Gas flaring penalties hit N260 billion in 15 months

Payable penalties by oil companies for flaring gas in Nigeria have risen above two hundred billion Naira since January last year, according to data from the Nigeria Gas Flare Tracker (GFT), a satellite-based technology.

Data obtained from the GFT created by the National Oil Spill Detection and Response Agency (NOSDRA) revealed that penalties payable in the 15 months stood at N260 billion naira ($602.4 million) as oil companies continue to flare gas as opposed to utilising it.

The figure was arrived at by multiplying each month’s official average exchange rate by the monthly penalties payable in dollars as presented in the gas flare tracker.

Oil and gas analysts pin the rise of gas flaring on low fines by the FG, a lack of infrastructure investment, and the parties’ willpower.

Ndubuisi Okereke, a senior lecturer in the Petroleum Engineering Department at the Federal University of Technology, Owerri, said that gas flaring fines in Nigeria are among the lowest in the world.

“Yet they are not being paid fully because of poor monitoring from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the possibility of poor measurement tools generally in-country,

“There is a need for the NUPRC to give attention to this as a booster to our inflow. The fines are quite small, and with the need to focus on climate change, it becomes a problem,” he said. “The federal government needs to prioritise increasing gas flaring fines.”

According to Okereke, ozone layer depletion is real, and the environment’s health must be taken seriously. “The less fine, the more national and international oil companies will continue to flare and endanger the environment.”

Gas flaring is the surface combustion or burning of natural gas, often associated with crude oil production when pumped up from the ground.

According to the World Bank, the practice has persisted since the beginning of oil production over 160 years ago and takes place due to various issues, from market and economic constraints to a lack of appropriate regulation and political will.

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“Nigeria has adopted a few gas monetisation strategies, from gas to chemicals, gas reinjection, power plants, gas for transport, gas pipelines, gas to animal feed, and LNG,” said Olufola Wusu, partner and head of oil and gas at Megathos Law Practice.

He said Nigeria needs to take practical policy steps in line with the National Gas Policy and other policies, to encourage the development of gas-based industries that will ensure steady and reliable demand for natural gas, making gas flaring highly unprofitable, as it will be more “profitable” to monetise gas than to flare it.

“As the foreign and domestic demand for natural gas rises, the incentive for gas producers to monetize gas instead of flaring gas will be much higher,” he said. “While commending the relevant regulators, it will also be beneficial if non-emergency gas flaring regulations are made more stringent and are properly enforced to disincentivize gas flaring further.”

On the other hand, the FG has promised to impose a $49 million (N22 billion) fine on oil and gas firms operating onshore for flaring 24 standard cubic feet of gas valued at about N40 billion ($86 million) between January and February 2023 as part of efforts to curb gas flaring.

According to a new report from the National Oil Spill Detection and Response Agency, the FG said that companies operating onshore will pay the penalties for violating the gas flaring rule.

“Companies operating onshore flared 24.5 billion SCF of gas valued at $85.8 million, with $49 million in penalties payable,” the agency said.

The NOSDRA report identified the affected companies as including Shell Petroleum Development Company, which recorded gas flaring from Oil Mining Leases 11, 13, 14, 17, 18, 22, 23, 26, 28, 30, and 39, among others; Nigerian Agip Oil Company, which reported gas flaring from OML 61, 62; and Chevron Nigeria, which recorded gas flaring from OML 49, 54, and 95, among others.

Other affected companies include Mobil Producing Nigeria, Nigerian Petroleum Development Company, Addax Petroleum Limited, Famfa Oil, and Elf Petroleum.

According to NOSDRA, the current penalties for gas flaring in Nigeria officially stand at $2 per 1,000 standard cubic feet (scf). Companies producing more than 10,000 barrels per day (bpd) pay a fine of $2 per 1,000 scf of gas flared, while companies producing less than 10,000 bpd pay a fine of $0.5.

The report said companies flared 19.14 billion SCF of gas in January and 14.04 billion SCF of gas in February 2023, contributing 1.3 million tonnes of carbon dioxide emissions with a power generation potential of 2,500 gigawatt hours.

Also, companies operating offshore flared 25.8 billion SCF of gas valued at $90 million; capable of generating 2,600 gigawatt-hours of electricity, and having an equivalent of 1.4 million tonnes of carbon dioxide emission.

NOSDRA added that the offshore companies flared 10.84 billion SCF and 13.09 billion cubic feet of gas in January and February 2023, respectively. The agency did not state how much in penalties offshore companies would pay for the flare.

In total, NOSDRA said 50.3 billion SCF were flared, amounting to about N81 billion ($176 million) lost in the months under review.

The volume of gas flared in both months was 11.9 per cent lower than the 57.1 billion SCF of gas flared in the same period in 2022.

The oil spill remediation agency noted that the gas flared in the period under review was equivalent to carbon dioxide emissions of 2.7 million tonnes and had a power generation potential of 5,000 gigawatt hours of electricity, while the firms are liable for penalties of $101 million, or about N46 billion.

NOSDRA lamented that despite efforts to reduce it, gas has been flared in Nigeria since the 1950s, releasing carbon dioxide and other gaseous substances into the atmosphere, which has continuously led to environmental and health challenges in oil-producing areas.