IHS Global Insight Perspective | |
Significance | The Nigerian Senate has passed the Gas Flaring (Prohibition and Punishment) Bill which seeks to ensure gas an end to gas flare-out in Nigeria by 31 December 2010. |
Implications | Gas flaring in Nigeria has been a long-term problem that has never been addressed seriously due to the magnitude of investment necessary to put an end to the practice. However, the federal government's has put ending flaring at the core of its gas master plan. |
Outlook | Oil companies will argue that the proposed deadline is unworkable and will lobby for an extension. Gas gathering infrastructure is set to be constructed as part of the gas master plan, enabling Nigeria to finally monetise the previously flared gas. |
Moving Closer to Flare-Out
The Nigerian Senate has passed the Gas Flaring (Prohibition and Punishment) Bill after its third reading with approval of all its 18 clauses. The bill, sponsored by Senator Osita Izunaso, the chairperson of the Senate Committee on Gas, seeks to ensure the eradication of gas flare-out in Nigeria by 31 December 2010.
Nigeria claims gas reserves of about 187 tcf, but has been a very heavy flarer of associated gas due to there being no gas gathering infrastructure in place to utilise the feedstock. It is believed that Nigeria flares around 68.66 bcf/m (a little under 2.5 mmcf/d of gas) and while difficult to quantify, this suggests that the country is burning away a potential US$15 million/d. There have been numerous deadlines set for gas flare-out in Nigeria over the past decade, none of which have been met. Each deadline gets replaced by a new deadline and even the introduction of fines for oil companies that continue to flare has not proved enough of a deterrent. Senator Osita Izunaso was quoted by Agence France Presse (AFP) as saying; "Any operator who flares gas after 31 December 2010 shall pay a fine and in addition will lose its licence". According to Reuters, the Gas Flaring Bill stipulates that companies which flare gas from 1 January 2011 will have to pay the prevailing international market price of gas for the amount flared. The bill says; "It shall pay an additional 50 percent of the amount to the community where the gas is being flared. A shutdown order of 50 days shall be issued to the defaulting company". The penalty that oil companies pay at the moment is US$3.50/1,000 cf of gas flared.
Domestic newspaper the Daily Independent reports the Gas Flaring Bill further emphasises strict adherence to gas laws by requiring operators in the oil sector to categorise all flared gas resources, such as daily quantity flared, reserve, location, and composition, within 90 days. The legislation is a key contributor to the federal government's gas master, plan which states that associated gas will no longer be allowed to be flared and instead will be monetised for the domestic market and as feedstock for future LNG export projects.
Outlook and Implications
Another version of the bill will have to be passed by the lower House of Representatives and a harmonised version will have to be signed by President Umaru Yar'Adua before it becomes law. Gas flaring in Nigeria has been a long-term problem which has never been properly addressed due to the magnitude of investment necessary to put an end to the practice. However, the issue has gained considerable attention with international non-governmental organisations (NGOs) such as Friends of the Earth lobbying hard for an end to flaring, which can lead to numerous health problems including leukaemia, asthma and premature death. It leads to the creation of acid rain, which acidifies lakes and streams and causes serious environmental damage. Yet the reason for the recent progress appears to be the realisation by the federal government that the continued flaring of gas is wasting millions of dollars every day and if the associated gas could be harnessed it could be used as feedstock in the nation's gas-fired power plants.
The end-of-2010 deadline for flare-out is likely to be argued by oil companies operating in the Niger Delta as an unrealistic deadline. Companies themselves are asking for an extension to 2012-13, to allow them to put in place necessary infrastructure, identify outlets for the gas, and spread the cost of harnessing gas for domestic purposes. The new gas master plan will see massive investment in the required infrastructure needed to help end flaring including gas-gathering, processing, and liquefied petroleum gas (LPG) handling facilities, and gas transmission lines. Crucial to the infrastructure blueprint are the three planned gas-gathering and processing facilities, which will serve as regional gas hubs.
In April the Nigerian National Petroleum Corp. (NNPC) confirmed the government's short-listing of 15 potential IOCs and NOCs for investment in projects as part of Nigeria's gas master plan. The list consists of Norway's StatoilHydro; the U.K.'s BG Group, Shell and Centrica; Spain's Gas Natural and Union Fenosa; E.ON RuhrGas of Germany; U.S. supermajor Chevron; Thailand's PTT; India's Gail; South Korea's Kogas; and Russia's Gazprom, together with Nigerian independents Sahara Energy, Oando Group, and a joint venture (JV) between U.S. contractor Hanover Co. and Global Energy. Companies are being urged to form consortiums in order to invest in the infrastructure and contracts could be awarded as soon as October. Real tangible progress will be seen to have been made once these contracts are signed. The Nigerian federal government has said it is going to prioritise its gas for the domestic market to boost electricity generation, industrialisation, and the petrochemicals sector before sanctioning any further LNG export facilities such as the long-planned Brass and Olokola projects, which are far more lucrative for the oil companies. Nigeria is finally making progress on setting a realistic flare-out date and the passing of the bill by the Senate moves the country one step closer to achieving this vital goal.