Gas flaring: A huge economic loss

Nigeria’s gas flaring reemphasises the aphorism that we are rich in energy resources but poor in energy supply. The Associated Gas Re-Injection Act was enacted to compel every company producing oil and gas in Nigeria to submit preliminary programmes for gas re-injection and detailed plans for implementation of gas re-injection. It made it illegal after January 1, 1984 to flare gas without the permission of the minister of petroleum. The target to stop gas flares has since then moved from 1984 to 2008 and 2011. But gas is still being flared up to date.

Emeka Okwuosa, group managing director, Oilserv Ltd, says that Nigeria flares about 1.2 billion cubic feet of gas a day (bcf/d), which could fuel about 7000MW of efficient thermal electric power, over 1,400 agro-processing facilities, 350 textile plants, 70 fertilizer plants with opportunities for creating over one million jobs. This amount of gas flare represents 12.5 percent of all globally flared gas.

In 2014, Nigeria lost about $1 billion as oil companies operating in the country flared a large proportion of the gas produced from January to September 2014. According to data from the NNPC, about 295 billion standard cubic feet (scf) of natural gas was flared in the nine-month period. International oil companies and indigenous players burnt a total of 43.7 billion scf in January, 50.1 billion scf in February and 38.3 billion scf in March. In April, 22.3 billion scf of gas was flared; 19.7 billion scf in May and 23 billion scf wasted in June. In July, 29.1 billion scf was flared; 39.1 billion scf in August; 29.5 billion in September; and 44.37 billion in November.

According to the NNPC’s Monthly Petroleum Information, in December 2014, Nigeria lost $133.716 million (about N26.743 billion) to gas flaring, as oil and gas companies in the country flared 20.11 percent of their total gas production. Specifically, the oil and gas companies produced 221.634 billion scf of gas, utilised 183.78 billion scf and flared 44.573 billion scf.

The Nigerian Gas Company (NGC) put the average price of gas at $3 per unit of 1,000 scf, translating to $133.716 million for 44.573 billion scf flared, and $551.346 million for 183.783 billion scf utilised.

If 1.2 billion scf flared per day (according to Okwuosa) has the potential to generate up to 7000MW of electricity, the aggregate gas flared for 2014 (about 376.41 billion scf) can translate into 21.97GW, in addition to its inputs in agro processing, textile plants, fertiliser plants, and the number of jobs created from the multiplier effect.

Despite the penalties, oil and gas operators have continued to flare gas and regulators seem to have looked away. While there is need to interrogate the positions of penalty payments considering the joint venture arrangements, there is also the need to revisit the issues of gas pricing and availability of gas infrastructures, else the question will be the relative cheapness to flare gas than monetise gas.

To this end, there is need for the new administration of President Muhammadu Buhari and the new NNPC management to constitute a committee to revisit the issue of gas flaring in Nigeria. The payment of gas flaring penalties, especially in the scheme of joint ventures with the Nigerian government, should be top in their priority. Efforts should be made to harmonise and reconcile domestic gas pricing across markets in Nigeria while seeking ways to attract and sustain foreign investments and funding for gas infrastructures, especially for the improvement of gas to power in Nigeria.

Donald I. Ofoegbu