Nigeria burns off $5 billion resources yearly from gas flaring

Gas production in Nigeria
Nigeria is endowed with abundant natural gas resources, which in energy terms, is in excess of the nation’s proven crude oil reserve. Although, it is common knowledge that the economy is substantially dependent and more dedicated to exploration of oil than it is of gas, several deposits of gas have been discovered around oil wells in Nigeria.

However, because of past failure of government to focus and explore the many other natural resources which the country possesses, the gas industry has been practically frustrated and nearly abandoned over the years. This has led to a loss of revenue in a sector where there is a likelihood of generating more revenue. The single instance of Nigeria Liquified Natural Gas (NLNG) Limited remitting huge resources to government is instructive.

The current reserve estimate of Nigerian gas is over 170 trillion cubic feet, with about 50/50 distribution ratio between Associated Gas (AG) and Non-Associated Gas (NAG), according to Department of Petroleum Resources (DPR). Only a small fraction of this quantity is currently being utilized.

About 63 per cent of the AG produced during the production of crude oil is currently being flared. 
DPR said that when oil companies began production in the 1960s, the cheapest way to separate the identified product, crude oil, from the associated natural gas was to burn the gas. After Russia, Nigeria flares more gas than any other country in the world in terms of the total volume of gas flared.
Cost implication of gas flaring
 
Available data show that oil and gas companies operating in Nigeria burn over $3.5 to $5 billion yearly from the over 257 flow stations in the Niger Delta. Specifically, the country flared about 17.15 per cent of the 95,471 metric tonnes of gas produced in June 2015 alone, according to data from Nigerian National Petroleum Corporation (NNPC).
 
Organisation of Petroleum Exporting Countries (OPEC) stated in its 2015 Statistical Report that Nigeria produced 86,325.2 million standard cubic meters of gas and flared 10,736.8 million standard cubic meters in 2014. Also, NNPC disclosed that Nigeria lost up to $868.8 million, about N173.76 billion to gas flaring in 2014.
 
NNPC, in its Annual Statistical Bulletin (ASB) for 2014, stated that oil and gas firms in the country flared 289.6 billion standard cubic feet (SCF) of gas, representing 11.47 per cent of the total gas produced in the country last year.
 
Using the Nigerian Gas Company’s (NGC) price of $3 per 1,000 SCF of gas at the current exchange rate realities, the flaring of 289.6 billion SCF of gas translated to a loss of $868.8 million, an equivalent of N173.76 billion. Specifically, the oil and gas companies produced 2.524 trillion SCF of gas, utilised 2.235 trillion SCF and flared 289.6 billion SCF.
 
According to the ASB, the Joint Venture companies comprising the multinational oil companies were the worst offenders in terms of quantity, as they flared 211.836 billion SCF of gas, representing 11.2 per cent of their total gas production of 2.11 trillion SCF. Production Sharing Contract (PSC) companies followed as they flared 66.12 billion SCF of gas, representing 19.95 per cent of their total gas production of 397.58 billion SCF.
 
Sole Risk/Independent oil companies produced 9.71 billion SCF of gas, utilised 1.85 billion SCF and flared 7.86 billion SCF, representing 424.5 per cent of the total gas produced in the sub-sector.
 
Similarly, Marginal Fields companies utilised only 6.79 billion SCF of a total of 10.57 billion SCF gas produced in the sub-sector, and flared 3.78 billion SCF or 55.7 per cent of their total production.
Gas flaring by companies

According toNNPC, Chevron Nigeria Limited (CNL) was the biggest offender among companies with 53.6 billion SCF burnt in 2014. Shell Petroleum Development Company (SPDC) followed with 51.92 billion SCF; Mobil Producing Nigeria flared 42.86 billion SCF while Nigeria Agip Oil Company (NAOC) flared 35.79 billion SCF.

Addax Petroleum Development Company burnt 35.6 billion SCF, Total Exploration and Production flared 22.78 billion SCF, Total Upstream Nigeria burnt 18.73 billion SCF, Esso flared 4.517 billion SCF, Chevron Texaco burnt 4.43 billion SCF and Amni Petroleum flared 3.87 billion SCF of gas in the year under review.

In 2014, Shell Petroleum Development Company’s (SPDC) increase in levels of oil production resulted in the volumes of flared gas increasing by 12 per cent over the year, and an increase of nine per cent in flaring intensity.

SPDC said that a challenging operating environment and shortfalls in funding from the government-owned Nigerian National Petroleum Company have resulted in delays in the completion of a number of gas-gathering projects.
“SPDC remains committed to further reducing the volume and intensity of gas flaring with a number of associated gas-gathering projects which are all currently in development. Further progress to reduce flaring needs sustained commitment and funding by all joint-venture partners, together with safe access to install the equipment,” it noted.
Nigeria’s failed LNG projects

Efforts by the Federal Government to reduce gas flaring through LNG processing plants in the country have all met brick walls. For example, it took NLNG decades to get off the ground; the other two LNG projects Nigeria is planning to construct – Olokola LNG (OK-LNG) and Brass LNG are also running well behind schedule.

NLNG shareholders – NNPC, Shell, Total and Eni – have upgraded the NLNG plant to six trains since 1999 when production operation started from the first two trains. Train six was completed in December 2007. With six trains now operational, the entire NLNG complex is capable of producing 23.5 million metric tonnes per year (MMmt/y) of LNG.

Studies on the 22 MMmt/y, four-train, OK-LNG project began in April 2005, but it has also suffered a delay. The Olokola Liquefied Natural Gas Project is a world-class player in the oil and gas sector of Nigerian economy. The project will initially develop a 2×6.3 million tonnes/year of LNG and ultimate capacity up to 35 million tonnes/year with 30,000 barrels/day of LPG and 15000 barrels/day of Condensate.

The Managing Director of NLNG, Mr. Babs Omotowa, has said that despite the best efforts, the problem of gas flaring was beyond what they could handle alone. He, however, disclosed that his company’s efforts have reduced gas flaring significantly down from 65 per cent to 20 per cent.

He noted, “We don’t produce gas; we buy gas ourselves. By the coming in of Nigeria LNG we have been able to help to bring down gas flaring significantly. Before we came in we were flaring about 65 percent; since we have come in and the efforts we have been able to put together we have brought it down to about 20 percent level. But the effort of gas flaring is beyond Nigeria NLG and that sort of issue will be taken upon by the authorities”.
The many failed attempts to end gas flaring

Nigeria has been making frantic efforts, setting and shifting deadlines towards ending the gas flaring. The country’s unsuccessful attempts to end gas flaring despite numerous legislations and deadlines could easily be traced back to 1969 when the military junta led by General Yakubu Gowon ordered oil companies operating in the Niger Delta to work towards ending gas flaring by 1974.

The 1974 phase-out plan fell through following the inability of the oil firms to put in place gas utilisation facilities, forcing the government to extend the deadline to 1979. Indications that the country’s dream of effective utilisation of its gas resources may ensure long gestation period emerged when the multinational oil firms also failed to meet the 1979 dateline, thus forcing the civilian administration led by Alhaji Shehu Shagari to defer the zero-gas flaring deadline to 1984.

To ensure the realization of the target, an Associated Gas Re-Injection Act of 1979 No. 99 was introduced, demanding that oil corporations operating in Nigeria should produce detailed plans for gas utilisation as well as guarantee zero flares by January 1, 1984, unless they had a case-by-case exemption obtainable from the relevant ministry. Similar excuses were presented three years later by the oil multinational firms on the reasons the 1984 deadline for zero-gas flaring would not be feasible, thus forcing the embattled Shagari government to shift the target date.

Although, routine gas flaring was outlawed since 1984, according to Section 3 of Nigeria’s Associated Gas Reinjection Act 1979, the practice continued unabated during the succeeding military regimes.

Instead of the much-anticipated reduction, statistics from DPR show that the rate of gas flaring grew in leaps and bounds owing to the failure of government to enforce the gas flaring law. Besides the zero-gas flaring deadline, the Federal Government also had a number of other regulatory commitments that ought to have helped to realise the objective.

For instance, the National Gas Policy (NGP) first reviewed in 1995 by the late General SaniAbacha regime required subsequent production sharing contracts (PSCs) signed with oil companies to include gas utilization clauses. Incentives were also offered under the Associated Gas Utilisation Fiscal incentives as an effort to put in place investment required to transport gas to interested third parties, yet those measures failed to lead to actualisation of the zero-gas flaring target.

However, many Nigerians heaved a sigh of relief when former President OlusegunObasanjo’s administration kick-started a new gas flaring phase-out in 2000, setting December 2003 as the new deadline for gas flaring phase-out. This followed its renewed investment in the Nigeria Liquefied Natural Gas (NLNG). But the oil firms preferred 2006 as the most realistic date to end the flares.

Although both parties later reached an agreement to end gas flaring by the end of 2004, the Presidency later pushed the date further by two years (2006). However, when the 2006 zero-gas flaring deadline failed to materialise, a new date of 2008 was quickly agreed. While bowing to mounting local and international pressure, government again pledged to halt gas flares in Nigeria by January 1, 2008 as the new zero flare date. It also threatened punitive action for any breach. Again, on December 17, 2007 yet another shift was announced, this time with a deadline fixed for December 31, 2008.

In 2009, the Senate passed the Gas Flaring Bill, making it illegal for operators to flare gas in Nigeria beyond December 31, 2010. Even this deadline was not met, forcing the House of Representatives to propose December 2012 as the new zero-gas flaring date, as well as impose a fine of $500,000 on any company which fails to report, within 24 hours, any emergency flaring on account of equipment failure.

As at April this year, chief executives from major oil companies and senior government officials from several oil-producing countries met in the United States of America and demonstrated a commitment to end the practice of routine gas flaring at oil production sites globally latest by 2030. Unfortunately, Nigeria, with the second largest gas flaring record in the world after Russia, is yet to sign the ‘Zero Routine Flaring by 2030’ initiative.
Stakeholders proffer solutions

Stakeholders believe that it is expedient for the government and policy-makers in the oil industry to make every effort to appreciably reduce the quantum of gases being flared in Nigeria and encourage the development of gas infrastructure. While speaking on the issue recently at Nigerian Association of Petroleum Explorationists (NAPE) conference on gas flaring, its former president, Adedoja Ojelabi, said that in spite of several gas flares-out regulations and policy, the country continues to flare its natural resources.

“The goal post has shifted a few more times, 2001 to 2004, and then National Energy Policy that declared January 1, 2008 then December 31, 2008 as the deadline for gas flares-out in Nigeria. Some reports have named 2015 as the next deadline”, she added

Ojelabi identified key issues hampering the effective reduction in gas flaring in the Niger Delta to include legal issues regarding gas flaring regulatory framework, Nigerian government’s commitment/capacity to create enabling environment, fiscal and contractual framework for associated gas, lack of infrastructure and huge upfront cost to develop it, access to transmission and markets and energy pricing.

She added that there has been a downside, with the negative impact on the environment, sustainable development, erosion of revenue from gas as a commodity, wealth creation from gas investment opportunities, loss of value for power generation where the country is highly deficient.

“Recent studies have shown the extent of economic loss to the country could range from $2.5 – $17 billion yearly”, she added.