Why increasing gas flaring penalty will not deter IOCs from flaring – experts

The planned increase in penalties  for  gas  flaring  contained  in the  recently approved  gas policy by the   Federal Government  would be of  no effect, industry experts  have said.

According to the national gas policy, Government plans to increase the gas flaring penalty from N10/Mscf (equivalent US $0.03) to an appropriate level sufficient to de-incentivise the practice of gas flaring whilst introducing other measures to encourage efficient gas utilisation.

Experts however told BusinessDay that as long as the benefit of flaring is overtly higher than the penalty for flaring, the Government and its joint venture partners will flare.

Nigeria has an estimated 8 billion scf per day volume of gas production, 40 percent are tailored towards export, while 13 percent of gas produced is flared. Nigeria is one of the leading countries with the highest gas flaring activity.

In the views of Ayodele Oni, an energy expert, an increase of the penalty may not be sufficient.

According to him, “This increase is likely to be challenged by the IOCs at the international tribunals, which will likely delay the implementation of the policy”.

Oni opines that the only effective way in which we can reduce flaring is through acreage reform which entails giving gas producers preference during bid rounds and changing ownership of some of the existing acreage when their tenure elapses.

“However, at the moment it is not clear if the increased fine supersedes the potential losses to the IOCs from a genuine attempt on their part to reduce flaring”. He said.

The energy expert further insists that if government doesn’t address pressing issues bedeviling gas sector in the country currently, there will not be one penny investment in gas infrastructure, in gas development, in gas projects in Nigeria in the foreseeable future.

Industry observer are optimistic that Nigeria electricity generation output will receive increase once the federal government and its other joint venture partners intensive its investment commitment to gas gathering projects which will further achieve zero gas flaring in the country.

According to them, “When the estimated figure of 211.836 billion SCF of gas been flared are converted into power, Nigeria could be generating a sizeable amount of electricity for domestic use.

Analysts maintain that attracting the needed investment for gas extraction should start with the introduction of the domestic gas obligation which imposes an obligation on the oil companies to assign certain percentage of the gas being produced for domestic uses.

Nigeria with her huge natural gas reserve stands to benefits from increased capacity production, industry watchers insists saying that natural gas has the potential to engender rapid positive growth and enormous impact in the overall economy of our nation.

They maintain that while it is not difficult to decipher that ultilisation of gas has assumed a new dimension for both economic and technological development stressing that achieving the desire result in local gas supply or the lack of it will remain a very sensitive issue with government involvement in unrealistic prices.

Joseph Eziegbo, chief operating officer, Falcon Corporation Limited observes that Nigeria gas reserves is believe to be higher than oil reserves, saying that as the second largest economy by GDP, Nigeria will get the full benefit of this if beyond eliminating flares, the government encourage investment in aggregating the non-Associated Gas (NAG) resources into usable forms for the overall benefit of the nation’s economy.

In the ranking of world proven natural gas reserves by country, Nigeria is the largest in Africa and the 7th largest globally. Nigeria currently produces an estimated 7 billion scf per day and account for an estimated 182 trillion scf of gas reserve.

Eziegbo in a recent interview with BusinessDay observed that Power and fuel costs traditionally constitute one of the highest single components of the overheads of the industrial sector worldwide.

“Our gas reserves are believed to be higher than our oil reserves, however, we will not get the full benefit of this if beyond eliminating flares, we do not invest in aggregating our non-Associated Gas (NAG) resources into usable forms for the overall benefit of the nation’s economy”. Eziegbo added.

KELECHI EWUZIE