4.4 Flared gas volume in Nigeria, 1992–2019

FIGURE 4.4

Flared gas volume in Nigeria, 1992–2019

3.0

2.5

Billion cubic feet per day 2.0

1.5

1.0

0.5 Hard-to-abate flares Routine flaring Main reduction: Own consumption and large-scale revenue- and profit-driven projects

Government intervention and international community commitment are required

Nonroutine flaring

0 199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018

Business as usual Reported flare gas volumes ZRF commitment

Source: World Bank, based on data provided by the Nigeria Department of Natural Resources. Note: ZRF = Zero Routine Flaring.

flare payments. Despite these measures, gas flaring saw no structural reduction in the last century—a slowdown in flaring in the 1980s simply mirrored the slowdown in oil production at the time. The launch of Nigeria’s first LNG plant in 1999 and the development of various gas use schemes initiated a trend of structural reduction in flaring over the past two decades.

As figure 4.4 shows, most of the flaring reduction was achieved in the first 15 years of this century, after which flaring volumes plateaued for several reasons. Specifically, the flaring fines in place up to that point were too low and enforcement capacity was insufficient to effectively discourage oil companies from flaring. Most of the flaring reduction before 2015 involved large and easy-to-monetize flare sites, leaving the smaller and trickier sites to be dealt with at a future date. Furthermore, in this forbidding regulatory environment, international oil companies (IOCs) had no incentive to outsource FMR to independent developers with an interest in tackling smaller projects—providing the developers with access to flare sites and data.

Nigeria’s flare sites are spread across the Niger Delta, both onshore and offshore, and differ greatly in their size and their proximity to gas pipeline infrastructure. The government estimates that in 2019 flaring was responsible for 22 million tCO2e emissions or US$385 million in shadow carbon credit value. From an economic standpoint, the amount flared in 2019 equaled 53 million barrels of oil equivalent, two to three LNG trains, and some 3,300 MW of power generation capacity.

In 2016, the government stepped up its efforts, announcing the goal of zero routine flaring by 2020 and launching the development of a market-driven scheme to eliminate flaring, the Nigerian Gas Flare Commercialisation

Programme (NGFCP). The study culminated in the approval of the Flare Gas (Prevention and Pollution) Regulations in July 2018 and the corresponding guidelines in December 2019. These regulations

• Introduced a new and more onerous penalty regime for flaring based on the

“polluter pays” principle, with fines of US$0.50 and US$2.00 per thousand standard cubic feet (mscf) of gas flared for producers or, respectively, less than 10,000 barrels of oil per day and 10,000 or more barrels;

• Mandated, by means of the corresponding guidelines, that producers report flaring data, including mandatory installation of meters and penalties for failure to produce accurate flare data or provide access to flare sites; and

• Established the legal basis for the implementation of the market-driven scheme, the NGFCP, giving the government the power to issue permits to access flare gas sites and take associated gas, and to grant such permits via competitive bids.

Program description

The goal of the NGFCP is to eliminate routine flaring via market-driven transactions and commercial structures that attract credible third-party investors deploying proven technologies to monetize associated gas. Such structures should ensure bankability for investors and lenders, preserve the integrity and safety of upstream operations, and benefit Niger Delta communities. The program was launched by the Ministry of Petroleum Resources and set up with the support of donors including the Global Gas Flaring Reduction Partnership and the US Agency for International Development. Overall responsibility for the program was subsequently transferred to DPR. Gas Strategies, a British gas consulting firm interviewed for this case study, was one of the advisers on structuring the program.

NGFCP was established after a three-year planning period, during which the Ministry of Petroleum Resources and the Department of Petroleum Resources were assisted by the World Bank and the Global Gas Flaring Reduction Partnership. The planning phase included interactions with IOCs, midstream companies, financial institutions, and government stakeholders. Four priorities guided the planning phase: (1) introducing meaningful flare payments that would “bite” but at the same not completely destroy the economics of oil production at the affected fields, (2) allowing access to flare sites to third parties through a transparent process, (3) allowing for market dynamics to price associated gas through competitive processes, and (4) implementing a robust data management system.

Under the program, DPR allocates to eligible FMR developers the rights to implement FMR projects and monetize associated gas at specific flaring sites (one or multiple) through a competitive bidding process. The program is agnostic as to the FMR solutions proposed by bidders (gas exports are also allowed) as long as bidders meet technical and financial eligibility criteria and their bids are the most competitive. Examples of solutions mentioned by NGFCP include substitution of higher-cost fuels, such as diesel used in captive power generation; production of liquefied petroleum gas, adding to the existing Nigerian supply or substituting imports; provision of natural gas to new industries, especially in areas without access to pipelines, where compressed