Doubt Still Over Gas Flaring   

Published on April 11, 2011 by TheNEWS   ·   3 Comments

Doubts trail federal government’s new initiative to  end the intractable gas flaring problem

Three weeks ago, President Goodluck Jonathan launched the Gas Revolution agenda to, as the federal government put it, truly reposition Nigeria to achieve its potential of becoming the industrial giant of the continent. Jonathan projected that, in the next few years, full implementation of the entire gas master-plan agenda would result in about $25 billion worth of investments in gas processing, transmission and downstream utilisation projects.

A key aspect of the agenda is the maximum utilisation of the country’s abundant gas reserves. For many years, the federal government has been talking with the international oil companies engaged in oil and gas exploration on ending gas flaring and exploiting the gas for industrialisation purposes. But it has been all talk and no action. Of the six major oil producers in Africa, Nigeria remains by far the most guilty in gas flaring. In the new masterplan, government is including projects that seek to give practical vent to the gas-flaring solution. The projects include two fertiliser plants in Delta and Lagos states, five fertiliser blending plants, a methanol plant and a distribution network to improve the supply of liquefied petroleum gas to the north. A gas pipeline from Calabar to Kano will be revived at a cost of $2bn.

Success of the projects leans heavily on foreign investors, especially the same major oil companies that have balked over the years at ending the gas flaring. K.S. Raju, chairman of India’s Nagarjuna Fertilisers said it is committed to building two fertilizer plants, an investment of about $2.5bn, while a Saudi Arabian firm, Natpet, a subsidiary of petrochemicals firm Alujain said it would invest $3.5bn in a petrochemical plant. The delivery of gas to these companies is key to the successful execution of the projects and once again, the partners are promising. Andrew Fawthrop, Chevron’s managing director in Nigeria, told Reuters: “We’ve agreed to begin with 175 million (cubic feet) of gas per day. We will deliver the gas once the pipelines and other infrastructure are in place.”

Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, is so hopeful. She said the boost in production of liquefied petroleum gas, LPG, from the proposed land-based Central Processing Facilities, CPF, to be located in Obiafu, Rivers State and Warri, Delta State, will result in widespread availability of LPG and significant reduction in its price. “We believe that this will displace as much as 60 per cent of the eight million litres of  kerosene consumed daily for household use.  The replacement of firewood by the much cleaner LPG will reduce deforestation and desertification. Natural gas will replace fuel oil as fuel for industrial boilers. Above all, the government believes this agenda will set the tone for the final elimination of gas flaring in Nigeria as the markets that will be created by the huge investments will provide a sink for all currently flared gas. She added that the gas revolution also comprises government’s on-going effort in gas to power. “Based on the various steps that were taken last year to reposition the commercial framework for gas in the domestic market, I am confident that we now have in place, a more sustainable framework to assure gas availability to power. The impact is becoming evident as we have a great improvement in gas supply performance relative to last year’s. Our power agenda will create the undertone for even more widespread wealth,” she said.

To give further bite to the agenda, two memoranda of understanding, between the Nigeria National Petroleum Corporation, NNPC, and representatives of two foreign investors -  Xenel of Saudi Arabia and Nagarjuna of India – and Chevron Nigeria Limited have been signed. Contracts were also awarded to two other companies, Oando Nigeria plc and Agip Petroleum to develop the Central Processing Facility in Obiafu, Rivers State and Warri, Delta State.

Lofty plans and lofty steps, indeed, so far. But many industry watchers have their reservations about implementation. The new policy, they fear, might end up the discarded way of its predecessors. The fears of the critics are hinged on the fact that over the years, the federal government has signed many memoranda of understanding with investors from China, Russia and the Middle East for projects. But the projects are yet to see the light of day. Cynics say the timing of the launch was more of a political gain than a serious patriotic intention. “The asset is there, the reserves of gas exist, it is whether there is a mechanism to transform that into something you can monetise.” Reuters quoted Antony Goldman, an independent consultant and expert on the West African energy industry as saying.

A somewhat similar gas master-plan launched barely three years ago still exists. The existing master plan aims at improving the supply of gas to the domestic power sector. As part of the country’s oft-mouthed resolve to become a major international player in the international gas market as well as to lay a solid framework for gas infrastructure expansion within the domestic market, the Nigerian Gas Master Plan was on 13 February 2008 approved. The plan was designed to guide the commercial exploitation and management of Nigeria’s gas sector. It was also aimed at growing the Nigerian economy with gas by pursuing three key strategies: Stimulate the multiplier effects of gas in the domestic economy, position Nigeria competitively in high value export markets, and guarantee the long-term energy security of Nigeria.

In furtherance of this, the federal government in June 2009 struck a joint venture deal between the Russian gas giant, Gazprom and the NNPC. The venture was designed to make both corporations collaborate to build a $400-$500 million gas pipeline in Nigeria in 2010. The deal was preceded by the historic visit of the Russian president, Dimitry Medvedev, who was in the country as the first Kremlin leader to visit Nigeria since both countries established diplomatic ties nearly 50 years ago. The content of the deal included the construction of the first section of the pipeline from the southwestern areas of Nigeria to the north, measuring about 360 km (224 miles) of gas pipeline. The JV, which was tagged NIGAZ, also proposed 4,128km pipeline to run via Niger and Algeria and would send up to 30bn cubic metres of gas a year to Europe. The Gazprom and the NNPC joint venture deal was pegged on a 50-50 parity basis with a charter capital of $7.5mn and total investment exceeding $2bn. The JV will involve joint projects in oil and gas production, and construction of gas distribution networks, refining facilities, gas transportation infrastructure and power facilities. The capital costs for the projects are estimated at $10bn for the trans-Sahara pipeline and $3bn for gas gathering centres.

Surprisingly, not much has been heard of the JV since the deal was struck. And government’s intention to privatise that masterplan after completion, industry analysts say, is counter-productive and may be running in conflict with the two fresh MoUs recently signed between the NNPC and some private investors under the current “gas revolution” agenda.

With estimated reserves of 187 trillion cubic feet, Nigeria is the world’s 7th largest natural gas producer. The country has flared heavily in the past due to a non-existent domestic gas market, an underdeveloped infrastructure, non-commitment of the major oil producers operating in Nigeria and largely huge corruption in government circles and the NNPC.

Reports show that about 40 per cent of Nigeria’s gas is flared as it is produced and the country accounts for 12.5 per cent of the world’s gas flaring. In its May 2010 report, the NNPC stated that of the over 192 billion standard cubic feet, BSCF, of gas produced during the period, over 145 BSCF was utilised while over 43 bscf was flared at the detriment of the environment. The quantity flared represents 22.69 per cent of the total output. The quantity varies from one company to another. For decades, beginning from 1960, government and its agencies have tried unsuccessfully to end gas flaring through numerous legislations and deadlines.

Routine gas flaring has been illegal since 1984 pursuant to section 3 of Nigeria’s Associated Gas Reinjection Act, 1979. This section only allows flaring if companies have field-specific, lawfully issued, ministerial certificates. But each deadline had come and gone without any reduction; if anything, the rate of flaring – until the latest statistics provided by the DPR – had been increasing because of a lack of will to enforce the law against flaring. At the moment, there is no specific period to end gas flaring in Nigeria as every level of government and its agencies, and even the oil companies give at will different deadlines to end the anomaly.

As recorded by Environmental Rights Action/Friends of the Earth Nigeria, an international environmental rights group, greenhouse gas emissions coming through gas flaring are put at 400 million tons of carbon dioxide equivalents yearly. The amount of flared gas is equivalent to 25 per cent of US gas consumption and 30 per cent of EU gas consumption. Among the oil producing countries, Nigeria boasts the 10th largest proven natural gas reserves, produces over two million barrels of crude oil per day and has been earning, over the years, about $20bn from oil revenues annually.

Flares in Nigeria have been on since the early 1960s in the Niger Delta and offshore. At present, over 100 flare sites still emit the toxic cocktail. It is estimated that through gas flaring about $2.5bn in government revenues is lost annually and $72bn for the period 1970-2006. Shell Petroleum Development Company of Nigeria Ltd. is the single biggest flarer of gas in the country. According to the World Bank, by 2002 flaring in the country had contributed more greenhouse gases to the Earth’s atmosphere than all other sources in sub-Sahara Africa combined – and yet this gas is not being used as a fuel. Nobody benefits from the energy it contains. As such, it is a serious but unnecessary contributor to climate change, and the impact is already being felt in the region with food insecurity, increasing risk of disease and the rising costs of extreme weather damage. The flares also contain widely-recognised toxins, such as benzene, which pollute the air. Local people complain of respiratory problems such as asthma and bronchitis. According to the US government, the flares contribute to acid rain and villagers complain of the rain corroding their buildings. The particles from the flares fill the air, covering everything with a fine layer of soot. Local people also complain about the roaring noise and the intense heat from the flares. They live and work alongside the flares with no protection.

Environmental Rights Action/Friends of the Earth Nigeria recorded that all oil prospecting companies in Nigeria are guilty of gas flaring. The biggest culprits are Shell Petroleum Development Company,  ExxonMobil and Chevron. These three companies are the major operators in Nigeria’s oil production, while Total and Agip fill in some extra of the persistent gas flares. The companies have always cited insecurity in the Niger Delta and dearth of infrastructure (particularly gas gathering equipment and poor funding, especially as the federal government is not meeting its counterpart funding for the joint venture oil projects) among others as factors militating against achieving zero-flares in the Niger Delta. The operators said another major issue is the non-completion of work on the Petroleum Industry Bill expected to guide them in making investment and other decisions.

Some analysts argue there is an urgent need for the federal government to renegotiate what they call “the so-called joint venture agreements by which the corporations rip off the Nigerian state and the people.” Shell had previously said it would end flares in all its production facilities by 2007 but did not have any concrete plan of action to this effect except the expansion of its Liquefied Natural Gas project – the principal avenue to be used to monetise the associated gas currently being flared. ExxonMobil said it would end flares in 2004 and earmarked the East Area Gas Project, EAGP, as the principal project to achieve this. Chevron said it would achieve zero flares in its facilities by 2006, hinging its attainment on the Escravos Gas Project phases 2 and 3. Nothing concrete has come out of the promises.

The first attempt at forcing oil corporations operating in the Niger Delta to end flares was in 1969 when the administration of General Yakubu Gowon ordered them to put in place facilities that would utilise associated gas within five years of their commencement of operations. Five years later when the oil companies still had nothing on ground for gas gathering, the goal post was shifted to 1979 by the same government. Inability of the oil companies to meet the new date necessitated the fixing of 1984 as the zero flare date. This time there was a fine to be paid by defaulters. In addition, an Associated Gas Re-Injection Act of 1979 No. 99 was introduced, demanding that oil corporations operating in Nigeria should produce detailed plans for gas utilisation as well as guarantee zero flares by 1 January 1984, unless they had a case-by-case exemption obtainable from the relevant Minister.

By 1983, the oil multinationals again raised reasons why 1984 would not be feasible in meeting the deadline. Governments, thereafter, began shifting deadlines at will in response to pressure from the multinational corporations. These shifts were executive orders and not backed by law. In response to local and international pressure, the federal government again pledged to halt gas flares in Nigeria and set 1 January 2008 as the zero flare date. It also dangled punitive action for any breach. Again, on 17 December 2007, yet another shift was announced, this time with a deadline fixed for 31 December 2008. In 2009, the Senate passed the Gas Flaring Bill, making it illegal for operators to flare gas in Nigeria beyond 31 December 2010. Even this deadline was not met.

Not long ago, the House of Representatives proposed that a fine of $500,000 be imposed on any company which fails to report, within 24 hours, any emergency flaring on account of equipment failure. The House further resolved that a fine of $100,000 be imposed on any company that declares an incorrect flared volume. The penalties are some of the features of a bill to amend the Associated Gas Re-Injection Act, No. 99 of 1979 and Cap A25 Laws of the Federation of Nigeria, 2004. But this doesn’t appear a concern to the flarers; the companies seem to deem it more economical to continue to pay the fines than to end flaring.

Barnaby Briggs, Strategic Relations Manager at Shell, who spoke to Shell World UK magazine about Shell in Nigeria claimed flaring is a waste of resources and revenue for the Nigerian government and SPDC, so concerned about it, wants to complete its programme to harness gas because there’s a significant market for it domestically and as an export. “To put this into perspective, the SPDC has around 100 flares in the Niger Delta, which covers 112,000 sq km – an area roughly the size of Portugal. Between 2002 and 2009, the SPDC reduced associated gas flaring by more than 30 per cent by investing over $3bn in gas-gathering projects. If we add reduced production because of the security situation, flaring was cut by more than 65 per cent.  SPDC needs to invest more than $3bn to end flaring. But completion of the gas-gathering programme has been delayed by security and funding problems. SPDC’s majority government partner, the Nigerian National Petroleum Company, has not been able to pay its 55 per cent share of the investment, but Shell and its partners are working with the government to address the issue,” Briggs remarked.

Government’s inability to completely halt gas flaring in the country has also prompted series of litigations. In one instance, a Federal High Court sitting in Benin and presided over by Justice V. C. Nwokorie, delivering judgment on 14 November 2005 in one of such cases brought against Shell by the Iwhrekan Community of Delta State on the company’s continued flaring in the community, ordered the oil multinational to stop gas flaring in Iwhrekan, saying it violates the people’s fundamental right to life and dignity of human person. The judge ruled that gas flaring is a “gross violation” of the constitutionally-guaranteed rights to life and dignity, which include the right to a “clean, poison-free, pollution-free healthy environment”.

The challenges notwithstanding, the government is optimistic that its new gas revolution agenda, when implemented will address all the menacing problems and move the industry above its peers in the continent. As Allison-Madueke put it: “Mr. President has set an ambitious gas agenda that will transform the industry. Mr. President has a strong vision and passion to re-industrialise Nigeria using this vast natural resource that the country is so richly endowed with. For the first time in several years, we are now in a position of net surplus in gas availability relative to the requirements of the power sector in the short term. We have about 150mmcf/d surplus supply potential currently, which can very quickly add about 500 megawatts to the current generating capacity on the national grid. We will consolidate on the gains in power with further growth in supply development and delivery of critical gas infrastructure such as the Ob/Ob-Oben line and the Calabar-Ajaokuta-Kano line.

Many Nigerians, utterly disappointed by government’s nonchalance on past promises and its obvious lack of will to rein in the multinational oil companies that are responsible for oil flaring, are not impressed. To them, the federal government itself is just gassing on its new Gas Revolution policy to score cheap political points. They will need some convincing.

—Desmond Utomwen/Abuja