Nigeria Set to Lead Africa in Gas Flare Commercialization
By Godspower Ike,
African nations are currently losing trillions of dollars to gas flaring, in addition to its attendant implications on the environment and health of its citizens. Despite various targets and deadlines set, the flaring continues unabated.This article highlights factors and challenges posed to ending gas flaring and efforts by the Federal Government of Nigeria to end gas flaring.It also underscores Nigeria’s pace-setting role in this regard with the introduction of the Nigerian Gas Flare Commercialisation Programme and the many advantages of this initiative.
Nigeria, after losing billions of dollars to gas flaring, is hoping to turn its fortunes around, and has begun moves to convert this lost resource to revenue for the country. The Federal Government had introduced the Nigerian Gas Flare Commercialisation Programme, NGFCP, as part of a strategic approach to the historical problem of flaring, and to convert the wasted resources into dollars. Nigeria currently flares about 10 per cent of its total gas output. Specifically, the country flared 287.58 billion Standard Cubic Feet (SCF) of gas in 2017, accounting for 10.3 per cent of total gas produced in the same year. Prior to that, Nigeria flares about 145 billion cubic meters of gas annually, enough, according to World Bank figures, to produce 750 billion kilowatts per hour (kWh) power, more than the entire power consumption on the African continent. The country was flaring about 75 per cent of its natural gas production pre-1990, however, the Liquefied Natural Gas (LNG) era saw a steep rise in gas production and utilization and the commencement of decline in gas flaring.
In 2016, a total of 215 oil producing fields in Nigeria produced a daily average of 4.33 billion SCF of associated gas, a daily average of 771 million SCF per day. About 18 per cent of the produced Associated Gas (AG) is routinely flared. Out of the 215 fields, only 52 fields utilized above 90 per cent of AG produced, with international oil companies (IOC) responsible for over 80 per cent of gas flared in the industry. In general, apart from the economic losses, the exploitation of petroleum resources in the last four decades has resulted in massive injection of greenhouse gases into the atmosphere as well as considerable environmental problems. This, according to the United Nations, had made the Nigerian petroleum industry a critical one in the discussion of anthropogenic induced climate change, its consequences, and the need for mitigation and adaptation measures in the sector.
Flaring of gas contributes to climate change and impacts the environment through emission of carbon dioxide (CO2), black carbon and other pollutants. It also released several dangerous toxins and large volumes of other greenhouse gases into the atmosphere, polluting the soil and thereby affecting the health and wellbeing of the inhabitants in the host and nearby communities, exposing the people to an increased risk of respiratory illnesses such as Asthma and cancer and pre-mature death. The UN added that gas flaring also wastes a valuable energy resource that could be used to advance the sustainable development of producing countries mainly in the area of power generation. According to the communiqué issued by Petroleum Technology Association of Nigeria (PETAN) after the recently concluded Offshore Technology Conference (OTC) in Houston, Texas, that Nigeria after loses billions of dollars to gas flaring, the Association disclosed that there are 189 flare points in the country, with 39 accounting for 85 per cent of the total flares in the country.
According to the communiqué, between 300 billion to one trillion cubic of gas is flared annually translating to $800 million yearly. PETAN explained that Nigeria is currently ranked sixth among gas flaring countries in the world. Continuing, the communiqué lamented that globally competitive fiscal policies for gas are not in place in the Nigeria gas industry, while it added that the market is fragment and market to power is not structured with right side of financing and payment In addition, it said there is a perceived disconnect between producer, buyer and user; uncertainty in Price. It said, “Pricing does not make sense. Why will someone invest if gas price is pegged at $2.50. We cannot control price without demand. We must think commercial. Also, market driven policy not in place to develop gas.” Deputy Director, Gas Monitoring & Regulation in the Department Of Petroleum Resources (DPR), Engr. Antigha Ekaluo, identifies the factors responsible for gas flaring to include inadequate infrastructure which has led to increased stranded gas; funding and contractual issues; gas pricing and commercial framework; host communities and security challenges and equipment and reliability issues and vandalisation. He further stated that the gas flare penalty of N10 per 1,000 SCF of gas makes flaring more affordable to operators,
who also treats it as operating expenses in their books. Others, according to Ekaluo, include aging facilities and outdated process design; companies focusing on Non-Associated Gas (NAG) for security of supply for projects; lack of integrated development approach for oil and gas; lack of robust commercial, legal and regulatory framework for gas; under-developed domestic gas market and its impact on oil revenues.
He also listed the challenges to curbing gas flaring to include “aging facilities and integrity issues; insecurity and vandalisation; absence of critical infrastructure; economy dependence on oil revenues; inappropriate fiscal terms for gas; inadequate funding of joint venture projects; under-developed gas market and commercial framework; and low penalty. From economic analysis, it was discovered that harnessing gas from the top 50 flare points would reduce volume of flared gas by 80 per cent, with over 130 flare points collectively flaring about one billion standard cubic feet per day (SCFD) and about 65 per cent of flare points are onshore.
In addition, of majority of flared gas volumes, more than 80 per cent can be utilized. Also, pipelines are the most attractive transport option, however, Compressed Natural Gas (CNG) trucks are preferred for security. Furthermore, the Federal Government stated that following its verification of gas flare sites across the country, it discovered that there are at least 178 sites where gas flaring occurs, as opposed to 140 sites listed in the past. Coordinator of the Nigerian Gas Flare Commercialisation Programme in the Ministry of Petroleum Resources, Mr. Justice Derefaka told Orient that the verification exercise was conducted in conjunction with the World Bank, United States Agency for International Development, USAID, and the Canadian government. He noted that the verification is still ongoing, as only 60 per cent of the expected data had been received, while the rest are being awaited.
Derefaka lamented that the country had burnt money that would have been used to generate wealth, create employment and also generate electricity for the people. He explained that the essence of embarking on the verification exercise was to address issues of bankability and the need to attract investors and financiers to the gas flare commercialisation initiative. According to him, the overall idea is that the country must have a credible, measurable, attainable data that is bankable, so that it would be an investment-grade data for investors and lenders to put their money. Derefaka noted that by the time investors see that the World Bank had done a lot of studies with the Federal Government, and the remaining sites are verified, they would come in and make investment. He said, “What we know in this country is that we have 139, 140 gas flare sites, but by our verification with our partners, we found out that we have 178. That in itself is not complete, because we are around 60 per cent, 40 per cent data is missing, some of the information is inaccurate. So we are doing a detailed information request in the DPR office in Lagos. So as we send this information and get these things back, then these things might increase. “In this country, right now, we have 178 gas flare sites, of the 16,000 that we have globally in 19 countries. Daily, we flare around 755 million SCF per day; you can imagine how much we lose as a country. The carbon credit we would have gotten from this, the electricity we would have generated, the LPGs and the likes of those, even if they had have to go to any of the LNG trains.”
Additionally, the Ministry of Petroleum Resources in a gas utilization report, lamented that gas flare contributes to health problems such as irregular heartbeat, acute leukaemia, aplastic anaemia, chronic bronchitis, painful breathing, aggravated asthma and premature mortality It added that 17 onshore gas flare points in Bayelsa state are estimated to cause 120,000 asthma attacks, 4,960 respiratory illnesses among children and 49 premature deaths per year in the region. To address this issue, the Federal Government, in December 2016, launched a new gas flare commercialization programme. The programme was designed as a high-priority strategy for the government in achieving the national mandate for flare-out by 2020. The Nigerian Gas Flare Commercialisation Programme lays out a framework for Government to license gas that would otherwise have been flared to technically credible and financially sound third party private sector players. To back this up, the Federal Government, through the Nigerian National Petroleum Corporation (NNPC) is reviving the Ajaokuta-Kaduna-Kano (AKK) pipeline project. The AKK pipeline is pipeline with a total length of 614 kilometers and a diameter of 40 inches. It is targeted to transfer gas from gathering stations across Ajaokuta to a terminal station in Kano, while passing through Kaduna.
This would create an enabling environment for more gas to be generated by entrepreneurs, as the market would then exist. Also, gas and power projects could be sited along the pipeline areas because of easier access to gas. Other gas projects the Federal Government is pushing in the gas flare commercialization programme include the Escravos – Lagos pipeline; Odidi – Warri pipeline and the Obiafu/Obrikon – Oben (OB3) pipeline. Critical success factors for gas flares out, according to the Federal Government include increased infrastructure investments, such as improving facilities to minimize upset flaring and putting infrastructure in place to link supply with demand centres. The Federal Government said it is also increasing the cost of flaring through the imposition of fines, taxes and social pressures; and is also considering addressing bottlenecks militating against implementation of third party access to gas flare points. Again, according to data obtained from the Federal Government, the Nigerian Gas Flare Commercialisation Programme is expected to create over 300,000 jobs and attract $3 billion capital investments in various projects in the Nigerian economy. The data further stated that Niger Delta communities would benefit from reduced flaring and economic development, while compliant companies would enjoy social license to operate in the region.
It also stated that six million households would be given access to clean energy through Liquefied Petroleum Gas (LPG), thereby eliminating 20 million tonnes of carbon dioxide emissions annually. In addition, the Federal Government’s data noted that 600,000 metric tonnes of LPG per year would be unlocked, while 2.5 gigawatts power would be generated from new and existing Independent Power Projects (IPP) because of the expected increase in gas supply. Senior Technical Adviser on Upstream and Gas to the Minister of State for Petroleum Resources, Mr. Adegbite Adeniji, said the Nigeria Gas Flare Commercialisation Programme (NGFCP) would help the Federal Government achieve its target of zero gas flares by 2020 in about four ways. Firstly, Adeniji stated that the NGFCP would fix the market and licensing process, which include introducing open bidding process and award licenses over multiple bid rounds; screen licensees for technical and financial capabilities before participating in commercial bid among others. He said the licensing process involves launch of the NGFCP and invitation for expressions of interest;
offer access to data to enable investors to prepare bids for specific locations, share gas flare data, such as location, volume, reservoir, etc; investors submit detailed technical and financial proposals with bids for flared gas price. Another licensing process, he said, involves the allocation of provisional licenses after the announcement of preferred and reserve bidders; preferred bidders pay signature bonus and are allowed time to secure financing and equipment, if needed. After that, he said final licenses would be awarded, ensuring that investors commence operations; sign Gas Connection Agreement with operator and commence operations. Adeniji also disclosed that the NGFCP would improve access to finance and incentives, adding that between $2 billion and $3 billion of financing is required to address gas infrastructure gap in Nigeria.
According to him, a broad range of funding instruments, such as concessional debt and risk guarantees are available from potential partners, while government will need to help unlock these sources. He maintained that the NGFCP would improve monitoring and enforcement, by helping collect data from operators and track flare down progress; enforcing flaring and venting and also closely monitor the NGFCP Strategy. In addition to the NGFCP, the NNPC also announced a three-point smart strategy aimed at ending gas flaring in the nation’s Oil and Gas Industry, while it explained that in the last decade, gas flaring in Nigeria had reduced significantly from 25 per cent to 10 per cent.
The NNPC said the multi-pronged approach would ensure a sustainable solution to the historical problem of flaring, thereby turning waste into dollars. The three-point strategy championed by NNPC to arrest the growth in gas flares includes ensuring non-submission of Field Development Plans (FDPs) to the Industry Regulator – the Department Petroleum Resources (DPR), without a viable and executable gas utilization plan, a move aimed at ensuring no new gas flare in current and future projects. The other two strategies, the NNPC added, were a steady reduction of existing flares through a combination of targeted policy interventions in the Gas Master-plan as well as the re-invigoration of the flare penalty through the NGFCP and through legislation, that is, ban on gas flaring via the recent Flare Gas (Prevention of Waste and Pollution) Regulations 2018. This development, the NNPC added, would not only see Nigeria dropping from being the second highest gas flaring nation in the world to seventh, it would also signify a major milestone in its gas commercialization prospects.
The NNPC also disclosed that it has embarked on the most aggressive expansion of the gas infrastructure network aimed at creating access to the market. “Today, we have completed and commissioned almost 600km of new gas pipelines thereby connecting all existing power plants to permanent gas supply pipeline. We are also currently completing the construction of the strategic 127km Obiafu-Obrikom-Oben gas pipeline – “OB 3” connecting the Eastern supply to the Western demand centres,” the NNPC added. The NNPC further noted that aside looping Escravos-Lagos Pipeline System (ELPS 2) gas pipeline projects to increase gas volume capacity to at least two billion cubic feet per day, it has recently signed the contracts to kick off the 614 kilometers Ajaokuta-Kaduna-Kano (AKK) pipeline project, which on completion, would deliver gas to the ongoing power plants in the areas and revive the manufacturing industries in the northern part of the country.
It assured that there was evidence that the interventions undertaken by the corporation were working as gas supply to the domestic market is growing at an encouraging rate, having tripled from 500 million cubic feet per day in 2010 to about 1.5 billion cubic feet per day currently. The NNPC explained that the aggressive development of gas infrastructure, pipelines and processing plant, between supply sources and the market would also create a sustainable evacuation route for currently flared gas and other gas sources. Noting that Nigeria offers unique opportunities for investment in exploration, refining, storage, transportation, power, distribution and marketing of petroleum products, the NNPC further observed that the nation’s Gas Reform was anchored on a robust strategic framework that is focused on maximum economic impact through gas. Again, the PETAN communiqué highlighted the need for the enforcement of the gas flare penalty, and stringent penalty for incorrect or incomplete flare gas data, as this protect the environment and prevent the waste of natural resources.
The communiqué said, “Gas should be an opportunity in creating a viable economy and vibrant society. It is our sure way to grow our GDP. Let us not be slave in the ways things are done in the past. Saudi Arabia has positioned their country using Gas. Russia has leveraged enough gas resources. Gas is a great resource base. “Our gas resource base has grown from 192TCF to 199TCF with potential to reach 600 TCF. We are presently ninth in the world in terms of gas reserve. Our current gas supply is 8.4 billion standard cubic feet per day (bcf/d) out of which 44% is exported, 28% is re-injected, 18% is used domestically for power and industries and 10% is flared. “Nigeria has managed to reduce our flared gas from 25% to 10% in few years. However, 800 million (SCF/d) flared daily if harnessed can generate 3.2 gigawatts (GW) of electricity. What a waste in resources. We must monetize gas and eliminate gas flaring both as a source of revenue and also eliminate all the health risks associated with flared gas.”
While Speaking to Orient Energy Review team in Houston, Chairman Petroleum Technology Association of Nigeria- PETAN, Mr. Bank Anthony Okoroafor is of the opinion that flare monetization can fix the Power problems of Africa. In his words “ about 75% of the people in Africa do not have access to electricity, can you imagine what will happen if we can harness all the gas we flare and use it to provide Gas to Power Africa? Can you imagine how much money Nigeria would be making? There’s so much waste, we are leaving a lot of money on the table, we can utilize the flares gas, we can sell that power, yet we are flaring Gas which can run through turbines and generate electricity for our people; we are by Potential a rich country but in reality a poor country, Okoroafor said, However, Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, insisted that the government has come up with clear policies toward flare gas monetization and flare gas elimination.
According to him, this administration had taken a holistic view; providing third parties that have the technical commercial solutions with access to the flares. He noted that attempts to capture some of the gas that is being flared would ensure that it is directed towards power production and industrial use. He said, “In addition, the government has committed in the Paris Climate Change Agreement to Nationally Determined Contributions toward the reduction
of greenhouse gases. For the petroleum sector, our commitment is to eliminate gas flares. “To this end, we have designed a comprehensive program called the Nigerian Gas Flare Commercialization Program through which we want to make sure that the flare issue is behind us by 2020.” He added that the Federal Government plans to complete the development of gas tariffs and new legislation for the industry. “We expect to have resolved the network code and tariffs for gas and to increase gas supply. This is the culmination of all the hard work that we have done in the last three years that should start kicking in by the third or fourth quarter of 2018.” With all these, the Federal Government had, today, shown that it had reached a conclusion that a right combination of incentives and penalty, adequate infrastructure; robust legislative, commercial and regulatory framework are critical to ending gas flaring in Nigeria. Hence, most of the erstwhile constraints to ending gas flaring are being addressed by the present administration in a holistic manner by the current gas commercialisation programme and similar initiatives.
In essence, the upcoming National Gas Policy, Gas Flare Commercialization Programme and Gas Network Code are key enablers in commercializing gas flares in Nigeria and in charting the country’s path towards gas-based industrialization and economic development.