$500m financing available to capture flared gas but not many takers

The Bank of Industry in 2019 agreed a funding arrangement with the Bank of China (BOC) to finance import equipment for flare gas capture but two years on, it doesn’t seem that many local oil and gas companies are tapping into the fund.

This is easily discerned from the Nigerian National Petroleum Corporation (NNPC) data which shows that gas flare is not falling fast enough. The gas flare rate of 6.80 percent for the month of December 2020 amounting to 457.25 mmscfd when compared to average gas flare rate of 7.15 percent in or 538.59 mmscfd in the same period last in 2019 doesn’t show much decline.

The full year data from the NNPC shows that both local and international oil companies operating in Nigeria flared 198.12 billion standard cubic feet of gas in 2020.

The Bank of Industry in its 2019 audited financial statements said that it had created the fund in line with its mission to transform Nigeria’s industrial sector, leading it so sign an memorandum of understanding with the Export-Import Bank of China to provide financial support for production capacity co-operation through trade financing in the sum of $500m.

“The aim is to promote the production capacity of our oil and gas Industry, with focus on developing our refineries and instituting a flare gas recovery program,” the bank said.

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The funding arrangement with the Bank of China (BOC) is to finance import equipment for flare Gas capture, which requires the intending borrowers to advance about 25 per cent of their funding needs and import their equipment from China.

Similar arrangements exists with the US Exim Bank and is also available for players that want to import their flare capture equipment from the United States.

Findings show that many local players are not tapping into the fund largely due to financial constraints limiting their ability to meet their counterpart funding. This situation is attributed to low oil prices and the coronavirus pandemic which has rocked the sector leading to fall in demand.

Gas flaring has persisted despite many arrangements to put an end to the practice. The government has increased the fine for companies which produce 10,000 barrels of oil per day or more is now set at $2 per 1,000 cubic feet of gas, while the fine for companies producing less than 10,000 barrels a day is $0.5 per 1,000 cubic feet but the practice is yet to end.

In 2016, Nigeria said it was going to commercialise flared gas. The plan was fully drawn up in 2018 to commercialise gas flares in 89 locations around the country through the Nigerian Gas Flare Commercialization Programme (NGFCP), an initiative of the Federal Ministry of Petroleum Resources.

The NGFCP seeks to attract investments and develop a transparent market mechanism through a competitive procurement process for allocating gas flares, under clear and transparent criteria, to competent third party investors using proven technologies in commercial application globally.

The NGFCP value proposition was that assuming around 65 percent of the flared gas volume meets a minimum monetisation investment threshold, it could lead to overall investment of $3-5billion.

At an average project size of $40m, the NGFCP could trigger 89 projects. Over a 2 year period, the NGFCP could generate approximately 26,000 direct jobs, with an average labour force of 300 per project and approximately 300,000 direct and indirect jobs.

Details on the website showed that 203 out of a total of 238 applicants who submitted their Statement of Qualification (SoQ) for participation in NGFCP, in response to the Request for Qualification published by the DPR, were successful. The initiative has since being moved to the DPR but has slowed.

While the entire process and timelines has been spelt out on the NGFCP website, owing to the Covid-19 pandemic among other issues, many of the steps and timelines have had to be postponed.