IOCs defiance costs Nigeria $74m daily as gas flaring goes on International oil companies (IOCs), the major perpetrators of gas flaring in the country, and other oil producing companies, have continued to ignore the $3.5 per standard cubic feet (scf) penalty put in place by the government to discourage flaring from which the country loses about $74 million daily. Government on its part has not been able to enforce the regulation because of threats of shutdowns by operators, BusinessDay investigations have revealed. The Ministry of Petroleum Resources introduced the $3.5 gas flare penalty fee in 2011, and the directive was communicated to operators on August 15, 2011, which saw the gas penalty being raised from N10 to $3.5 per scf. A top official of the Department of Petroleum Resources (DPR), the agency in charge of enforcing regulations in the industry, told BusinessDay that the IOCs are threatening that if the penalty is enforced they would shut down production in the country, adding that government has chickened out because of the loss of revenue shut down of production would cause the country. “The IOCs are complaining the new fine regime would affect their profits, and they have told the government that they will shut down production if compelled to pay,” according to a DPR source, adding that the stance of the IOCs is tantamount to intimidation and that government is weak in the knees, considering the ensuing revenue loss of a shutdown. An industry analyst said the sudden and massive increase in the penalty rates before any resolution of current gas infrastructure deficit, was being resisted by the IOCs on the grounds that it would hurt their economics. Also, according to Nkechi Nwaogu, chairman, Senate Committee on Gas Resources, the IOCs are saying for every $3.5 demanded to be paid, the Nigerian government will need to pay 51 percent of it since it has 51 percent equity in oil production. “The Nigerian Petroleum Development Company (NPDC), which is a government-owned company, has one of the highest flare sites. Nobody is paying the $3.5 fine. We had invited them and questioned them. Neither the government nor the IOCs are paying. They are not paying anything,” Nwaogu said. To her, it appears nothing concrete is being done to stop gas flaring in the country. Citing statistics, she said the country was losing $74 million on a daily basis to gas flaring, coupled with the threat it poses to the environment. “When we came on board, we confronted the IOCs with vigour telling them that they must reduce gas flaring. Nigeria has shifted the flare out date more than three times. We are going to renew the campaign on flare out. We cannot continue to devastate our environment and deny the nation of revenue it would have derived if the gas were harnessed. So, many companies are interested in monetising the gas being flared,” she said. She called for collaboration among the executive, legislature, the ministry of petroleum, DPR and other relevant stakeholders to stem gas flaring in the country. “The challenge facing Nigeria is the current lack of infrastructure to trap, capture and pipe flared gas,” said Claire Lawrie, head of oil and gas advisory for Africa, Ernst & Young, adding that the government efforts in using gas for upcoming gas-based industrial parks and increased power generation and building gas infrastructure would help to curb the gas flaring issue. “Gas flaring is an industry wide issue in terms of how to manage associated gas that is not in commercial viable quantity or where there is no supporting infrastructure or markets for the gas.” Nigeria is second to Russia in global gas flaring, according to World Bank Gas Flaring Reduction. The nation currently flares between 1.3 billion cubic feet and 1.4 billion cubic feet of gas a day. The country’s annual gas flare is put at about 460 billion scf out of the 187 trillion scf of proven gas reserves and 600 trillion scf of unproven gas reserves it has. Nigeria flared 536 billion scf of natural gas in 2010 – or about a third of gross natural gas produced in 2010, according to the NNPC. In 2011, the NNPC claimed that flaring cost Nigeria $2.5 billion per year in lost revenue, according to the EIA. “Gas is extremely important for Nigeria. It has the world’s ninth largest gas reserves and we believe that these vast reserves can underpin economic growth and diversification to Nigeria through more power generation, more gas based industrial activities such as fertiliser plants to boost agriculture, petrochemical industries and also high value exports,” Mark Ward, chairman, Oil Producers Trade Section (OPTS) and managing director of Exxon Mobil Corporation’s Nigerian unit, said at a recent conference. The government has been working to end natural gas flaring for several years, but the flare out deadline has been repeatedly postponed with the most recent deadline being December 2012. According to NNPC statistics, companies involving five IOCs account for no less than 97.2 percent of total gas output, including flaring and re-injection. In 2009, the Nigerian government developed a Gas Master Plan aimed at promoting investment in pipeline infrastructure and new gas-fired power plants to help reduce gas flaring and provide much-needed electricity generation.
Posted on: Wed, 11 Sep 2013 08:37:22 +0000
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