Gas Flaring.

1

This work is written and prepared by the author Omeke Chukwuebuka (Llb)

as a final year requirement on his five year Law programme at the University of

Nigeria, Enugu Campus (UNEC). An effort to add to intellectual prowess, promote

literary attitude among a vast majority of audience as well as to give a different and

well coordinated insight into the Nigerian ever growing gas flaring menace, thus

inspires this write up.

Any attempt at plagiarism is strictly disallowed without due

acknowledgement of the authorship.

TITLE PAGE

A CRITIQUE ON THE LEGAL REGIME GOVERNING

GAS FLARING IN NIGERIA

DEDICATION

This research work is dedicated to those whom their ineffable love and support

inspired and encouraged its actualization-

Sir, Prof and Lady B.C.O. Omeke,

Chinenye Mmaduabuchi,

Nnenna Omeke.

2

TABLE OF CONTENTS

Abstract - - - - - - - xv

CHAPTER ONE: GENERAL INTRODUCTION

1.1. Background of the Study

1.2. Statement of the Problem

1.3. Literature Review

1.4. Objectives of the Study

1.5. Methodology

CHAPTER TWO: EFFECTS AND RESPONSES TO GAS FLARING

2.1. Impacts of Gas Flaring

2.2. Responses by the Government

2.3. Responses by Oil Companies

2.4. Judicial Response

2.5. International Responses

CHAPTER THREE: APPRAISAL OF THE RELEVANT LAWS

GOVERNING GAS FLARING IN NIGERIA

3.1. Petroleum (Drilling and Production) Regulations 1969

3.2. Associated Gas Re-Injection Act, 1979

3.3. Associated Gas Re-Injection (Continued Flaring of Gas) Regulations 1984

3.4. Associated Gas Re-Injection (Amendment) Act, 1985

CHAPTER FOUR: PHASE-OUT INITIATIVES

4.1. Possible Gas Utilisation Programmes

4.2. Fiscal Regimes for Gas Utilisation

4.3. Natural Gas Projects

4.4. Associated Gas Re-Injection Bill, 2010

4.5. Petroleum Industry Bill (PIB) 2010

4.6. Basis for Impediments on Gas Commercialisation

CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS

5.1. Conclusion

5.2. Recommendations

Bibliography

3

ABSTRACT

Nigeria is ranked within the top 10 countries of the world with the largest proven

deposits of natural gas. However, it flares much more than the combined energy

needs of sub-Saharan Africa in a day only second to Russia on a global ranking.

This phenomenon has brought socio-economic losses together with health related

problems to the Nigerian people due to the huge amount of carbon emissions lost to

the atmosphere. The flaring of this gas is deemed to be a colossal waste of

resources, particularly in a country experiencing huge energy shortages and also

due to the estimated capital lost on a daily basis as a result of continued flaring.

This project work thus makes a critical review on the adequacy or otherwise of the

legal regimes provided to tackle the ever growing menace of gas flaring as well as

appraise the available initiatives made towards a zero gas flaring actualisation. It

also seeks to assess the country‘s commitment to end the flaring practice. The

project is prepared with the intention to contribute towards resolving this national

and obnoxious problem. The methodology adopted for the project is both

descriptive and analytical. However, it is not devoid of certain comprehensive

research endeavours carried out with the aim of proffering a cognitive

understanding of the topic. Chapter one gives a brief introduction to the concept of

gas flaring, its historical background and position the law takes on the issue. The

consequences envisaged by the practice of gas flaring by oil companies as well as

the approaches taken by institutions concerned are discussed in its chapter two.

Chapter three makes an enumeration and appraisal of the laws that govern the issue

of gas flaring in Nigeria. Chapter four looks into the available ways which the

problem of gas flaring could be contained or rather theoretically obliterated. The

present agitations made by the government and the National Assembly, the options

of gas utilisation along with already established fiscal regimes are treated in this

chapter. The work is concluded on chapter five with recommendations on the

efforts towards a zero gas flare socio-economic regime.

4

CHAPTER ONE

GENERAL INTRODUCTION

Gas flaring refers to the burning of natural gas that is associated with crude oil

when it is pumped up from the ground. Flaring basically consists in burning

precious resources instead of using them.1 Gas flaring wastes a potentially valuable

source of energy as much as it adds significant carbon emissions to the atmosphere

which leads to health and environmental disorders. An array of technologies to

capture or use the associated natural gas exists as alternatives to flaring.

The unutilised gas could be applied towards other productive purposes such

as power generation and liquefied natural gas projects. Other uses include gas re-

injection processes to boost oil production, domestic cooking gas, gas to liquid

projects and other production processes such as the manufacture of fertilizers and

plastic products.

In petroleum‐producing areas where there are insufficient investments made

towards infrastructures to utilise natural gas, flaring is employed to dispose of

associated gas. In Nigeria, when oil companies began production in the 1960‘s, the

cheapest way to separate the identified product, crude oil, from the associated

natural gas was to burn the gas. Gas flaring by oil companies in the Niger Delta

1 Wikipedia, the Free Encyclopaedia, ―Gas Flare‖. http://en.wikipedia.org/wiki/Gas_flare. Retrieved 9 May,

2012.

http://en.wikipedia.org/wiki/Gas_flare

5

region of Nigeria constitutes one of the worst forms of environmental degradation.

The practice has continued primarily due nonchalance on the part of government

which acts as both regulator and partner to the oil companies.

The Senate President, Senator David Mark, indirectly acknowledged the

compromised position of the government with regards to gas flaring.2 He identified

three critical issues. First, the so-called laws on gas flaring are more like mere

policies and not serious legislations. Second, government lacks the will to

implement even the unserious laws; and third, the penalty is too meagre making it

cheaper for the oil companies or operators to flare gas and pay the meagre penalty.

With blatant disregard to the various legislations dealing on the issue of gas

flaring in Nigeria, oil companies shamefully engage in its practice on a daily and

annual routine causing harm to local health through its harmful emissions. This

abysmal environmental condition together with the deliberate effusion of insouciant

attitude by the oil companies and the perpetual wavering of deadlines by the

Government leaves out the questions ―is there a way forward‖.

1.1. Background of the Study.

Gas flaring has been a contentious issue in Nigeria right from the beginning of

commercial exploitation of crude oil in the country. The gas that is flared in the oil

fields of the Niger Delta is called associated gas because it comes out of the earth

2 S. Ojeifo, Nigeria: Mark-FG Lacks the Will to stop Gas Flaring, Thisday, 25 November, 2008 p.23.

6

along with the target crude oil and is separated from the crude so as to make that

commodity useful. In Nigeria over 50% of the gas associated with crude oil

extracted is flared. This is considered reprehensible because of its impacts, its

wastefulness and its continuous and routine manner. Gas flaring is a sad metaphor

for a profligate nation that eats her chickens and the eggs and yet expects more eggs

in future.3

From research, 168 billion cubic meters of natural gas is flared yearly

worldwide. It is equivalent to 25% of gas consumption in the USA and 30% of EU

gas consumption. 13% of the gas flared in the world comes from Nigeria alone and

stands at about 23 billion cubic meters per year.4 This quantity is enough to meet

Nigeria‘s energy needs and leave a healthy balance for export. The Minister of

Petroleum, Mrs. Diezani Alison-Madueke had disclosed in 2010 that the volume of

gas being flared was 1.5 billion cubic feet of gas per day (bcf/d).5 There is a

production of about 3 billion cubic feet of natural gas as co-product of raw crude oil

and out of this number approximately 2.2 billion cubic feet of the total natural gas

3 B., Nnimmo, ―Gas flaring: Assaulting Communities, Jeopardising the World. A paper presented at the

National Environmental Consultation hosted by the Environmental Rights Action in conjunction with the

Federal Ministry of Environment, Abuja 2008. 4 B., Nnimmo, Ibid., p.3.

5 N.J., Ikoro, ―The Socio-Economic Implications of Gas Flaring in Nigeria‖. http://ogbakingdom.com/the-

socio-economic-implications-of-gas-flaring-in-nigeria-by-nwokezi-john-ikoro/. Retrieved 2 May 2012.

http://ogbakingdom.com/the-socio-economic-implications-of-gas-flaring-in-nigeria-by-nwokezi-john-ikoro/


7

produced jointly in the country by the multi-transnational companies6 is flared

daily.7

Gas flaring in Nigeria could be traced to have commenced at the end of the

colonial rule when Shell BP started exploring for oil in the Niger delta in the 1930s.

The first field was found in 1956 and the first export was made in 1958. Flaring

began right at the start and so did the recognition of its unacceptability.8 In the run-

up to Independence in 1960, the Secretary of States for the Colonies, Lord Horne on

being questioned in reference to the wastage of energy and natural resources by

Shell BP gave an official response that

Until there is this worthwhile market and until there are

facilities (e.g. pipelines and storage tanks) to use the gas, it is

normal practice to burn off this by-product from the oil

wells.9

Government‘s staggering on the gas flare issue commenced in 1969. That was when

the first major move was made by the Nigerian State to halt gas flaring in the

country. At that time General Yakubu Gowon ordered that corporations should set

up infrastructure to utilise associated gas within five years of their commencement

of operations. When the oil companies paid scant attention to this order the

6 Shell Petroleum Development Company (SPDC); Nigeria Agip Oil Company (NAOC), TOTAL/Elf

Petroleum Nigeria Limited (EPNL); EXXON MOBILE Producing Unlimited; TEXCO (Oversea) Nigeria

Petroleum and CHEVRON Nigeria Limited. 7 Loc. Cit.

8 The unacceptability of the practice and the massive profits to be amassed by Shell BP under the

unsuspecting nose of Nigerians were officially recognised by the British. 9 ‗Nigerian Oil and Natural Gas Industry‘, File DO 177/33, UKJ National Archives.

8

government then moved the deadline to 1979 but could not enforce it before it was

overthrown in 1975.

Through the Associated Gas Re‐Injection Act No. 99 of 197910

, the Nigerian

government required oil corporations operating in Nigeria to guarantee zero flares

by January 1, 1984. The Act allowed some conditions for specific exemptions or

the payment of a fee of US $0.003 (0.3 cents) per million cubic feet, which

increased in 1988 to US $0.07 per million cubic feet, and in January 2008 to US

$3.50 for every 1000 standard cubic feet of gas flared. This is still considered

meagre and not a deterrent for companies, which find it easier to just pay the fine.

It is worthwhile noting that in recent year‘s oil companies in Nigeria have

been charged a total of between 20 million and 50 million Naira annually for flaring

associated gas. A recent study carried out for the Bureau of Public Enterprises of

Nigeria estimated that each year the country loses between US$500 million and

US$2.5 billion to gas flaring.11

Oil companies nonetheless have continued to flare gas, merely paying

nominal fines for breaking this law. Subsequent Federal legislation repeatedly

pushed back the deadline to end gas flaring indefinitely and sequentially starting

from year-end 2007, then 2008, then 2010. As of January 2010, the Nigerian

10

S. 3 Associated Gas Re‐Injection Act No. 99 of 1979 ACT CAP 26 L.F.N. 1990 ACT CAP. A 25 L.F.N.

2010. 11

Global Gas Flaring Reduction Initiative. ―Regulation of Associated Gas Flaring and Venting - a Global

Overview and Lessons‖. Report No.3, (World Bank, March 2004), p. 64.

9

National Assembly was proposing a new deadline of 2012 which has now been

confirmed in the Bill yet to become law. This deadline has received many reactions

from the public with agitations towards its adequate compliance.

The National Union of Petroleum and Natural Gas Workers (NUPENG)

urged the Federal Government to ensure the deadline for gas flaring does not

exceed Dec. 31.12

But the December 2012 deadline is also very doubtful with

Nigeria still rated the second worst gas flaring nation in the world, after Russia.13

1.2. Statement of the Problem

The continued act of gas flaring in the Niger-Delta, which has reached world record

levels, is directly linked to the activities of the multinational companies in concert

with Nigerian National Petroleum Corporation (the state owned oil company). It is

surprising that despite the act of gas flaring being declared illegal in 1984, as

promulgated under the Associated Gas Reinjection Act of 1979, gas flaring

continues unabated.

12 http://www.punchng.com/news/nupeng-urges-fg-to-enforce-dec-31-deadline-on-zero-gas-flaring/.

Retrieved on 1 May 2012. 13 World Bank Gas Flaring Reduction Partnership, ―Regulation of Associated Gas Flaring and Venting: A

Global Overview and Lessons from International Experience,” World Bank, Report No. 3, Apr. 2004.

http://www.punchng.com/news/nupeng-urges-fg-to-enforce-dec-31-deadline-on-zero-gas-flaring/

10

Prior to 1999, exploration for gas in Nigeria was limited and much of the gas

was flared. As at 2004, approximately 42.6% of associated gas was flared as against

70% in 1999.14

Recognising the huge financial loss resulting from the flaring of associated

gas and the resultant environmental damage, the Federal Government of Nigeria

promulgated an amendment of the Associated Gas Re-injection Act which obligated

all oil producing companies in the country to submit detailed plans for gas

utilisation.15

The Government‘s aggressive targets to attain zero flaring in order to

reduce pollution and monetise its gas reserves has had very little effects despite the

available laws, incentives and projects provided specifically provided to achieve

this purpose.

Additionally, based on report from the Global Gas Flaring Reduction

(GGFR),16

gas flares are a significant source of greenhouse gas emissions and emits

particulate matter, sulphur dioxide, nitrogen dioxide, as well as carcinogenic

substances17

such as benz[a]pyrene, dioxin, benzene and toluene, which can cause

severe health effects such as respiratory illness, asthma, blood disorders and cancer

especially for those residing near the flaring sites.

14

K. Dosekun and G. Oyabole, ―The International Comparative Legal Guide to: Gas Regulation 2007‖.

Published by the Global Legal Group, London 2007. p. 131-138 at 131. 15

Ss. 1 and 2, Associated Gas Re-Injection Act CAP 26 L.F.N. 1990 ACT CAP. A 25 L.F.N. 2010. 16 GGFR (Global Gas Flaring Reduction Public-Private Partnership). 30 August, 2002 ―Report on

consultations with Stake Holders. Word Bank- GGFR-Report 1. 17

Carcinogenic substances are substances capable of causing cancer.

11

The continued flaring of gas has reached an alarming height and despite the

available legal regimes, the effectiveness of these laws is like a drop of water in an

ocean evidenced in its on-going trend through the years. However, its immediate

abatement through every possible means will most infallibly be appreciated by

Nigerians.

This research work shall make an appraisal of the legislative efforts made by

the government towards ending gas flaring in Nigeria; assess its efficacy together

with an appreciation of the utilisation initiatives and proffer means to its proper

implementation for a zero flare actualisation.

1.3. Literature Review.

Nigeria currently flares a large amount of its gas. The Department of Petroleum

Resources (DPR) has said that since 2000, liquid fuels and gas flares accounted for

most of the emissions from Nigeria at 37% and 40% respectively.

Worried about the environmental consequences of gas flares in the country,

the Federal Government, a few years ago, once directed oil producing companies to

shut-in oil fields where the gas being produced and flared was considerably more

than the crude oil produced. The measure was said to have led to a drastic reduction

12

in the volume of gas being flared from the 2.5bcf/d to about 1.5 bcf/d in 2010.18

The exploration for oil over the years continues to pose several environmental

challenges resulting from flaring of gas associated with it.19

Adole Tracy20

is of the view that the absence of an efficient regulatory

framework, inaccessibility to domestic and international markets and limited

finances to undertake gas flaring reduction projects are major reasons for the

continuous flaring of gas globally. However, in Nigeria, all these reasons seem to

hold true in addition to inadequate capabilities and overlapping responsibilities of

government institutions, unclear operational procedures and political instability and

corruption.

According to Ishisone,21

the limited studies in addition to low level of

environmental awareness of gas flaring impacts in the country, is one of the major

reasons the Nigerian Government lacks an efficient gas flaring regulatory policy.

He also stated several others reasons such as lack of the political will to formulate

and enforce coherent policies because of political instability and corruption and

18

N. Amanze-Nwachuku, “24% of Nigeria’s Gas Still Being Flared” (ThisdayLive, March 2012).

http://www.thisdaylive.com/articles/24-of-nigeria-s-gas-still-being-flared/110729/. Retrieved 3 May

2012. 19

M. Ishisone, Gas Flaring in the Niger Delta: The Potential Benefits of its Reduction on the Local Economy

and Environment. http://nature.berkley.edu/ classes/es196/project/. (Retrieved 28 February, 2012). 20

T. Adole, ―A GIS Based Assessment of the impact of Gas Flaring on Vegetation Cover in Delta State,

Nigeria”. Thesis presented for part-fulfilment of the degree of Master of Science, University of East

Anglia Norwich (August, 2011) p.3. 21

M. Ishisone, loc. cit.

http://www.thisdaylive.com/articles/24-of-nigeria-s-gas-still-being-flared/110729/

13

failure of the government to redeem its financial obligation under the existing joint

venture.

The Energy Sector Management Assistance Programme (ESMAP)22

attributed the continued flare of gas to lack of a strong and consistent fiscal, legal,

and regulatory framework and institutions to interface with international investors

together with inadequate or lack of necessary technology for gathering and

harvesting associated gas. In addition, the report on -Strategic Gas Plan for Nigeria-

concluded that apart from eliminating all the above factors, the Nigerian

government needs to overhaul its power sector, in order to create an avenue for the

utilisation of the associated gas(AG) produced.

S.O. Aghalino,23

in his paper stated that the flaring of gas in Nigeria is a

national problem and one is ill at ease to realise that the practice had been sustained

this long because of the skewed argument the oil industry has always canvassed.

The argument that the technology needed to mitigate gas flaring is possibly beyond

their reach, hence their demand for sufficient time to acquire it is not tenable

because oil firms are not just realising the effects of gas flaring. In any case, the

technology is there for them to acquire. While the above explanations may appear

plausible, it is relevant to stress that the colossal flaring of gas in Nigeria should be

22

Energy Sector Management Assistance Programme (ESMAP). ―Nigeria Strategic Gas Plan‖. ESM Report. Vol. 279 (2004) p.4.

23 S.O. Aghalino, ―Gas Flaring, Environmental Pollution and Abatement Measure in Nigeria.‖ Journal of

Sustainable Development in Africa. Vol. 11, No.4, (2009) pp.219-238 at p.225

14

attributed the more to the laxity in the implementation of Nigerian environmental

laws.24

This contrasts sharply with what is obtainable in Europe and North

America.25

The Nigerian government in the pursuit of phasing out gas flaring has

enacted a number of regulations for monitoring flaring volumes and enforcing

operational procedures. Despite the introduction of these regulations more than 20

years ago, these regulatory policies have mostly been unsuccessful in achieving

their set objectives. According to Abdulkareem,26

these policies and regulations are

very poor and inefficient due to the fact that the government puts profits

maximisation ahead of the environment and the wellbeing of its citizens. Another

factor responsible for the failure of these policies is the very insignificant fines

imposed as a penalty for gas flaring which the multi-national oil companies are

willing to pay as it is more economical to flare and pay fine than to stop flaring of

associated gas.27

Congruently, Ukala E.28

is of the view that with the new gas-flaring

deadline, the gas-flaring problem may have, yet again, only obtained a temporary

24

Ibid. P.226. 25

For example, data collected by the Alberta Energy and Utilities Board in Canada shows that in 1996, about

92% of gas was conserved or used in some other ways. The remaining 8% were flared which is in tune

with environmental requirement in Canada 26

A. S. Abdulkareem, ―Evaluation of Ground Level Concentration of Pollutant due to Gas Flaring by

Computer Simulation: A Case Study of Niger-Delta Area of Nigeria‖. Leonardo Electronic Journal of

Practices and Technologies. Vol 6 (2005). pp29 - 42. 27

M. Ishisone, loc. Cit p.15. 28

E. Ukala, ―Gas Flaring in Nigeria‗s Niger Delta: Failed Promises and Reviving Community Voices‖.

15

political response. The high-level deference toward Shell is likely to stall the

process to end gas flaring and when such deference is continuously conferred on an

oil company, it is difficult to achieve social change because the government

continually relies on the oil companies stipulations. He further suggested for the

adoption of a customary arbitration method as possible solution to stopping gas

flaring and that if the customary-arbitration approach is not adopted, then oil

companies will continue flaring gas until the courts are impartial and the rule of law

becomes meaningful.

Moreover, oil companies will only stop flaring gas when the Nigerian

government provides them with an incentive to do so which includes imposing a

strict and high penalty for violation of gas-flaring laws. Thus, as long as the

Nigerian government protects the oil companies, the oil companies will persist in

gas flaring, and environmental degradation.29

However, it would appear the issue of gas flaring attracts little attention from

scholars in Nigeria probably because when compared to other effects of oil

production such as oil spills, which has immediate degradation effects on the

environment, the issue of the impacts of gas flaring is not readily visible. The legal

regime has not been of much help as it has been engulfed by corrupt practices

Journal of Energy, Climate, and Environment. Vol. 97 (2011) pp.97-126 at p.108. 29

Ibid p.126.

16

prevalent in Nigeria where the government is more interested in the fees imposed

on the oil companies than on implementation of laws put in place.

1.4. Objectives of the Study

The objectives of this study revolves around the legal framework governing gas

flaring in Nigeria and to find adequate perspective to examine its efficacy in

conjunction with phase out initiatives presently available. The objectives of the

study are as outlines hereunder:

Make an assessment/appraisal of efforts made towards curbing gas flaring in

Nigeria so far by all sectors involved.

To proffer possible avenues to reduced gas flaring through effective

regulatory measures based on sound legal framework and laudable phase-out

initiatives.

To show how gas could be utilised and applied towards other productive

purposes such as power generation and liquefied natural gas projects like the

Nigeria Liquefied Natural Gas Project (NLNG).

To assess whether the bills presently in the House of Assembly could

actualise a zero gas flare regime as envisaged.

1.5. Methodology

17

The methodology adopted for this project is both descriptive and analytical.

However, it is not bereft of certain comprehensive research endeavours carried

out with the aim of proffering a cognitive understanding of the topic.

18

CHAPTER TWO

EFFECTS AND RESPONSES TO GAS FLARING

Gas flaring contributes to climate change, which has serious implications in an

environment. Harmful substances which are associated with gas flaring pose

deleterious threat to individual health as well as to the climatic and economical

conditions of a state. According to estimates made by the Global Gas Flaring

Reduction (GGFR),30

Nigeria is one of the highest emitter of greenhouse gases in

Africa and among the highest CO2 emitters in the world.

The menace occasioned by flaring of gas has not been without certain

reformative reactions by the bodies concerned. These institutions include the oil

companies, the Nigerian government, international organisations as well as the

judiciary. This chapter discusses the impacts/effects which accompany gas flaring

in the regions where it is most prevalent and in Nigeria at large. The efforts made

towards abating gas flaring shall be discussed as well.

2.1. Impacts of Gas Flaring

Gas flaring in the country has contributed more greenhouse gases to the Earth‘s

atmosphere than all other sources in sub-Saharan Africa combined. As such, it is a

serious but unnecessary contributor to climate change, the impacts of which are

30

GGFR (Global Gas Flaring Reduction), ―Report on Consultations with Stakeholders”. World Bank-

GGFR Report 1. (Washington, D.C., 2002). http://www .worldbank.org/. Retrieved on 5 May 2012.

19

already being felt in the regions with food insecurity, increasing risk of disease and

the rising costs of extreme weather damage. 31

A study by the U.S Department of Energy calculated a release of 11 million

metric tonnes (mmt) of atmospheric carbon by Nigeria‘s flares in 1998, 12 Mmt in

2001 and more than 300 mmt since 1963. Thus, gas flaring in the Niger Delta

region of Nigeria makes up some 20% of the world total.32

Nigeria‘s gas flares

contribute about 70 mmt of carbon dioxide emissions a year which, according to a

joint World Bank/United Nations Development Programme report is a ―substantial

proportion of worldwide greenhouse gas‖.33

Flaring natural gas creates particulate emissions (soot), fugitive methane

emissions, nitrogen oxides, sulphur dioxide, and a number of other harmful

emissions. Beyond the impact of gas flaring on the atmosphere, local environmental

impacts of flaring are substantial at large-scale flare sites. Assessments show larger

concentrations of nitrogen oxide (NOx) are found within one to three km from

flaring sites. Sulphur Dioxide (SO2), Carbon Monoxide (CO) and various unburned

31

O.O.I. Orimoogunje & A. Ayanlade , et al. ―Perception on Effect of Gas Flaring on the Environment‖.

Research Journal of Environmental and Earth Sciences 2, Vol. 4 (October 5, 2010), pp. 188-193, p. 189. 32

J. Huang, ―Natural Gas Burns and Communities Cry Foul II: Markets Define Policy, in World Power:

Global Energy Politics & Issues”. Independent News Desk (12 November, 2002)

http://www.artsandmedia.net/cgi-bin/dc/newsdesk/200211/12_flaring_2. Retrieved on 9 May 2012. 33

See ―Nigeria Strategic Gas Plan,‖ Joint UNDP/World Bank Energy Sector Management Assistance

Programme (ESMAP), ESM279, Report 279/04, February 2004.

http://www.artsandmedia.net/cgi-bin/dc/newsdesk/200211/12_flaring_2

20

hydrocarbon emissions can be present within five to 15 km from flare sites.34

For

instance, flaring at Izombe flow stations in Imo State caused about 100 percent loss

in the yield of crops cultivated about 200 meters away, about 45 percent loss for

those 600 meters away, about 10 percent loss for those in kilometre away.35

Black carbon particles, known as soot, are released with smoke resulting

from the incomplete combustion of flared gas. The two combine to form what is

called ‗black smoke‘. Excessive black smoke can create visual discomfort for

nearby residents.

Sulphur and nitrogen emissions are known to create acid rain problems that

can poison watersheds and vegetation, and corrode buildings. Local residents

complain of respiratory problems such as asthma and bronchitis. Reports have

shown that the flares contribute to acid rain and villagers complain of the rain

corroding their buildings.36

In addition to atmospheric pollution, gas flaring creates thermal and noise

pollution near the flare. Local residents, especially those living in the Niger-Delta

regions also complain about the roaring noise. Gas flaring has been a huge bar

against efforts at the human capital development of the Niger Delta through disease

34

M. Farina, ―Flare Gas Reduction: Recent Global Trends and Policy Considerations‖. GE Energy, Global

Strategy and Planning. (January, 2011), p. 22. 35

D. W. Okezie, and A.O. Okeke, ―Flaring of Associated Gas in Oil Industry: Impact on Growth,

Productivity and Yield of Selected Farm Crops, Izombe Flow Station Experience‖. NNPC Workshop

(Portharcourt, 1987) p. 15. 36

Friends of the Earth. ―Gas Flaring in Nigeria”. Media Briefing (October, 2004). P 2.

21

and related impacts. Life expectancy in the Niger Delta is lower than what obtains

elsewhere in Nigeria that is endowed with such natural resources.37

A chemical approach made by Nwankwo and Ogagarue38

has therefore,

shown that waters in a gas flared environment contain higher concentrations of

harmful metals such as barium, cyanide, selenium, cadmium, chromium, iron,

manganese and copper which are in concentration levels that are above World

Health Organisation (WHO) maximum permissible limits.

Ishicei and Sanford39

demonstrated the effects of gas flares on plant growths.

They found that growth was generally suppressed, that flares diminished the value

of agricultural productivity and output reduction could be high. Continued

degradation through gas flares renders the Niger Delta extremely vulnerable to the

impacts of climate change with a projected loss of 50% ability to produce cereals by

the year 2020 and with an expected rise to 80% loss by 2050.40

2.2. Responses by the Government

Worried about the environmental consequences of gas flares in the country, the

Federal Government has made efforts to contain or rather abate its practice by oil

37

Ibid. p. 4. 38

C.N. Nwankwo and D.O. Ogagarue, Effects of Gas Flaring on Surface and Ground Waters in Delta State

Nigeria. ―Journal of Geology and Mining Research”. Vol. 3 No.5 (May 2011) pp. 131-136. 39

Isichei and Sanford, ―The Effects of Waste Gas Flares on the Surrounding Vegetation in Southern-Eastern

Nigeria‖. J. Appl. Ecol. (1976) No.13 pp.177-187. 40

B. Nnimmo. ―Gas Flaring: Assaulting Communities, Jeopardising the World. A paper presented by at the

National Environmental Consultation hosted by the Environmental Rights Action in conjunction with the

Federal Ministry of Environment, Abuja 2008.

22

companies. The efforts of the government are encapsulated in ending flaring and

addressing environmental issues; to facilitate development of power sector in

particular and to facilitate growth in industries among others.41

Accordingly, the government has put in place some initiatives to abate gas

flaring. These include the establishment of the National Fertilizer Company of

Nigeria (NAFCON), Aluminium Smelter Company of Nigeria (ALSCON) and the

Liquefied Natural Gas Project (NLNG) which perhaps is the most ambitious gas

project in the country. There is also the West African Gas Project.

Natural gas is also used to power most of the National Electric Power

Authority‘s thermal stations. Also, the $3.8bn NLNG facility on Bonny Island,

which was completed in September 1999, is expected to process 252.4 billion cubic

feet of LNG annually42

. The government is also into joint venture arrangement with

other multinational oil companies with regards to the West Africa Gas Project so as

to provide gas for electricity generation and to support industrial expansion and

economic development in the sub-region.

The Escravos Gas Project (EGP), in which the NNPC holds a 60 percent

share and Chevron Texaco 40 percent, is another project that has expanded

41 B. Okogun, ―Current Efforts to Enhance Natural Gas Utilisation and Reduce Gas Flaring in Nigeria‖.

From http://www2ife.org/orgnic/files/ggralgiers2004. Retrieved 6 May 2012. 42

S. Ollerearnshaw, ―LNG: the Nigerian Experience‖. A Paper presented by the Managing Director and

Chief Executive, Nigeria LNG Limited Lagos, Nigeria at the 12th

International Conference on Liquefied

Natural Gas December 1997, p. 3.

http://www2ife.org/orgnic/files/ggralgiers2004

23

Nigeria‘s natural gas industry.43

The first phase of the EGP (EGP- 1) processes 165

Million metric cubic feet per day (Mmcf/d) of associated natural gas, which is

supplied to domestic market by pipelines. The proposed $580 million Ajaokuta-

Abuja-Kaduna Pipeline will supply natural gas to central and Northern Nigeria.

Apart from the drive toward increase in gas utilisation, there are extant

legislations aimed at reducing gas flaring in Nigeria. The Petroleum (Drilling and

Production) Regulation44

provides that licensee or leasee of an Oil Mining License

(OML) must submit feasibility study, programme or proposal for gas utilisation not

later than five years after the commencement of production.

The Associated Gas Re-injection Decree45

mandated oil producing

companies to submit proposals for utilisation of natural gas. They were expected to

stop gas flaring from 1st of January 1984. The Decree could not be enforced for it

was totally unrealistic in terms of the time frame for its implementation. The

Associated Gas Re-injection (Amendment) Decree,46

introduced a penalty charge of

two kobo/1000 standard cubic feet (scf) of gas flared at the fields where authority to

flare was not granted.47

The Associated Gas Framework Agreement (AGFA) was

43

Centre for Energy Economics (CEE). ―Gas Monetisation in Nigeria‖. Bureau of Econimic Geology, Jackson

School of Geosciences, the University of Texas at Austin. www.beg.utexas.edu/energyecon/new-

era/case_studies/Gas_Monetization_in_Nigeria.pdf. Retrieved 4 June 2012. 44

Decree No. 51 of 1969. 45

Decree 99 of 1979. 46

Decree 7 of 1985. 47

The penalty however graduated steadily. In 1990, the penalty was increased to fifty kobo/ 1000 standard

cubic feet. This was further raised to ten Naira/1000 standard cubic feet in 1998.

http://www.beg.utexas.edu/energyecon/new-era/case_studies/Gas_Monetization_in_Nigeria.pdf


24

introduced in 1991/1992 as a fiscal incentive for natural gas utilisation involving

broad-based package such as processing, production, transmission and supply of

gas to the NLNG. These almost laudable legislations were followed by similar

legislations which only resulted in the flare-out date being shifted continually.

In addition to legislation and fiscal incentives, government has established

the certain institutions to aid and co-ordinate gas development in the country. This

includes the Nigerian Gas Company (NGC) – a subsidiary of the Nigeria National

Petroleum Corporation (NNPC) with responsibility for gas gathering and

transmission in the country. This subsidiary company also deliver natural gas to

areas in River State for the state Rural Electrification Board, Afam Power station

and to Sapele Thermal Board Station (Ogorode Power Station)48

Gas pipelines in various parts of the company supply large quantities of gas

to several power stations. The government is still in the process of abating gas

flaring with the latest deadline for flare-out as 31, December 2012.

2.3. Responses by Oil Companies

Shell Petroleum Development Company of Nigeria Ltd (SPDC) was the first

company to re-inject gas at Oguta in 1978. Subsequently, Agip‘s Obiafu-Obikon

48

D. Etete, ―Investment Prospect in the Petroleum Sector‖. Report of the National Economic Summit.

Spectrum, (Ibadan: Spectrum, 1995) pp.161-181, p. 176.

25

Gas Re-injection Project was commissioned in 1981 in response to Decree No. 99

of 1979.49

In a paper presented at a seminar on gas flaring held in Oslo, Norway, the

External Relations Director SPDC Nigeria Basil Omiyi, gave an account of gas

utilisation activities of the company from 1963 to 1999 which majorly includes

supply of gas to different power station and others institutions such as National

Electric Power Authority (NEPA), Ajaokuta Steel Company etc.50

Shell states that

in the period 2002-2010 SPDC‘s flaring has decreased by about 50%.

The company mentioned that the reason for this is that since 2000, SPDC has

spent over USD (US dollars) 3 billion on installing associated gas gathering

infrastructure at 32 flow stations. These projects reduced continuous flaring by

more than 30%. This 30% result was already achieved in 2005. The rest of the

decrease is a result of reduced production since 2006 in Nigeria and, to a lesser

extent, the installation of gas gathering equipment in 2010.51

In 2007, SPDC promised ―to shut down production from any fields where

there is no prospect of a solution for gathering the associated gas by 2009‖. In May

2009, SPDC stated that it would need to invest another USD 3 billion to gather

49

Yakubu. ―Gas Flare may not end in 2004, says shell‖. The Guardian Newspaper, Wednesday June 20th

2004. p. 21. 50

B. Omiyi, ―Shell Nigeria Corporate Strategy for Ending Gas Flaring‖. A paper presented at a seminar on

gas flaring and poverty alleviation in Oslo, Norway. (June; 2001). 51

J. Donovan, ―shell primitive gas flaring in Nigeria‖. Royal Dutch Shell Plc.com; News and Information on

Royal Dutch Shell Plc. http://royaldutchshellplc.com/2011/06/14/shell-primitive-gas-flaring-in-nigeria/.

Retrieved on 6 May 2012.

http://royaldutchshellplc.com/2011/06/14/shell-primitive-gas-flaring-in-nigeria/

26

some 85% of the total associated gas produced in its operations. Wikileaks revealed

a statement in October 2009 by the Shell Executive Vice President for Shell

Companies in Africa, Ms. Ann Pickard. She stated that the SPDC-flares could be

out by 2011.52

According to report by Shell, flaring in total dropped by more than half

between 2002 and 2010 from over 0.6 billion cubic feet a day (bcf/d) to less than

0.3 bcf/d.53

Thus, Shell is of the opinion that whenever the security situation allows

it to produce more oil, its gas flaring might increase again.

Chevron currently holds a 40% interest in 13 Nigerian concessions that it

operates under a joint-venture arrangement with the NNPC, with daily production

averaging 524,000 barrels of crude oil, 206 million cubic feet of natural gas and

5,000 barrels of liquefied petroleum gas (LPG).54

Chevron is the largest stakeholder

and the lead corporation on the World Bank-led West Africa Gas Pipeline (WAGP).

Chevron has stated that the WAGP will lead to reduced gas flaring, as it allows

access to markets and provides the ability to deliver gas to end users.

The Director of NNPC and Chevron‘s joint venture, Mr. Supo Shadiya,

recently set a new date of 2012 for ending flaring of all associated onshore and

52

Ibid. 53

Shell in Nigeria; ―Gas Flaring‖. Published by Shell Companies in Nigeria: Shell Petroleum Development

Company of Nigeria Limited, Shell Nigeria Exploration and Production Company Limited and Shell

Nigeria Gas Limited. April, 2011. 54

Justice in Nigeria Now, ―The True Cost of Chevron: Chevron in Nigeria‖.

http://justiceinnigerianow.org/about-chevron. Retrieved 8 May 2012.

http://justiceinnigerianow.org/about-chevron

27

offshore gases from the company‘s western operations.55

In 2005, Chevron Nigeria

Limited (CNL) adopted a new approach to community engagement in the Delta,

called the Global Memorandum of Understanding (GMOU), which outlines

agreements with local communities on jobs and other social welfare programs that

the company will provide.56

The LNG projects embarked by different oil companies operating in Nigeria

in conjunction with NNPC proffer avenues at efforts directed towards abating gas

flaring by these companies. The West African Gas Pipeline (WAGP) is being

developed by Chevron, SPDC and NNPC. The Nigeria Liquefied Natural Gas

(NLNG) Limited is jointly owned by Agip (10.4%), NNPC (49%), Shell (25.6%),

and TotaFinaElf (15%). Escravos Gas-Gathering Project is a joint venture project

between NNPC (60%) and ChevronTexaco (40%) to recover associated gas from

offshore fields. West Niger Delta LNG is the second LNG plant to be developed by

Chevron Texaco, Conoco, and ExxonMobil.

Oso NGL Project is an NNPC (49%) and ExxonMobil (51%) joint venture

project that converts associated wet gas into natural gas liquids (NGLs). The

project‘s current production capacity is 50,000 barrels per day. There is also the

Brass LNG Project which is a joint venture project between NNPC (49%), Chevron

55

Ibid. 56

Ibid. However, the people of Obe-Nla in the Ilaje Local Government Area of Ondo State have threatened

to shut down CNL operations in its domain, claiming that CNL has failed to implement its GMOU and that

CNL has excluded their community in its welfare programmes.

28

(17%), Conoco Philips (17%) and Agip (17%) for the construction of a $3 billion

LNG plant. Notwithstanding all these gas flaring reduction projects, the set deadline

to eliminate gas flaring in Nigeria is still to be met.

2.4. Judicial Response

Despite the laws governing gas flaring, gas flaring remains widely practiced in

Nigeria without being addressed by the courts due to scarcity of cases on that

matter. Most litigation with the oil companies had been majorly on oil pollution and

the sorts. Until 2005, Niger Delta citizens and residents sought to use the Nigerian

courts for addressing the menace of gas flaring. This was in the case of Jonah

Gbemre v. Shell Petroleum Development Co. & Ors57

brought before Justice C.V.

Nwokorie of the Benin High Court.

Jonah Gbemre, on behalf of the Iwherekan Community in Delta State,

brought suit against Shell Petroleum Development on the grounds that Shell‗s gas-

flare practices violated the fundamental rights of the people, which are guaranteed

under sections 33(1) and 34(1) of the Constitution of the Federal Republic of

Nigeria, 1999, and the African Charter on Human and Peoples Rights Act.58

Secondly, the plaintiff argued that Shell‗s failure to engage in an assessment of the

57

(2005) AHRLR 151. See also the recent climate change cases of Shell v. Ijaw Aborigines of Bayelsa State

(2011) LPELR-SC.290/2007 where the court awarded the amount of 1.5 billion US Dollars as

compensation for economic hardship and environmental degradation of the appellants communities by the

respondents oil production activities. 58

Cap. A9, Volume 1, Laws of the Federation of Nigeria, 2010.

29

effects of gas flares in the Niger Delta region violated the Environmental Impact

Assessment Act, 59

section 2(2). The third argument was that the Associated Gas

Re-Injection Act, section 3(2) (a) (b),60

which permits gas flaring, is inconsistent

with Section 33(1) and 34(1) of the 1999 Nigerian Constitution and as such, the Re-

Injection Act should be deemed void.

Consequently, the plaintiff sought an injunctive relief to stop Shell from

flaring gas. In November 2005, the High Court responded to this matter by holding

that the Court has the inherent jurisdiction to grant leave to the applicants who are

bona fide citizens and residents of the Federal Republic of Nigeria, to apply for the

enforcement of their fundamental rights to life and dignity of the human person as

guaranteed by sections 33 and 34 of the Constitution of the Federal Republic of

Nigeria, 1999 which guaranteed rights to clean, poison-free, pollution-free healthy

environment.

The court also held that the actions of the defendants in continuing to flare

gas in the applicants‘ community are a gross violation of their fundamental right to

life and dignity of human person. That the said sections of the Associated Gas Re-

Injection Act and the Associated Gas Re-Injection (Continued Flaring of Gas)

Regulations are inconsistent with the applicant‘s rights to life and/or dignity of

human person as enshrined in the Constitution and articles of the African Charter

59

Cap. E12, Vol. 6, L.F.N., 2010. 60

Cap. A25, Vol. 1, L.F.N., 2010.

30

on Human and Peoples‘ Rights (Ratification and Enforcement) Act,61

and are

therefore unconstitutional, null and void by virtue of section 1(3) of the same

Constitution.

Although this decision was laudable, victory on the stoppage of gas flaring

was only short lived, as Shell violated the court‗s order and continually engaged in

flaring gas. Shell refused to comply with the court‗s order, arguing, inter alia, that

the High Court failed to apply proper judicial procedure and Shell lacked adequate

resources to liquefy gas flares. In December 2005, Mr. Gbemre filed suit against

Shell on the grounds that Shell failed to comply with the court‗s order. This has

been the only attempt by the court to address the gas flaring menace and it is hoped

that if the oil companies do not comply with the flare-out date, more litigations will

follow suit.

2.5. International Responses.

Attempts at accelerating flare reduction made by the international community have

been to launch new international sector agreement focused specifically on gas

flaring reduction. The voluntary programme currently sponsored by the Global Gas

Flaring Reduction Partnership (GGFR) is a model. The GGFR work programme

focuses on four areas of activity to assist the reduction of gas flaring and venting in

its partner countries: (1) commercialising associated gas, including domestic market

61

Ss. 4, 16 and 24 of the African Charter on Human and Peoples‘ Rights (Ratification and Enforcement)

Act, cap A9, Vol 1, L.F.N., 2010.

31

development and access to international markets, (2) developing legal and fiscal

regulations for associated gas, (3) implementing the flaring and venting reduction

standard that has been developed by the partnership, and (4) capacity building

related to carbon credits for flaring and venting reduction projects.

Signatories to the partnership are required to undertake commitments to

reduce gas flaring in exchange for preferential access to new clean technology

funds, including any that may be focused on gas flare reduction. 62

GGRF partners

include Shell BP, Chevron, Conoco- Phillips, Eni, ExxonMobil, Maersk Oil & Gas,

Marathon, Shell, STATOIL, Total; European Union, OPEC Secretariat, World

Bank Group and associated country partners.63

In 2002, the GGFR released a report on Kyoto Mechanisms for Flaring

Reductions and concludes that gas flaring reduction projects starting from the year

2000 onward may be eligible under the Clean Development Mechanism (CDM) and

Joint Implementation mechanisms.

The work program in Nigeria has continued to focus on supporting the on-

going dialogue between the Nigerian government, the oil and gas operators and

other relevant stakeholders in developing a rational approach to flare reduction

through the ―Nigeria Flare Reduction Committee" (NFRC), which was first set up

62

Global Gas Flare Reduction Public-Private Partnership. ―Partnership Kicks off Work Program for 2010-

2012‖. The News Flare, Issue No. 10, January - July 2010. 63

Wärtsilä and governments of Algeria (Sonatrach), Angola, Azerbaijan, Cameroon, Canada (CIDA), Chad,

Ecuador, Equatorial Guinea, France, Gabon, Indonesia, Kazakhstan, Khanty-Mansiysk (Russia), Mexico

(Pemex), Nigeria, Norway, Qatar, United States; with other companies and countries expected to join.

32

in October 2007. Based on several data assessments and studies of realistic options

for flaring reduction, the NFRC has developed a number of options to reduce gas

flaring reduction, and is now waiting for an opportunity to present these options to

the new Minister of Petroleum Resources.64

64

Ibid. p. 4.

33

CHAPTER 3

APPRAISAL OF THE RELEVANT LAWS GOVERNING

GAS FLARING IN NIGERIA.

The Nigerian government in the pursuit of phasing out gas flaring has enacted a

number of laws for monitoring flare volumes and enforcing operational procedures.

Despite the introduction of these laws more than 20 years ago, they have mostly

been unsuccessful in achieving their set objectives. The policies and regulations are

very poor and inefficient due to the fact that the government puts profits

maximisation ahead of the safety of the environment and the wellbeing of its

citizens. Another factor suggested to be responsible for the failure of these policies

is the very insignificant fines imposed as penalty for gas flaring and thus, the multi-

national oil companies are willing to pay as it is more economical to flare and pay

fine than to stop flaring of associated gas.65

This segment of the work surveys the sections of the laws which had been

promulgated specifically to regulate the recurring gas flaring menace and make an

assessment of such provisions with reference to its efficacy in relation to the

remedies sought to be mitigated.

65

M. Ishisone, ―Gas Flaring in the Niger Delta: The Potential Benefits of its Reduction on the Local

Economy and Environment”. http://nature.berkley.edu/ classes/es196/project. (Retrieved 28 February,

2012).

34

3.1. Petroleum (Drilling and Production) Regulations 196966

This regulation is a subsidiary legislation to the Petroleum Act.67

Under the

Petroleum (Drilling and Production) Regulations 1969 as promulgated in the Act,

Regulation 42 pursuant to section 9 of the Act provides that:

not later than five years after the commencement of production from

the relevant area, the licensee or lessee shall submit to the minister, any

feasibility study, programme or proposals that he may have for the

utilization of any natural gas, whether associated with oil or not, which

has been discovered in the relevant area.68

Prior to its promulgation, exploitation of natural gas was not given adequate

consideration especially as it relates to gas flaring. The concern of the country at

that time was basically on the grant and regulation of concessions and licences

together with the huge revenue which followed such activities. For this reason,

matters of gas utilisation were merely contained under a single section of a

regulation.

This insouciant attitude of the law makers led to a dilatory approach to gas

utilisation and flaring by the oil companies who paid little regard to the regulation.

Thus, the act was of little effect and moreover, oil companies paid no regard to its

observance because there was not much agitation at that time.

66

Petroleum (Drilling and Production) Regulations No. 51 of 1969. 67

CAP. 350 L.F.N. 1990 ACT CAP. P10 L.F.N. 2010. 68

This is now contained under Regulation 43 in the amended Petroleum (Drilling and Production)

Regulations S. I. No. 9, 2006.

35

3.2. Associated Gas Re-Injection Act, 197969

This was the first attempt made by the government to tackle gas flaring specifically

and directly in a whole legislation. The Act banned gas flaring and mandated oil

companies to submit a plan on gas utilisation and gas reinjection program by 1980.

Section 2(1) of the Act provides thus:

Not later than 1st October, 1980, every company producing oil

and gas in Nigeria shall submit to the minister, detailed

programmes and plans for either-

(a) the implementation of programmes relating to the re-

injection of all produced associated gas; or

(b) schemes for viable utilization of all produced associated gas.

The fact that some of the gas produced in association with oil has been

earmarked for some alternative utilisation does not exempt compliance with the

provisions of the Act.70

By this legislation no company was to flare gas after January 1984 without

special permission from the Minister of Petroleum Resources.71

At the same time

section 3(2) of the Act empowers the Ministers to disregard the application of the

general prohibition in respect of a particular field of fields by issuing a certificate, if

the minister is satisfied that utilisation or re-injection of the produced gas is not

appropriate or feasible in that field(s). In doing so the minister is required to

69

No.99 Cap. A26 L.F.N.1990, Act Cap. A25 L.F.N. 2010. 70

S. 2(2) Associated Gas Re-Injection Act Cap. A26 L.F.N.1990, Act Cap. A25 L.F.N. 2010. 71

S. 3(1) Ibid.

36

(a). Specify such terms and conditions, as he may in his discretion choose

to impose, for the continued flaring of gas in the particular field or fields72

or

(b). Permit the company to continue to flare gas in the particular field or

fields if the company pays such sum as the Minister may from time to

time prescribe.73

The fee was first set at 0.50 Naira per million cubic feet (mcf). In January 1998 it

was at 10 Naira per mcf, which at November 2003 exchange rates is equivalent to

US$0.076 per mcf.74

Commenting on the payment of fees, the World Bank opined

that the sum is payable in the same way as royalty (in foreign currency) into the

designated foreign account into which royalties are paid and that while oil

companies in Nigeria have been charged a total of between 20 million and 50

million Naira (or US$150,000–370,000) annually for flaring associated gas, the

country loses between US$500 million and US$2.5 billion to gas flaring each year

if viewed in the overall context of gas flared.75

The penalty provided for offenders in the enactment was punishment by

forfeiture of concession and the withholding of all or part of any entitlements of any

offending person.76

The Act could not be enforced for it was totally unrealistic in

72

S. 3(2) (a) Ibid. 73

S. 3 (2) (b) Ibid. 74

Global Gas Flaring Reduction Initiative: Report No.3: ―Regulation of Associated Gas Flaring and Venting

- a Global Overview and Lessons‖. (World Bank, March 2004), p. 64. 75

Ibid. p.63. 76

S. 4 Ibid.

37

terms of the time frame for its implementation. There was also the increasing

possibility that if the act were enforced without any modification, many oil

companies would rather curtail crude oil production or shut in their oil wells which

will in return hamper government‘s objective of increasing its reserves.77

It also appears that the record of command and control approach in gas

flaring abatement has not been efficient. Most operators continued glaring gas with

or without the minister‘s permission and would simply pay the penalty for flaring

which was lower than the cost of installing gas re-injection systems

3.3. Associated Gas Re-Injection (Continued Flaring of Gas)

Regulations 198478

Major oil companies in Nigeria indicated difficulties in meeting the 1984 deadline,

citing lack of resources to construct a gas re-injection plant within the timeframe. It

must be noted that oil companies were rather reluctant to comply with the

government‘s mandate. Consequently, the deadline was extended by one year

observing the Nigerian government‘s willingness to accommodate the needs of oil

companies.

With effect from January 1985, the Associated Gas Re-injection (Continued

Flaring of Gas) Regulations 1984, a subsidiary legislation to the Associated Gas R-

77

L. Ososami, ―Developments in Nigeria‘s tax Regime for Gas Utilisation Projects‖. Mondaq: Energy and

Natural resourses. (1 December, 2008). See also

http://www.mondaq.com/article.asp?articleid=70210&login=true&nogo=1. Retrieved 1 June 2010. 78

No. 99 Cap A25 1984.

http://www.mondaq.com/article.asp?articleid=70210&login=true&nogo=1

38

Injection Act 1979, made an extra provision to support its mother legislation.

Pursuant to the regulation, flaring could continue through the issuance of a

certificate by the Minister under section 3(2) of the Associated Gas Re-Injection

Act, in a particular field or fields, subject to any one or more of the following

conditions, that is -

a. Where more than seventy-five per cent of the produced gas is effectively

utilised or conserved;79

b. Where the produced gas contains more than fifteen per cent impurities,

such as N2, H2S, CO2, etc, which render the gas unsuitable for industrial

purposes;80

c. Where an on-going utilization programme is interrupted by equipment

failure: provided that such failures are not considered too frequent by the

Minister and that the period of any one interruption is not more than

three months;81

d. Where the ratio of the volume of gas produced per day to the distance

of the field from the nearest gas line or possible utilisation point is small and

provided it is not technically advisable to re-inject the gas in that field;82

79

Reg. 1(a) Ibid. 80

Reg. 1(b) Ibid. 81

Reg. 1(c) Ibid. 82

Reg. 1(d) Ibid.

39

(e). Where the Minister, in appropriate cases as he may deem fit, orders the

production of oil from a field that does not satisfy any of the conditions

specified in the Regulations.83

This regulation clearly shows the level of reluctance exhibited by the government at

stopping gas flaring which may be because they had more pecuniary interest than it

was ecological/societal. Some of the conditions under the said regulation were as

frivolous as they were ludicrous.

For instance, the condition of equipment failure would lead oil companies to

stay out of gas re-injection operation only claiming that the equipment is either

expensive or not available in the market thereby giving them more time to flare

without hindrance. Moreover, it would be a lie for oil companies to say that they

cannot afford equipment considering how much they amass from the operation.

They should rather stop production than continued flaring while waiting for

replacement or repair of equipments.

The Minister was further empowered to review, amend, alter, add to or delete

any provision of the Regulations from time to time as he may deem fit.84

However,

oil companies failed to adhere to the policies stipulated in the 1984 deadline,

claiming it was too expensive to re-inject gas. Consequently, approximately 55% of

83

Reg. 1(e) Ibid. 84

Reg. 2 Ibid.

40

oil fields were exempted from participating in gas re-injection and an insignificant

penalty was imposed on oil fields where gas was flared.

3.4. Associated Gas Re-Injection (Amendment) Act, 198585

As a result of the failure of the 1979 Associated Gas Re-Injection Act (AGRA), the

1985 AGRA amendment decree was promulgated which provide for exemption to

the 1979 AGRA and permits a company engaged in the production of oil or gas to

continue to flare gas in a particular field or fields on the payment of a fee set by the

Minister of petroleum. The fine was 2 kobo (0.0009US$ equivalence) per 1000

Standard Cubic Feet (scf) of gas flared. This rose to 50 kobo (0.03US$ equivalent)

in 1992 and further to N10.00 (0.46US$ equivalent) in 1998.

Moreover, the Minister may issue exemptions when he is satisfied that

utilisation or re-injection of produced gas is not appropriate or feasible. This policy

was also unsuccessful as fine were very insignificant and did not provide any

incentive to encourage the multi-national oil companies to reduce flaring of

associated gas.

Subsequently, others legislations were promulgated by the National

Assembly (though never passed to law) following reaction by the residents of Niger

Delta where the flare is most rampant and Nigerians in general coupled with the

agitation of international organisations. However, these bills only had the effect of

85

No. 99 of 1979, Cap. A25 L.F.N. 2010.

41

shifting the flare-out date further than it was and increasing the fees minimally all to

the merit of the oil companies.

From the foregoing analysis, it is easily understandable that many factors are

actually responsible for the non-functioning of the desired gas flare cessation

legislation and the attendant negative social, economic and environmental

consequences. Some of these factors, in the humble view of this writer include,

among others, the following points, namely;

1. Military dictatorship and leadership

2. Constitutionally flawed federalism

3. Lack of executive leadership or political will

4. Corruption

5. Inelegant legal drafting/ambiguity

6. Ambiguous provisions in the law and the attendant regulations

7. Economic factors.

Advocates of continued gas flare reason that since domestic market for gas is

inadequate and the cost for gas development is high, the oil companies cannot

embark on any gas development programme. Accordingly, government should

continue to permit gas flaring since it depends on oil production for its revenue.86

86

N. Ogbara, ―Why the Extant Legal Framework Prohibiting Gas Flare in Nigeria did not Work‖. A Paper

Presented at a Social Action Organised Forum on Gas Flaring Prohibiting and Sustainable Energy Future

for Nigeria, 30 September 2009 at Bolton White Hotels ltd, Abuja. p.6.

42

Some had argued that the extension of gas flaring was consequent upon non-

readiness of the N.N.P.C., which was supposed to bear a large part of the cost of

constructing and maintaining the gas injection plants, coupled with the alleged

financial and technical incapacity of the major oil producing companies to meet and

beat the 1984 ultimatum as it were, and submitted that prior to the extension, most

oil companies had applied or were about to apply for permission to continue to flare

unutilised associated gas.87

It is believed that with the latest deadline of 31st December 2012, as

contained in the proposed Associated Gas Re-Injection Bill, flaring in Nigeria will

be minimized considerably. This Bill will be discussed in details later in the next

chapter.

87

Ibid. p.8.

43

CHAPTER FOUR

PHASE-OUT INITIATIVES

Zero Gas Flare is possible. What is needed is total commitment on the part of the

operators and the government with a strong and sincere political will. Gas flaring is

unacceptable, illegal and largely avoidable. Several deadlines have been set and

passed without making much impact on stopping gas flaring. We have been

experiencing a history of shifting goal posts, missing deadline after deadline,

shifting commitments, shady deals and ignored legislations. All these mar the

history of flare-out targets occasioned largely by insincerity on the government and

the oil companies.

However, this delineating practice could be abated if resources are directed

more appropriately into favourable ventures. Natural gas produced could be utilised

or channelled into programmes of meritorious measures with resultant decrease in

flaring or venting. Moreover, a number of fiscal empowerment had been provided

to encourage gas utilisation such as tax exemptions and tax holidays. The oil

companies are expected to accommodate such endeavours in their campaign

towards a zero flare regime.

Also in the phase-out initiative visions are the natural gas ventures carried

out by the Federal Government represented by the NNPC in conjunction with the

44

International Oil Companies (IOCs) with the sole aim of utilising our vast gas

reserves to reduce flaring of same.

4.1. Possible Gas Utilisation Programmes

There exist many ways88

in which natural gas could be made proper use of and

which will in return fetch huge revenue to the country even more than oil

companies pay to flare such gas. These avenues amongst others include using gas

by domestic industries for feedstock, using Compressed Natural Gas (CNG) for

vehicles and using gas for power generation.

4.1.1. Gas to Domestic Industries

Natural gas could also be converted to what is known as synthesis gas.89

This

synthesis gas, once formed, may be used to produce methanol (or Methyl Alcohol),

which in turn is used to produce such substances as formaldehyde, acetic acid, and

MTBE (methyl tertiary butyl ether) that is used as an additive for cleaner burning

gasoline.90

Methanol may also be used as a fuel source in fuel cells

88

Ways other than re-injection of the gas. Though re-injection is still considered laudable, the attitude of the

IOCs has shown that it is a non-realistic venture.

89 This is a mixture of hydrogen and carbon oxides formed through a process known as steam reforming. In

this process, natural gas is exposed to a catalyst that causes oxidization of the natural gas when brought into

contact with steam. 90

Naturalgas.org. “Uses in Industries”. http://www.naturalgas.org/overview/uses_industry.asp. Retrieved

23 May 2012.

http://www.naturalgas.org/overview/uses_industry.asp

45

Major customers targets will be factories and commercial centres which use

significant quantities of energy for their businesses, industries which use natural gas

as feedstock91

for their products and businesses which require permanent change to

the reliable supply of fuel and feedstock.92

Gas for feedstock is principally a product for larger agricultural companies.

Gases such as butane, ethane, and propane may be extracted from natural gas to be

used as a feedstock for such products as fertilizers, manufacture of urea, ammonia

and pharmaceutical products.93

Companies like Shell BP have initiated this idea

into their processes with the National Fertilizer Company of Nigeria (NAFCON) as

a major feedstock customer.94

Gas supply to industry is a win/win for the community, the industry, the

government, the gas supplier and gas distributor. The gas supplier and distributor

will find it profitable business; the industry will have a more reliable and cheaper

fuel, leading to cheaper products; the government will have more oil available for

export; the community will have a more vibrant economy and more opportunities

for employment and cheaper products.

4.1.2. Compressed Natural Gas (CNG) for Vehicles

91

Feedstock means raw materials uses in the industrial manufacture of products. 92

Natural gas as a feedstock is commonly found as a building block for methanol, which in turn has many

industrial applications. 93

Naturalgas.org. ―Uses in Industries‖. http://www.naturalgas.org/overview/uses_industry.asp. Retrieved 23

May 2012. 94

B. Omiyi, ―Shell Nigeria Corporate Strategy for Ending Gas Flaring‖. A paper presented at the Seminar on

Gas Flaring and Poverty Alleviation in Oslo, Norway. (June, 2001).

http://www.naturalgas.org/overview/uses_industry.asp

46

Compressed natural gas, or CNG, is natural gas under pressure which remains clear,

odourless and non-corrosive. CNG vehicles could be introduced in a wide variety of

commercial applications, from light-duty trucks and sedans (like taxi cabs), to

medium-duty trucks (like UPS delivery vans and postal vehicles), to heavy-duty

vehicles (like transit buses and school buses).95

CNG engines are also generally less

noisy than diesel engines. In California, transit agency buses are some of the most

visible CNG vehicles.96

Though the use of CNG could be costly, with an expanded gas infrastructure,

competitive fuel costs and a growing economy, it should gain popularity with

industrial fleet and major commercial vehicle operators. In view of this, Shell is

pioneering demonstration and promotional projects in this regard, which entails

conversion of some 60 vehicles to CNG use with the collaboration of Nigerian Gas

Company.97

4.1.3. Gas for Power Generation

Nigeria faces a serious energy crisis due to declining electricity generation from

domestic power plants. Power outages are frequent and the power sector operates

well below its estimated capacity. Nigeria electricity consumption per capita has

95

California Energy Commission ―Compressed Natural Gas (CNG) as a Transportation Fuel‖.

http://www.consumerenergycenter.org/transportation/afvs/cng.html. Retrieved on 22 May 2012. 96

Ibid. 97

Loc. cit., p. 10.

http://www.consumerenergycenter.org/transportation/afvs/cng.html

47

been estimated to be one of the lowest in sub-Saharan Africa.98

This low level of

consumption is a result of suppressed demand caused by deteriorated electricity

supply infrastructure.

In this case, gas will be used to power micro-turbine generators for

electricity production. Gas supply for power generation has been a long-running

strategy for gas utilisation in Nigeria. Power generation clearly offers a large

market for gas in Nigeria. It is estimated that as much as 3500 MW of auto-

generation capacity (i.e. generators) has been installed by industry, commerce and

residential customers due to the poor reliability of the public electricity supply

system.99

In the long term, gas could displace diesel in auto-generation, as a fuel for

gas engines and for industrial consumers.

In this regard, the government has made efforts towards power generation

through natural gas. A power project was setup in 2006 called the Niger Delta

Integrated Power Project with the purpose of developing (independently of PHCN)

new power plants which if finally implemented will help to accelerate rapid

industrialisation and development of the Niger Delta region. All these power plants

98

Centre for Energy Economics (CEE). ―Gas Monetisation in Nigeria‖. Bureau of Econimic Geology,

Jackson School of Geosciences, the University of Texas at Austin. www.beg.utexas.edu/energyecon/new-

era/case_studies/Gas_Monetization_in_Nigeria.pdf. Retrieved 4 June 2012. 99

Loc. cit., p. 9.



48

were planned and designed to be powered by natural gas.100

Additionally, Shell

Petroleum is actively involved in the development of power generation projects.

4.2. Fiscal Regimes for Gas Utilisation

Over the years, the Federal Government had offered various investment and tax

incentives to discourage the flaring of gas and to stimulate investment in the gas

sub-sector. Under the current gas regime, upstream gas projects are taxed either

under the Petroleum Profit Tax Act (PPTA),101

whilst the downstream gas

operations are taxed under the Companies Income Tax Act (CITA).102

Upstream gas utilisation refers to activities designed to separate crude oil

and gas from the reservoir into usable products or form, or to deliver such gas to

designated points for use by, or transmission to, downstream users, and includes gas

production.103

Incentives available for upstream gas utilisation operations are stated

in sections 10A and 11 of the PPTA as amended.

Another significant incentive provided by the government for purposes of

gas utilisation are the Associated Gas Framework Agreements (AGFAs) which is

now incorporated under section 11 of the PPTA.

Gas transferred from the natural gas liquid facility to the gas-to-liquid

100

J.O. Ehiorobo, ―Developing Sustainable Electrical Power for Nigeria from Natural Gas: Measurements

And Documentation for Construction of Natural Gas Distribution Pipelines from Gathering Facilities to

Power Plants‖. (Sydney, Australia) April 16 2010, p. 3. 101

Cap. 354 L.F.N. 1990 Act Cap. P14 L.F.N. 2010. 102

Cap. 60 L.F.N. 1990 ACT Cap. C21 L.F.N. 2010. 103

S. 10A (1) (a) PPTA Cap. P14 L.F.N. 2010.

49

facilities shall be at zero percent tax and zero percent royalty.104

Additionally,

investment required to separate crude oil and gas from the reservoir into usable

products shall be considered as part of the oil field development and therefore

treated as allowable expense.105

Also capital investment on facilities or equipment

to deliver associated gas in usable form at utilisation transfer points shall be treated

for tax purposes, as part of the capital investment for oil development.106

The above incentives are only granted to petroleum companies that are

engaged in projects which utilise associated gas. However, the law sets out strict

conditions under section 11(2) to which the companies must adhere in order to

prevent them from lumping expenses in an attempt to reduce their taxable profits

under the PPTA. These conditions may be summarised as follows:

i. Only condensates extracted not re-injected shall be treated under existing tax

arrangement;107

ii. The company shall pay the minimum amount charged by the Minister of

Petroleum Resources for any gas flared by the company;108

iii. The company shall, where practicable, keep the expenses incurred in the

utilisation of associated gas separate from those incurred on crude oil

operation. Only expenses not able to be separated shall be allowable as a

deduction against the company‘s crude oil income;109

104

S. 10A (g) Ibid. 105

S. 11(1) (a) Ibid. 106

S. 11(1) (b) Ibid. 107

S. 11(2) (a) Ibid. 108

S. 11(2) (b) Ibid. 109

S. 11(2) (c) Ibid.

50

iv. Expenses identified as incurred exclusively in the utilisation of associated gas

shall be regarded as gas expenses and be allowable against the gas income and

profit to be taxed under the CITA;110

v. Only companies which invest in natural gas liquid extraction facilities to

supply gas in usable form to downstream projects and other associated gas

utilisation projects shall benefit from the incentives;111

vi. All capital investments relating to the gas-to-liquids facilities shall be treated

as chargeable capital allowance and recovered against the crude oil income;112

vii. Gas transferred from the natural gas liquid facility to the gas-to-liquid

facilities shall be at zero per cent tax and zero per cent royalty.113

Downstream utilisation is defined by section 39 (3) of the CITA114

to mean the

marketing and distribution of natural gas for commercial purpose and include

power generation and liquefied natural gas plants, gas to liquid plants, fertiliser

plants, and gas transmission and distribution pipelines. Incentives for downstream

gas utilisation are provided under section 39 of the CITA as amended and they

include:

Tax holiday for three years which may be renewed for a further two year

subject to determination of satisfactory performance by the minister of

petroleum;115

110

S. 11(2) (d) Ibid. 111

S. 11(2) (e) Ibid. 112

S.11 (2) (f) Ibid. 113

S.11 (2) (g) Ibid. 114

As amended by s. 4 of the Finance (Miscellaneous Taxations Provisions) Act No. 18 of 1998. 115

S. 39 (1) (a) CITA Cap. 60 L.F.N. 1990 ACT Cap. C21 L.F.N. 2010.

51

Interest payable on any loan obtained for a gas project, with the prior approval

of the Minister of Petroleum is tax deductible.116

Accelerated capital allowance after the tax holiday which shall include an

annual allowance of 90% with 10% retention for investment in plant and

machinery plus an additional investment allowance of 15% which shall not

reduce the value of the asset.117

Tax free dividends during the tax holiday provided that the downstream

investment was made in foreign currency or that plant and machinery

imported for not less than 30% of the company‘s equity.118

Furthermore, the gas projects receive a 10 years tax holiday and are exempted from

withholding tax and from income on work or services provided by non residents.

The purpose of these incentives is to encourage companies already carrying on

petroleum to utilise rather than flare the associated gas encountered in the course of

oil production.

To this extent, the government has created opportunities for the oil

companies to endeavour into gas utilisation with hopes of making good returns on

their investments. However, with the current situation of things in the country, it

appears that the incentives have failed to curtail the flaring of gas due to reasons

mostly unconnected to the adequacy of the fiscal provisions.

116

S. 39 (1) (e) Ibid. 117

S. 39 (1) (c) Ibid. 118

S. 39 (1) (d) Ibid.

52

4.3. Natural Gas Projects

The Government, together with the major oil producing companies have embarked

on several gas utilisation projects aimed at minimizing gas flaring and channelling

the available gas resources into areas of quantitative utility. Some of these projects

have been completed and operations had commenced while the rest are still going

through their development and establishment stage.

The major on-going gas projects in Nigeria are the Nigerian Liquefied

Natural Gas (NLNG) Project, Escravos Gas-Gathering Project, Oso NGL Project,

Belema Gas Re-injection project, West African Gas Pipeline Project, Olokola LNG

(OKLNG), and Brass River LNG. The list of gas projects being carried out towards

gas utilisation continues but for the purposes of conciseness, only the projects listed

above shall be discussed in short details.

4.3.1. Nigerian Liquefied Natural Gas (NLNG) Projects

This is a joint venture project entered in 1995 involving the NNPC 49.0%, Shell

25.6%, Totalfinaelf 15.0%, and Agip 10.4%. The project began in response to a law

targeted at enhancing gas utilisation and reducing gas flaring,119

with the

construction of an LNG facility at Bonny Island to process associated gas to be

loaded as LNG on special trains for export. The company has a long-term Gas

119

Nigeria Liquefied Natural Gas (NLNG) (Fiscal Incentives, Guarantees and Assurances) Decree, No. 39

1990 Act Cap. N87 L.F.N. 2010.

53

Supply Agreements with three joint ventures operated by the Nigerian affiliates of

Shell, Elf and Agip, which will respectively supply 53.3%, 23.3% and 23.3% of the

feed gas volume.120

Presently, a total of six such export trains have been

constructed and engaged in LNG export to the USA, Spain, Asia and France. In

addition to that, the companies also supply natural gas for feed stock/fuel from their

respective fields.

4.3.2. Escravos Gas-Gathering Project

A joint venture project between NNPC (60%) and ChevronTexaco (40%) to recover

associated gas from offshore fields. Operations commenced in 1997 and the first

shipment of liquefied petroleum gas (LPG) was in September 1997. The Escravos

plant processes 185 million metric cubic feet (mmcf) of associated gas daily.121

It has 3 phases: EPG1, EPG2 and EPG3. EPG1 started up in September 1997

processes associated natural gas supplied to domestic market by pipeline. EPG2

which began operation in 2000 processes and supplies products to domestic market

but also be exported to Benin, Togo and Ghana through the West African Gas

Pipeline (WAGP) plant.122

120

S. Ollerearnshaw, ―LNG: the Nigerian Experience‖. A Paper presented by the Managing Director and

Chief Executive, Nigeria LNG Limited Lagos, Nigeria at the 12th

International Conference on Liquefied

Natural Gas December 1997. p. 2.

121 G. I., Malumfashi, ―Phase-Out of Gas Flaring in Nigeria by 2008: The Prospects of a Multi-Win Project

(Review of the Regulatory, Environmental and Socio-Economic Issues). p. 1-39 at 29. 122 Ibid. p. 29.

54

4.3.3. Oso Natural Gas-to-Liquid (NGL) Project

This is an NNPC (49%) and ExxonMobil (51%) joint venture project that converts

associated wet gas into natural gas liquids. This is process in such a way that as gas

is forced to the surface, it cools and takes form of condensates and re-injected for an

important NGL recovery process.

The project‘s current production capacity is 50,000 barrels per day.123

Feed

gas for the NGL plant began production in 1992. The Oso NGL project will make

an important contribution to the utilisation of Mobil‘s gas resources in Nigeria.

4.3.4. Belema Gas Injection Project

This is a project being executed by the NNPC/SHELL joint venture. The Belema

Gas Injection project is aimed at reducing flares in five flow stations by re-injecting

some of the gas, some for gas lifting, and some for use as fuel by local industries

and the excess for backing out associated gas that is currently used to meet various

existing contractual obligations.124

The contracts for the execution gathering

pipelines are in the early stages of execution but showing good yield. About 80

mmcf/d of gas is estimated to have been utilised.

123

K. Dosekun and G. Oyabole, ―The International Comparative Legal Guide to: Gas Regulation 2007‖.

Published by the Global Legal Group, London 2007. p. 131-138 at 132. 124

Nigerian oil and Gas Industry Information. “Export-Oriented Gas Utilisation Projects in Nigeria”.

http://www.oilandgasbrief.com/knowledge-base/exportoriented-gas-utilisation-projects-nigeria/325/.

Retrieved 3 June 2012.

http://www.oilandgasbrief.com/knowledge-base/exportoriented-gas-utilisation-projects-nigeria/325/

55

4.3.5. West African Gas Pipeline (WAGP) Project

A joint proposal between ChevronTexaco, Shell, NNPC, Nigerian Gas Company

(NGC), Societe Beninoise de Gas, Societe Togolaise de Gas and Ghana‘s National

Petroleum Corporation. It is a 1,033km long pipeline project, which has a capacity

of 5 billion cubic metre of natural gas per annum.125

Gas from the gas reservoirs in Nigeria Escravos region of Niger Delta are

transferred to Benin, Togo and Ghana. It is the first regional natural gas

transmission system in sub-Saharan Africa. The gas was intended to be used by the

Volta River Authority's power plant in Ghana and Takoradi's international power

plant in Ghana.126

4.3.6. Olokola LNG (OK LNG) Project

This is located in Waterside Local Government Area of Ogun State. OKLNG is a

liquefied natural gas (LNG) project facility, consisting mainly of two trains,

producing a total of 12.6 million tonnes per annum of LNG and 2.3 tonnes/annum

of LPG as a by-product. Each train processes 1.15 billion cubic feet per day of feed

125

Ibid. p. 131. 126 The commercial oil and gas discovery in Ghana has thrown up serious challenges in recovering the huge

funds pumped into the project. However, the operators of the pipeline face acute gas supply cuts following

rising demands in the Nigerian electric power and industrial sectors. Potential stiff competition is also

facing the pipeline company as Ghana, which is envisaged to be the key market for the pipe borne gas is

now building its own gas plants to meet internal needs.

56

gas. The project is supported by the NNPC, British Gas (BG), OKLNG Limited,

Chevron OKLNH Holding Limited, Shell OKLNG Holdings and B.V. Limited.127

4.3.7. Brass River LNG Project

This is another joint venture project between NNPC (49%), Chevron (17%),

Conoco Philips (17%) and Agip (17%) for the construction of a $3 billion LNG

plant. It was signed in September 2001 and has the capacity of processing 850

mmcfd.128

The facility was built on Brass Island in Nigeria‘s Bayelsa State. It

consists of two trains each with the production nominal capacity of five million tons

of LNG per year.129

4.4. Associated Gas Re-Injection Bill 2010

This section of the work presents an overview of the Associated Gas Re-injection

(Amendment) Bill, 2010 with focal point on its provisions and their efficacy as it

concerns flare abatement.

The Bill for an amendment of the Associated Gas Re-injection Act. The Bill

amongst its other provisions sets a new deadline for gas flaring in Nigeria. The Bill

prohibits companies engaged in the production of oil and gas from flaring gas after

127

Social and Economic Rights Action Centre (SERAC). OKLNG Project: Expanding Participatory

Opportunities. Reports of Roundtable Proceedings Convened on May 5, 2009 at Abeokuta, Ogun State. p.

3. 128

G. I., Malumfashi, ―Phase-Out of Gas Flaring in Nigeria by 2008: The Prospects of a Multi-Win Project

(Review of the Regulatory, Environmental and Socio-Economic Issues). p. 1-39 at 29. 129

Downstream Today. ―Brass LNG‖. Http://www.downstreamtoday.com/projects/project. Retrieved 3 June

2012.

http://www.downstreamtoday.com/projects/project.aspx?project_id=80&AspxAutoDetectCokkiessupport=1

57

December 31, 2012 beyond the permitted minimum.130

By this provision, oil

producing companies in Nigeria were yet granted another extension on the period

within which to end the flaring of the excess hydro-carbons.

Section 3(2) (b) of the Bill permits the Minister to grant a temporary gas

flaring permit to any company which seeks to continue to flare gas in particular

field or fields on payment of the sum of $5.00 per 1,000 standard cubic feet of gas

flared with a processing fee of $1,000. However, a temporary gas penalty is payable

for any gas flared in excess of approved gas volumes during pre-commissioning and

commissioning operations, equipment maintenance and operation upset.

This amendment is a welcome development and perhaps may be described

as a step in the right direction when compared to the 1979 Act which allowed the

Minister to permit gas flaring for a period of 30 days in the cases of start-up,

equipment failure or shut down without having to pay for such gas flared.

Furthermore, this is a departure from the Associated Gas Re-Injection

(Amendment) Decree of 1985 which fixed a paltry fine of 2 Kobo (equivalent to

US$0.0009 in 1985) against the oil companies for each 1000 standard cubic feet

(scf) of gas flared.

130

S.3(1) of the Bill provides that “No company engaged in the production of oil and gas shall after

December 31, 2012 flare gas produced in association with oil, other than such minimum allowed by the

Minister by regulation".

58

While the 1979 Act required all operators to prepare programs for gas

utilisation or reinjection and strictly limited the grounds upon which flaring could

be permitted, the Bill provides that no company without facilities for associated gas

utilisation shall be permitted to engage in oil production. This is a giant step

towards ensuring the utilisation of gas by oil companies.

Similar to the provisions of the 1979 Act, the Bill prohibits all companies

from engaging in gas flaring whether routine or continuous. Any company so

involved shall be liable to a fine to be determined at the prevailing international gas

market price and the applicable fine shall not be regarded as part of Production

Sharing Contracts (―PSCs‖) or Joint Ventures (―JVs) obligations.131

Companies are required to report all emergency gas flaring within 24hours

of occurrence, failure of which will attract a fine of US$500,000.132

The Bill further

provides that any company that declares an incorrect volume of flared gas shall be

liable to a fine of US$100,000 and must pay the difference of such wrongly

declared volumes at the prevailing international gas market rate.133

This provision

shall to a reasonable extent ensure honesty in the dealings of the companies with the

regulatory agencies.

131

S. 4 of the Bill. 132

S. 4 (4) Ibid. 133

Ibid.

59

The well articulated composition of the Bill coupled with the attractive flare-

out provisions leaves out the question on compliance which is a major drawback in

effectiveness of most Nigerian legislations. However, with these provisions it is

expected that the IOCs will comply with the 2012 deadline.

4.5. Petroleum Industry Bill (PIB) 2010

This bill is based on the realisation that the present regime is obsolete and outdated,

lacks transparency and lacks good governance, practice and processes. The laws

seek to create a much more transparent administrative system where all interested

parties could assess information and indicate interests on a given projects in the oil

and gas industry.

The bill will also serve to consolidate a plethora of laws, statutes and

regulations which regulate the Nigerian oil and gas industry. It would, if passed,

review and streamline existing legislation, in order to deliver a fair, economic return

for Nigeria as well as for investors. Some of the existing legislations sought to be

affected by the new Bill includes the Petroleum Profit Tax Act;134

the Petroleum

Act 1959;135

the Petroleum Technology Development Act 1973;136

the Associated

Gas Re-injection Act 1979;137

the Petroleum Equalisation Fund Act 1989;138

the Oil

134




Cap 26 L.F.N. 1990 Act Cap. A25 L.F.N. 2010.

60

Pipelines Act;139

the Nigerian National Petroleum Corporation Act;140

and the

Petroleum Products Pricing Regulatory Agency Act 2003.141

The passage of the new legislation would, introduce and enforce integrated

health, safety and environmental quality management systems with specific quality,

effluent and emission targets for oil and gas operations in order to ensure

compliance with international standards.142

Through these proposed reforms the

PIB aims to end gas flaring in Nigeria given that the international oil companies

(IOCs) have refused to adhere to the direction by the Nigerian Government to stop

flaring gas as they appear to prefer to pay the penalties attached.

The Bill also seeks to place an obligation on the IOCs to put in place a

domestic gas supply to meet their commitments with regard to gas exports. This

would invariably curb gas flaring by the oil companies and balance upstream gas

pricing, which in turn would encourage more gas supply projects because such

projects would be seen as more economically viable and could put an end to the

funding crisis that has served to curtail gas development work in Nigeria.

4.6. Impediments on Gas Commercialisation

138


Cap. 338 L.F.N. 1990 Act Cap. O7 L.F.N. 2010. 140

Cap. 320 L.F.N. 1990 Act Cap. N123 L.F.N. 2010. 141

Act No. 8 2003. 142

See s. 6 of the Bill.

61

Over the years, the government together with the international oil companies

(IOCs) had been on the verge of trying out efforts aimed at the utilisation of natural

gas but with little effects or outcome. This situation has led the government to

endeavour into many projects and agreements with the IOCs whereby the two

parties come in terms with certain understanding and responsibilities sought to be

fulfilled by each party. However, despite these efforts gas commercialisation

remains at low ebb and certain reasons has been proffered to be responsible for such

an outcome.

According to Okoroafor Bank-Anthony, the Managing Director of

Vhelbherg (a local service oil company), in an interview, the IOCs insist that the

government is not keeping up its end of the funding agreement, preventing more

investment. Also that there are no facilities in place for the utilisation of the

associated gas and a lot more pipelines would have to be built to collect all the gas

and that the government cannot guarantee oil workers security in the region.143

On the other hand the government oil regulators seem unable to get tough

with the companies who operate the wells. It cannot shut down wells to force the

IOCs to collect the gas without taking the oil wells out of production, thereby

loosing valuable profit.144

143

C. Okonji. ―Nigeria loses $2.5bn Annually to Gas Flaring‖. Alexander‘s Gas and Oil Connection.

http://www.gasandoil.com/news/2010/03/nta100909. Retrieved 4 June 2012. 144

Ibid.

http://www.gasandoil.com/news/2010/03/nta100909

62

Also poor policy administration and wrong application of standard project

management practices have been identified as some of the reasons gas

commercialisation remains difficult despite favourable legislative and legal

environment and the right technology in place.145

In January 2008, the Senate Committee on Gas and Environment was

charged to investigate the failure to achieve numerous gas flare-out deadlines. The

committee opined that a gas flare-out date for Nigeria has become a moving target

due to contributory factors such as

The inadequacy of the existing legal and regulatory framework for gas

generally and gas utilisation in particular;

The absence of infrastructure for accommodating flared gas and transporting

it;

The limited availability of local markets and, linked to this, issues with the

practical implementation of the West African Gas Pipeline and difficulties

with liquefied natural gas (LNG) projects;

The lack of capital for gas utilisation programmes;

Inequitable gas pricing;

the risks and high costs associated with the re-injection of associated gas,

which can damage production facilities; and

The civil unrest and resulting security issues in the Niger Delta.146

145

See B. Bakare, ―Why Gas Commercialisation has Been Difficult in Nigeria‖. The Nation.

http://thenationonlineng.net/web2/articles/50500/1/Why-gas-commercialisation-has-been-difficult-in-

Nigeria/Page1.html. Retrieved 4 June 2012. 146 Energy & Natural Resources. ―Committee Charged with Eliminating Gas Flaring‖ March 3 2008.

http://www.internationallawoffice.com/newsletters/Committee_Charged_with_Eliminating_Gas_Flaring.


http://thenationonlineng.net/web2/articles/50500/1/Why-gas-commercialisation-has-been-difficult-in-Nigeria/Page1.html


http://www.internationallawoffice.com/newsletters/Committee_Charged_with_Eliminating%1f_Gas_Flaring

63

Critics also suggest that the apparent diffidence of successive governments in

enforcing flare-out ultimatums stems from a concern that a precipitate elimination

of gas flaring would impact negatively on the oil revenues which feature so

significantly in Nigeria‘s economic projections and on the oil business in which the

state is a central player.147

Multinational operators, urging a 2010 deadline,

maintain that an immediate flare-out date is feasible only if crude production stops,

and that the latest deadline is unrealistic and impossible to achieve.

147

Ibid.

64

CHAPTER FIVE

CONCLUSION AND RECOMMENDATIONS

5.1. Conclusion

To a large scale, nothing beneficial comes from flaring or venting of gas associated

with oil. This practice causes more harm than otherwise and it has been shown to be

injurious to health and the environment at large. Greenhouse gas emissions like

particulates, sulphur are some of the examples of harmful substances associated

with gas flaring. These substances not only cause global warming together with

deleterious environmental degradations, it also cause great harm to health and crops

located in regions where it is most occurring.

The Federal Government has also been in the struggle to kick-out gas flaring

from the oil fields through certain efforts, some of which are recommendable with

interesting plans towards beneficial utilisation of the natural gas. Some of these

utilisation efforts are exemplified in the various natural gas projects being

implemented in conjunction with major oil companies in the country.

However, the most intriguing of these efforts is in the area of regulatory

frameworks and legislative pronouncements made under various legislations

promulgated to tackle gas flaring. These laws have had little effect through the

years mainly because of corruption on one hand and inelegance in its drafting on

the other hand. The penalty provided under the Acts was very meagre to the extent

65

that the oil companies preferred to pay fines and continue flaring to the reinjection

of gas. This led to continuous shifting of deadlines for gas flaring by the

government, thereby making it beneficial for the oil companies.

By implicitly acting according to the dictates of the oil companies, the

Nigerian government has continued to relegate the health and environment well-

being of Nigerians to the background. This policy of accommodating the oil

companies at all costs and by all means in the country bears outrageous costs.148

However, oil companies operating in the country had failed to meet the

Federal Government‘s umpteenth time shifted deadline for the Act, under which

violators are meant to be penalised. By the recent Associated Gas Re-Injection Bill,

2012 has been set as the battle line for gas flaring to end in the country but the

question now is, can the oil companies meet the deadline? It is believed that the

present administration which shall be empowered by the Petroleum Industry Bill

will not allow the continuation of the flaring beyond the set flare-out date, so it is in

the best interest of oil companies to race towards meeting the deadline.

Ending gas flaring in the country should be a long-term programme and

there must be continuing commitment on the part of the oil companies because the

project will help the economy and generate billions of naira or dollars to enhance

148

S. Okpara. ―Gas Flaring: can Oil Firms Meet 2012 Deadline?‖ The Tide Online Newspaper.

http://www.thetidenewsonline.com/2012/02/06/gas-flaring-can-oil-firms-meet-2012-deadline/. Retrieved 24

June 2012.

http://www.thetidenewsonline.com/2012/02/06/gas-flaring-can-oil-firms-meet-2012-deadline/

66

development funding. Just like the crude oil, natural gas is money, so there should

be a concerted effort to commit natural gas into money for the benefit of Nigerians.

It must be emphasised that policy reformation under the new Bill149

is more

promising than what was obtained in the previous years, however, political will

finds expression in more than policy pronouncements. It must be pointed out that

nowhere in the world, particularly in developing countries, have policies concerning

natural resource exploitation been welcome by multinational companies involved in

such activities. Their demands for relaxed regulatory policies are almost insatiable

and this normally proves detrimental to the social and environmental conditions of

the immediate communities. Oil producing communities in Nigeria are not an

exception.

The technology argument made by the companies is quite paradoxical. The

argument comes at a time when technological innovations in the oil industry are

rapidly increasing. The oil industry in Europe and America had already invested a

reasonable amount of money in research and development (R&D) of technologies

over the years. This had resulted to an increase in deep-water drilling and enhanced

recovery of more oil from formally depleted wells.150

The companies undertaking

149

The Associated Gas Re-Injection Bill, 2012. 150

C. Evoh, ―Gas Flares, Oil Companies and Politics in Nigeria‖ The Guardian On-Line.

http://waado.org/Environment/OilCompanies/GasFlaresPolitics.html. Retrieved 29 June 2012.

http://waado.org/Environment/OilCompanies/GasFlaresPolitics.html

67

these technological innovations to enhance oil recovery are also the very ones

operating in Nigeria.

The government bears a great responsibility in this regard as well. If the

Nigerian government can provide the will to mitigate gas flaring to its barest

minimum, the oil companies will certainly provide the way to do it in terms of

technological applications. However, none of those companies will end gas flaring

at their own behest.

In concluding this work, it must be emphasised that stopping gas flaring is

expected to involve financial investments which oil companies would like to avoid.

This is not an isolated case; rather, it is a clear depiction of the modus operandi of

multinational corporations in the less developed parts of the world. In the

industrialised countries, this level of environmental abuse caused by energy

production is rare. Due to the obvious laxities in policy making and implementation

particularly in the energy sector in Nigeria, such level of civil consciousness is yet

to be attained. Nigeria therefore needs a face lift in its public personality and this

could only be achieved when the government begins to take policy implementation

more seriously.

5.2. Recommendations

To achieve zero gas flare in the country, certain measures are required to be taken

which will boost the already established utilisation programmes on ground. The

68

government must provide their own required adequate funding, create enabling

secure environment to operate, must be tough with the operators and agree with the

operators and stakeholders on a realistic deadline.

Also government should provide more incentives to promote domestic gas

utilisation in Nigeria as well as gas flare out programmes. There should be an

alignment of political agreement or will with the legal framework.

Not just foreign or international oil companies should participate in the gas

project but indigenous firms should also be given priority consideration.151

The gas-to-power distribution is a boost the country badly needs. So there

must be a corrupt-free national strategy for managing the gas revenues i.e., the

judicious utilisation of funds accruing from the sector for the benefit of the ordinary

citizens rather than using it to fuel conflict and corruption.

To make the whole dream come true, the partnership between international

oil companies and national oil companies needs to be strengthened to enhance the

full exploitation of natural resources and develop capability that will bring more

value to the industry. The basis of mutual benefit should exist between the two or

more parties.

151

N. Ogbara, ―Why the Extant Legal Framework Prohibiting Gas Flare in Nigeria did not Work‖. A Paper

Presented at a Social Action Organised Forum on Gas Flaring Prohibiting and Sustainable Energy Future for

Nigeria, 30 September 2009 at Bolton White Hotels ltd, Abuja. p.7.

69

Adequate regulatory procedures which includes those for approving flaring

and venting permits, monitoring flaring and venting volumes, and enforcing

operational standards should not be disregarded as had been practiced in the

previous years but should rather be carried out to fruition in its implementation.

More gas and more power will raise living standards and support the

economy, so lessons should be drawn from countries that have successfully

executed gas-to-power and gas industry optimisation reforms with a view to

enabling Nigeria learn from and possibly replicate the best practices of these

countries.

Countries that have substantially reduced flaring and venting—such as

Canada, Norway, the United Kingdom, and the United States—introduced a

combination of regulatory and non-regulatory measures and their operators had

access to domestic or international gas markets. The measures included establishing

an efficient legal and regulatory framework, reforming and restructuring natural gas

markets, allowing private participation in the development of gas infrastructure, and

creating financial incentives that encouraged operators to utilise associated gas.152

Equally important, governments, regulators, and operators collaborated

closely in developing policies and strategies that were consistent with those

countries resource management and environmental objectives and the operators‘

152

F. Gerner, B. Svensson, and S. Djumena. ―Public Policy for the Private Sector: Gas Flaring and Venting -

A Regulatory Framework and Incentives for Gas Utilisation‖. The World Bank Private Sector Report.

October 2004, p. 4.

70

objectives of ensuring that projects were commercially viable and did not

jeopardise future oil production.

Gas Flaring in Norway has decreased considerably over the years. The

country is highly regarded as a prime example for the proper management of gas

resources. In 2001, Norway initiated a project led by the World Bank which

introduced voluntary global standards for restricting gas flaring.153

Oil companies in Norway are required to lift, process and use associated gas

in their operations. Accordingly, they are to submit a development plan with a

provision for gas re-injection, gas export solution or other associated gas utilisation

schemes. In 2004, only 0.16% of the total annual associated gas from oil production

was flared in Norway.154

Similar provisions have been adopted in Nigeria by the

2010 amendment which requires the availability of gas utilisation facilities.

In a number of countries, including Indonesia, Angola, and Syria appear to

be making significant progress in limiting disposal flaring. In other countries,

including Kazakhstan or Kuwait, anti-flaring regulations and increased enforcement

has set the stage for flare reductions while adopting successful practices used by

Canada, the United Kingdom, or Norway.155

The Nigerian government is expected

153 Power and Energy Group. ―Gas Flaring in Nigeria: An overview of the Associated Gas Re-Injection

(Amendment) Bill 2010‖. Newsletter, April 2011, p. 4. 154

Ibid. pg.5. 155

M. Farina, ―Flare Gas Reduction: Recent Global Trends and Policy Considerations‖. GE Energy, Global

Strategy and Planning. (January, 2011) pg. 10.

71

to acknowledge these efforts made by other countries while making their own

endeavours.

72

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Gas Flaring.

Documents

Transcript of Gas Flaring.