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 actualizationSir, Prof and Lady B.C.O. Omeke, Chinenye Mmaduabuchi, Nnenna Omeke.

TABLE OF CONTENTS Abstract 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

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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

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 countrys 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.

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 reinjection 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 petroleumproducing 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 1960s, 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

Wikipedia, the Free Encyclopaedia, Gas Flare. http://en.wikipedia.org/wiki/Gas_flare. Retrieved 9 May, 2012.

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.

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 Nigerias 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

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. B., Nnimmo, Ibid., p.3. N.J., Ikoro, The Socio-Economic Implications of Gas Flaring in Nigeria. http://ogbakingdom.com/thesocio-economic-implications-of-gas-flaring-in-nigeria-by-nwokezi-john-ikoro/. Retrieved 2 May 2012.

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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 runup 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

Governments 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

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.

government then moved the deadline to 1979 but could not enforce it before it was overthrown in 1975. Through the Associated Gas ReInjection 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 years 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 ReInjection 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.

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.

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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 Governments 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.

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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

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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 Nigerias 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.

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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 Nigeriaconcluded 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

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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 25

Ibid. P.226. 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 Nigerias Niger Delta: Failed Promises and Reviving Community Voices.

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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

29

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

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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

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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.

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

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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 Nigerias 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 Nigerias 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.

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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.

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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. 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.
38

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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 Authoritys 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 12 th International Conference on Liquefied Natural Gas December 1997, p. 3.

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Nigerias 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 AjaokutaAbuja-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/newera/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.

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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, Agips 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.

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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 SPDCs 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.

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 Chevrons joint venture, Mr. Supo Shadiya, recently set a new date of 2012 for ending flaring of all associated onshore and

52

Ibid. 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
53

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.

27

offshore gases from the companys 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 projects 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. 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.
56

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(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 Shells gasflare 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 Shells 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 ReInjection 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 ReInjection Act and the Associated Gas Re-Injection (Continued Flaring of Gas) Regulations are inconsistent with the applicants rights to life and/or dignity of human person as enshrined in the Constitution and articles of the African Charter
59 60

Cap. E12, Vol. 6, L.F.N., 2010. 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 courts order and continually engaged in flaring gas. Shell refused to comply with the courts 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 courts 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 ongoing 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 20102012. The News Flare, Issue No. 10, January - July 2010. 63 Wrtsil 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 multinational 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 67

Petroleum (Drilling and Production) Regulations No. 51 of 1969. 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 reinjection 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 70 71

No.99 Cap. A26 L.F.N.1990, Act Cap. A25 L.F.N. 2010. S. 2(2) Associated Gas Re-Injection Act Cap. A26 L.F.N.1990, Act Cap. A25 L.F.N. 2010. 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$150,000370,000) 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 73

S. 3(2) (a) Ibid. 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 governments 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 ministers 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 governments mandate. Consequently, the deadline was extended by one year observing the Nigerian governments 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 R77

L. Ososami, Developments in Nigerias 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.

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 80 81 82

Reg. 1(a) Ibid. Reg. 1(b) Ibid. Reg. 1(c) Ibid. 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 84

Reg. 1(e) Ibid. Reg. 2 Ibid.

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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 nonreadiness 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.

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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.

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.
91 92

Compressed Natural Gas (CNG) for Vehicles

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

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.

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 autogeneration 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/newera/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 companys crude oil income;109
104 105 106 107 108 109

S. 10A (g) Ibid. S. 11(1) (a) Ibid. S. 11(1) (b) Ibid. S. 11(2) (a) Ibid. S. 11(2) (b) Ibid. S. 11(2) (c) Ibid.

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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

110 111 112 113 114 115

S. 11(2) (d) Ibid. S. 11(2) (e) Ibid. S.11 (2) (f) Ibid. S.11 (2) (g) Ibid. As amended by s. 4 of the Finance (Miscellaneous Taxations Provisions) Act No. 18 of 1998. S. 39 (1) (a) CITA Cap. 60 L.F.N. 1990 ACT Cap. C21 L.F.N. 2010.

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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 companys 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.

116 117 118

S. 39 (1) (e) Ibid. S. 39 (1) (c) Ibid. S. 39 (1) (d) Ibid.

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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.

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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 12 th 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.

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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 projects 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 Mobils 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.

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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 Ghanas 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

126

Ibid. p. 131. 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.

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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 Nigerias 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.

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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".

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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.

131 132 133

S. 4 of the Bill. S. 4 (4) Ibid. Ibid.

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The well articulated composition of the Bill coupled with the attractive flareout 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

134 135

Cap. 354 L.F.N. 1990 Act Cap. P13 L.F.N. 2010. Cap. 350 L.F.N. 1990 Act Cap. P10 L.F.N. 2010. 136 Cap. 355 L.F.N. 1990 Act Cap. P15 L.F.N. 2010. 137 Cap 26 L.F.N. 1990 Act Cap. A25 L.F.N. 2010.

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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

138 139

Cap. 352 L.F.N. 1990 Act Cap. P11 L.F.N. 2010. 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.

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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. Alexanders Gas and Oil Connection. http://www.gasandoil.com/news/2010/03/nta100909. Retrieved 4 June 2012. 144 Ibid.

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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-inNigeria/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. Retrieved 5 June 2012.

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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 Nigerias 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.

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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

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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 wellbeing 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 Governments 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.

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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 Bill 149 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

149 150

The Associated Gas Re-Injection Bill, 2012. 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.

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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

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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.

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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 ventingsuch as Canada, Norway, the United Kingdom, and the United Statesintroduced 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.

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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

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.
153

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to acknowledge these efforts made by other countries while making their own endeavours.

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Abdulkareem, A.S., 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. Adole, T., 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). Aghalino,S.O., 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 Dosekun K. & Oyabole, G., The International Comparative Legal Guide to: Gas Regulation 2007. Global Legal Group. (London, 2007), pp. 131-137. Energy Sector Management Assistance Programme (ESMAP) Nigeria Strategic Gas Plan, Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP), ESM279, Report 279/04, February 2004. Gerner, F., Svensson, B., and Djumena, S. 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. Global Gas Flaring Reduction Initiative Regulation of Associated Gas Flaring and Venting - a Global Overview and Lessons. Report No.3 (World Bank, March 2004). Isichei & Sanford, The Effects of Waste Gas Flares on the Surrounding Vegetation in Southern-Eastern Nigeria. J. Appl. Ecol. (1976) No.13 pp.177-187. Nwankwo C.N. & Ogagarue, D.O., 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.

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Okezie, D.W. and Okeke,A.O., 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. Oni S.I. & Oyewo M.A., Gas Flaring, Transportation and Sustainable Energy Development in the Niger-Delta, Nigeria. J Hum Ecol, Vol. 1 No. 33 (Kamla-Raj, 2011), pp. 21-28. Orimoogunje O.O.I. & Ayanlade A., 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. Ukala, E., Gas Flaring in Nigerias Niger Delta: Failed Promises and Reviving Community Voices. Journal of Energy, Climate, and Environment. Vol. 97 (2011) pp.97-126 at p.108. 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, April, 2004.

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Amanze-Nwachuku, N., 24% of Nigerias Gas Still Being Flared (ThisdayLive, March 2012). http://www.thisdaylive.com/articles/24-of-nigeria-s-gas-stillbeing-flared/110729/. Retrieved 3 May 2012. Bakare, B., Why Gas Commercialisation has Been Difficult in Nigeria. The Nation. http://thenationonlineng.net/web2/articles/50500/1/Why-gascommercialisation-has-been-difficult-in-Nigeria/Page1.html. Retrieved 4 June 2012. California Energy Commission. Compressed Natural Gas (CNG) as a Transportation Fuel. http://www.consumerenergycenter.org/transportation/afvs/cng.html. Retrieved on 22 May 2012.

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Ikoro, N. J., The Socio-Economic Implications of Gas Flaring in Nigeria. http://ogbakingdom.com/the-socio-economic-implications-of-gas-flaring-innigeria-by-nwokezi-john-ikoro/. Retrieved 2 May 2012. Ishisone, M., 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). Justice in Nigeria Now, The True Cost of Chevron: Chevron in Nigeria. http://justiceinnigerianow.org/about-chevron. Retrieved 8 May 2012. Naturalgas.org. Uses in Industries. http://www.naturalgas.org/overview/uses_industry.asp. Retrieved 23 May 2012. Nigerian oil and Gas Industry Information. Export-Oriented Gas Utilisation Projects in Nigeria. http://www.oilandgasbrief.com/knowledge-base/exportorientedgas-utilisation-projects-nigeria/325/. Retrieved 3 June 2012. Okpara, S., Gas Flaring: can Oil Firms Meet 2012 Deadline? The Tide Online Newspaper. http://www.thetidenewsonline.com/2012/02/06/gas-flaring-canoil-firms-meet-2012-deadline/. Retrieved 24 June 2012. Okogun, B., Current Efforts to Enhance Natural Gas Utilisation and Reduce Gas Flaring in Nigeria. From http://www2ife.org/orgnic/files/ggralgiers2004. Retrieved 6 May 2012. Okonji. C., Nigeria loses $2.5bn Annually to Gas Flaring. Alexanders Gas and Oil Connection. http://www.gasandoil.com/news/2010/03/nta100909. Retrieved 4 June 2012 Ososami, L., Developments in Nigerias tax Regime for Gas Utilisation Projects. Mondaq: Energy and Natural resourses. (1 December, 2008). Seehttp://www.mondaq.com/article.asp?articleid=70210&login=true&nogo=1 . Retrieved 1 June 2010.

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Wikipedia, the Free Encyclopaedia, Gas Flare. http://en.wikipedia.org/wiki/Gasflare. Retrieved 9 May, 2012. 3. Newspapers

Global Gas Flare Reduction Public-Private Partnership. Partnership Kicks off Work Program for 2010-2012. The News Flare, Issue No. 10, January - July 2010 Ojeifo, S., Nigeria: Mark-FG Lacks the Will to stop Gas Flaring. Thisday. 25 November, 2008, p.23. Power and Energy Group. Gas Flaring in Nigeria: An overview of the Associated Gas Re-Injection (Amendment) Bill 2010. Newsletter, April 2011. Pg. 4. Yakubu. Gas Flare may not end in 2004, says Shell. The Guardian Newspaper, Wednesday June 20th 2004. 4. Miscellaneous

Ehiorobo, J.O., 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. Farina, M., Flare Gas Reduction: Recent Global Trends and Policy Considerations. GE Energy, Global Strategy and Planning. (January, 2011). Friends of the Earth. Gas Flaring in Nigeria. Media Briefing (October, 2004). Malumfashi, G.I., Phase-Out of Gas Flaring in Nigeria by 2008: The Prospects of a Multi-Win Project (Review of the Regulatory, Environmental and SocioEconomic Issues). Nnimmo, B., 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.

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Ogbara, N., 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. Ollerearnshaw, S., 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. Omiyi, B., 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). 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. 1-25.