In a dramatic change of outlook aimed at encouraging gas commercialisation by indigenous oil companies, the Department of Petroleum Resources (DPR) has reversed its decision to sanction oil and gas companies still involved in gas flaring. DPR is dropping the big stick and putting forward the carrot, in a move to encourage investment in gas infrastructure.
The company had previously planned sanctions of $3 per 1,000 standard cubic foot of gas flared, starting next year. BusinessDay learnt that DPR, after taking a deeper look at the operational environment, had a change of heart regarding the enforcement of the policy, which it was perceived, could turn-off investors. George Osahon, director of DPR, said a series of regulations put in place since 1969 to curb gas flaring had not achieved much.
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The companies prefered to pay the penalties rather than stop flaring, he said. Osahon explained that this was because the companies did not have the infrastructure to put gas to commercial use. He said domestic gas supply compliance by oil companies currently stands at about 23 per cent, adding that several companies which are flaring gas, are now looking for third party investors to help harness and market the product, rather than flare it.
Osahon further explained that DPR was adopting a new approach to gas flaring, in consideration of the infrastructural challenges facing the operators. Also, he said, the fields where the gas was being flared were tiny, scattered across the Niger Delta and not easy to harness.
Another challenge, he said, was the relatively low price of gas in the local market. The inability of domestic gas off-takers to take gas from suppliers was yet another consideration for the strategy reversal, Osahon explained. He observed insecurity was also posing a challenge to investors in the industry. Nigeria has been able to reduce the level of gas flaring from 25 per cent some years back, to about 12 per cent now.
Also commenting, Layo Fatone, managing director of the Niger Delta Petroleum Development Company, said it is important that the DPR continues to give incentives to indigenous companies which would then play bigger roles going forward.
He said negotiating a gas purchase agreement is very challenging because of limited negotiating capacity among the local indigenous companies that are producing gas and want to sell to other big companies in the business.
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He also pointed at limited cash and lack of bank funding for gas development and observed that gas infrastructure funding was limited to short term loans. Olayode Delano, a legal practitioner, said fiscal considerations and incentives are conditions for investments in the gas sector.
He, however, pointed out that gas infrastructure is a big challenge to investment in the development of the sector and urged the stakeholders to address budgetary constraints, which have always been a problem. Gbite Adeniji, a lawyer, said for 10 years the country has not been able to enact legislation to improve the gas industry.
Adeniji observed that there were always the problems of enforcement of regulatory issues and capacity challenges with the Department of Petroleum Resources. According to him, the regulatory agencies must be independent if there would be law enforcement. He also canvassed for regulatory reform to make the industry grow better.
Olusola Bello
