring of gas in the particular field or fields72
or
(b). Permit the company to continue to flare gas in the particular field or
fields if the company pays such sum as the Minister may from time to
time prescribe.73
The fee was first set at 0.50 Naira per million cubic feet (mcf). In January 1998 it
was at 10 Naira per mcf, which at November 2003 exchange rates is equivalent to
US$0.076 per mcf.74
Commenting on the payment of fees, the World Bank opined
that the sum is payable in the same way as royalty (in foreign currency) into the
designated foreign account into which royalties are paid and that while oil
companies in Nigeria have been charged a total of between 20 million and 50
million Naira (or US$150,000–370,000) annually for flaring associated gas, the
country loses between US$500 million and US$2.5 billion to gas flaring each year
if viewed in the overall context of gas flared.75
The penalty provided for offenders in the enactment was punishment by
forfeiture of concession and the withholding of all or part of any entitlements of any
offending person.76
The Act could not be enforced for it was totally unrealistic in
72
S. 3(2) (a) Ibid. 73
S. 3 (2) (b) Ibid. 74
Global Gas Flaring Reduction Initiative: Report No.3: ―Regulation of Associated Gas Flaring and Venting
- a Global Overview and Lessons‖. (World Bank, March 2004), p. 64. 75
Ibid. p.63. 76
S. 4 Ibid.
37
terms of the time frame for its implementation. There was also the increasing
possibility that if the act were enforced without any modification, many oil
companies would rather curtail crude oil production or shut in their oil wells which
will in return hamper government‘s objective of increasing its reserves.77
It also appears that the record of command and control approach in gas
flaring abatement has not been efficient. Most operators continued glaring gas with
or without the minister‘s permission and would simply pay the penalty for flaring
which was lower than the cost of installing gas re-injection systems
3.3. Associated Gas Re-Injection (Continued Flaring of Gas)
Regulations 198478
Major oil companies in Nigeria indicated difficulties in meeting the 1984 deadline,
citing lack of resources to construct a gas re-injection plant within the timeframe. It
must be noted that oil companies were rather reluctant to comply with the
government‘s mandate. Consequently, the deadline was extended by one year
observing the Nigerian government‘s willingness to accommodate the needs of oil
companies.
With effect from January 1985, the Associated Gas Re-injection (Continued
Flaring of Gas) Regulations 1984, a subsidiary legislation to the Associated Gas R-
77
L. Ososami, ―Developments in Nigeria‘s tax Regime for Gas Utilisation Projects‖. Mondaq: Energy and
Natural resourses. (1 December, 2008). See also
http://www.mondaq.com/article.asp?articleid=70210&login=true&nogo=1. Retrieved 1 June 2010. 78
No. 99 Cap A25 1984.
38
Injection Act 1979, made an extra provision to support its mother legislation.
Pursuant to the regulation, flaring could continue through the issuance of a
certificate by the Minister under section 3(2) of the Associated Gas Re-Injection
Act, in a particular field or fields, subject to any one or more of the following
conditions, that is -
a. Where more than seventy-five per cent of the produced gas is effectively
utilised or conserved;79
b. Where the produced gas contains more than fifteen per cent impurities,
such as N2, H2S, CO2, etc, which render the gas unsuitable for industrial
purposes;80
c. Where an on-going utilization programme is interrupted by equipment
failure: provided that such failures are not considered too frequent by the
Minister and that the period of any one interruption is not more than
three months;81
d. Where the ratio of the volume of gas produced per day to the distance
of the field from the nearest gas line or possible utilisation point is small and
provided it is not technically advisable to re-inject the gas in that field;82
79
Reg. 1(a) Ibid. 80
Reg. 1(b) Ibid. 81
Reg. 1(c) Ibid. 82
Reg. 1(d) Ibid.
39
(e). Where the Minister, in appropriate cases as he may deem fit, orders the
production of oil from a field that does not satisfy any of the conditions
specified in the Regulations.83
This regulation clearly shows the level of reluctance exhibited by the government at
stopping gas flaring which may be because they had more pecuniary interest than it
was ecological/societal. Some of the conditions under the said regulation were as
frivolous as they were ludicrous.
For instance, the condition of equipment failure would lead oil companies to
stay out of gas re-injection operation only claiming that the equipment is either
expensive or not available in the market thereby giving them more time to flare
without hindrance. Moreover, it would be a lie for oil companies to say that they
cannot afford equipment considering how much they amass from the operation.
They should rather stop production than continued flaring while waiting for
replacement or repair of equipments.
The Minister was further empowered to review, amend, alter, add to or delete
any provision of the Regulations from time to time as he may deem fit.84
However,
oil companies failed to adhere to the policies stipulated in the 1984 deadline,
claiming it was too expensive to re-inject gas. Consequently, approximately 55% of
83
Reg. 1(e) Ibid. 84
Reg. 2 Ibid.
40
oil fields were exempted from participating in gas re-injection and an insignificant
penalty was imposed on oil fields where gas was flared.
3.4. Associated Gas Re-Injection (Amendment) Act, 198585
As a result of the failure of the 1979 Associated Gas Re-Injection Act (AGRA), the
1985 AGRA amendment decree was promulgated which provide for exemption to
the 1979 AGRA and permits a company engaged in the production of oil or gas to
continue to flare gas in a particular field or fields on the payment of a fee set by the
Minister of petroleum. The fine was 2 kobo (0.0009US$ equivalence) per 1000
Standard Cubic Feet (scf) of gas flared. This rose to 50 kobo (0.03US$ equivalent)
in 1992 and further to N10.00 (0.46US$ equivalent) in 1998.
Moreover, the Minister may issue exemptions when he is satisfied that
utilisation or re-injection of produced gas is not appropriate or feasible. This policy
was also unsuccessful as fine were very insignificant and did not provide any
incentive to encourage the multi-national oil companies to reduce flaring of
associated gas.
Subsequently, others legislations were promulgated by the National
Assembly (though never passed to law) following reaction by the residents of Niger
Delta where the flare is most rampant and Nigerians in general coupled with the
agitation of international organisations. However, these bills only had the effect of
85
No. 99 of 1979, Cap. A25 L.F.N. 2010.
41
shifting the flare-out date further than it was and increasing the fees minimally all to
the merit of the oil companies.
From the foregoing analysis, it is easily understandable that many factors are
actually responsible for the non-functioning of the desired gas flare cessation
legislation and the attendant negative social, economic and environmental
consequences. Some of these factors, in the humble view of this writer include,
among others, the following points, namely;
1. Military dictatorship and leadership
2. Constitutionally flawed federalism
3. Lack of executive leadership or political will
4. Corruption
5. Inelegant legal drafting/ambiguity
6. Ambiguous provisions in the law and the attendant regulations
7. Economic factors.
Advocates of continued gas flare reason that since domestic market for gas is
inadequate and the cost for gas development is high, the oil companies cannot
embark on any gas development programme. Accordingly, government should
continue to permit gas flaring since it depends on oil production for its revenue.86
86
N. Ogbara, ―Why the Extant Legal Framework Prohibiting Gas Flare in Nigeria did not Work‖. A Paper
Presented at a Social Action Organised Forum on Gas Flaring Prohibiting and Sustainable Energy Future
for Nigeria, 30 September 2009 at Bolton White Hotels ltd, Abuja. p.6.
42
Some had argued that the extension of gas flaring was consequent upon non-
readiness of the N.N.P.C., which was supposed to bear a large part of the cost of
constructing and maintaining the gas injection plants, coupled with the alleged
financial and technical incapacity of the major oil producing companies to meet and
beat the 1984 ultimatum as it were, and submitted that prior to the extension, most
oil companies had applied or were about to apply for permission to continue to flare
unutilised associated gas.87
It is believed that with the latest deadline of 31st December 2012, as
contained in the proposed Associated Gas Re-Injection Bill, flaring in Nigeria will
be minimized considerably. This Bill will be discussed in details later in the next
chapter.
87
Ibid. p.8.
43
CHAPTER FOUR
PHASE-OUT INITIATIVES
Zero Gas Flare is possible. What is needed is total commitment on the part of the
operators and the government with a strong and sincere political will. Gas flaring is
unacceptable, illegal and largely avoidable. Several deadlines have been set and
passed without making much impact on stopping gas flaring. We have been
experiencing a history of shifting goal posts, missing deadline after deadline,
shifting commitments, shady deals and ignored legislations. All these mar the
history of flare-out targets occasioned largely by insincerity on the government and
the oil companies.
However, this delineating practice could be abated if resources are directed
more appropriately into favourable ventures. Natural gas produced could be utilised
or channelled into programmes of meritorious measures with resultant decrease in
flaring or venting. Moreover, a number of fiscal empowerment had been provided
to encourage gas utilisation such as tax exemptions and tax holidays. The oil
companies are expected to accommodate such endeavours in their campaign
towards a zero flare regime.
Also in the phase-out initiative visions are the natural gas ventures carried
out by the Federal Government represented by the NNPC in conjunction with the
44
International Oil Companies (IOCs) with the sole aim of utilising our vast gas
reserves to reduce flaring of same.
4.1. Possible Gas Utilisation Programmes
There exist many ways88
in which natural gas could be made proper use of and
which will in return fetch huge revenue to the country even more than oil
companies pay to flare such gas. These avenues amongst others include using gas
by domestic industries for feedstock, using Compressed Natural Gas (CNG) for
vehicles and using gas for power generation.
4.1.1. Gas to Domestic Industries
Natural gas could also be converted to what is known as synthesis gas.89
This
synthesis gas, once formed, may be used to produce methanol (or Methyl Alcohol),
which in turn is used to produce such substances as formaldehyde, acetic acid, and
MTBE (methyl tertiary butyl ether) that is used as an additive for cleaner burning
gasoline.90
Methanol may also be used as a fuel source in fuel cells
88
Ways other than re-injection of the gas. Though re-injection is still considered laudable, the attitude of the
IOCs has shown that it is a non-realistic venture.
89 This is a mixture of hydrogen and carbon oxides formed through a process known as steam reforming. In
this process, natural gas is exposed to a catalyst that causes oxidization of the natural gas when brought into
contact with steam. 90
Naturalgas.org. “Uses in Industries”. http://www.naturalgas.org/overview/uses_industry.asp. Retrieved
23 May 2012.
45
Major customers targets will be factories and commercial centres which use
significant quantities of energy for their businesses, industries which use natural gas
as feedstock91
for their products and businesses which require permanent change to
the reliable supply of fuel and feedstock.92
Gas for feedstock is principally a product for larger agricultural companies.
Gases such as butane, ethane, and propane may be extracted from natural gas to be
used as a feedstock for such products as fertilizers, manufacture of urea, ammonia
and pharmaceutical products.93
Companies like Shell BP have initiated this idea
into their processes with the National Fertilizer Company of Nigeria (NAFCON) as
a major feedstock customer.94
Gas supply to industry is a win/win for the community, the industry, the
government, the gas supplier and gas distributor. The gas supplier and distributor
will find it profitable business; the industry will have a more reliable and cheaper
fuel, leading to cheaper products; the government will have more oil available for
export; the community will have a more vibrant economy and more opportunities
for employment and cheaper products.
4.1.2. Compressed Natural Gas (CNG) for Vehicles
91
Feedstock means raw materials uses in the industrial manufacture of products. 92
Natural gas as a feedstock is commonly found as a building block for methanol, which in turn has many
industrial applications. 93
Naturalgas.org. ―Uses in Industries‖. http://www.naturalgas.org/overview/uses_industry.asp. Retrieved 23
May 2012. 94
B. Omiyi, ―Shell Nigeria Corporate Strategy for Ending Gas Flaring‖. A paper presented at the Seminar on
Gas Flaring and Poverty Alleviation in Oslo, Norway. (June, 2001).
46
Compressed natural gas, or CNG, is natural gas under pressure which remains clear,
odourless and non-corrosive. CNG vehicles could be introduced in a wide variety of
commercial applications, from light-duty trucks and sedans (like taxi cabs), to
medium-duty trucks (like UPS delivery vans and postal vehicles), to heavy-duty
vehicles (like transit buses and school buses).95
CNG engines are also generally less
noisy than diesel engines. In California, transit agency buses are some of the most
visible CNG vehicles.96
Though the use of CNG could be costly, with an expanded gas infrastructure,
competitive fuel costs and a growing economy, it should gain popularity with
industrial fleet and major commercial vehicle operators. In view of this, Shell is
pioneering demonstration and promotional projects in this regard, which entails
conversion of some 60 vehicles to CNG use with the collaboration of Nigerian Gas
Company.97
4.1.3. Gas for Power Generation
Nigeria faces a serious energy crisis due to declining electricity generation from
domestic power plants. Power outages are frequent and the power sector operates
well below its estimated capacity. Nigeria electricity consumption per capita has
95
California Energy Commission ―Compressed Natural Gas (CNG) as a Transportation Fuel‖.
http://www.consumerenergycenter.org/transportation/afvs/cng.html. Retrieved on 22 May 2012. 96
Ibid. 97
Loc. cit., p. 10.
47
been estimated to be one of the lowest in sub-Saharan Africa.98
This low level of
consumption is a result of suppressed demand caused by deteriorated electricity
supply infrastructure.
In this case, gas will be used to power micro-turbine generators for
electricity production. Gas supply for power generation has been a long-running
strategy for gas utilisation in Nigeria. Power generation clearly offers a large
market for gas in Nigeria. It is estimated that as much as 3500 MW of auto-
generation capacity (i.e. generators) has been installed by industry, commerce and
residential customers due to the poor reliability of the public electricity supply
system.99
In the long term, gas could displace diesel in auto-generation, as a fuel for
gas engines and for industrial consumers.
In this regard, the government has made efforts towards power generation
through natural gas. A power project was setup in 2006 called the Niger Delta
Integrated Power Project with the purpose of developing (independently of PHCN)
new power plants which if finally implemented will help to accelerate rapid
industrialisation and development of the Niger Delta region. All these power plants
98
Centre for Energy Economics (CEE). ―Gas Monetisation in Nigeria‖. Bureau of Econimic Geology,
Jackson School of Geosciences, the University of Texas at Austin. www.beg.utexas.edu/energyecon/new-
era/case_studies/Gas_Monetization_in_Nigeria.pdf. Retrieved 4 June 2012. 99
Loc. cit., p. 9.
48
were planned and designed to be powered by natural gas.100
Additionally, Shell
Petroleum is actively involved in the development of power generation projects.
4.2. Fiscal Regimes for Gas Utilisation
Over the years, the Federal Government had offered various investment and tax
incentives to discourage the flaring of gas and to stimulate investment in the gas
sub-sector. Under the current gas regime, upstream gas projects are taxed either
under the Petroleum Profit Tax Act (PPTA),101
whilst the downstream gas
operations are taxed under the Companies Income Tax Act (CITA).102
Upstream gas utilisation refers to activities designed to separate crude oil
and gas from the reservoir into usable products or form, or to deliver such gas to
designated points for use by, or transmission to, downstream users, and includes gas
production.103
Incentives available for upstream gas utilisation operations are stated
in sections 10A and 11 of the PPTA as amended.
Another significant incentive provided by the government for purposes of
gas utilisation are the Associated Gas Framework Agreements (AGFAs) which is
now incorporated under section 11 of the PPTA.
Gas transferred from the natural gas liquid facility to the gas-to-liquid
100
J.O. Ehiorobo, ―Developing Sustainable Electrical Power for Nigeria from Natural Gas: Measurements
And Documentation for Construction of Natural Gas Distribution Pipelines from Gathering Facilities to
Power Plants‖. (Sydney, Australia) April 16 2010, p. 3. 101
Cap. 354 L.F.N. 1990 Act Cap. P14 L.F.N. 2010. 102
Cap. 60 L.F.N. 1990 ACT Cap. C21 L.F.N. 2010. 103
S. 10A (1) (a) PPTA Cap. P14 L.F.N. 2010.
49
facilities shall be at zero percent tax and zero percent royalty.104
Additionally,
investment required to separate crude oil and gas from the reservoir into usable
products shall be considered as part of the oil field development and therefore
treated as allowable expense.105
Also capital investment on facilities or equipment
to deliver associated gas in usable form at utilisation transfer points shall be treated
for tax purposes, as part of the capital investment for oil development.106
The above incentives are only granted to petroleum companies that are
engaged in projects which utilise associated gas. However, the law sets out strict
conditions under section 11(2) to which the companies must adhere in order to
prevent them from lumping expenses in an attempt to reduce their taxable profits
under the PPTA. These conditions may be summarised as follows:
i. Only condensates extracted not re-injected shall be treated under existing tax
arrangement;107
ii. The company shall pay the minimum amount charged by the Minister of
Petroleum Resources for any gas flared by the company;108
iii. The company shall, where practicable, keep the expenses incurred in the
utilisation of associated gas separate from those incurred on crude oil
operation. Only expenses not able to be separated shall be allowable as a
deduction against the company‘s crude oil income;109
104
S. 10A (g) Ibid. 105
S. 11(1) (a) Ibid. 106
S. 11(1) (b) Ibid. 107
S. 11(2) (a) Ibid. 108
S. 11(2) (b) Ibid. 109
S. 11(2) (c) Ibid.
50
iv. Expenses identified as incurred exclusively in the utilisation of associated gas
shall be regarded as gas expenses and be allowable against the gas income and
profit to be taxed under the CITA;110
v. Only companies which invest in natural gas liquid extraction facilities to
supply gas in usable form to downstream projects and other associated gas
utilisation projects shall benefit from the incentives;111
vi. All capital investments relating to the gas-to-liquids facilities shall be treated
as chargeable capital allowance and recovered against the crude oil income;112
vii. Gas transferred from the natural gas liquid facility to the gas-to-liquid
facilities shall be at zero per cent tax and zero per cent royalty.113
Downstream utilisation is defined by section 39 (3) of the CITA114
to mean the
marketing and distribution of natural gas for commercial purpose and include
power generation and liquefied natural gas plants, gas to liquid plants, fertiliser
plants, and gas transmission and distribution pipelines. Incentives for downstream
gas utilisation are provided under section 39 of the CITA as amended and they
include:
Tax holiday for three years which may be renewed for a further two year
subject to determination of satisfactory performance by the minister of
petroleum;115
110
S. 11(2) (d) Ibid. 111
S. 11(2) (e) Ibid. 112
S.11 (2) (f) Ibid. 113
S.11 (2) (g) Ibid. 114
As amended by s. 4 of the Finance (Miscellaneous Taxations Provisions) Act No. 18 of 1998. 115
S. 39 (1) (a) CITA Cap. 60 L.F.N. 1990 ACT Cap. C21 L.F.N. 2010.
51
Interest payable on any loan obtained for a gas project, with the prior approval
of the Minister of Petroleum is tax deductible.116
Accelerated capital allowance after the tax holiday which shall include an
annual allowance of 90% with 10% retention for investment in plant and
machinery plus an additional investment allowance of 15% which shall not
reduce the value of the asset.117
Tax free dividends during the tax holiday provided that the downstream
investment was made in foreign currency or that plant and machinery
imported for not less than 30% of the company‘s equity.118
Furthermore, the gas projects receive a 10 years tax holiday and are exempted from
withholding tax and from income on work or services provided by non residents.
The purpose of these incentives is to encourage companies already carrying on
petroleum to utilise rather than flare the associated gas encountered in the course of
oil production.
To this extent, the government has created opportunities for the oil
companies to endeavour into gas utilisation with hopes of making good returns on
their investments. However, with the current situation of things in the country, it
appears that the incentives have failed to curtail the flaring of gas due to reasons
mostly unconnected to the adequacy of the fiscal provisions.
116
S. 39 (1) (e) Ibid. 117
S. 39 (1) (c) Ibid. 118
S. 39 (1) (d) Ibid.
52
4.3. Natural Gas Projects
The Government, together with the major oil producing companies have embarked
on several gas utilisation projects aimed at minimizing gas flaring and channelling
the available gas resources into areas of quantitative utility. Some of these projects
have been completed and operations had commenced while the rest are still going
through their development and establishment stage.
The major on-going gas projects in Nigeria are the Nigerian Liquefied
Natural Gas (NLNG) Project, Escravos Gas-Gathering Project, Oso NGL Project,
Belema Gas Re-injection project, West African Gas Pipeline Project, Olokola LNG
(OKLNG), and Brass River LNG. The list of gas projects being carried out towards
gas utilisation continues but for the purposes of conciseness, only the projects listed
above shall be discussed in short details.
4.3.1. Nigerian Liquefied Natural Gas (NLNG) Projects
This is a joint venture project entered in 1995 involving the NNPC 49.0%, Shell
25.6%, Totalfinaelf 15.0%, and Agip 10.4%. The project began in response to a law
targeted at enhancing gas utilisation and reducing gas flaring,119
with the
construction of an LNG facility at Bonny Island to process associated gas to be
loaded as LNG on special trains for export. The company has a long-term Gas
119
Nigeria Liquefied Natural Gas (NLNG) (Fiscal Incentives, Guarantees and Assurances) Decree, No. 39
1990 Act Cap. N87 L.F.N. 2010.
53
Supply Agreements with three joint ventures operated by the Nigerian affiliates of
Shell, Elf and Agip, which will respectively supply 53.3%, 23.3% and 23.3% of the
feed gas volume.120
Presently, a total of six such export trains have been
constructed and engaged in LNG export to the USA, Spain, Asia and France. In
addition to that, the companies also supply natural gas for feed stock/fuel from their
respective fields.
4.3.2. Escravos Gas-Gathering Project
A joint venture project between NNPC (60%) and ChevronTexaco (40%) to recover
associated gas from offshore fields. Operations commenced in 1997 and the first
shipment of liquefied petroleum gas (LPG) was in September 1997. The Escravos
plant processes 185 million metric cubic feet (mmcf) of associated gas daily.121
It has 3 phases: EPG1, EPG2 and EPG3. EPG1 started up in September 1997
processes associated natural gas supplied to domestic market by pipeline. EPG2
which began operation in 2000 processes and supplies products to domestic market
but also be exported to Benin, Togo and Ghana through the West African Gas
Pipeline (WAGP) plant.122
120
S. Ollerearnshaw, ―LNG: the Nigerian Experience‖. A Paper presented by the Managing Director and
Chief Executive, Nigeria LNG Limited Lagos, Nigeria at the 12th
International Conference on Liquefied
Natural Gas December 1997. p. 2.
121 G. I., Malumfashi, ―Phase-Out of Gas Flaring in Nigeria by 2008: The Prospects of a Multi-Win Project
(Review of the Regulatory, Environmental and Socio-Economic Issues). p. 1-39 at 29. 122 Ibid. p. 29.
54
4.3.3. Oso Natural Gas-to-Liquid (NGL) Project
This is an NNPC (49%) and ExxonMobil (51%) joint venture project that converts
associated wet gas into natural gas liquids. This is process in such a way that as gas
is forced to the surface, it cools and takes form of condensates and re-injected for an
important NGL recovery process.
The project‘s current production capacity is 50,000 barrels per day.123
Feed
gas for the NGL plant began production in 1992. The Oso NGL project will make
an important contribution to the utilisation of Mobil‘s gas resources in Nigeria.
4.3.4. Belema Gas Injection Project
This is a project being executed by the NNPC/SHELL joint venture. The Belema
Gas Injection project is aimed at reducing flares in five flow stations by re-injecting
some of the gas, some for gas lifting, and some for use as fuel by local industries
and the excess for backing out associated gas that is currently used to meet various
existing contractual obligations.124
The contracts for the execution gathering
pipelines are in the early stages of execution but showing good yield. About 80
mmcf/d of gas is estimated to have been utilised.
123
K. Dosekun and G. Oyabole, ―The International Comparative Legal Guide to: Gas Regulation 2007‖.
Published by the Global Legal Group, London 2007. p. 131-138 at 132. 124
Nigerian oil and Gas Industry Information. “Export-Oriented Gas Utilisation Projects in Nigeria”.
http://www.oilandgasbrief.com/knowledge-base/exportoriented-gas-utilisation-projects-nigeria/325/.
Retrieved 3 June 2012.
55
4.3.5. West African Gas Pipeline (WAGP) Project
A joint proposal between ChevronTexaco, Shell, NNPC, Nigerian Gas Company
(NGC), Societe Beninoise de Gas, Societe Togolaise de Gas and Ghana‘s National
Petroleum Corporation. It is a 1,033km long pipeline project, which has a capacity
of 5 billion cubic metre of natural gas per annum.125
Gas from the gas reservoirs in Nigeria Escravos region of Niger Delta are
transferred to Benin, Togo and Ghana. It is the first regional natural gas
transmission system in sub-Saharan Africa. The gas was intended to be used by the
Volta River Authority's power plant in Ghana and Takoradi's international power
plant in Ghana.126
4.3.6. Olokola LNG (OK LNG) Project
This is located in Waterside Local Government Area of Ogun State. OKLNG is a
liquefied natural gas (LNG) project facility, consisting mainly of two trains,
producing a total of 12.6 million tonnes per annum of LNG and 2.3 tonnes/annum
of LPG as a by-product. Each train processes 1.15 billion cubic feet per day of feed
125
Ibid. p. 131. 126 The commercial oil and gas discovery in Ghana has thrown up serious challenges in recovering the huge
funds pumped into the project. However, the operators of the pipeline face acute gas supply cuts following
rising demands in the Nigerian electric power and industrial sectors. Potential stiff competition is also
facing the pipeline company as Ghana, which is envisaged to be the key market for the pipe borne gas is
now building its own gas plants to meet internal needs.
56
gas. The project is supported by the NNPC, British Gas (BG), OKLNG Limited,
Chevron OKLNH Holding Limited, Shell OKLNG Holdings and B.V. Limited.127
4.3.7. Brass River LNG Project
This is another joint venture project between NNPC (49%), Chevron (17%),
Conoco Philips (17%) and Agip (17%) for the construction of a $3 billion LNG
plant. It was signed in September 2001 and has the capacity of processing 850
mmcfd.128
The facility was built on Brass Island in Nigeria‘s Bayelsa State. It
consists of two trains each with the production nominal capacity of five million tons
of LNG per year.129
4.4. Associated Gas Re-Injection Bill 2010
This section of the work presents an overview of the Associated Gas Re-injection
(Amendment) Bill, 2010 with focal point on its provisions and their efficacy as it
concerns flare abatement.
The Bill for an amendment of the Associated Gas Re-injection Act. The Bill
amongst its other provisions sets a new deadline for gas flaring in Nigeria. The Bill
prohibits companies engaged in the production of oil and gas from flaring gas after
127
Social and Economic Rights Action Centre (SERAC). OKLNG Project: Expanding Participatory
Opportunities. Reports of Roundtable Proceedings Convened on May 5, 2009 at Abeokuta, Ogun State. p.
3. 128
G. I., Malumfashi, ―Phase-Out of Gas Flaring in Nigeria by 2008: The Prospects of a Multi-Win Project
(Review of the Regulatory, Environmental and Socio-Economic Issues). p. 1-39 at 29. 129
Downstream Today. ―Brass LNG‖. Http://www.downstreamtoday.com/projects/project. Retrieved 3 June
2012.
57
December 31, 2012 beyond the permitted minimum.130
By this provision, oil
producing companies in Nigeria were yet granted another extension on the period
within which to end the flaring of the excess hydro-carbons.
Section 3(2) (b) of the Bill permits the Minister to grant a temporary gas
flaring permit to any company which seeks to continue to flare gas in particular
field or fields on payment of the sum of $5.00 per 1,000 standard cubic feet of gas
flared with a processing fee of $1,000. However, a temporary gas penalty is payable
for any gas flared in excess of approved gas volumes during pre-commissioning and
commissioning operations, equipment maintenance and operation upset.
This amendment is a welcome development and perhaps may be described
as a step in the right direction when compared to the 1979 Act which allowed the
Minister to permit gas flaring for a period of 30 days in the cases of start-up,
equipment failure or shut down without having to pay for such gas flared.
Furthermore, this is a departure from the Associated Gas Re-Injection
(Amendment) Decree of 1985 which fixed a paltry fine of 2 Kobo (equivalent to
US$0.0009 in 1985) against the oil companies for each 1000 standard cubic feet
(scf) of gas flared.
130
S.3(1) of the Bill provides that “No company engaged in the production of oil and gas shall after
December 31, 2012 flare gas produced in association with oil, other than such minimum allowed by the
Minister by regulation".
58
While the 1979 Act required all operators to prepare programs for gas
utilisation or reinjection and strictly limited the grounds upon which flaring could
be permitted, the Bill provides that no company without facilities for associated gas
utilisation shall be permitted to engage in oil production. This is a giant step
towards ensuring the utilisation of gas by oil companies.
Similar to the provisions of the 1979 Act, the Bill prohibits all companies
from engaging in gas flaring whether routine or continuous. Any company so
involved shall be liable to a fine to be determined at the prevailing international gas
market price and the applicable fine shall not be regarded as part of Production
Sharing Contracts (―PSCs‖) or Joint Ventures (―JVs) obligations.131
Companies are required to report all emergency gas flaring within 24hours
of occurrence, failure of which will attract a fine of US$500,000.132
The Bill further
provides that any company that declares an incorrect volume of flared gas shall be
liable to a fine of US$100,000 and must pay the difference of such wrongly
declared volumes at the prevailing international gas market rate.133
This provision
shall to a reasonable extent ensure honesty in the dealings of the companies with the
regulatory agencies.
131
S. 4 of the Bill. 132
S. 4 (4) Ibid. 133
Ibid.
59
The well articulated composition of the Bill coupled with the attractive flare-
out provisions leaves out the question on compliance which is a major drawback in
effectiveness of most Nigerian legislations. However, with these provisions it is
expected that the IOCs will comply with the 2012 deadline.
4.5. Petroleum Industry Bill (PIB) 2010
This bill is based on the realisation that the present regime is obsolete and outdated,
lacks transparency and lacks good governance, practice and processes. The laws
seek to create a much more transparent administrative system where all interested
parties could assess information and indicate interests on a given projects in the oil
and gas industry.
The bill will also serve to consolidate a plethora of laws, statutes and
regulations which regulate the Nigerian oil and gas industry. It would, if passed,
review and streamline existing legislation, in order to deliver a fair, economic return
for Nigeria as well as for investors. Some of the existing legislations sought to be
affected by the new Bill includes the Petroleum Profit Tax Act;134
the Petroleum
Act 1959;135
the Petroleum Technology Development Act 1973;136
the Associated
Gas Re-injection Act 1979;137
the Petroleum Equalisation Fund Act 1989;138
the Oil
134
Cap. 354 L.F.N. 1990 Act Cap. P13 L.F.N. 2010. 135
Cap. 350 L.F.N. 1990 Act Cap. P10 L.F.N. 2010. 136
Cap. 355 L.F.N. 1990 Act Cap. P15 L.F.N. 2010. 137
Cap 26 L.F.N. 1990 Act Cap. A25 L.F.N. 2010.
60
Pipelines Act;139
the Nigerian National Petroleum Corporation Act;140
and the
Petroleum Products Pricing Regulatory Agency Act 2003.141
The passage of the new legislation would, introduce and enforce integrated
health, safety and environmental quality management systems with specific quality,
effluent and emission targets for oil and gas operations in order to ensure
compliance with international standards.142
Through these proposed reforms the
PIB aims to end gas flaring in Nigeria given that the international oil companies
(IOCs) have refused to adhere to the direction by the Nigerian Government to stop
flaring gas as they appear to prefer to pay the penalties attached.
The Bill also seeks to place an obligation on the IOCs to put in place a
domestic gas supply to meet their commitments with regard to gas exports. This
would invariably curb gas flaring by the oil companies and balance upstream gas
pricing, which in turn would encourage more gas supply projects because such
projects would be seen as more economically viable and could put an end to the
funding crisis that has served to curtail gas development work in Nigeria.
4.6. Impediments on Gas Commercialisation
138
Cap. 352 L.F.N. 1990 Act Cap. P11 L.F.N. 2010. 139
Cap. 338 L.F.N. 1990 Act Cap. O7 L.F.N. 2010. 140
Cap. 320 L.F.N. 1990 Act Cap. N123 L.F.N. 2010. 141
Act No. 8 2003. 142
See s. 6 of the Bill.
61
Over the years, the government together with the international oil companies
(IOCs) had been on the verge of trying out efforts aimed at the utilisation of natural
gas but with little effects or outcome. This situation has led the government to
endeavour into many projects and agreements with the IOCs whereby the two
parties come in terms with certain understanding and responsibilities sought to be
fulfilled by each party. However, despite these efforts gas commercialisation
remains at low ebb and certain reasons has been proffered to be responsible for such
an outcome.
According to Okoroafor Bank-Anthony, the Managing Director of
Vhelbherg (a local service oil company), in an interview, the IOCs insist that the
government is not keeping up its end of the funding agreement, preventing more
investment. Also that there are no facilities in place for the utilisation of the
associated gas and a lot more pipelines would have to be built to collect all the gas
and that the government cannot guarantee oil workers security in the region.143
On the other hand the government oil regulators seem unable to get tough
with the companies who operate the wells. It cannot shut down wells to force the
IOCs to collect the gas without taking the oil wells out of production, thereby
loosing valuable profit.144
143
C. Okonji. ―Nigeria loses $2.5bn Annually to Gas Flaring‖. Alexander‘s Gas and Oil Connection.
http://www.gasandoil.com/news/2010/03/nta100909. Retrieved 4 June 2012. 144
Ibid.
62
Also poor policy administration and wrong application of standard project
management practices have been identified as some of the reasons gas
commercialisation remains difficult despite favourable legislative and legal
environment and the right technology in place.145
In January 2008, the Senate Committee on Gas and Environment was
charged to investigate the failure to achieve numerous gas flare-out deadlines. The
committee opined that a gas flare-out date for Nigeria has become a moving target
due to contributory factors such as
The inadequacy of the existing legal and regulatory framework for gas
generally and gas utilisation in particular;
The absence of infrastructure for accommodating flared gas and transporting
it;
The limited availability of local markets and, linked to this, issues with the
practical implementation of the West African Gas Pipeline and difficulties
with liquefied natural gas (LNG) projects;
The lack of capital for gas utilisation programmes;
Inequitable gas pricing;
the risks and high costs associated with the re-injection of associated gas,
which can damage production facilities; and
The civil unrest and resulting security issues in the Niger Delta.146
145
See B. Bakare, ―Why Gas Commercialisation has Been Difficult in Nigeria‖. The Nation.
http://thenationonlineng.net/web2/articles/50500/1/Why-gas-commercialisation-has-been-difficult-in-
Nigeria/Page1.html. Retrieved 4 June 2012. 146 Energy & Natural Resources. ―Committee Charged with Eliminating Gas Flaring‖ March 3 2008.
http://www.internationallawoffice.com/newsletters/Committee_Charged_with_Eliminating_Gas_Flaring.
Retrieved 5 June 2012.
63
Critics also suggest that the apparent diffidence of successive governments in
enforcing flare-out ultimatums stems from a concern that a precipitate elimination
of gas flaring would impact negatively on the oil revenues which feature so
significantly in Nigeria‘s economic projections and on the oil business in which the
state is a central player.147
Multinational operators, urging a 2010 deadline,
maintain that an immediate flare-out date is feasible only if crude production stops,
and that the latest deadline is unrealistic and impossible to achieve.
147
Ibid.
64
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
5.1. Conclusion
To a large scale, nothing beneficial comes from flaring or venting of gas associated
with oil. This practice causes more harm than otherwise and it has been shown to be
injurious to health and the environment at large. Greenhouse gas emissions like
particulates, sulphur are some of the examples of harmful substances associated
with gas flaring. These substances not only cause global warming together with
deleterious environmental degradations, it also cause great harm to health and crops
located in regions where it is most occurring.
The Federal Government has also been in the struggle to kick-out gas flaring
from the oil fields through certain efforts, some of which are recommendable with
interesting plans towards beneficial utilisation of the natural gas. Some of these
utilisation efforts are exemplified in the various natural gas projects being
implemented in conjunction with major oil companies in the country.
However, the most intriguing of these efforts is in the area of regulatory
frameworks and legislative pronouncements made under various legislations
promulgated to tackle gas flaring. These laws have had little effect through the
years mainly because of corruption on one hand and inelegance in its drafting on
the other hand. The penalty provided under the Acts was very meagre to the extent
65
that the oil companies preferred to pay fines and continue flaring to the reinjection
of gas. This led to continuous shifting of deadlines for gas flaring by the
government, thereby making it beneficial for the oil companies.
By implicitly acting according to the dictates of the oil companies, the
Nigerian government has continued to relegate the health and environment well-
being of Nigerians to the background. This policy of accommodating the oil
companies at all costs and by all means in the country bears outrageous costs.148
However, oil companies operating in the country had failed to meet the
Federal Government‘s umpteenth time shifted deadline for the Act, under which
violators are meant to be penalised. By the recent Associated Gas Re-Injection Bill,
2012 has been set as the battle line for gas flaring to end in the country but the
question now is, can the oil companies meet the deadline? It is believed that the
present administration which shall be empowered by the Petroleum Industry Bill
will not allow the continuation of the flaring beyond the set flare-out date, so it is in
the best interest of oil companies to race towards meeting the deadline.
Ending gas flaring in the country should be a long-term programme and
there must be continuing commitment on the part of the oil companies because the
project will help the economy and generate billions of naira or dollars to enhance
148
S. Okpara. ―Gas Flaring: can Oil Firms Meet 2012 Deadline?‖ The Tide Online Newspaper.
http://www.thetidenewsonline.com/2012/02/06/gas-flaring-can-oil-firms-meet-2012-deadline/. Retrieved 24
June 2012.
66
development funding. Just like the crude oil, natural gas is money, so there should
be a concerted effort to commit natural gas into money for the benefit of Nigerians.
It must be emphasised that policy reformation under the new Bill149
is more
promising than what was obtained in the previous years, however, political will
finds expression in more than policy pronouncements. It must be pointed out that
nowhere in the world, particularly in developing countries, have policies concerning
natural resource exploitation been welcome by multinational companies involved in
such activities. Their demands for relaxed regulatory policies are almost insatiable
and this normally proves detrimental to the social and environmental conditions of
the immediate communities. Oil producing communities in Nigeria are not an
exception.
The technology argument made by the companies is quite paradoxical. The
argument comes at a time when technological innovations in the oil industry are
rapidly increasing. The oil industry in Europe and America had already invested a
reasonable amount of money in research and development (R&D) of technologies
over the years. This had resulted to an increase in deep-water drilling and enhanced
recovery of more oil from formally depleted wells.150
The companies undertaking
149
The Associated Gas Re-Injection Bill, 2012. 150
C. Evoh, ―Gas Flares, Oil Companies and Politics in Nigeria‖ The Guardian On-Line.
http://waado.org/Environment/OilCompanies/GasFlaresPolitics.html. Retrieved 29 June 2012.
67
these technological innovations to enhance oil recovery are also the very ones
operating in Nigeria.
The government bears a great responsibility in this regard as well. If the
Nigerian government can provide the will to mitigate gas flaring to its barest
minimum, the oil companies will certainly provide the way to do it in terms of
technological applications. However, none of those companies will end gas flaring
at their own behest.
In concluding this work, it must be emphasised that stopping gas flaring is
expected to involve financial investments which oil companies would like to avoid.
This is not an isolated case; rather, it is a clear depiction of the modus operandi of
multinational corporations in the less developed parts of the world. In the
industrialised countries, this level of environmental abuse caused by energy
production is rare. Due to the obvious laxities in policy making and implementation
particularly in the energy sector in Nigeria, such level of civil consciousness is yet
to be attained. Nigeria therefore needs a face lift in its public personality and this
could only be achieved when the government begins to take policy implementation
more seriously.
5.2. Recommendations
To achieve zero gas flare in the country, certain measures are required to be taken
which will boost the already established utilisation programmes on ground. The
68
government must provide their own required adequate funding, create enabling
secure environment to operate, must be tough with the operators and agree with the
operators and stakeholders on a realistic deadline.
Also government should provide more incentives to promote domestic gas
utilisation in Nigeria as well as gas flare out programmes. There should be an
alignment of political agreement or will with the legal framework.
Not just foreign or international oil companies should participate in the gas
project but indigenous firms should also be given priority consideration.151
The gas-to-power distribution is a boost the country badly needs. So there
must be a corrupt-free national strategy for managing the gas revenues i.e., the
judicious utilisation of funds accruing from the sector for the benefit of the ordinary
citizens rather than using it to fuel conflict and corruption.
To make the whole dream come true, the partnership between international
oil companies and national oil companies needs to be strengthened to enhance the
full exploitation of natural resources and develop capability that will bring more
value to the industry. The basis of mutual benefit should exist between the two or
more parties.
151
N. Ogbara, ―Why the Extant Legal Framework Prohibiting Gas Flare in Nigeria did not Work‖. A Paper
Presented at a Social Action Organised Forum on Gas Flaring Prohibiting and Sustainable Energy Future for
Nigeria, 30 September 2009 at Bolton White Hotels ltd, Abuja. p.7.
69
Adequate regulatory procedures which includes those for approving flaring
and venting permits, monitoring flaring and venting volumes, and enforcing
operational standards should not be disregarded as had been practiced in the
previous years but should rather be carried out to fruition in its implementation.
More gas and more power will raise living standards and support the
economy, so lessons should be drawn from countries that have successfully
executed gas-to-power and gas industry optimisation reforms with a view to
enabling Nigeria learn from and possibly replicate the best practices of these
countries.
Countries that have substantially reduced flaring and venting—such as
Canada, Norway, the United Kingdom, and the United States—introduced a
combination of regulatory and non-regulatory measures and their operators had
access to domestic or international gas markets. The measures included establishing
an efficient legal and regulatory framework, reforming and restructuring natural gas
markets, allowing private participation in the development of gas infrastructure, and
creating financial incentives that encouraged operators to utilise associated gas.152
Equally important, governments, regulators, and operators collaborated
closely in developing policies and strategies that were consistent with those
countries resource management and environmental objectives and the operators‘
152
F. Gerner, B. Svensson, and S. Djumena. ―Public Policy for the Private Sector: Gas Flaring and Venting -
A Regulatory Framework and Incentives for Gas Utilisation‖. The World Bank Private Sector Report.
October 2004, p. 4.
70
objectives of ensuring that projects were commercially viable and did not
jeopardise future oil production.
Gas Flaring in Norway has decreased considerably over the years. The
country is highly regarded as a prime example for the proper management of gas
resources. In 2001, Norway initiated a project led by the World Bank which
introduced voluntary global standards for restricting gas flaring.153
Oil companies in Norway are required to lift, process and use associated gas
in their operations. Accordingly, they are to submit a development plan with a
provision for gas re-injection, gas export solution or other associated gas utilisation
schemes. In 2004, only 0.16% of the total annual associated gas from oil production
was flared in Norway.154
Similar provisions have been adopted in Nigeria by the
2010 amendment which requires the availability of gas utilisation facilities.
In a number of countries, including Indonesia, Angola, and Syria appear to
be making significant progress in limiting disposal flaring. In other countries,
including Kazakhstan or Kuwait, anti-flaring regulations and increased enforcement
has set the stage for flare reductions while adopting successful practices used by
Canada, the United Kingdom, or Norway.155
The Nigerian government is expected
153 Power and Energy Group. ―Gas Flaring in Nigeria: An overview of the Associated Gas Re-Injection
(Amendment) Bill 2010‖. Newsletter, April 2011, p. 4. 154
Ibid. pg.5. 155
M. Farina, ―Flare Gas Reduction: Recent Global Trends and Policy Considerations‖. GE Energy, Global
Strategy and Planning. (January, 2011) pg. 10.
71
to acknowledge these efforts made by other countries while making their own
endeavours.
72
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