Nigeria: How Nigeria's Gas Flare Commercialisation Will Work

The Nigerian government now has a market-based mechanism to eliminate gas flaring in the Niger Delta.

Gas flaring by oil companies in the region has for years devastated the environment and livelihoods of local populations.

The new initiative -- National Gas Flare Commercialisation Programme -- was launched in 2016 as a major step towards Nigeria's goal of ending gas flaring by 2020.

The global flare-out deadline is 2030 following the zero-flaring initiative promoted by the World Bank, however, Nigeria has a national target that seeks to eliminate gas flaring 10 years earlier.

What is gas flaring?

Gas flaring is the burning off of associated gas that comes together with oil during production.

Oil companies have been using the option of burning the associated gas for decades.

They have preferred flaring and paying meagre penalties to the government, than developing a structure to capture the gas and make it useful. Setting up such infrastructure would be more expensive, they have argued.

Oil companies in Nigeria produce over 4 billion standard cubic feet of gas per day. But according to the authorities, nearly 80 per cent of the associated gas produced is utilised or redirected into the earth crust.

The remaining -- approximately 700 million standard cubic feet of gas -- is burnt in the open daily at 178 sites, causing tons of carbon to be emitted into the atmosphere. Carbon is a key contributor to climate change.

An investigative report published in 2018 suggested an increase in Nigeria's gas flare ahead of the 2020 deadline and highlighted the devastating impacts of the waste on the local populations and the environment.

But if the wasted gas were captured, it could be used in boosting electricity generation and even used as cooking gas.

Deadlines to stop flarit have repeatedly shifted since 1960s.

The commercialisation programme

In 2016, relying on Nigeria's petroleum law empowering the minister of petroleum resources to take flared gas and commercialise it, the minister of state, Ibe Kackikwu, launched the National Gas Flare Commercialisation Programme to involve third-party investors or off-takers.

On Thursday, three years after, Mr Kachikwu said that 226 companies had submitted bids to participate in the commercialisation programme.

Successful companies, called off-takers, are to emerge from the ongoing process that requires the submission of proposals for "financially and technically sustainable utilisation projects."

According to the process documents, the firms must demonstrate technical capacity for the design, construction, operation and maintenance of gas utilisation.

In addition, each applicant is expected to show demonstrable project development experience; demonstrable previous experience in either owning or operating gas to power, gas to liquids, gas processing and/or transportation, or similar projects, and proven technology in commercial application.

For financial capacity, an applicant must show a net worth of $5 million. Besides, any applicant must not be on the debarred lists of the country's anti-graft agencies, the World Bank or the US Treasury Office Control list.

Based on applicable laws, instead of wasting gases and damaging the environment, oil companies will be required to surrender gas flare to the utilisation projects of the successful off-takers.

"This policy if successfully implemented may turn out to be the government's most proactive gas flare reduction policy initiative to date," said Pep Guobadia, an energy lawyer.

Questions

Questions remain, though.

One, how does the government intend to manage the cases of companies that have existing gas supply obligations to their own private off-takers? In other words, does it mean oil companies will no longer have the right to commercialise associated gas produced from their own infrastructure?

Two, how will the government ensure bankable investment for the off-takers given the place of the oil companies' assets in the production of the gas planned for commercialisation?

Mr Goubadia explains:

"(The) success (of the commercialisation programme) may rest largely on the government's flexibility around electing in appropriate instances, to share or give up the offtake tariff received from flare gas licensees to petroleum companies in order to adequately guarantee gas supply to the flare down projects and make them bankable."

Paul Osuh, the spokesperson for the Department of Petroleum Resources, which controls the programme, did not reply a text message requesting comment for this report. He also did not answer calls.

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