Moving from gas flaring to gas conservation and utilisation in Nigeria: a review of the legal and policy regime

• DOI: http://doi.org/10.1111/opec.12019
• Author: Uchenna Jerome Orji
• Published date: 01 June 2014
• Date: 01 June 2014

Moving from gas flaring to gas conservation

and utilisation in Nigeria: a review of the

legal and policy regime

Uchenna Jerome Orji*

PhD Candidate, Faculty of Law, Nnamdi Azikiwe University, Nigeria. Email: jeromuch@yahoo.com

Abstract

Nigeria is often described as ‘a gas provincewith significant oil accumulations’, due to her immense

natural gas reserves. A large volume of Nigeria’s gas reserves is found as ‘associated natural gas’

along with crude oil. In most cases, such associated gas is burnt off during oil field operations

through a process that is commonly referred to as ‘gas flaring’. Recent statistics indicate that Nigeria

is the second highest gas-flaring country in the world. Gas flaring has also been a major cause of

environmental pollution and a waste of non-renewableresources that has resulted to a huge loss of

revenue for the country.This ar ticle analyses the legal and policy regime to tackle gas flaring and

enhance gas utilisation and re-injection or conservation in Nigeria. It reveals several obstacles that

have hindered the success of such legal and policy regimes and suggests measures to reverse the

trend. The article suggests inter alia that existing legal and policy regimes to tackle gas flaring and

promote gas utilisation and re-injection have not been successful due to the absence of attractive

incentives that will encourage oil-producing companies to invest in gas utilisation or re-injection

facilities. It also suggests that the enforcement of existing anti-gas flaring regimes has not been suc-

cessful due to the absence of deterrent sanctions and also as a result of Nigeria’s heavy dependence

on oil revenues. The article recommends the establishment of more punitive gas flare sanctions

alongside attractive fiscal incentives that will encourage oil-producing companies to invest in gas

utilisation and re-injection facilities.

1. Introduction

Nigeria is estimated to hold about 180 trillion cubic feet (Tcf) of proven natural gas

reserves according to the Oil and Gas Journal (OGJ) of 1 January 2012.1This makes

Nigeria the ninth largest deposit of natural gas in the world and the largest in Africa.2

Hence, Nigeria has been described as ‘a gas province with significant oil accumulations’.3

However, a large volume of Nigeria’s gas reserves is also found as ‘associated natural gas’

*LL.B (Hons.), (University of Nigeria); LL.M (Universityof Ibadan); Bar rister and Solicitor of the

Supreme Court of Nigeria.

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along with crude oil.4When associated gas is found along with crude oil in a well, there are

usually three options through which such associated gas can be separated from crude oil in

order to extract oil from the well;these are namely: to re-inject the gas into an underground

reservoir; to harness the gas for domestic and commercial utilisation; or to safely dispose

of the gas through the use of combustion. The option of re-injecting the gas into an under-

ground reservoir or well is usually through a process of gas sequestration that requires

expensive infrastructure and mechanisms that are complex. The option of harnessing the

gas for domestic and commercial purposes also requires the building of infrastructure

such as a network of pipelines5to transport associated gas from oil wellsto f acilities where

it can be processed and either stored or distributed. On the other hand,the option of dispos-

ing of the gas through the use of combustion appears to be the easiest and cheapest as it

does not require a substantial financial outlay for the construction of gas re-injection or

gas-gathering infrastructure. This last option appears to be the common practice in

Nigeria. Presently, most of Nigeria’s oil fields lack the infrastructure to either re-inject

associated natural gas for the purpose of conservation or to harness such gas for domestic

or commercial utilisation.6This state of affairs has given rise to an incessant practice of

burning off associated natural gas in a process that is commonly referred to as ‘gas

flaring’. Recent studies estimate that about 17 per cent of Nigeria’s total daily gas produc-

tion is re-injected, while 33 per cent is utilised commercially and the remaining

50 per cent is wasted through flaring.7This practice has been a major cause of environ-

mental pollution in the oil-producing areas of the Niger Delta with devastating impacts on

the health of local people8and their source of livelihood.9Additionally, the practice of gas

flaring constitutes a waste of non-renewableresources which has also caused huge revenue

losses for the country. The National Oceanic andAtmospheric Administration estimates

that ‘Nigeria flared 536 Bcf of natural gas in 2010—or about a third of gross natural gas

produced in 2010’,10 making Nigeria the second highest gas-flaring country in the world.11

Accordingly, recent studies indicate that while Nigeria produces about 7 per cent of the

Organization of Petroleum Exporting Countries natural gas production, it contributes

about 40 per cent of the organisation’s flared gas.12 In 2011, the Nigerian National Petro-

leum Corporation (NNPC) also claimed that Nigeria lost an estimated revenue of US$ 2.5

billion due to gas flaring by oil-producing companies.13 This article analyses several legal

and policy instruments that were established to tackle gas flaring and enhance gas utilisa-

tion and re-injection or conservation in Nigeria. Thus, the article mainly employsthe ana-

lytical method of research to review these legaland policy instruments with the following

objectives:

• to examine the legal and policy regimeto tackle gas flaring and enhance gas utilisation

and re-injection or conservation in Nigeria;

• to ascertain the existing deficiencies and challenges to success of the existing regime;

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• to make proposals for legal and policy reforms that will address the identified defi-

ciencies and challenges with a view to strengthening Nigeria’s legal and policyregime

on gas flaring, gas utilisation and re-injection.

Following the analysis, the article reveals several obstacles that have hindered the

success of legal and policy regimes that were developedto tackle gas flaring and encour-

age gas utilisation and re-injection in Nigeria and also suggests measures to reverse the

trend. The article suggests inter alia that existing legal and policy regimes to tackle gas

flaring and promote gas utilisation and re-injection have not been successful due to the

absence of attractive incentives that will encourage oil-producing companies to invest in

gas utilisation or re-injection facilities. It also suggests that the enforcement of existing

anti-gas-flaring regimes has not been successful as a result of the absence of deterrent

sanctions and also due to Nigeria’s heavy dependence on oil revenues.The article recom-

mends inter alia the establishment of more punitivegas flare sanctions alongside attractive

fiscal incentives that will encourage oil-producing companies to invest in gas utilisation

and re-injection facilities.

2. An overview of the legal and policy regime on associated gas

flare reduction

The Nigerian governmentfirst made attempts to establish a legal regime on gas flare reduc-

tion when the Petroleum Decree was established in 196914 to regulate activities in the

petroleum industry.The Decree which is now known as the Petroleum Act of 196915 pro-

vides that the Minister of Petroleum maymake regulations concerning licenses and leases

granted under the Act and operations carried on thereunder including the prevention of the

pollution of the atmosphere.16 One of the Regulations that havebeen made by the Minister

of Petroleum in this regard is the PetroleumAct (Drilling and Production) Regulations of

1969.17 Regulation 42 of the PetroleumAct (Drilling and Production) Regulations requires

an oil-producing company that is operating with a lease or license under the PetroleumAct

to submit a feasibility study, programme or proposal for gas utilisation not later than 5

years after commencement of production with respect to area covered under the lease or

license.18 However, the Regulations failed to establish explicit sanctions for non-

compliance with this regulatory requirement.19 Additionally, the Regulations failed to

impose explicit legal obligations for the reduction of gas flaring as there wereno measures

to discourage flaring before or after the submission of the required feasibility study or pro-

gramme for gas utilisation. Apparently, the Regulations merely stopped at requiring oil-

producing companies to submit a feasibility study or programme for gas utilisation

without more. Consequently,an oil-producing company could engage in gas flaring prior

or after submitting the required feasibility study or programme for gas utilisation without

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