Nigeria loses $1bn annually to unpaid gas flare fines

Despite its current struggle to consolidate on existing revenue structures and explore new ones in the face of dwindling oil prices, Nigeria is said to be losing an estimated $1 billion annually to unpaid fines for the flaring of gas by international oil companies (IOCs) operating in the country.

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

It is outlawed by the Nigerian government, which imposes monetary penalties on oil companies for non-compliance with the rule.

These penalties are supposed to be enforced by government agencies in the petroleum and environment ministries, including the Department of Petroleum Resources (DPR) and the National Oil Spill Detection and Response Agency (NOSDRA).

On August 15, 2011, the petroleum ministry issued a directive increasing the gas penalty fee from N10 to $3.50 per standard cubic feet (scf).

“However, failure to collect these fines, coupled with the unwillingness of erring oil companies to pay them, causes Nigeria to lose as much as $1 billion yearly. Yet, international oil companies operating in the country’s Niger-Delta region continue with this environmentally unfriendly practice unabated,” according to Charles Chi Achodo, executive director, Nextier, a Nigerian investment and multi-competency advisory firm, with a primary focus on agriculture, power and petroleum.

He did not specify the companies involved or the amount owed by each in the outstanding gas flare fines.

Gas flaring is a common but increasingly unacceptable technique employed by oil firms to dispose of associated gas, especially in petroleum producing areas with insufficient infrastructure for commercial utilisation of the highly valuable resource.

In Nigeria, where gas remains a critical raw material for power generation and economic transformation, the economic sense of its continuous flaring by oil companies has increasingly been questioned, as over 80 percent of the nation’s power plants are gas fired.

Data from the Nigerian National Petroleum Corporation (NNPC) show that 57.97 percent of total gas produced in November 2015 was commercialised, while the balance of 42.03 percent was re-injected into the ground, used as upstream fuel or directly flared.

Also, from the 1,101.04mmscfd of gas supplied to the domestic market in November 2015, about 775.1mmscfd, representing 70.40 percent was used for electricity generation by gas-fired power plants, while the balance of 325.9025mmscfd or 29.60 percent was supplied to other industries.

Nigeria currently has the capacity to produce over 7,000mw of electricity from its power stations and “transmits 4,373mw on its national grid,” according to latest data from the Nigerian Electricity Regulatory Commission (NERC).

This represents a condition of acute energy shortage for Africa’s largest economy and most populous country, with a population of over 180 million people.

However, “ending gas flaring and converting associated gas from oil producing activities into power generation will add about 27,000mw of electricity to Nigeria’s national grid,” said Achodo.

According to him, energy poverty is pervasive in the Niger-Delta region, characterised by inaccessibility to electricity and cooking gas, even though the country’s energy and financial needs are largely met by fuels sourced from there.

Nigeria has set the target to generate 20,000mw of electricity by the year 2020, but this is inadequate in ratio to its population size of 180 million people as compared with South Africa, which has the installed capacity to generate 44,175mw of electricity for a population of only 53 million people.

In a telephone conversation with BusinessDay recently, Eric Olo, a general manager with North-South Power and owner of the Shiroro Hydro Power Plant, argued that the country’s 20,000mw target for 2020 was short of national requirement, and that Nigeria actually needed to generate 40,000mw of power in that year to keep its demand in balance with supply.

Olo said that, in order to make this happen, the country would need to invest at least $500 billion in the development of infrastructure for power generation, as well as transmission and distribution.