Industry experts have proposed a fine of $3.50cents per 1,000 standard cubic feet (scf) for oil companies flaring gas in Nigeria.
At the Senate public hearing on the Gas Flaring (Prohibition) Bill on Wednesday, industry experts from the Nigerian National Petroleum Corporation (NNPC), Department of Petroleum Resources (DPR), Ministries of Petroleum Resources as well as Environment, called for increase of gas flaring penalty of N10/standard cubic feet (scf) in line with current economic realities.
The proposal seeks to impose various penalties for non-compliance with its provisions, which include: payment of fines at the cost of gas at the international market at any point in time, forfeiture of concessions granted and issuance of a Certificate of Forfeiture and revocation of the licence or lease under which the field or group of fields from which the violation occurred.
Although Nigeria reportedly lost over $3.363 million in the first half of 2016, the country generated N3billion annually from gas flaring penalties in the last three decades.
Gas flaring has also contributed to air pollution, heat, rainforest damage, depletion of the ozone layer among others.
The country is still using the Associated Gas Re-injection Act of 1985, which imposes a penalty of N10/scf.
Chairman, Senate Committee on Gas, Bassey Akpan disclosed that this explains why oil companies would rather pay fines than stop gas flaring.
“The 2008 National Domestic Gas Supply and Pricing Regulations which stipulate a penalty of $3.50 per 1000scf is yet to be enforced by the regulatory agency since according to the operators the inability to meet Domestic Supply Obligation cannot be enforced as gas flaring penalty. Hence, the continuous application of the 1985 Associated Gas Re-Injection Act penalty of N10.00/scf till date.
“This incentivises gas flaring since it’s rather cheaper to flare than create the necessary infrastructure to make this wasted natural resource available for domestic usage for which the Regulation was meant to achieve,” he declared at the opening of the public hearing in Abuja.
The bill seeks to increase gas flaring penalty to an appropriate level to de-incentivise the practice of gas flaring while introducing other market measures to encourage efficient utilisation of gas.
Section 15 specifically makes provisions for special considerations to be given to entities that comply with its guidelines. In this section, all infrastructural projects undertaken to support a flare out will be entitled to five years tax exemption and other concessions as may be granted by the government.
It stipulates that all projects aimed at producing for the Nigerian market shall enjoy a five year corporate tax exemption, land or equivalent of the cost of the land in tax deductions from VAT, tax write – off for insurance policy premium for five years after commissioning projects employing above 200 Nigerians or that has at least 40 per cent Nigerian equity ownership.
Analysts say gas flaring cause economic losses to the nation, depriving it of tax revenue and trade opportunities as well as clean and cheaper energy source for citizens.
Industry experts say flaring natural gas in association with crude oil is one of the most dangerous environmental and energy waste practices in the Nigerian petroleum industry.
In her presentation, Deputy Director Upstream, Department of Petroleum Resources (DPR), Pat Maseli, called for stiff penalties for gas flaring.
She recommended $1 per 1,000scf fine for gas flaring in land, swamp and shallow offshore terrains and $0.8 in deep offshore locations.
“The current regime of flared penalty/charges incentivises routine gas flaring rather than discourage it. A model of flared charges based on present day realities is presented below. The model took cognizance of the dynamics of petroleum pricing in the international market and the Nigerian economy alongside the impact of gas flaring on the social economic activities of the host communities.
“It is important to know that the availability of gas gathering, processing and transmission infrastructure are not uniformly distributed across the various terrains of operation: land, swamp, shallow offshore and deep offshore.
“Consequently, land, swamp, shallow offshore and deep offshore are the traditional areas that enjoyed availability of gas infrastructure more than the deep offshore. Therefore, the gas flare charges should be higher in those terrains with infrastructure.
“The following flare charges are hereby recommended: the revised flare charge of $1 or its equivalent of N350 per 1000scf should be a minimum penalty imposed for gas flaring in land, swamp and shallow offshore terrains. A lower flare charge of $0.8 per 1000 or its equivalent may be considered in deep offshore locations which are noted to have limited footprint of gas infrastructure”.
On his part, the National Chairman, Host Communities of Nigeria Producing Oil and Gas, Mike Emuh, called for the insertion of a clause in the bill that ensures that gas flaring penalty levies are ploughed back into the affected host communities and not the Federation Account.
He called for $3.50cents per 1,000 of gas flared against oil companies.
However, Gwueke Ajaifa, Chairman Gas Committee, Oil Producers Trade Section (OPTS), kicked against increase of penalties, saying this would drive away investors.
According to him, imposition of high penalties is not the best approach, adding that the bill does not address the root cause of Gas flaring. “If this Bill is passed, it will limit progress in flare reduction and it could jeopardise investment in the sector and affect the government’s Gas-to-Power aspiration”.
OWEDE AGBAJILEKE, Abuja
