Tuesday, May 25, 2010

Nigeria: Gas Flare - Oil Majors in Race to Beat 2012 Deadline

Adeola Yusuf

Lagos — Oil multinationals operating in the Nigeria's multi-billion-dollar industry are in a race to beat the 2012 deadline to stop gas flaring, Daily Independent gathered at the weekend.

Nigeria has fixed 2012 as the new deadline to stop gas flaring after several years of foot-dragging from the January 1, 1984 date provided in the principal Act which was later amended to December 31, 2008.

The House of Representatives, which perfected the legislative framework pegging the deadline for gas flaring in Nigeria's petroleum sector at December 31, 2012 also imposed stiff penalties on oil firms that may flout the new regulations.

Meanwhile, multinationals have started to make renewed efforts to meet the deadline, "especially now that it appeared that the government was seen to be ready to enforce the penalties for gas flaring after the set date," an industry source said at the weekend.

Royal Dutch Shell had, for instance, stated that it would spend N300 billion (more than $2 billion) to carry out gas flare reduction projects in Nigeria.

"Others like Exxonmobil, Total and Chevron have also allotted funds for projects aimed at reducing gas flaring before the deadline," the source added.

Shell, which is the operator of biggest Joint Venture (JV) in the Nigeria's multi-billion dollar oil industry, stated this through its subsidiary in Nigeria, Shell Petroleum Development Company (SPDC) that the projects would cover 26 flow stations in the Niger Delta region.

The SDPC's Corporate Media Relations Manager, Tony Okonedo, said in a statement that the company had already spent more than $3 billion (about N450 billion) to install associated gas gathering infrastructure at 32 flow stations, covering half of its production potential.

This followed the adoption of the report of its Committee on Gas Resources on a Bill for an Act to amend the Associated Gas Re-injection Act No. 99 of 1979 Cap. A25, Laws of the Federation of Nigeria.

The report was laid before the House on July 22, 2009 but was brought forward for consideration on January 13, 2010 and considered at the level of the Committee of the Whole.

Chairman, House Committee on Gas Resources, Igochukwu Aguma, explained that the deadline and accompanying penalties had become necessary in view of the health and environmental challenges posed by the continued flaring of gas in the Niger Delta region.

Okonedo said: "The projects, which will cost more than $2 billion, cover 26 flow stations in the Niger Delta.

"Many of the projects have been delayed by funding or security problems where work has now started," he said.

Okonedo said the scope of work to be done included the upgrading or replacement of gas gathering facilities or installation of associated gas gathering facilities at flow stations not yet covered.

"The gas will then be available for use in power stations and by the industry. Shell is also working with interested third parties who require gas for power and industrial purposes," he said.

The media manager quoted the Managing Director of Shell Nigeria, Mutiu Sunmonu, as saying that the company was pleased to begin work on the gas flare reduction projects.

"Security and funding conditions permitting, we have a real chance to progress our flaring reduction plans through these key projects," Sunmonu said.

The managing director also said the company had spent more than $3 billion (about N450 billion) to install associated gas gathering infrastructure at 32 flow stations, covering half of its production potential.

"It is important to emphasise that as elsewhere in the industry around the world, even when we have associated gas gathering facilities, a small amount of gas flaring at production sites will always be required for technical, safety and maintenance reasons," the Shell boss said.

Also adopted was the amendment substituting the earlier penalty fee of N410.00 per standard cubic feet of gas flared. Under the new legislation, all companies are prohibited from engaging in gas flaring whether routine or continuous.

"Any company so involved shall be liable to a fine to be determined at the prevailing international gas market price and such fines shall not be counted as part of Production Sharing Contract or Joint Venture obligations. Such fines shall be in addition to the penalty for flare," the new law stipulated.

However, a company is permitted to continue to flare gas in a particular filed or fields if the company pays the sum of $5.00 per 1,000 standard cubic feet of gas flared while a processing fee of $1000 shall be payable for every application for permit to flare gas during pre-commissioning and commissioning operations, equipment maintenance and operation upsets.

Such permission, the new said, shall be known as temporary gas flaring permission and therefore temporary gas penalty for any gas flared in excess of approved gas volumes during pre-commissioning and commissioning operations, equipment maintenance and operation upsets.

"Any company that declares an incorrect gas flared volume shall be liable to pay a penalty fee of $100,000 in addition to the payment of the difference of such declared volumes at the prevailing gas market price.

Every emergency gas flared as a result of equipment failure problems or any other reason thereof, must be reported to the regulating agency within 24 hours, failing which a fine of $500,000 shall be imposed on the defaulter," the new law said.

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