Oil firms pay less penalty for gas flared

Oil companies in Nigeria flared more gas in the first half of this year but the penalty paid declined, an analysis of official data show.

They paid N36 billion as the penalty for flaring gas in the first half of this year, down from N37.75 billion in the same period of 2022, according to data from the Central Bank of Nigeria.

Data obtained from the Oil Spill Detection and Response Agency (NOSDRA) also revealed that the penalty payable for flaring gas in the period stood at $277.6 million (N134.08 billion, using the average official rate of N483/$).

According to NOSDRA, 138.8 billion standard cubic feet (scf) of gas was flared, up 10.1 percent from 126.1 billion scf in H1 2022.

Analysts emphasised the need for more stringent enforcement of existing policies and laws to curb gas flaring further and increase penalty collection.

“Overall, Nigeria’s gas flaring activities have considerably reduced over the years, as a result of certain government policies that have been put in place to incentivise the reduction of flaring,” said Joshua Olorunmaiye, an oil and gas lawyer.

“However, it would seem that not enough is being done to enforce policy direction and laws that are meant to stifle incessant gas flaring.”

He said section 104 of the Petroleum Industry Act criminalises gas flaring, except in instances of emergency, exemption from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), and when it is considered acceptable as a safety practice under established regulation.

Section 107 of the PIA also provides that the NUPRC or Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) may grant a permit to a licensee or lessee to allow the flaring or venting of natural gas for a specific period — (a) where it is required for facility start-up; or (b) for strategic operational reasons, including testing.

Also, the Gas Flaring, Venting, and Methane Emissions (Prevention of Waste and Pollution) Regulations 2023 prescribe applicable penalties, while regulation 12(2)e therein states that flaring may occur as long as it is within the threshold approved by the NUPRC.

According to Olorunmaiye, it would be ideal for the government to revisit this plethora of exemptions and determine whether they inadvertently allow for leakages, concerning the already established prohibition of gas flaring and the desired consistency in the enforcement of the penalty provisions.

He said: “Be that as it may, whether we can outrightly ban gas flaring remains debatable, because the domestic gas market in Nigeria is underdeveloped, oil sales supply a majority of government revenue, and a high share of Nigeria’s oil fields have associated gas.

“The only way to enforce a flaring ban would be to shut down these fields and cut off the income they provide. However, since the government needs these revenues, flaring will likely continue until there is a viable outlet for the associated gas.”

The current penalties for gas flaring in Nigeria officially stand at $2 per 1,000 scf. Currently, 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 10,000bpd pay a fine of $0.5.

The federal government, in 2018, increased the penalty for gas flaring from N10 per 1,000 scf to $2 per 1000 scf of gas flared.

Read also: Nigeria lost N843bn in 20 months to gas flaring – NOSDRA

In addition, various legislative measures to curb gas flaring in Nigeria have been in place since 1969. Since 1984, it has been illegal to flare gas in Nigeria without the written permission of the minister of petroleum resources.

“The challenge for gas flaring can only be solved when the government deregulates gas prices and allows pricing to follow the bending moment formula that tracks diesel by 40 percent,” said Kelvin Emmanuel, CEO of DairyHills.

According to him, companies will rather pay penalties for flaring than invest in gas-gathering pipes or manifolds, if their cost structure is not justified by revenues from deliveries.

The regulators, NUPRC and NOSDRA, have reiterated their commitment to ensure the right quality and quantities of gas production alongside adherence to environmental standards for host communities.

In September, the NUPRC granted 42 firms gas flaring licences in the 2022 Nigerian Gas Flare Commercialisation Programme auction process.

According to the commission, award letters are already being transmitted to the respective successful entities through the appropriate channels.