His Excellency, President Muhammadu Buhari, GCFR, in his capacity as the Minister of Petroleum Resources (“the Minister”), recently signed the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018 (“the Regulations”) into law.
The Regulations seek to minimize the environmental and social impact caused by flaring natural gas, protect the environment, prevent waste of natural resources and create social and economic benefits from gas flare capture. The effective commencement date of the Regulations is 5 July 2018.
The key highlights of the Regulations are provided below:
1. Ownership and Access to Flare Gas
The Regulations vest the Federal Government (FG) with the right to take all flare gas free of cost at the flare without payment of royalty. Subsequent to competitive bids, the Minister may issue a Permit to Access Flare Gas to a Permit Holder, on an exclusive basis, to take flare gas at a flare site on behalf of the FG, and utilize or dispose it of in such a manner as may be approved by the FG. This Permit may only be issued to a Nigerian company, provided that it is not a Producer (i.e., holder of an Oil Mining Lease (OML) or an allottee of a Marginal Field). The Regulations also require the Producer and the Permit Holder to install meters at their respective facilities, produce and report flare gas data on monthly and annual bases.
2. Flare Gas Permit Bid Process
A Qualified Applicant that requires flare gas for its own use or for sale to third party off-takers may, subject to a competitive bidding process, be authorized to take flare gas. A Producer may also apply to the Minister to utilize flare gas for commercialization but such application will exclude any flare gas volume that is being offered in a bid process conducted by the FG or assigned to a Permit Holder.
3. Prohibition against Flaring of Natural Gas
The Regulations prohibit Producers from flaring gas from any facility operated by such Producer, except pursuant to a certificate issued by the Minister based on the provisions of the Associated Gas Reinjection Act. This prohibition also applies to routine flaring or venting of natural gas, except flaring for safety reasons, by Permit Holders.
4. Payment for Gas Flaring
The Regulations establish a new gas flaring payment regime for gas flared within an OML area or a Marginal Field. Companies that produce at least 10,000 barrels of oil per day shall be liable to a flare payment of $2 per 28.317 standard cubic meters (1,000 standard cubic feet (scf)) of gas flared. However, companies which produce less than 10,000 barrels per day shall be liable to a flare payment of $0.5 per 28.317 standard cubic meters (1,000 standard cubic feet (scf)) of gas flared. This is a significant increase from the erstwhile flat penalty of N10 per 1,000 scf of gas flared that has been in force since January 1998.
However, no liability shall accrue to a Producer where gas is flared as a result of war, community disturbance, insurrection, storm, flood, earthquake, or other natural phenomenon which is beyond the reasonable control of the Producer. Also, no flare payment shall become due from a Producer in respect of an agreed volume of Flare Gas that the Producer is committed to deliver to the Permit Holder under a “Deliver or Pay Agreement”.
5. Revocation of Certificate for continued flaring and Permit to Access Gas Flare
The Minister reserves the right to revoke any issued Gas Flare Certificate for failure by the Producer to comply with the Regulations. In addition, Permit to Access Gas Flare can be withdrawn under certain circumstances. These include situations where it is determined that the Permit Holder had obtained the Permit based on inaccurate information, or declared bankrupt or where the Gas Supply Agreement to be signed between the FG and the Permit Holder is terminated in accordance with its terms.
The Regulations stipulate a penalty of N50,000 or an imprisonment term of not more six months where an authorized agent of a Producer supplies inaccurate or incomplete Flare Gas Data to the Department of Petroleum Resources.
The Regulations also impose an additional daily penalty of $2.50 per 1,000 scf of gas flared or vented within the OML, where a Producer fails to meet the following requirements:
- provide Flare Gas Data
- supply accurate complete Flare Gas Data
- provide a Qualified Applicant with access to any flare site
- provide a Permit Holder with access to any flare site
- prepare, maintain, or submit the logs or records or reports as required in the Regulations
- install metering equipment within the time required to do so by the DPR
- agree to enter into a Connection Agreement with a Permit Holder
The Regulations have been issued to govern and implement the Nigeria Gas Flare Commercialization Programme (NGFCP), which is aimed at harnessing Nigeria’s flare gas for sustainable value and wealth creation. According to the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), about 7% of Nigeria’s gas is currently being flared at 178 sites. Given the mandatory payments imposed by the Regulations, there is a strong incentive for Producers to comply and significantly reduce the amount of gas flared. There is also the risk that continuing non-compliance can result in the suspension of operations or termination of the mining licence of a Producer.
However, there are some concerns as to whether Government can realize its desired objectives, given the claim by some Producers that a significant amount of the gas currently being flared is due to safety reasons, which the Regulations allow. There is also the claim that some of the flare out projects are already part of a Field Development Program that the National Petroleum Investment Management Services (NAPIMS) has approved. It is, therefore, important that both NAPIMS and NNPC are fully committed to the NGFCP. Most importantly, the success of the NGFCP will highly depend on its bankability and ability to attract quality investors. For investors to be able to successfully raise finance for the project, they would need the assurance of protection from political risks. Otherwise, investment in NGFCP will be less attractive.
Click here to download a copy of the Regulations.
For further enquiries on the above, please contact: Wole Obayomi email@example.com
© 2021 KPMG Professional Services, a partnership registered in Nigeria and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.