Flaring ban deadline to stay: the deadline for the end of associated gas flaring in Nigeria is to stand, despite protests from some operators. At current prices, Nigeria is losing billions of dollars and also adding to climate change by flaring most of its gas. Report by Neil Ford

African Business, Oct, 2007 by Neil Ford

The new Nigerian government of President Umaru Yar'Adua has promised to stand by the ban on routine gas flaring that had been set for 2008 by former president, Olusegun Obasanjo.

[GRAPHIC OMITTED]

[ILLUSTRATION OMITTED]

While some had feared that the deadline had been mooted as an aspiration rather than a concrete goal, Obasanjo never wavered in his determination to ensure that the target was met, while the international oil companies which continue with the wasteful practice have been given plenty of time to find commercial outlets for their gas. With time now running out, the new government has promised that there will be no exceptions to the ban.

In August, the director of the department of petroleum resources (DPR), Tony Chukwueke, warned that companies continuing to flare beyond the deadline would face stiff penalties. Speaking at the annual conference and exhibition of the Society of Petroleum Engineering in Abuja, a DPR spokesperson said: "The government's directive remains the government's directive and you have been told categorically that come 2008, gas flaring must cease. Failure to do that might force the government to take some drastic measures."

He added that there should be no need to remind foreign investors of their obligations, given that existing upstream legislation requires oil producers to find markets for associated gas.

Some foreign firms have complained that the Nigeria National Petroleum Corporation (NNPC) has failed to provide its share of funding on gas utilisation projects over the years.

The biggest oil producer in Nigeria, Anglo-Dutch firm Shell, indicated last year that it would be unable to phase out all flaring until 2009. In addition, the ongoing security crisis in the Niger Delta has hampered some gas projects as the activities of militants have forced operators to pull their staff out of some areas on safety grounds.

The DPR has even threatened to close down fields that continue to flare associated gas from oil wells. However, it is not only the foreign firms that are struggling to end flaring. The chief executive of Afren Energy Resources, Egbert Imomoh, told the conference that the infrastructure required to collect and transport associated gas was inadequate and it was therefore unrealistic to maintain the 2008 ban. He appealed for exemptions for those companies with no alternatives.

There is little doubt that gas flaring is a wasteful process. The international price of both piped natural gas and liquefied natural gas (LNG) is rising strongly, in part because its value is often linked to the price of crude oil. Burning-off associated gas therefore erodes a valuable natural resource that is worth billions of dollars. In addition, gas flaring is a major contributor to global warming and the oil companies' determination to continue the practice has been one of the main reasons why they have been so heavily criticised for driving climate change.

As Table 1, below, indicates, Nigeria is the second biggest source of gas flaring in the world, after Russia. Oil companies operating in the West African state burn off far more gas than larger oil producers, such as Saudi Arabia and Iran.

Gas consumption to rise

Ensuring that Nigeria's gas reserves are commercially exploited should therefore benefit both the Nigerian economy and the fight against climate change.

Such a change in policy has required not only the development of gas gathering infrastructure on the oil and gas fields but also gas transmission facilities that can transport gas to the required markets.

An increasing volume of gas is now being used domestically and Nigerian power sector and industrial gas consumption is expected to rise steeply over the next few years. Large volumes of gas are also consumed by the LNG plant on Bonny Island and other LNG ventures are at various stages of development. Once the West African Gas Pipeline (WAGP) to Benin, Togo and Ghana, plus the planned Trans-Sahara Gas Pipeline (TSGP) to Algeria are thrown into the mix, it is clear that Nigeria's marketing options are growing.

However, more investment in transmission infrastructure is required to ensure that gas can be more easily moved from the main production areas in and around the Niger Delta to the main centres of consumption.

Yar'Adua surprised many in June when he suggested that domestic requirements would take priority over export markets in accessing Nigerian gas from now on.

He told the NNPC to draw up a plan to ensure domestic needs were met and added: "We cannot begin to address, in a fundamental manner, the problems of the economy until we successfully tackle the power and energy issue. It is critical to all my plans. So I am more interested in how much gas we can tap for domestic use than what we can get for export. We must power this economy."

Oil and gas export revenues are so important to Nigeria's economic wellbeing that it had been expected that they would be favoured over domestic consumption. However, widely based economic growth that generates employment for Nigerians and provides a strong basis for future social and economic development is surely more important in the longer term.