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MEMORANDUM ON GAS FLARING (PROHIBITION AND PUNISHMENT) BILL 2019
SUBMITTED TO
HOUSE OF REPRESENTATIVES COMMITTEE ON GAS RESOURCES
AS INPUT TO
THE PUBLIC HEARING
FEBRUARY 2021
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Table of contents
1. Executive summary 4
2. What and who is OPTS 5
3. Submission 6
Bill Title - GAS FLARING (PROHIBITION AND PUNISHMENT) BILL ...................................................................... 6
Section, Explanatory Memorandum ......................................................................................................................... 6
Section 2, Authorization ............................................................................................................................................ 6
Section 3, Application for Authorization .................................................................................................................. 6
Section 4, Cessation of gas flaring ........................................................................................................................... 7
Section 5, Operators to submit gas utilization plan within 90 days of commencement of this Act ................... 7
Section 6, Prohibition of directive or authorization to flare gas ............................................................................ 7
Section 7, Failure to meet annual gas Flare reduction target ................................................................................ 8
Section 8, Gathering utilization of reinjection of natural gas ................................................................................. 8
Section 9, Continued flaring ...................................................................................................................................... 9
Section 10, Gas Flare Reports after 31st December, 2019 ...................................................................................... 9
Section 11, Offences and penalties .......................................................................................................................... 9
Section 14, Power to make regulations .................................................................................................................... 9
Section 15, Special considerations ........................................................................................................................ 10
Duplication and Multiplicity of Laws ...................................................................................................................... 10
Metering ..................................................................................................................................................................... 10
Specific and Target Dates ........................................................................................................................................ 10
4. Conclusion 11
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The policy position of the Federal Government of Nigeria (FGN) is that gas flaring is
unacceptable, thus the FGN has actioned various initiatives to reaffirm its
commitment to ending the practice of gas flaring across Nigeria. Specifically, the FGN
ratified the Paris Climate Change Agreement, and is a signatory to the Global Gas
Flaring Partnership (GGFR) principles for global flare-out by 2030 whilst committing
to a national flare-out target by year 2020.
The FGN also identified the commercialization of flared gas for supply to the domestic
market as a high priority strategy necessary to achieve the national mandate for
elimination of gas flaring. The government therefore instituted the Nigerian Gas Flare
Commercialization Program (NGFCP), launched in December 2016, which is divided
into two; 1. Exempted flare sites 2. Flare sites within the NGFCP.
The Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry
(OPTS) is aligned with the FGN in its initiatives to achieve flare down across the nation,
as elimination of gas flares provides economic, environmental, health and safety
benefits to all stakeholders.
However, it is important to note that the elimination of gas flaring requires
substantial investments in gas gathering and compression facilities, the development
of the infrastructure required to deliver gas to the markets, and the development of
viable markets for utilization of the gas. Addressing these issues will achieve
significant strides towards the elimination of gas flaring and create benefits to the
FGN and the broader economy.
We are pleased to have received the House of Representatives Committee on Gas
Resources invitation to further discuss the need to end gas flaring in Nigeria and
harness associated gas.
In our concise review of the proposed Gas Flaring (Prohibition and Punishment) Bill
2019, we have various value adding recommendations to share with the House as
indicated below.
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Executive summary 1.
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OPTS is a private industry group under the umbrella of the Lagos Chamber of
Commerce and Industry, representing the interests of oil and gas producing
companies operating in Nigeria. OPTS members operate in Nigeria’s oil and gas
industry, either in partnership with the Nigerian National Petroleum Corporation
(NNPC) or with other license or leaseholders. OPTS members are the cornerstone
of the exploration, development, and production of Nigeria’s petroleum and gas
resources.
The following indigenous and international oil companies are members of OPTS:
1. Addax Petroleum Development Nig. Ltd
2. Amni International Dev. Co. Ltd
3. Chevron Nigeria Ltd.
4. Dubri Oil Company Ltd
5. Elcrest Exploration & Production Nigeria
6. Energia Limited
7. ENI / Nigerian Agip Oil Company Ltd
8. Equinor Nigeria Energy Company Ltd
9. Eroton Exploration & Production Co. Ltd.
10. First Exploration & Production Dev. Co. Ltd
11. Lekoil Nigeria Ltd
12. Midwestern Oil & Gas PLC
13. Mobil Producing Nigeria UnLtd
14. Moni Pulo Nigeria Ltd
15. ND Western Ltd
16. Niger Delta Petroleum Resources Ltd
17. Nexen Petroleum Nigeria Ltd
18. Newcross Exploration & Production Ltd
19. Pan Ocean Oil Corporation (Nig.) Ltd
20. Prime 127 Nigeria Ltd
21. Oando Exploration & Production Ltd
22. Oriental Energy Resources Ltd
23. South Atlantic Petroleum Nig. Ltd
24. Seplat Petroleum Development Co. PLC
25. The Shell Petroleum Development
Company of Nig. Ltd
26. Shoreline Natural Resources
27. Total E&P Nigeria Ltd
28. Waltersmith Petroman Oil Ltd
29. Yinka Folawiyo Petroleum Ltd
Our collective objective is to strengthen the long-term health of Nigeria’s
petroleum industry. We achieve this by working closely with companies across
the entire industry, as well as government and other stakeholders, to address
issues of common concern to the industry. Representatives of our member
companies meet monthly to tackle the industry’s pressing issues.
OPTS has actively supported the Federal Government of Nigeria’s objectives to
energize the gas industry, grow crude oil production capacity, and enhance
linkages to the broader economy.
What and who is OPTS 2.
Bill Title - GAS FLARING (PROHIBITION AND PUNISHMENT) BILL
Remove ‘’punishment’’ completely from title or replace with ‘’penalty’’
Section, Explanatory Memorandum
The proposed Bill should clearly distinguish between Prohibited flaring and
routine / base operational (pilot) flaring required to maintain safe operations
of production facilities or reliability (emergency) flaring necessitated during
temporary equipment outages till equipment are restored. We recommend
that the exemption of base/design operational flare for Non Associated Gas
(NAG) and Associated Gas (AG) plants, reliability flare, emergency and non-
routine safety flare be clearly stated in the proposed Bill.
Section 2, Authorization
Existing gas facilities and projects sanctioned prior to the Bill should be
exempted from requiring further authorization for further development
and/or upgrade from the Minister of Petroleum Resources. Also,
authorization should not be required in cases of associated gas development,
which has its approvals duly covered in the development of an oil well.
Section 3, Application for Authorization
Advance authorization for flaring should be limited to planned and routine
flares.
By definition, emergency flares cannot be anticipated; we therefore propose
that the requirement to obtain prior approval for such flares be removed from
this Bill. Rather, Operators should report emergency flares within five (5)
working days of the emergency.
The Environmental Impact Assessment (EIA) Act covers matters relating to
issues of gas flaring and venting and the environmental statement of the
development, thus this section of the Bill should be modified to avoid
duplication of functions. Also, this clause would require further revision for
clarity around maximum periods for venting and flaring during commissioning
phase.
The OPTS would like to point out the operational difficulties around
requesting ministerial approvals to flare or vent gas in the 3rd Quarter of the
Submission 3.
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preceding year, as emergencies may occur which makes this impracticable.
In the proposed Bill, there is a required approval for design stage,
commissioning phase, production phase. Seeking approval for each phase
would be difficult, especially once funds are committed to a phase and in
subsequent phase(s) approval is delayed or denied. We therefore propose a
single approval to cover all phases.
Section 4, Cessation of gas flaring
We recommend that the date of cessation of gas flaring referred to in the Bill
be amended to the latter of 36 months from commencement of the new law
on gas flares or the completion of the NGFCP program being run by the
Department of Petroleum Resources (DPR), as the stated date is now in the
past.
No threshold for determining when flaring/venting is “technically and
economically justified” in the Bill. In addition, it is unclear whether zero flare
fees would apply to technically and economically justified flaring/venting.
Clarity of terms is critical for administration and enforcement.
Section 5, Operators to submit gas utilization plan within 90 days of commencement of this Act
Recommended section title: Submission of gas utilization plan
To remove ambiguity and for clarity, we recommend that the proposed Bill
should state that in the event that 3rd party bids for flare gas utilization are
not accepted or flare solution is not completed within the stipulated time, the
Operator may resume previously submitted/approved or new gas
management practices with at least 4 years penalty waiver to allow the
Operator to source an offtaker, contract and construct a new flare solution.
We also recommend that a period of 24 months after execution of third-party
contracts be allowed for infrastructure development prior to enforcement of
shut in or reinjection requirements outlined in the proposed Bill.
The intent of this section of the proposed Bill overlaps with the NGFCP already
being implemented by the DPR. We therefore recommend that a single
implementation with accountability either with the DPR or the Operator
emerges from this Bill.
Section 6, Prohibition of directive or authorization to flare gas
Recommended section title: Authorization to flare gas and gas flare fees
With regard to process flaring and the required notification in the event of
equipment failures, OPTS would like to state that flaring for equipment
failure/safety flaring is not predictable, hence issuing a notice 5 business days
prior would not be practicable.
We recommend that gas flare fees should not be payable for permitted non-
routine flare/vent. Flaring beyond 30 days (which will likely be the case during
major maintenance activities) will be subject to a fine, per the Bill. It is
unrealistic for a maximum period to be set for all non-routine flaring events.
Therefore, OPTS recommends deleting the maximum 30-day term for permits
referenced in this section, and the duration for each permit to flare should be
based on the particular circumstance.
We recommend that the gas flare fee (applicable to permitted flare / vent,
not under prohibited flaring, including non-routing flaring) should be
eliminated, while routine flare fee is set at a maximum ($2.50/1000scf) as
Operators continue to use best efforts to achieve agreed flare reduction
targets.
Section 7, Failure to meet annual gas Flare reduction target
Recommended section title: Annual Flare reduction targets
OPTS recommends a five-year cycle with annual targets. This should not give
rise to penalties as penalties exist for flaring outside what is authorized by
government under the Act, so the agreed reduction should not warrant
penalties but simply payment of fees (except for non-routine flare/vent
incidents that should not be subject to payment of fees).
Flaring targets should be agreed upfront with the Operator, premised on
existing design of the Operator’s facility which should consider the effects of
modifications on the production from such facility. Also, the target should be
linked to Operator’s site/facility/field and the basis for revision of these
targets such as Safety, Economic and/or Technical requirements should be
clearly outlined. Exceptions which might arise from emergencies, plant
design, process trips and sabotage leading to depressurizations, need to be
considered in determining the target.
Section 8, Gathering utilization of reinjection of natural gas
It is not feasible to provide a utilisation plan prior to award of an Oil Pipeline
Licence (OPL), as, at the stage before prospecting, there is no commercial
discovery to justify field development planning of the field nor a realistic
utilization plan.
We recommend inclusion of clauses that protect the producer from penalties
arising from the FGN issuing a directive that restricts/stops a specific gas flare
down project, thus affecting the producer’s ability to eliminate the flaring or
utilize/commercialize the natural gas and thus results in unavoidable gas
flaring.
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Section 9, Continued flaring
OPTS recommends that in Section 9 subsection 2 of the Bill, gas flares
metering equipment specifications should be provided, and proper
consideration given to the use of existing meters, with calibrations validated
by DPR and status reviewed from time to time. An express requirement for
replacement or installation of new meters would result in investments
burdens and require possible shutdowns of facilities with significant
operational impact.
Section 10, Gas Flare Reports after 31st December, 2019
The provision for any person, group of person or community to lodge a report
of gas flaring should be discouraged because it will lead to an increase in
sabotage and frivolous/malicious reports and waste of man hours verifying
such reports. The use of flare meters should suffice as basis of verification.
Section 11, Offences and penalties
Flare penalties under the Bill should be tax-deductible.
The recent Flare Gas (Prevention of Waste and Pollution) Regulations 2018
provides for a relatively high gas flare payment of $2.00/1000scf for Oil
Mining Lease (OML) producing ≥ 1,000 bpd; and an additional $2.50/1000scf
for failure to provide flare gas data. OPTS recommends that there should not
be another upward revision in gas flare penalties in the proposed Bill.
OPTS recommends expunging subsection D of section 11(iv) of the proposed
Bill, which requires the Demand Order for payment of penalty to be made
public as this would expose companies to multiple litigation and have an
adverse effect on security of operations (e.g. sabotage), even after penalties
may have been paid.
OPTS recommends the word “operator” should be expunged from the bill and
replaced with a language that makes the JV parties liable to penalties under
the bill. This is critical as the operator cannot be exclusively held liable for JV
fines. Both the operator and the non-operator shall take the fines in
accordance with their respective participating interests as it has traditionally
been.
Section 14, Power to make regulations
OPTS advises that the current drafting of this section of the proposed Bill goes
against the principle of separation of powers as stated in the Constitution of
the Federal Republic of Nigeria.
Section 15, Special considerations
OPTS would like to point out that tax write off for insurance policy premium
for 5 years is already a tax-deductible expense under the Petroleum Profits
Tax Act (PPTA). As such, this tax write off consideration is not a new incentive.
Alternative incentives should be recommended.
Duplication and Multiplicity of Laws
The Associated Gas Re-Injection Act has not been expressly repealed in this
Bill. This means that if this Bill is passed into law, both Acts co-exist as well as
the Regulations and Guidelines issued under the Associated Gas Re-Injection
Act, that would amount to a duplication/multiplicity of laws.
This Bill, when passed, should expressly repeal any other existing Laws, Acts,
Regulations and Guidelines that may be in conflict or that run parallel to this
Bill.
Metering
This will entail huge investment burden and possible shutdowns of facilities
to install the meters. The investment burden on the companies should be
considered in specifying the requirements for installation of meters where
one already exists. Some companies have many fields which will require
meters and will therefore require the procurement and installation of several
meters, which makes 12 months not feasible.
Considering procurement, delivery, installation time frame, 12 months for
installation of meters is unrealistic.
Metering equipment standards and calibrations should be specified and
validated
The current ‘’gas meter’’ supply market cannot meet the demand within 12
months for Nigeria alone based on the requirements of the Bill as drafted.
Specific and Target Dates
Target date(s) need not be specified at this time.
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Distinguished Chairman and honourable members of the Committee on Gas
Resources, we hope that our Memorandum and the contributions of other
stakeholders will help the Committee put in place a law that will address the
issues of gas flaring. OPTS looks forward to continuing to engage with you
constructively to address the issue of gas flaring and to harness associated
gas in a manner which is a win/win for the Government and all stakeholders.
Thank you for your attention.
Conclusion 4.