-By Yange Ikyaa
The Nigerian government has now devised and put in place a market-based instrument in the form of a gas flare commercialization programme, with the aim of eliminating gas flaring by oil-producing companies in the oil-producing region of the country.
According to Valuechain findings, Nigeria will award contracts for harnessing and commercializing its flared gas by the third quarter of 2019, even as the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, has expressed confidence and optimism that the country had already eliminated 75 percent of flared gas and remains on track to eliminating gas flaring entirely by the year 2020.
He said “it was in recognition that flared gas could be harnessed to stimulate economic growth, drive investments and provide jobs in oil producing communities and indeed for Nigerians through the utilization of widely available innovative technologies, that the Federal Executive Council in June 2016 approved the Nigerian Gas Flare Commercialization Programme (NGFCP).”
With this, the African largest economy may well be just the closest as it has ever been to finally ending the dangerous practice by oil companies which, for years, has devastated the environment and means of livelihood of local populations.
Gas flaring is the practice of openly burning off associated gas that comes together with crude oil during the drilling and pumping processes of production.
The World Bank has been actively in the forefront of promoting a globally targeted deadline to end gas flare-out by 2030, but Nigeria has a national target that seeks to end the economically unsustainable and environmentally damaging practice in 2020, about 10 years earlier.
This will reverse a prolonged negative economic trend of 22 million tonnes of carbon dioxide that Nigeria emits yearly. According to data sourced by Valuechain from NGFCP, the country loses approximately $500 million in emission credit value.
This amount of gas, if harnessed, could power two to three liquefied natural gas trains and if used for power, we could generate around 3,000 megawatts of electricity.
Additionally, the gas could be put to good use and potentially displace other fuels such as coal and diesel that generate higher carbon emissions per energy unit and are not as clean as gas.
The Nigerian Gas Flare Commercialization Programme (NGFCP) was launched in 2016 for this purpose and to hold oil companies that have been using the uneconomical option for decades and, in the process, paying meager penalties to the government instead of developing a structure to capture the gas and make it commercially useful.
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Minister of State for Petroleum, Ibe Kachikwu
Oil companies in Nigeria produce over 4 billion standard cubic feet of gas per day, but government figures say nearly 80 per cent of the associated gas produced by the oil companies is currently utilized, with the rest re-injected into the earth to increase well pressure or simply for disposal. The companies contend that setting up gas harnessing, processing, storage, transportation and marketing infrastructure would be more expensive than wasting it in flares.
Approximately 700 million standard cubic feet of gas is burnt in the open daily at 178 sites, causing tons of carbon dioxide to be emitted into the atmosphere, a gas globally blamed as a key contributor to global warming and climate change.
The government’s deadlines to stop gas flaring have been repeatedly shifted since the 1960s, but Ibe Kachikwu, the Minister of State for Petroleum, insists the 2020 deadline would be met.
In 2016, Kackikwu launched the Nigeria Gas Flare Commercialisation Programme for the first time to involve third-party investors or off-takers, leveraging on one of Nigeria’s petroleum laws that empower the Minister of Petroleum Resources to take flared gas and get it profitably commercialized.
Valuechain learnt through data from the Department of Petroleum Resources (DPR) that over 800 expressions of interest have been received and 226 have been confirmed to have paid the minimum required fees of 1000 dollars each.
According to the minister, “by 2020, issues of gas flare won’t just be issues of penalty, they will be license to operate issues, and there is a sudden realization from multinationals operating in Nigeria who previously said it was not profit to commercialize gas that we are serious and they quickly put together bids expressing interest to participate in the gas flare commercialization programme.”
In order to qualify for participation in this programme, interested firms must demonstrate the technical capacity for the design, construction, operation and maintenance of gas utilization.
“In addition, each applicant is expected to show demonstrable project development experience; demonstrable previous experience in either owning or operating gas to power, gas to liquids, gas processing and/or transportation, or similar projects, as well as proven technology in commercial application.”
It is also expected that, for financial capacity, a willing participant must show a net worth of $5 million and must not be on the debarred lists of Nigeria’s anti-graft agencies, World Bank or the US Treasury Office Control list.
The Federal Government is currently working on a piece of legislation, through the Department of Petroleum Resources (DPR), to compel petroleum product marketers to set up gas filling plants in all their petrol stations across the country.
This directive is aimed at deepening the use of LPG across the country, in addition to promoting the issue of clean energy, as well creating employment opportunities.
The regulation is expected to increase cooking gas selling points across the country by about 10,000 or about the same number of filling stations in Nigeria.
Also, the Federal Government, through the Ministry of Petroleum Resources, is already working with stakeholders across the LPG value chain, and has set a target to build at least one gas filling plant across all the 774 local government areas in the country within the next three years.
In furtherance of this initiative, the ministry has engaged LPG cylinder manufacturers and is encouraging them through special funding and other incentives to increase their production capacity, especially as this is critical to LPG penetration.
Kachikwu said “we are working with the LPG cylinder manufacturers. We are giving them strong presidential backed incentives to enable them produce LPG cylinders in this country. About four of them are getting facilities from the Nigerian Content Development Monitoring Board (NCMBD), and they are getting import exemption for materials to be assembled for the plants.
“The Federal Government’s Gas Policy is further to ensure that FG takes measures to develop flare capture and utilization projects, that collaborations are made with industry, development partners to provide flare capture technologies and third party investors.”
In terms of the Nigerian Gas Flare Commercialization Programme (NGFCP), the Minister described the enactment and approval of the Flare Gas (Prevention of Waste and Pollution) Regulations (2008) and the signing of the Regulations by President Muhammadu Buhari on 5th July, 2018 as a “key accomplishment, which is historic and record breaking.”
The occasion was also used to unveil the NGFCP Ministerial Steering Committee, as well as the Programme Management Office (PMO) as additional stages in the evolution of the NGFCP. Furthermore, the minister has approved additional guidelines to support the Regulations underlying this initiative.
The Ministerial Steering Committee and the PMO have been directed by the Minister to activate the NGFCP Community Awareness and Sensitization/Participation Plan (CASP) to ensure widespread, ongoing and meaningful sensitization and participation of key stakeholders in the Niger Delta Communities.
The Proposal Evaluation Committee (PEC) for the NGFCP has been inaugurated to include members from the Ministry of Petroleum Resources (MPR), the Department of Petroleum Resources (DPR) and Nigerian National Petroleum Corporation (NNPC).
The PEC membership, the Minister disclosed, includes three nominees of the United States Agency for International Development (USAID) Advisory Team, three from the Nigerian Extractive Industry Transparency Initiative (NEITI), and two member nominees from Oil Producers Trade Section (OPTS) as Independent observer groups (IOG).
PEC is to evaluate the submission of qualifications and determine which applicants are qualified. The body will also evaluate the proposals submitted by qualified applicants in line with the criteria of the Request for Proposal package.
The Petroleum Trust Development Fund (PTDF) is expected to join the Nigerian Gas Flare Commercialization Programme in a Joint Implementation Committee, which is to build partnerships and competence development framework for the programme.
According to the minister, “the Nigerian Gas Flare Commercialization Programme, when fully consummated, will lead to significant social and economic benefits to host communities in the Niger Delta, to investors, and to the nation’s economy.
“From it, pollutions in the local Niger Delta communities will be curbed; households will be provided with clean energy; particularly Liquefied Petroleum Gas (LPG) for cooking; jobs will be created for small and medium scale business men who are in the value chain for gas; gas-to-power generation for electricity will be enhanced; as well, there will be gas to petrochemicals – fertilizers, poly propylene, poly ethylene, methanol, and others. Perhaps the greatest of the gains will be the alleviation of social unrest in the Niger Delta region.”
Consistent with Nigeria’s commitments to the reduction of greenhouse gas under the Paris Climate Change Agreement, the gas commercialization programme will reduce Nigeria’s carbon dioxide emissions by approximately 13 million tonnes per year, which could be monetized under an emissions credit or carbon sale programme.
“NGFCP is the first market-driven programme undertaken on this scale globally, which means bidders will have flexibility of choosing which flare sites to bid for, the gas price, and the end market or gas product as well as the technology to be used,” according to Justice Derefaka, National Programme Manager, NGFCP.
It is expected that NGFCP will attract about $3.5bn worth of investments into the country. As Derefaka said “the benefit from this are huge, ranging from an overall investment of around $3 billion to $3.5 billion, a potential annual revenue and Gross Domestic Product impact of around $1 billion.
“Assuming an average project size ranging from $10 million to $40 million, NGFCP has a potential of triggering 70 to 89 projects, and over a one-and-a-half to a two-year period, NGFCP could generate approximately 300,000 direct and indirect jobs.
“Once operational, projects launched under the NCFCP will reduce Nigeria’s emissions by 13 million tonnes of carbon dioxide per year. Don’t forget, the NGFCP can become an important source of additional gas for the power sector.”
It has been proven that global energy demand will nearly double by 2050, and that most of the increase will come from the world’s emerging economies as a result of population growth and improved standards of living.
The NGFCP is expected to play an important role in meeting this energy challenge by harnessing Nigeria’s flare gas for sustainable value and wealth creation.
This is because Nigeria has the ninth largest gas reserves in the world, with proven reserves of 199 trillion cubic feet, but a significant volume of associated gas is currently being flared, a tremendous waste of a commercial natural resource and fuel and a contribution to climate change.
In 2017, Nigeria ranked seventh place in the league of gas flaring nations, with approximately 888 million standard cubic feet per day from over 178 flare sites out of the more than 16,000 flare sites in 90 countries globally. Lost revenue from the flared associated gas is approximately $1 billion annually.
Recent efforts by the Federal Government to end gas flaring by 2020 show strong policy approach and political will to harness these gas resources. In addition to the ratification of the Paris Climate Change Agreement, the Federal Government has also endorsed the World Bank’s Zero Routine Flaring by 2030 Initiative and established the NGFCP.
The gas commercialization programme seeks to provide a framework to eliminate gas flaring through technically and commercially sustainable gas utilization projects developed by competent third-party investors who are being invited to participate in a competitive and transparent bid process.
It also examines the recently gazetted Flare Gas (Prevention of Waste and Pollution) Regulations 2018, the legal basis for the implementation of the NGFCP and the payment regime (penalties) for gas flaring, which adopts the ‘polluter pays’ principle, similar to a carbon tax.
The results of work done to trigger up to 85 projects that will utilize flared gas, generate approximately 300,000 direct and indirect jobs and annual revenue generation/GDP impact estimated at $1 billion/annum are also highlighted.
So, the NGFCP has been designed as the contribution of the petroleum sector to Nigeria’s Intended Nationally Determined Contributions under the Paris Agreement and it is the first market driven programme undertaken on this scale globally, making it a high impact programme.