A Review of the Nigerian Energy Industry

Nigeria’s Presidency okays new PIB draft

Clara Nwachukwu & Ben Agande

13 July 2012, Sweetcrude, ABUJA — AFTER several years of delay, Nigeria’s Federal Executive Council, FEC, Wednesday approved the new draft Petroleum Industry Bill, PIB, which unbundles the Nigerian National Petroleum Corporation, NNPC, into five different companies.

The companies that would emerge from an unbundled NNPC would be National Oil Company, National Asset Management Corporation, National Frontier Exploration Services, National Gas Company and the Host Community Fund.

One of the major provisions of the PIB, as contained in the draft bill recently submitted to President Goodluck Jonathan, is the proposal to end gas flaring in the nation’s oil and gas operations by the end of December.

This means that it would be an offence for oil and gas operators to flare gas effective from January 1, 2013. Any breach will attract a fine equivalent to the volume flared under prevailing market rate.

Indeed, such an offender also risks “three months imprisonment or an option of fine not less than the value of 50 per cent of the volume of gas flared or vented.”

This was contained in the new draft bill prepared by the Senator Udo Udoma-led seven-man Special PIB Taskforce, set up by the Minister of Petroleum Resources, Mrs Diezani Alison-Madueke, on January 19, which was exclusively obtained by Sweetcrude.

Gas flaring to end December
Under the proposal, “natural gas shall not be flared or vented after 31st December, 2012, in any oil and gas production operation, block or field, onshore or offshore, or gas facility (e.g. processing treatment plant).”

However, the draft bill has a caveat, as certain exemptions were made for operations that were able to produce the categorisation data for flared volumes and utilisation plans.

The Bill stipulated:
“The oil and gas operators with flared gas resources shall within six months of the commencement of this Act, categorise all of their flared gas resources (daily flare quantity, reserve, location, composition) and submit this data along with gas utilization plans to the Inspectorate for the gas they intend to utilise before the flare out deadline.

“The Inspectorate shall approve same within 60 days of receipt of the said plan and shall post all approved plans, all data of planned natural gas resources, and all data of unplanned natural gas resources for public consumption.”

100 days in case of start-up
Another proviso is that the minister “may grant a permit of not more than 100 days, or such longer period as approved by the minister, to flare or vent gas in cases of start-up, equipment failure, shut down, safety flaring or due to inability of gas customer to off-take.”

Except otherwise permitted, “no person shall direct, permit or otherwise aid, empower or authorise, howsoever, any company engaged in oil and gas operations to flare or vent gas,” anywhere in the country.

Accordingly, “any licensee or lessee who flares or vents gas without the permission of the minister in the circumstances mentioned in subsection (1)(b) of this section shall be liable to pay a fine which shall not be less than the value of gas,” the Bill warned.
Penalties for a breach
The Bill reads in part: “Any licensee or lessee who flares gas after December 31, 2012 contrary to section 251, commits an offence under this Act, and shall be liable on conviction to pay a fine which shall not be less than the value of gas (established pursuant section).

“The penalty for currently flared gas, without a permit, shall be the aggregate gas price until January 1, 2013 when the new penalty regime shall commence.

“In the case of third party utilization, penalties will only be imposed at the end of the approved project schedule or December 31, 2012 whichever is later.

“For flares accessed through third party contractors, penalties will be imposed on third party accessing companies having signed contracts for this gas, not on the licensee of the field from which the gas is being accessed.

“The penalty payable on the volume of gas flared by any person from the effective date, and for each day the flare or vent continues shall also be made public by the Inspectorate and the licensee separately and independently within a maximum of 60 days of the offence.

“It shall be an offence to fail, refuse or neglect to forward a gas flare report lodged or falsify any report under section 256 to the Inspectorate for appropriate action.”
Previous deadlines

In view of the prevailing economic and political environment, it is uncertain how government intends to enforce the December 31 deadline, as a legion of such set targets all failed to meet the deadlines, the last being December 31, 2008, and later extended to 2010.

Also, attempts to increase penalty from 10k per 1000 Btitish Thermal Unit, Btu, to $1.50/1000btu failed to yield results, as it was more economical for operators to pay the fines than to stop the flares.

Although regulatory authorities claimed that flaring had reduced appreciably without data back up, but it is estimated that about 43 per cent of the total gas produced in Nigeria is flared, with attendant huge economic waste.

One of the favourite excuses offered by companies and operators is the absence of gas gathering facilities in the country, while also complaining of lack of funds to engage in such investments.

Seeing the futility of enforcing such deadlines, government has often succumbed to pressure to allow companies to end flaring at their convenience as long as they could produce gas utilisation plans.
Utilisation plans
The new PIB proposes multi-phase utilisation policy. These include:

* No licence or lease for the production of oil and gas whether onshore, offshore or deepwater shall be granted to any applicant unless the application for such a licence or lease is accompanied by a comprehensive programme acceptable by the Minister, for the utilisation or reinjection of natural gas.

* No licence or lease for the production of oil and gas in Nigeria shall be granted to any applicant unless the Minister is satisfied with the applicant’s gas utilisation programme.

* The utilisation programme referred to in subsection 1(a) of this section, must be in consonance with the National Gas Master Plan, domestic gas supply obligation, and national policies as may be made in respect of the gas sector from time to time by the Federal Government.
Measurement and reporting
To give more bite to the law, the bill also introduced flaring measurements and reporting programmes, such that:

*The volumes of gas flared from any facility that is a part of oil and gas operations shall be measured using the metering equipment specified from time to time by the Inspectorate.

*Within three months from the effective date, each licensee or lessee shall install the metering equipment specified in regulation on every facility in its operations from which gas is flared or vented.

*In view of the health and environment dangers associated with gas flaring, particularly with regard to damage to the ecosystem including human and aquatic life, the public is also invited to be involved in the reporting process. Accordingly,

*After 31st December, 2012, any person, group of persons or community may lodge a documented report of gas flaring or venting with the nearest office of the Inspectorate.

*The Inspectorate shall appoint an officer to receive and record report of gas flaring or venting.

*An officer appointed who receives a report of gas flaring or venting shall within 48 hours of receipt of such report, inspect the facility where gas is allegedly being flared, verify the authenticity of the report to determine the cause of the gas flaring, the date when the gas flaring commenced and the volumes of gas flared or vented from the facility each day.

*The officer shall submit a report of the verification exercise to the Inspectorate within seven days of his visit to the facility from which gas is being flared or vented.

*If the Inspectorate determines that the report of gas flaring is authentic and that the flared gas does not fall within any of the exceptions, he or she may at his discretion, impose the fine specified in respect of the volumes of gas flared or vented from that facility or issue a shut down order mandating the shut-down of the facility in question or both.

*On receipt of a shut down order, the operator of the facility shall comply with the order within 48 hours from the date of receipt of the shut down order.

Following widespread protests and condemnation on the volume of gas flared in Nigeria, and the inability of government to enforce flaring deadlines, the PIB taskforce covered every loophole, through which operators were able to flout flare out orders, and incorporated such corporate irresponsibility as a separate section in the new bill.

For instance, under the 2008 PIB, which did not survive the 6th legislative session, the issue of flaring was not part of the legislations on gas.

In the 2004 version of the bill, most of which provisions have already been implemented under the Gas Master Plan, flaring was mentioned as an adjunct to gas monetisation.

In this article

Join the Conversation

  • The next and more important hurdle is passage by the national assembly.

  • Hope it‘ll favour the masses.

  • Good one,but there is areas in the bill that need to be amended or expunged from the bill,the section that state that the oil communties should be made to pay for piple vandilaztion..and the section that gave some much powers to the minister,this areas n others will form civil society engagement with the national Assembly wen the debate will start for public hearing…we commend the president for the bill,because it will settle all issues concerning to oil exploration n expoiltation,and address the Nigeria local content. ..FENRAD..NIGERIA.