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FG Introduces New Penalty For Gas Burning.

FG Introduces New Penalty For Gas Burning.

The FG is considering the bringing in of a new penalty for brown field sites, especially joint venture and service contracts, which contribute 88% of the total associated gas flared in the country. The new draft gas policy, produced by the Ministry of Petroleum Resources and made available to our correspondent, described the flaring of natural gas as one of the most egregious environmental and energy waste practices in the Nigerian petroleum industry.

The current gas flare penalty of N10/Mscf (equivalent $0.03) of associated gas flared is very low, having been eroded in value over time, and is not acting as intended, as a disincentive. Consequently, the low penalty has made gas burning a much cheaper option for operators compared to the options of marketing. It noted that while gas flaring levels had declined in recent years, it was still a prevailing practice in the petroleum industry, adding, billions of cubic meters of natural gas are burned annually at oil production locations resulting in atmospheric pollution seriously affecting host communities.  According to the gas policy, gas flaring affects the environment and human health, produces economic loss, deprives the government of tax revenues and trade opportunities, and deprives consumers of a clean and cheaper energy source.

It stated that a whole suite of anti-flaring legislation and initiatives had been introduced over the years to minimize gas flaring in the country. Although Nigeria still flares a significant portion of its gross natural gas production (19% of associated gas, 331sbcf in 2015), the amount of gas flared has significantly gone down in recent years. Its ranking has dropped down from the 2nd to 5th largest natural gas flaring country in the world. On gas flare-out targets, the document said the government planned to open an industry consultation mechanism as an important measure in ensuring flaring targets were feasible and regulations realistic. According to the gas policy, the intention of government is to bring up the gas flaring penalty to an appropriate level sufficient to de-incentivize the practice of gas flaring whilst introducing other measures to encourage efficient gas utilization.

The government intends to bring up regulations, which will interdict any green field gas project from moving forward until there is a proper integrated plan for the growth of the hydrocarbons, thereby ensuring that no gas flaring occurs during production of hydrocarbons, except in very special circumstances such as emergencies for operational reasons. It said for existing associated gas fields, brown field sites, the government would also consider other options to ensure significant gas flare reductions. Operators of existing AG fields need to produce integrated gas flare reduction plans; they will then be expected to implement those plans. The government will consider a new sliding scale penalty to be introduced for existing brown field sites, especially for the JV and service contracts, which contribute 88% of the total associated gas flared in the country. Existing AG fields need to start planning and investing in the utilization of the associated gas to be supplied into the market, and to come up with economic plans for their growth. The gas policy said the government would consider regulations to allow for open access to gas-gathering pipelines, to ensure that flared gas had access to gas gathering systems and gas processing facilities.

 

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