s an offshoot to the GEP Law Focus Report on
A“Taking Advantage of the Flare Gas (Prevention of
Waste and Pollution) Regulation 2018” published
in December 2018, this report provides an analysis of the
recently issued guidelines by the Department of
Petroleum Resources. The guidelines are a by-product of
the approved 'Flare Gas' regulation that was gazetted by
the Federal Government of Nigeria in September
2018.The four guidelines provide the governance
framework for the flare gas commercialization
programme in the natural gas sector.
The guidelines were issued pursuant to Paragraph 35 (b)
of the First Schedule to the Petroleum Act and the Flare
Gas (Prevention of Waste and Pollution) Regulations,
2018. They are as follows:
I. Guidelines for Grant of Permit to Access Flare Gas
II. Guidelines for Flare Gas Measurement, Data
Management and Reporting Obligations
III. Guidelines for Producers' Associated Gas Utilization
Projects
IV. Guidelines for Flare Payments
I. GUIDELINES FOR GRANT OF PERMIT TO
ACCESS FLARE GAS
The guidelines give direction as to the competitive bid
process for obtaining the permit to access flare gas. The
guidelines also provide for the respective rights and
obligations of permit holders, which if violated will put the
permit at the risk of revocation.
a. Competitive Bid Process
Further to Paragraph 3(1) of the Flare Gas (Prevention of
Waste and Pollution) Regulations, 2018, Section 6 of the
guidelines provides that the grant of a permit to access
flare gas shall be by way of an open and competitive bid
process in accordance with the procedures outlined in
the guidelines. The procedures are outlined in Schedule
A to the guidelines
NIGERIA GAS FLARE COMMERCIALISATION PROGRAMME –GUIDELINES FOR FLARE GAS ACTIVITIES
21 3
The entire procedure as shown in the guidelines
comprises a 24-stage process from registration on the
programme portal to becoming a Permit Holder.
However, key procedural steps include:
Ÿ· Registration Stage–The first stage entails
registration by a potential investor on the Nigeria Gas
Flare Commercialisation Programme (NGFCP)
Portal. Sections 7 of the guidelines provide that a
Permit Holder must be a company in Nigeria.
Therefore, it is advisable that at the point of
registration on the portal, the company seeking the
permit should have already been incorporated with
the Corporate Affairs Commission.
Ÿ· Qualification Stage - Once registered on the
portal, an applicant will be eligible to download the
Request for Qualification (RFQ) Package. Applicants
will be required to submit a Statement of Qualification
(SOQ) demonstrating their capability to develop a
project by providing the information requested in the
RFQ. To submit the SOQ form, a SOQ submission fee
must be paid, and the applicant must sign a
confidentiality agreement. Each SOQ will be
evaluated against the criteria set out in the RFQ and
applicants whose SOQs satisfy the criteria will attain
'Qualified Applicant' status and will have their names
published on the programme portal.
Ÿ· Access Stage–Qualified Applicants whose names
have been published on the programme portal will be
invited to another stage of the exercise, known as the
Request for Proposal stage (RFP), where the
Qualified Applicant is required to commence the
preparation of the Bid proposal. In order to have more
information about the proposed project, the Qualified
Applicant may apply for Data Access Permit subject
to payment of the required data access fees and
following the data access procedures provided by
the Department of Petroleum Resources. A Data
Access Permit enables the holder of such permit to
access data from flare sites. A data-prying fee is paid
to pry flare gas data from flare sites, but to retain or
download the data, a data-leasing fee must be paid.
Ÿ· RFP, Evaluation & Selection of Preferred
Bidders –At this stage, a qualified applicant submits
a proposal to take flare gas at a designated flare site.
Such applicant by submitting a proposal becomes a
bidder. Section 2.5 of the guidelines provide for the
proposal and how it should be submitted. Each
proposal should contain 2 envelopes: Envelope 1
should contain Mandatory Information and a
Technical & Commercial Proposal and; Envelope 2
should contain the Financial Proposal. Finally, each
proposal must be accompanied by a proposal-
processing fee ($1000 per proposal as stipulated in
Schedule B to the guidelines) and a bid bond. The
evaluation of the proposal is threefold. Firstly, the
Mandatory Information is evaluated and only bidders
adjudged to have been compliant would move on to
the next phase where the Technical & Commercial
(T&C) proposal is evaluated. The T&C proposal is
evaluated based on criteria in the RFP. Bidders whose
T&C Proposal meet the evaluation criteria will
proceed to the next phase to have their Financial
Proposals evaluated. Finally, the Financial Proposals
are evaluated and based on the set down criteria in
the RFP the Preferred Bidders are selected.
Once the selection process is complete the preferred
bidders would need to satisfy some conditions
precedent. (Section 2.8 of the Guidelines) One of such
conditions precedent is the execution of the following
agreements: Milestone Development Agreement, Gas
Sales Agreement and Connection Agreement. Once all
the conditions precedents have been satisfied, a Permit
will be issued within 14 days and the Preferred Bidder
shall become a Permit Holder.
b. Rights and Obligations of Permit Holders
The guidelines also provide for the rights of Permit
Holders (Section 8). They have the right to take flare gas
from one or more flare sites as specified in the permits
and they also have a right to sustained and continuous
operations with respect to the flare sites specified in the
permit.
The guidelines stipulate that the Permit Holder is
responsible for the design and construction of Producer
Gas Connection Assets and further stipulates the criteria
which the Assets must meet.
The guidelines place an obligation on the Permit Holder to
conduct its operations in a safe and environmentally
sound manner and in line with good oil field practice.
c. Applicable Fees (Schedule B to the Guidelines)
The guidelines also provide for the fees payable at
various stages of the Bid process till the grant of the
permit. The necessary fees are as follows
d. Bonds (Schedule C to the Guidelines)
The guidelines provide for three types of Bonds:
Ÿ Bid Bonds – Which must accompany each proposal
and is calculated as 1% of the estimated Project
Capital Expenditure subject to a maximum of
$1,000,000. A bidder must ensure that his bid bond is
valid for a period of not less than six (6) months after
the bid submission due date. A bid bond will only be
returned in two instances; where the bidder was not
selected as a preferred bidder and; where a preferred
bidder provides a milestone bond as specified in the
Milestone Development Agreement
Ÿ Milestone Bond – This is calculated as 2% of the
estimated Project Capital Expenditure subject to a
maximum of $2,000,000
Ÿ Performance Bond – This is a bond paid by the
Permit Holder to the Producer or flare gas seller to
cover 3 months gas delivery payments.
I. GUIDELINES FOR FLARE GAS MEASUREMENT,
DATA MANAGEMENT AND REPORTING
OBLIGATIONS
These guidelines provide directions for the
measurement, recording and reporting of all gas
produced from Oil Mining Lease, Marginal Fields and
Flare Sites. The relevant stakeholders who bear the
obligation of recording and reporting gas data are
classified into three (3) groups by the guidelines:
Ÿ Producers
Ÿ Permit Holders
Ÿ Refineries and Other Processing Facilities
In Section 2, the guidelines reiterate general obligations
of the Producers and Permit Holders, which are stipulated
in the Flare Gas (Prevention of Waste and Pollution)
Regulations, 2018:
Ÿ Permit Holder and Producer shall maintain their
respective daily gas flaring logs, which must be
submitted within 21 days
Ÿ Producer and Permit Holders are required to keep
copies of their logs for no less than thirty-six (36)
months
Ÿ Producers and Permit Holders are required to
prepare and submit annual reports containing flare
gas data with respect to each flare site.
A. Data Measurement and Accounting
Section 3covers the major crux of these guidelines. It
provides for the type of gas that should be measured and
recorded and how it should be measured and recorded.
In general, all measurements of gas and reporting should
be corrected to a standard temperature of 60oF and a
pressure of 14.73 psi.
3
Producers
Producers are to measure gas according to the following
classification:
Ÿ Associated Gas production per flare site and oil field
Ÿ Associated gas for Utilisation:
o For its Own Consumption
o For existing off take commitments
Ÿ Liquids extracted from Associated Gas
Ÿ Flare Gas
o Producers Approved flare out project
o Third party commercialization project
o Flare gas going to stack or incinerator per flare
site and per oil field
Permit Holders
Under the guidelines, companies who have gone through
the open bid & selection process (Third Party Flare
Gas Commercialisation Project) and Producers
undertaking the Producer's Approved Flare Out
Project are classified as Permit Holders. Permit Holders
are required to measure gas in the following manner:
Ÿ Flare Gas Consumption
Ÿ Flare Gas Vented
Refineries and other Processing Facilities
Refineries and Processing Facilities should measure gas
as Flare gas volume vented or flared
B. Metering
Another key provision under the guidelines is the issue of
Metering. This is covered under Section 3.6 of the
guidelines. The section provides the types of meters that
should be used in measuring gas by the classified
stakeholders (Producers, Permit Holders and Refineries)
and lays down the criteria/standards used in selecting
those meters. The section also makes provision for the
type and level of data to be recorded by the classified
stakeholders using the selected meters.
The three (3) types of meters provided for are
Ÿ Production Meters – These are to be used by the
Producers to measure high-pressure, medium
pressure, low-pressure associated gas quantities
and liquid condensates.
Ÿ Fiscal Meters – These are to be used by Producers
and Permit Holders. Producers are to use fiscal
meters to measure flare gas delivered to Producer's
flare out project and flare gas sent to the stack or
incinerator. Permit Holders are to deploy fiscal meters
at the delivery point where flare gas is delivered to
Third Party Flare Commercialisation Programme and
the Header where Project Gas is sent to Flare Stack or
Incinerator. The purpose of the fiscal meters is to
measure any gas (Associated or Flared) that
generates payment.
Ÿ Allocation Meters and meters used by
processing facilities - Allocation meters are used
to measure gas allocated for various purposes: gas
allocated for power generation, gas used for re-
injection, gas used by heaters, gas used by
mechanical driven pumps etc.
C. Producers Unaccounted Flare Gas
The Guidelines provide for unaccounted flare gas, which
is any gas that cannot be accounted for under any
specified purpose. Unaccounted flare gas is calculated
as follows:
Unaccounted Flare Gas Quantities = (A*B) – C - D- E - F –
G - H
Where:
A = Associated Gas Production quantities (metered or
accounted)
B = Shrinkage Factor;
C = Own Consumption quantities (metered or
accounted);
D = Gas for Existing Off-Take Commitments (metered);
E = Liquids extracted from Associated Gas (metered or
accounted)
F = Flare Gas delivered to Third Party under the
Commercialization Projects (metered);
G = Flare Gas delivered to Producer's Approved Flare
Out Projects (metered)
H = Measured or Accounted Flare Gas quantities going
to the flare stack
D. Meter Malfunctioning Calibration and Cure
Period
The guidelines provide for situations where Meters are
offline due to malfunctioning and what should be done in
those instances. Where a meter is down due to a
malfunction, the Producer and Permit Holder are to
4
account for the data during that period and the DPR, in
determining the flare payment for that period, is to use; (i)
Accounted Data and (ii) The highest value recorded by
the meter over a 12-month period preceding the
malfunction being identified and reported.
The guidelines provide for a period of 90-calendar days to
cure meter calibration and repairs for each of the
classified stakeholders.
E. Reporting
Section 4 of the guidelines expatiates on the already
stated reporting obligations in section 2 and in the flare
gas regulations. It further provides for the types of Annual
and Monthly reports that are to be submitted in a timely
manner by the classified stakeholders.
F. Data Reconciliation and Resolution
Section 5 provides for reconciliation meetings to be held
between the DPR and each of the classified stakeholders
(Producers, Permit Holders and Production Facilities) to
reconcile oil & gas production volumes and flare gas
volumes. Producers are to meet with the DPR on a
quarterly basis while Permit Holders and Production
Facilities are to meet on an annual basis.
G. Non-Compliance
The final section provides that where either the Producer
or Permit Holder fails to comply with any of the guidelines
stipulated, paragraph 22 of the flare gas regulations shall
apply.
II. GUIDELINES FOR PRODUCER'S ASSOCIATED
GAS UTILIZATION PROJECT
The Guidelines for producer's associated gas utilization
(Guidelines) applies solely to producers under the gas
flare commercialization regime. According to the
Guidelines: “A producer is defined to be a holder of Oil
Mining Lease or allottee of a Marginal Field or contractor
under a Production Sharing Contract”
The objective of the Guidelines includes to:
Ÿ Describe the process applicable for granting Permits
to Access Flare Gas to Producers for Producers'
Approved Flare Out Project (PAFOP) in order to take
flare gas at any flare site on behalf of the Federal
Republic of Nigeria;
Ÿ Provide the framework for Producers Associated Gas
Utilization Projects for commercialization; and
Ÿ Provide the framework for Producers Associated Gas
Utilization Projects for Own Consumption.
For the purpose of the Guidelines, Associated Gas
Projects are categorized as follows:
A. Own consumption projects;
B. Commercialization projects and
C. Greenfield projects
A. Own Consumption Projects
Associated Gas Utilization Projects for own consumption
by the Producer will be limited to sustaining and or
improving oil recovery in the producer's oil field. The
5
Associated Gas Utilization Projects under this category
shall however not reduce or affect any Flare Gas Volume
that is subject to a bid process conducted by the Federal
Government of Nigeria or that has been assigned to any
Permit Holder and the Department of Petroleum
Resources (DPR) must have approved the project in the
Field Development Plan (FDP).
The Guidelines further require that the Reserve Gas for
Own Consumption shall be reported to the DPR. It is
instructive to note that under this type of projects, the
producer may, subject to the regulations and Guidelines,
use associated gas free of charge and emission credit
belongs to the producer.
B. Commercialization Projects
In this regard, the guidelines apply both to projects
initiated before and after the Flare Gas (Prevention of
Waste and Pollution) Regulation, 2018.
Ÿ Pre-Regulation Projects: These include projects
with existing off-take commitments that are in
operation prior to the effective date of the regulation
or that have been approved prior to the effective date
of the regulation but have not begun commercial
operations. The gas prices of projects are agreed
and communicated to the Department of Petroleum
Resources otherwise a price imposed by DPR
becomes applicable where no such communication
has been made to DPR after 4 months of the
Guidelines becoming effective. It is instructive to note
that the project shall be part of a field development
plan (FDP) approved by DPR, the producer should
have concluded Front End Engineering Design
(FEED) and achieved Final Investment Decision (FID)
prior to the effective date of the regulation and
Commercial Operation date prior to January 1, 2020.
The emission credit under this type of project belongs
to the producer.
Ÿ Post-Regulation Projects: These are projects
after the effective date of the regulation which require
Permit to Access Flare Gas and are designated either
as:
o Producer's Approved Flare Out Project;
o Third Party Flare Gas Commercialization Project.
It is instructive to note that this Guideline requires that in
applying for Permit to Access Flare Gas, applicants for
Third Party Flare Gas Commercialization projects must
follow and comply with the procedure established under
the Guidelines For Grant of Permit to Access Flare Gas,
while the procedure for obtaining a Permit to Access Flare
Gas by an applicant for Producer's Approved Flare Out
Project must follow and comply with the Guidelines. It is
also worthy of note that Producers Approved Flare Out
Projects are exempted from bid process which therefore
removes it from the procedure for obtaining Permit to
Access Flare Gas under the Third-Party Flare Gas
Commercialization arrangements.
Requirements for Permit for Producer's
Approved Flare Out Project:
In order to obtain a Permit to Access Flare Gas under a
Producer's Approved Flare Out Project scheme, the
following procedure under the Guidelines must be
observed:
a. Application for a Permit to the Minister of Petroleum
Resources must be done through a subsidiary of a
Producer or Midstream Company;
b. The application shall be accompanied with the
following information and documentation:
Ÿ Project Description;
Ÿ 10-year Associated Gas Production Forecast and
Flare Gas Quantities;
Ÿ 10-year Forecast of the Flare Gas Volumes to be
contracted for by the Permit Holder, the Flare Site(s)
that will supply the gas, Flare Gas-to-Market Product
(Power Generation, LNG, CNG, LPG/Condensate
extraction, methanol, a combination of products, etc.
proposed and the technology to be utilized.
Ÿ A list of Flare-Gas-To-Market Product Off-Taker;
Ÿ Investment cost and proof of economic viability;
Ÿ A project implementation schedule which shall
indicate, among other things that Commercial
Operations Date will commence no later than 36
months after being granted an approved PAFOP
Applicant status;
Ÿ A list of shareholders in the subsidiary or midstream
company that will execute the PAFOP.
Ÿ Documentation that shows that the Project Flare Gas
Consumption volumes are within the Flare Gas
Forecast Quantity and that the PAFOP does not
reduce or affect any Flare Gas volume that is subject
to a bid process being conducted by the Federal
Government of Nigeria or assigned to any other
Permit Holder.
6
Conditions Precedent to Grant of Permit:
Following the approved PAFOP, the applicant will have to
comply with certain stipulated requirements in the
Guidelines before the Minister of Petroleum Resources
grants a Permit to Access Flare Gas. The requirements
are as follows:
a. Execute a Milestone Development Agreement (MDA)
with the Federal Government of Nigeria for monitoring
the performance of the applicant within 60 days of the
award of the Approved PAFOP after which a
Milestone Bond will be posted in accordance with
table 2 of schedule C to the Guidelines for Grant of
Permit to Access Flare Gas;
b. Execute a Gas Sale Agreement (GSA) with the
Federal Government of Nigeria within 60 days of the
award of the Approved PAFOP. It is instructive to note
that the GSA will contain take or pay provisions for the
Permit Holder;
c. Execute a Connection Agreement with the relevant
producer within 60 days of the award of the Approved
PAFOP;
d. If applicable, execute a Deliver or Pay Agreement with
the Producer within 60 days of the award of the
Approved PAFOP, however the Federal Government
of Nigeria is not obligated to provide any backstop
guarantee in the event of a Buyers shortfall;
e. Payment for the permit shall be made within 60 days
of the award of the Approved PAFOP.
By virtue of the Guidelines, the emissions credit belongs
to the Federal Government of Nigeria.
It is instructive to note that failure to meet the above
requirements of the Guidelines will attract a revocation
notice and if default persists after 30 days, the Approved
PAFOP will be deemed forfeited. However, where the
applicant succeeds in meeting the requirements, a
Permit to Access Flare Gas shall be granted, and the
applicant becomes a Permit Holder by virtue of the
regulation. Following the issuance of the Permit, the
Milestone Bond shall be replaced with a Performance
Bond which will be valid for the duration of the Permit.
Greenfield Projects
The Guideline reiterates the position of the regulation
under section 12(3) by prohibiting the producer from
engaging in Routine Flaring or vent of natural gas from
any Greenfield Projects. In developing a Greenfield
project, the producer shall demonstrate in the field
development plan (FDP) that Associated Gas will be
optimized for own consumption and that upon start-up of
the production facility, it will be commercialized over and
above the volumes that are needed for own consumption.
III. GUIDELINES FOR FLARE PAYMENTS
By virtue of section 13 (1), (2) and (3) of the Flare Gas
(Prevention of Waste and Pollution) Regulation, 2018 (the
regulation), a flare payment regime for routine and non-
routine gas flaring is established.
The flare payment regime applies to any natural gas that
is flared and or vented at the production facilities of the
Producers. The Guidelines for Flare Payment (the
Guideline) issued by the Department of Petroleum
Resources is therefore intended to provide the
account ing procedure for underpinning the
implementation of the flare payment regime under the
regulation. The procedures for flare payments are put in
two categories, viz:
A. Transition Period;
B. Post-transition Period.
A. Transition Period
According to section 3.1 of the Guideline during the
transition period, the accounting procedure used for the
calculation of flare payment shall be the Accounted Flare
Gas Quantity which is calculated as follows:
Accounted Flare Gas Quantities= (A*B)-C-D-E-F-G,
Where:
A=Associated Gas Production quantities (metered or
accounted)
B=Shrinkage Factor;
C=Own Consumption quantities (metered or
accounted);
D=Gas for Existing Off-Take Commitments (metered);
E=Liquids extracted from Associated Gas (metered or
accounted)
F=Flare Gas delivered to Third Party under the
Commercialization Projects (metered);
G=Flare Gas delivered to Producer's Approved Flare Out
Projects (metered)
While Chargeable Flare Gas Quantity equals the
Accounted Flare Gas Quantity less Contracted
Guaranteed Flare Gas Buyer Shortfall.
7
The Guidelines provides that the Flare Payment amount is
calculated by multiplying the Chargeable Flare Gas
Quantity by the applicable Flare Payment rate in
Us$/Mscf as contained in the regulation. The Guidelines
draws a difference in the terminology between Accounted
flare gas quantities, unaccounted flare gas quantities and
chargeable flare gas quantities in arriving at the flare
payments.
B. Post Transition Period
In arriving at the flare payment, the applicable principle is
by multiplying the Chargeable Flare Gas Quantity by the
applicable Flare Payment rate in Us$/Mscf as contained
in the regulation. However, the Chargeable Flare Gas
Quantity is the Compounded Flare Gas Quantity less the
Contracted Guaranteed Flare Gas Buyer Shortfall, where
the Compounded Flare Gas Quantity is the sum between
the unaccounted flare gas quantities and flare gas
quantities. The computed flare payment shall be paid by
the producer in accordance with the procedures for
payment of royalties to the Federal Government of
Nigeria in line with section 3 of the Associated Gas Re-
injection Act while the reporting shall be done in line with
paragraph 19 of the regulation. However, no flare
payment is due where the producer has committed to
deliver an agreed volume of flare gas to the Permit holder
under a Deliver and Pay Agreement. The Guideline
reiterate the provisions of the regulation and the
Petroleum Act with respect to delayed remittance and
non-compliance with the regulation which attracts
additional payment.
CONCLUSION
The above guidelines provide guidance to stakeholders
and investors on how to take advantage of the Flare Gas
Commercialisation Programme pursuant to the Flare Gas
(Prevention of Waste and Pollution) Regulations, 2018.
With the guidelines and Regulation now in place, the gas
industry has now been positioned to experience renewed
growth and development as envisaged by the National
Gas Policy.
Syncrest Energy Limited in partnership with Geplaw
Consults Limited and George Etomi & Partners is
organizing a 2-Day Workshop in March 2019 on
“Taking Advantage of the Flare Gas Regulations
2018”. This training will provide practical insights
into the flare gas programme as well as the
opportunities for investment under the programme.
For enquiries and bookings, kindly contact: WALE
OGUNBUFUNMI 09096476796 //DIANAABASI OKOP
08184777065: