Gas Flaring Charges In Nigeria

Due to the incessant flaring of gas in Nigeria, the Federal Government have taken the initiative to prohibit such actions and ensure the utilization of gas flared within the country by oil and gas companies.

To this end, in 1979 the then military regime promulgated the Associated Gas Re-Injection Amendment Decree 99 of 1979 to compel oil and gas producing companies to submit proposals for the utilization of Associated Gas in their operating areas and stop gas flaring, except by express permission of the Minister. Where gas is flared without obtaining the permission of the Minister in writing it amounts to an offence resulting in the forfeiture of concessions granted in relation to the field(s) or fields in connection to which the offence was committed. The Minister may grant permission if satisfied that gas re-injection is not feasible, by the issuance of a certificate which permits a company engaged in the production of oil or gas to continue to flare gas upon the payment of charges prescribed by the Minister from time to time. 

 

Charges Imposed Over the Years

In order to deter oil and gas companies from flaring gas, the Government of Nigeria over the years increased the fees paid by companies that were in violation of the law. The fees are as follows:

  1. 2Kobo per million thousand standard cubic feet (Mscf) prescribed by the Associated Gas Re-Injection Amendment Decree 7 of 1985 on companies that flared gas without obtaining Ministerial approval. This fee was later increased to 50kobo in 1990.
  2. N10 per Mscf in 1998 prescribed by the 1998 Budget.
  3. $3.50 per Mscf in 2011 prescribed by the Ministerial Directive of 2011.

There has however been contention on the appropriate fee to be imposed for gas flaring between N10 per Mscf and $3.50 per Mscf, as the Ministerial Directive of 2011 cannot be classified as a regulation in compliance with the Associated Gas Re-Injection Act (AGRA)[1]. The AGRA provides that “the Minister may make regulations prescribing anything requiring to be prescribed for the purposes of this Act”. This provision empowers the Minister to prescribe gas flaring charges only by the issuance of a regulation(s).

It is important to note that US$3.50/Mscf is a penalty imposed specifically on oil and gas companies licensed to produce petroleum under Regulation 7 of the National Gas Supply and Pricing Regulation 2008 for non-compliance with their Domestic Gas Supply Obligation.

Recently, President Muhammadu Buhari in his capacity as the Minister of Petroleum Resources issued the Flare Gas (Prevention of Waste and Pollution) Regulations 2018 (“Regulations 2018”) which provides a legal framework for the protection of the environment against the effect of gas flaring, prevent waste of gas and the creation of social and economic benefits to Nigeria from gas flares.[2] 

The Regulations 2018 takes precedence over regulations issued by the Minister of Petroleum Resources prior to 2018.

The Regulations 2018 seeks to provide legal support to the National Gas Flare Commercialization Program (“NGFCP”) (a policy to eliminate gas flaring through technically and commercially sustainable gas utilization projects developed by competent third-party investors invited to participate in a competitive and transparent bid process)[3], and reduce the effect of gas flaring on the environment (a major contributor to global warming).

The Regulations 2018 prohibits gas flaring and venting and imposes the following fees:

However, a Producer[5] can only be permitted to flare gas from any facility it operates where such Producer has been issued a Certificate by the Minister further to the provisions of the Associated Gas Re-injection Act[6].

The new charges imposed by the Regulations 2018 and other provisions contained therein seek to serve as a major deterrence to gas flaring by Producers who previously flouted the laws against gas flaring due to the minute charges imposed on such action/offence.

 
[1] Formerly known as the Associated Gas Re-Injection Amendment Decree.
[3] http://www.ngfcp.gov.ng/ accessed 25th September, 2018.
[4] Section 13 of the Regulation s2018.
[5] A holder of Oil Mining Lease or an allottee of a Marginal Field. Section 24 of the Regulations 2018.
[6] Section 12 (1) of the Regulations 2018,

Share