The outlook of the domestic natural gas sector has undergone recent changes via the issuing of the Flare Gas (Prevention of Waste and Pollution) Regulation in September 2018. To consolidate on Nigeria’s progress in the ranking of the world’s largest gas flaring countries, the federal government sought to redirect the course of the gas flaring situation through the enactment of guiding laws and policy directives. In 2017, the government published the National Gas Policy, which birthed the Flare Gas Regulation in 2018. The National Gas Policy provides that gas utilisation ‘will be a priority consideration over other considerations for the handling of associated gas’. Further, it states that the utilisation of associated gas is to be maximised for supply to power generation or industry. With an outlook on gas-to-power markets, the federal government intends an increase in electricity supply to host communities and the undertaking of embedded power projects for electricity distribution companies.
Thus, the Flare Gas Regulation was released to specify the means for the implementation of the gas policy. The Regulation provides a legal framework to support the government’s plan to reduce greenhouse gas (GHG) emissions through the flaring of gas. The Regulation increases the quantum of penalties and fines to be paid by defaulters with the aim of disincentivising the practice of gas flaring. On the other hand, the Regulation aims to open up a potential market for the commercialisation of flared gas, thereby creating a revenue stream from an otherwise non-viable entity.
Key highlights of the Regulation
Right to take flare gas
The federal government possesses the right to take flare gas at flare sites without costs or payment of royalties, and bequeaths same right to qualified off-takers.
The Regulation provides for two sets of off-takers, namely, the permit holder and the producer. The permit holder is a company that has successfully undergone the competitive bidding process to emerge as a qualified applicant. The producer, on the other hand, is the existing holder of an oil mining lease or owner of a marginal field on which the flare site is located.
This new development permits the bidders to choose the following: their preferred flare sites out of the available 178 flare sites in the country, the gas price, the end product, the target market and the technology to be employed.
The applicable permits to be issued by DPR are:
- a data access permit, which grants non-exclusive access to a qualified applicant to flare gas data at the flare gas site; and
- a permit to access flare gas, which is exclusively given to the permit holder to take flare gas for utilisation purposes. This permit specifies the amount or volume of flare gas that the permit holder is entitled to.
Prohibition of gas flaring
The Regulation stipulates the express prohibition of routine gas flaring by producers and permit holders. An exception exists however, for producers in possession of a certificate approved by the Minister of Petroleum under the Associated Gas Re-Injection Act.
Increase in gas flaring penalty
The federal government in its bid to disincentivise gas flaring and penalise non-compliant producers or permit holders introduced a significant increase in the gas flaring penalty. In this regard, producers who produce over 10,000 barrels per day will be liable to pay US$2 per 28.317 standard cubic metres (1,000 cubic feet) of gas flared within any OML or designated marginal field. Where production is less than 10,000 barrels, the gas flare payment is US$0.50 per 28.317 standard cubic metres.
Flare gas data and records
There are requirements of reporting obligations for the producers and permit holders. Parties must maintain and submit daily logs of gas flare data and records under specific timelines to the DPR. The DPR is also obligated to publish annual records of flare gas data on its website.
Penalty for default
The Regulation also provides for penalties for default by the parties in the keeping and submission of flare gas records and data. The penalties include additional monetary payments and possible permit revocation.
Fees and agreements
The Regulation also provides for a number of fees to be paid by a qualified applicant and a permit holder. These are data prying, data leasing, permit award, asset handling and guarantee fees.
The parties will enter into connection agreements, deliver or pay agreements and gas supply agreements.
Although not specifically stated in the Regulation, there are other agreements and approvals that can be expected to govern the parties:
- permit holder and the federal government:
- milestone development agreement;
- performance bond; and
- environmental impact assessment approval;
- permit holder and financial institution:
- security and loan agreements; and
- permit holder and gas transport company:
- gas transportation agreement.
Projected markets for flare gas capture are:
- the production of methanol, ethanol, gasoline and diesel oxygenated fuel blends;
- domestic liquefied petroleum gas (LPG);
- gas to liquids (GTL);
- small scale liquefied natural gas (LNG); and
- gas-to-power projects.
- The Regulation, through the creation of economic opportunities for new gas industry participants, would promote investments in the gas sector, which is in dire need of heavy financing for its growth.
- The implementation of the Regulation would ensure that the federal government’s environmental obligations are met both locally and internationally, in line with its commitments under the Paris Agreement. Further, Nigeria would experience significant progress from its current sixth position on the World Bank’s list of the top gas-flaring countries in the world.
- It guarantees the generation of revenue for the federal government and a step in the right direction for the execution of government.
- The benefits to the host communities in Niger Delta would also ensure significant reduction in vandalism cases, tempering one of major challenges of the sector and creating economic development in the region.
- For independent power producers and electricity distribution companies within these franchise areas, this would provide great advantages. The certainty of gas supply for embedded power projects would ensure the bankability of supply arrangements.
In conclusion, it is worthy to note that the federal government has issued calls for expression of interest (EoI) and issuance of request for qualification package (RfQ) for the first bidding round of the flare gas monetisation and utilisation programme. This has also received resounding responses from the investment community.
The federal government through the DPR recently issued four guidelines that are intended to provide the procedure for the implementation of the Flare Gas (Prevention of Waste and Pollution) Regulation 2018. The Guidelines are: Guidelines for Flare Payments; Guidelines for Producer’s Associated Gas Utilization Project; Guidelines for Grant of Permit to Access Flare Gas; and Guidelines for Flare Gas Measurement, Data Management and Reporting Obligations.
Back to top