phases

and liquefied natural gas could make sense; transformation of gas into electricity, petrochemicals, or fertilizers; and use of gas for small-scale power generation to supply local communities not connected to the grid (Nigeria, Department of Petroleum Resources 2019).

The program is structured in four phases (figure 4.5): (1) initial screening of FMR developers for compliance with minimum technical and financial qualifications, (2) detailed proposals submitted by bidders based on flare site data and information collected by DPR, (3) evaluation and selection of winning bids based on a combination of technical and financial criteria, and (4) signing of agreements and award (for the agreed-on fee) of permits to access and monetize flare gas. To ensure transparency and accountability, DPR set up a web portal for information sharing, submission, and evaluation of bid documentation. Payment of fees and bonds is required at various stages to weed out nonserious bidders.

The qualification phase concluded in July 2019, with 203 developers passing this initial screening. Applicants had to submit standard corporate information and information regarding their technical capabilities and financial capacity. The screening criteria were relatively loose, in consideration of the diversity of flaring situations and potential technical solutions. Large financial capacity, for instance, may not be needed for FMR investments at small flares or with the potential to rent, rather than purchase, equipment. Oil producers were also allowed to apply for the flare sites in their fields, but only through a midstream corporate entity incorporated in Nigeria and under several conditions.

In the bid phase, the first round of which concluded in June 2020 after COVID-19-related delays, qualifying developers submitted bids for rights to implement FMR projects at one or more flare sites. Bidders obtained access to an online data room compiled by DPR on the basis of information provided by oil producers and a request for proposal package explaining the process and requirements for bids. DPR identified a total of 178 flare sites but included only 48 in the first auction, for a total of about 300 mmscf/d. The sites included in the first auction met the following criteria: (1) investment-grade available data on

FIGURE 4.5

Nigerian Gas Flare Commercialisation Programme implementation phases

Registration into program portal Registered party RFQ document SOQ submission fee Confidentiality agreement Statement of qualification

Applicant Evaluation of SOQ Qualified applicant RFP package Data access permit Data prying fee and data leasing fee

Data prying and data leasing RFP Q&A and bidder’s conference Proposal processing fee Proposal Bidder Evaluation

Preferred bidder Signing final commercial agreements Flare gas buyer

Award fee for grant of permit to access flare gas

Party status Fee payable Permit to access flare gas Permit holder

Source: Nigeria Department of Petroleum Resources (https://ngfcp.dpr.gov.ng/media/1145/dpr-presentation-overview-of-the-ngfcp-rev-4.pptx). Note: RFP = request for proposals; RFQ = request for qualifications, SOQ = statement of qualifications.

these sites, (2) a minimum flare size of 1 mmscf/d sustainable for seven years, and (3) absence of any legal disputes involving the sites. The data room included information on flare sites, flare volumes (including forecasts and depletion rate estimates by the oil producers), associated infrastructure, and geographic and socioeconomic data. Each oil producer was required to provide the annual amounts of flare gas that it expects to have available for a minimum of 15 years, or the expected life of the oil field. Bidders had the ability to request site visits in coordination with DPR (it is unknown to what extent bidders took advantage of this opportunity). Additional information was provided to all bidders through formal Q&A lists.

Proposals were submitted in two parts:

• Envelope 1. Technical and commercial proposal, with the technical details, business case, and all other underpinning economic assumptions of the proposed project(s).

• Envelope 2. Financial proposal, including (1) the price the bidder committed to pay for associated gas in US$/mscf, and (2) the gas volume the bidder offered to contract, split between a guaranteed volume for each contract year under a take-or-pay agreement (minimum 70 percent of the total bid quantity) and a nonguaranteed volume. Bidders were free to bid for any volume below the flare gas forecast quantity, and the volumes could vary for each contract year.

In the bid evaluation phase, an evaluation committee appointed by DPR selected winners on the basis of the two envelopes. Only proposals that passed the technical and commercial evaluation had their financial proposals opened and advanced to the final evaluation. Preferred bidders were selected on the maximum aggregated value of the flare sites for which they bid, determined as the net present value of the take-or-pay quantity multiplied by the sum of the flare gas price and a shadow emission credit price. The latter was the same for all bidders, and therefore its inclusion in the evaluation formula implicitly favored bids for larger volumes of associated gas—consistent with the environmental objectives of the program. Under the NGFCP, the government retains all emissions reduction credits, with the possibility to monetize them in the future. The unit value of the emissions credit for each contract year was set by DPR (in US$/ mscf terms). The proposals were ranked in order of decreasing total net present value. The DPR was expected to complete the selection process and allocation of the 48 flare sites to winning bidders by end of June 2021, but the COVID-19 pandemic halted the process.

In the final phase, preferred bidders will enter into a series of commercial agreements with the government and oil producers, after which they will be awarded permits to access flare gas. These agreements are the following (see schematics in figure 4.6):

• Gas supply agreement, under which the preferred bidder buys associated gas from the government at the price stipulated in the bid. The agreement also specifies the take-or-pay obligation, performance bonds, and penalties.

Invoicing is based on a revenue meter at the metering point. This agreement alone does not provide security of flare gas supply to the preferred bidder, because the oil producer is not a party to the agreement. The oil company operates the equipment that connects the flare gas tie-in to the FMR project.