Up in flames: How Nigeria lost N223bn to gas flaring

The uncertain regulatory environment and ineffective oversight that helped oil companies flare devastating volumes of gas and escape billions of dollars gas flare penalties in the past have persisted, Daily Trust on Sunday investigation shows.

Prompted by low oil price and his personal resolve to tackle graft and pass an over-arching law for the Nigerian petroleum sector, President Buhari, after assuming office in 2015, kept the position of oil minister for himself.

But the president, according to stakeholders, will need to do more by urgently declaring a firm national gas flare-out target as well as draw up a clear roadmap to stop the loss of billions of dollars in gas flares, especially now that revenues are stretched and the government is looking to fund more of its budget with debt.

Gas flaring which is the practice of burning natural gas associated with crude oil extraction by oil companies was outlawed in 1984 in Nigeria, but it still occurs and constitutes a major harm to the nation.

The latest monthly operations report by the Nigerian National Petroleum Corporation (NNPC) showed that oil and gas companies operating in the country flared 244.72 billion Standard Cubic Feet (scf) of gas between August 2015 and July 2016.

NNPC in its website put the price of natural gas at $2.95 per 1,000 scf as at September, 2016.

The flaring of 244.72bscf gas translates to a loss of $723 million to the country or N223 billion at the current CBN exchange rate of N305.25/dollar.

Analysts say had the 244.72bscf gas flared been appropriately captured and commercialized or supplied to the domestic power plants, the country could have earned $612.5m or N186.97bn at the domestic gas to power sales price of $2.50 per 1,000 scf.

Attempts to capture the economic losses to gas flaring in figures are usually complicated given the scale of the flares and the lack of capacity of the Department of Petroleum Resources (DPR) to independently track and measure gas volumes produced and flared.

For instance, findings showed that NNPC’s numbers for annual gas flaring are always at variance with those of DPR. The computation attempted above is only a slice of the real picture.

Further analysis of the NNPC report showed that the volume of gas flared from the over 257 oil production sites in the Niger Delta region represented 8.87 per cent of the total 2.759 trillion scf gas produced within the period under review.

This, when compared to 2014, showed a 45bn scf decrease from the 289.6bscf of gas flared, according to NNPC’s 2014 Annual Statistical Bulletin (ASB), indicating significant increase in gas utilization and a gradual decline in gas flaring trend.

Nigerian units of Chevron, Shell, Mobil and Agip were the biggest flare offenders in 2014, according to the NNPC ABS data for 2015 is not yet public.

Further analysis showed that the flared gas was 18.2bscf higher than the gas supplied to the country’s power plants for electricity generation (226.43bscf ) and 123bscf more than the gas volume supplied to local industries (121.67bscf ) as the nation’s power and industrial plants grappled with inadequate gas supply within the period.

Acute electricity shortage occasioned partly by insufficient gas for thermal power generation plants that make up 80 per cent of Nigeria’s electricity generation sources saw the country’s total power generation plunge at various times within the last one year.

What N223bn can do for Nigeria

The opportunity cost of gas flaring is not only the amount of power that could have been generated had the gas been strategically channelled to the thermal power plants but the infrastructural development lost.

N223bn is urgently needed in a country where 110 million people live in extreme poverty, and more than half of the population does not have access to clean water, according to the Nigeria Millennium Development Goals, 2013 report.

The N223bn worth of gas wasted in the air is more than the amount required to fund key capital projects of the Niger Delta ministry for the oil-rich region in 2016.

The amount is more than enough to construct one block of six classrooms each in Abia, AkwaIbom, Bayelsa, Cross-Rivers, Delta, Edo, Imo, Ondo and Rivers states for N791million as contained in the Niger Delta Ministry budget for 2016.

It is enough to construct health centres in those nine states for N317 million and fund the rehabilitation of oil impacted sites in the states for N77million.

The flared sum is still enough to construct food and cassava processing plants for the Niger Delta region at the cost of N198 million.

It could also fund the establishment of integrated oil palm processing plants in each state of the Niger Delta region at N198m, housing schemes N879m as well as skills acquisition centres in each state of the Niger Delta region.

Analysts also say the amount could help plug Nigeria’s shaky power sector deficit to a great extent. The money is adequate for some of the ministry of power capital projects in 2016.

For instance, it could fund the completion of power evacuation facilities for 40mw Kashimbilla hydropower plant in Taraba at N4.5bn; generation of 700 mw from Zungeru hydropower N500m; coal to power generation development in Nigeria N235m and N4.5bn payment for ongoing projects nationwide in 2016.

For the benefit of the entire country, N223bn could effectively construct 1,973 blocks of 7,068 housing units in the six geo-political zones and the FCT at N35bn and implement the Sustainable Development Goals Projects I& II for N9bn.

The volume of gas flared annually in Nigeria, according to an online technology outfit, the Nigerian Gas flare Tracker, is enough to generate 27,526 megawatts of electricity for Nigeria.

According to the outfit launched in 2014, the country loses around $1.1 billion of potential annual revenue from fines that could have come from gas flare.

“Experts tell us we lose about $2.5bn annually to gas flaring,” said Phillip Jakpor, who is the media and campaign head of Nigerian environmental pressure group, the Environmental Rights Action.

“Before now we have been told that the oil companies are building gas gathering infrastructure but today we know that there are still about 200 gas flare stacks in the Niger Delta. So, it is still occurring,” Philip said by phone.

Renowned environmentalist activist, Nnimmo Bassey, said the economic losses due to routine gas flaring are huge and absolutely unconscionable.

“Rather than produce a list that could include repair of dilapidated highways, infusion of funds into the educational and health sectors, we should look at the hidden costs. The oil companies, including the NNPC, operating in the Niger Delta have turned the region into their waste dump site. Every gas flare stack belching poison into the air, signifies privatisation of the atmosphere over the communities where they are located. The cost is thus borne by the poisoned communities - the people and the environment. Do not forget that this has been going on for close to six decades.” Bassey who is the Director, Health of Mother Earth Foundation (HOMEF) said. Billions of dollar fines unpaid Nigeria imposes gas flare penalty on oil and gas producing companies to serve as a deterrent from flaring gas but government officials say the fines are not paid.

There have been five different regulations governing gas flare penalty with the latest being the Associated Gas Re-injection (Continued Flaring of Gas) Regulations, 1984 and the Cap 26 Laws of the Federation of Nigeria, 1990.

Different gas flare penalty rates have been used under various fiscal regimes since 1985, but the latest being N10 per 1000 standard cubic feet (N10/mscf) applicable from January 1998 to March 2008 and $3.5/mscf applicable from April 2008 to date (still in contention).

But the rate of N10/mscf of gas flared (equiv. $0.46/Mscf) as provided by the Regulation of January 1998 is still being applied as against the $3.50/mscf, which is the latest rate.

The collection of N10/mscf of gas flared mean that oil companies prefer to pay the flare penalties rather than build utilisation facilities for the gas.

About $1.1bn gas flare penalties are reportedly not collected annually, according to the Nigerian Gas flare Tracker. It simply goes up in smoke annually by way of uncollected fines from gas flaring, it was gathered.

According to the 2012 Petroleum Revenue Special Task Force report, oil companies often do not pay the fines “and when they do, they are still paying the old penalty of N10 per 1000 standard cubic feet flared.”

The Task Force reported that the DPR, was “unable to independently track and measure gas volumes produced and flared. It depends largely on the information provided by the operators. There were no available records or information in respect of gas flare volumes for the years 2005 and 2011.”

Statistics contained in DPR’s 2014 Oil and Gas Industry Annual Report showed that total payments of gas flare penalty between 2010 and 2014 amounted to N15.7bn. Analysis of the report indicated that the penalty declined from N3.5bn in 2011 to N2.9bn in 2014.

However, a key finding on gas flare penalty by the Nigeria Extractive Industry Transparency Initiative (NEITI) in its latest audit report of activities of the sector in 2013, found that there was inadequate measurement infrastructure to determine the quantity of gas flared by the oil companies, noncompliance with the 2008 gas flaring penalty rates and poor collection of gas flared penalties.

The implication of this, according to NEITI, was that incorrect determination of gas flared volumes and consequent under assessment of gas flare penalties led to lower revenue to the federation. Shifting the goal post Nigeria has been making frantic efforts, setting and shifting deadlines towards ending gas flaring. The country’s unsuccessful attempts could be traced back to 1969 when the military junta led by General Yakubu Gowon directed oil companies to end gas flaring within five years.

The 1974 phase-out plan fell through following forcing the government to extend the deadline to 1979 with the enactment of the Associated Gas Reinjection Act 1979. But the multinational oil firms also failed to meet the 1979 dateline, thus pushing the civilian administration led by Alhaji Shehu Shagari to defer the zero-gas flaring deadline to 1984.

Although, routine gas flaring was outlawed since 1984, according to Section 3 of Nigeria’s Associated Gas Reinjection Act 1979, the practice has continued unabated till date as the oil companies choose to pay fine.

“There have been so many deadlines that have been set but that raises the question: Who are to enforce this and what studies were done before the deadlines were set. We have missed so many cut-off date but nothing happened,” said Engr. Magose Abraham Eju, a specialist in gas technology and Managing Director of Energy Business Total Solutions Ltd.

Countries including Iran are already pushing ahead projects to collect flared gas and use it for onsite combined heat and power production.

Bassey, the HOMEF director, said what the Nigerian government can do is to halt all exploitation of new gas fields and rather concentrate efforts at harnessing the gas being currently flared before looking elsewhere.