Business Hilights
Tracking Nigeria's Headline Business News Online

FG may raise gas flare penalty from N10/Mscf to N100/Mscf to boost deterrence

Indications have emerged that the Federal Government is considering an upward review of the penalty for brown field sites, especially joint venture and service contracts from the current N10/Mscf to about N100/Mscf.

 A credible source in the Ministry of Petroleum Resources confided in Business Hilights Thursday that “the aim is to serve as a deterrent and further send the message that it is no longer as usual”.

Study show that joint venture and service contracts contribute up to 88 per cent of the total associated gas flared in the country. Gas flaring has been fingered by experts to be the major cause of climate change.

According to the Ministry source, the need for the emerging upward review was conveyed in the new draft gas policy, being produced by the Ministry of Petroleum Resources.

The policy saw gas flaring as one of the most egregious environmental and energy waste practices in the Nigerian petroleum industry.

Extract from the document said in parts; “The current gas flare penalty of N10/Mscf (equivalent $0.03) of associated gas flared is too low, having been eroded in value over time, and is not acting as intended, as a disincentive. Consequently, the low penalty has made gas flaring a much cheaper option for operators compared to the alternatives of marketing or re-injection.”

 “Billions of cubic meters of natural gas are flared annually at oil production locations resulting in atmospheric pollution severely affecting host communities.”

It has been a clear understanding that gas flaring affects the environment and human health, produces economic loss, deprives the government of tax revenues and trade opportunities, and deprives consumers of a clean and cheaper energy source.

However, industry observers are disturbed considering the fact that a whole suite of anti-flaring legislation and initiatives had been introduced over the years to minimise gas flaring in Nigeria, but result had been abysmal.

The draft also noted that “Although Nigeria still flares a significant portion of its gross natural gas production (19 per cent of associated gas, 331sbcf in 2015), the amount of gas flared has significantly reduced in recent years. Its ranking has dropped from the second to fifth largest natural gas flaring country in the world (according to Cedigaz and OPEC).”

To make a realistic target of gas flare-out, the document said the government planned to open an industry consultation mechanism as an important measure in ensuring flaring targets were feasible and regulations realistic.

“The intention of government is to increase the gas flaring penalty to an appropriate level sufficient to de-incentivise the practice of gas flaring whilst introducing other measures to encourage efficient gas utilisation.

 “The government intends to develop regulations, which will prohibit any greenfield gas project from moving forward until there is a proper integrated plan for the development of the hydrocarbons, thereby ensuring that no gas flaring occurs during production of hydrocarbons, except in very special circumstances such as emergencies for operational reasons.”

 “Operators of existing AG fields need to produce integrated gas flare reduction plans; they will then be expected to implement those plans.

“The government will consider a new sliding scale penalty to be introduced for existing brown field sites, especially for the JV and service contracts, which contribute 88 per cent of the total associated gas flared in the country.

“Existing AG fields need to start planning and investing in the utilisation of the associated gas to be supplied into the market, and to come up with economic plans for their development.”

Another key provision of the document is that government would consider new regulations to allow for open access to gas-gathering pipelines, to ensure that flared gas had access to gas gathering systems and gas processing facilities.