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.
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