February 2021

OPTS MEMORANDUM ON GAS FLARING (PROHIBITION AND PUNISHMENT) BILL 2019

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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.

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