Improper Abandonement Of Oil (4)

At the Global level, the need to reduce Gas flaring via conservative and other methods has been recognized. This is because; Gas flaring is a problem that cuts across continents and countries. Consequently, some Oil and Gas producing countries of the world have joined forces in a Partnership, with a view to reducing Gas flaring. This is because; flaring or burning of gas has a global impact on climate change by adding to green house gas emissions. The Partnership, known as the Global Gas Flaring Reduction (GGFR) Partnership, was launched at the World Summit on Sustainable Development in August 2002, in Johannesburg. It first started as an initiative (The Global Initiative on Natural Gas Flaring Reduction) introduced by the government of Norway and the World Bank Group to investigate and find out the reason why huge volumes of Natural Gas were being flared and vented globally. The World Bank estimated this amount to be over 100 billion cubic meters per year comparable to the combined annual gas consumption of Germany and France – and that it has constantly been so, for the past 20 years (despite efforts made by governments and oil companies to curb it and despite the many successes in reducing Gas Flaring).

The World Bank also gives two reasons which have operated as barriers to the above efforts made and they are as follows:

(1) The increase in Global Oil Production and Association gas production, and
(2) Major constraints hindering the development of gas markets, gas infrastructure, and flaring reduction projects, which often require a collaborator and supportive actions.
As a result of its findings, the initiative was transformed into the GGFR partnership in 2002. This partnership brings around the table, representative of governments of oil producing countries, state-owned oil companies and Major – International Oil Companies so that they can together, overcome the barriers to reducing gas flaring by sharing global best practices and implementing country specific programs in gas flaring countries. This partnership is managed and facilitated by a small team at the World Bank and has numerable partners of which include the following: Algeria (Sonatrach), Angola, Cameroon, Canada (CIDA), Chad, Ecuador, Equatorial Guinea, Indonesia, Kazakhstan, Khanty-Mansijsysk (Russia), Nigeria, Norway, U.K Foreign Commonwealth Office, United States; BP, Chevron, ENI, ExxonMobil, Marathon, NorskHydro, Shell, Statoil, Total; OPEC Secretariat and the World Bank, with other companies and countries expected to join in.

The aim of the partnership is to support national governments and the petroleum industry in their efforts to reduce flaring and venting of gas associated with oil production. In December 2002, the partnership held its first steering committee meeting and a three year work program was approved beginning in January 2003. In its first two years, the partnership plans to focus on Algeria, Angola, Cameroon, Chad, Ecuador, Nigeria and possibly Mexico.

In 2004, the Partnership unveiled the Global Gas Venting and Flaring Reduction Voluntary Standard, at the Second International Gas Flaring Reduction Conference in Algeria on May 10-11. This standard seeks to reduce venting and flaring significantly within 5 to 10 years in the GGFR partnership, which accounts for some 40 percent of Global flaring. It is the belief of the partnership that further reductions will be achieved if additional countries, companies and institutions endorse and implement the standard. The standard will encourage conservation of natural gas, spur the growth of domestic gas markets in less developed countries, reduce barriers to gas markets access elsewhere and reduce greenhouse gas emissions from flaring and venting. It will also encourage prioritization and allocation of resources to operations with the largest potential for venting and flaring reduction globally.

This standard takes a collaborative approach, which is essential to overcome constraints hindering viable flare reduction project. In applying the standard, oil and gas producers and governments will produce implementation plans that support gas utilization. Key stakeholders will be consulted, and these include gas producers, major consumers, and the government. The standard also makes provision for additional stakeholders such as owners of gas infrastructure, financial institutions and representative of Local Communities.

This inclusion of representatives of local communities in the standard is very commendable. This is something that is lacking under Nigerian Law and practice. The manager of GGFR, Bent Svesson, puts it rightly when he said that: “Reducing gas flaring requires a global and concerted effort by governments and Industry, as well as financial Institutions and representatives of Local communities”.

The Global Gas Venting Reduction Voluntary Standard is a voluntary one and thus does not carry any formal penalties for non-compliance with its requirements. The standard encourages organizations to self regulate their flaring and venting activities, but it gives also, recommendations for the monitoring of Country’s activities and requires transparency, so that feedback on their implementation and performance will be given to the broad range of stakeholders. The partnership recommends the practice in Ablerta Canada, which it lauds as an example of a successful, voluntary approach to reducing gas flaring, and to some extent, the standard took after the Alberta approach to Gas flaring. The practice in Canada will now be examined.

In Alberta Canada, gas flaring has dwindled significantly, and this achievement is attributable to their anti-flaring approach and the fact that there exist in the country, viable alternatives to Gas flaring, which they do indeed use. Flaring of associated gas in Alberta falls under the jurisdiction of the Energy and Utilities Board (EUB), whose goal is to eliminate the routine flaring of associated gas for the benefit of all Albertans. The EUB sets out regulatory requirements and acceptable levels of flaring in the province (Alberta). The Board uses a consensus based approach in determining the appropriate emissions levels, and makes consultations with two multi-stakeholder teams from the Clean Air Strategic Alliance (CASA). CASA in an independent, non-profit organization that brings together all sectors of the economy to discuss issues, and includes environmental, government, industry and health representatives from across Alberta. The above representative make up the (CASA) flaring and venting project team, whose purpose is to develop recommendations on acceptable emission levels and procedures for minimizing flaring CASA then submits these recommendations to the EUB, who will implement them.

This system has received international praise from the World Bank as a highly effective approach to minimizing flaring, so much so that the Global Gas Flaring Initiative had, requested the EUB to submit their approach to them, so that it may be used as a model.

In Alberta, if using a particular technology on a site can eliminate flaring, that technology will be implemented. Where total elimination is not however possible, reduction methods will be resorted and employed it at all possible.

In achieving the above, several factors are considered, and they are as follows:
Firstly, if there are residents nearby, firms that carry out continuous gas flares, will be required to consult with and/or notify such residents and provide them with information concerning the flaring. Notification given by such firms must necessarily include the company’s plans for eliminating, reducing or improving the efficiency of the flare. Such residents must also be enlightened as to their right to object to the flare and the process for doing so. An objection should be by a written letter addressed to the EUB field centre, which will then reach a decision that the flaring be discontinued.

Secondly, it will also be considered whether there are economic alternatives to gas fl

aring. The EUB requires operators to evaluate the economic viability of eliminating flaring on an on-going basis. Flaring is thus to eliminated or reduced if it is deemed to be economic to do so. As at 2002, conservation of gas in Alberta was mandatory and thus deemed to be economic, when the incremental economic of gas conservation generates a net present value (NPV), before tax greater than zero. However, by virtue of the recommendations given by the Flaring and Venting Tema for 2006 the position above has been taken a step further. The position now is that conserving gas is mandatory even if the NPV of undertaking the necessary changes overall, costs the drilling company $50,000. This clearly evidence Alberta’s strong commitment to reducing flaring.

Thirdly, the environmental impacts of reducing or eliminating flaring will be considered and whether it would be greater than the economic benefits. It will also be considered if the technologies to be employed in reducing flaring will create new sorts of environmental problems that would cause greater damage than the flaring. Thus, where it is better to flare, so as to avert some environmental dangers, flaring may continue. But where it is more environmentally beneficial to stop or reduce flaring, then it will be done.

Not all flaring in Alberta is however, outlawed, as there is a fixed maximum amount that may be flared annually. This is set at 670 million cubic meters, and this figure represents a 50% decline in Alberta’s flaring levels from 1996. If flaring exceeds this amount the EUB will be entitled to impose restrictions on individual drilling sites until the total is below 670 million cubic meters.

Also all amounts of Gas Flared must be reported monthly to the Petroleum Registry of Alberta. The EUB must be provided with evidence that will support the calculations arrived at by individual firms, and is at liberty to request a re-evaluation if it feels these numbers were inappropriately determined.

If reduction of flaring still not possible after all these questions and economic outlooks have been considered, then the EUB will lay out performance requirements that must be adhered to by flaring companies. The requirements are contained in Guide 60: Upstream Petroleum Industry and Flaring, Incinerating and Venting, Section 7.
Some of these requirements stipulate that oil companies are to:

(a) Design flare so that emission do not exceed the Alberta Ambient Air quality Guidelines.
(b) Utilize best engineering practices on the design and operation of flare systems.
(c) Design ways to reduce odor and visible smoke emissions, amongst others.
Flaring in Alberta has declined greatly, owing to the commitment shown by all concerned, towards ensuring its reduction. The Vice President of CASA, Tom Marling had this to say of the Albertan approach.
A process like this is not quick, but the high level of commitment of everyone around the table makes success possible. As a result, tremendous progress has been achieved and Albertan should anticipate further reductions as industry turns its attention to the remaining flares 227.
By consensus, CASA stakeholders agree to a voluntary approach with annual targets, supported by regulatory requirements. This consensus-based approach is said to be the direct reason for the province-wide reduction in flaring by 53 percent, which occurred between the years 1996 and 2001. The EUB also stated in 2002, that flaring had been reduced by 62 percent since 1996. Whatever the actual rate of reduction it is evident that much has been achieved in Canada, where it is now reported that about 92 percent of Gas is conserved or used in some way, and only 8 percent is flared. What is more is the fact that, all stakeholders are seriously dedicated to reducing gas flaring.

In Nigeria, such commitment is lacking. This is shown clearly by the several shifts in deadline dates and the fact that major projects designed to utilized Nigeria’s vast natural resources were not constructed until recently. We will now examine the development of natural gas resources and the various projects in the next group.
THE DEVELOPMENT OF NIGERIA’S GAS RESOURCES

(NIGERIA’S GAS RESERVES AND PRODUCTION)

”Natural gas” generally refers to gaseous form of petroleum consisting of mixtures of hydrocarbon gases and vapors, the more important of which are methane, propane, butane, pentane and hexane. The term is generically used for both Associated and Non-Associated gas, the former being that ”which occurs with oil in the same reservoir”, and the latter that occurs alone in a reservoir”. Associated gas either re-injected into the oil wells to enhance oil recovery where the situation of the reservoir permits it, or gathered and ”liquefied’ to provide alternative energy source for domestic use or electricity generation. According to the stakeholders at a recent oil and gas sector stakeholders workshop organized under the auspices of the GGFR Partnership, Nigeria gas well over 187 trillion of proven, and trillion ”undiscovered but recoverable” scf of gas reserve. This was also noted by the workshop to represent 50% of Africa’s gas reserve. Nigeria thus is the 7th largest world gas province.

Indeed, Nigeria’s gas reserves could, according to recent revelation be underestimated, suggesting that Nigeria’ true gas reserves could be some 660 tcf compared to the current declared figure of 166 tcf, which ”represents only about 25% of what many experts believe to be true potential of some 660 tcf’. The ”huge disparity between actual and expectation is in itself the result of many years of bias against gas, where presumed gas-prone prospects were actively and deliberately left untested”. Gas production is expected to increase significantly over the next few years as gas flaring is phased out and new projects such as the West African Gas Pipeline project and the remaining three NLNG trains come on stream. According to SPDC, on the average, about 1,000 scf of gas is produced in Nigeria with every barrel of oil. Thus with 2.8 million barrels per day (bpd), about 2.8 billion scf of Associated gas is also produced daily.

Unfortunately, before 1999, up to 79% of the Associated gas in flared (ignited) or vented (unignited). This is equivalent to the value of about 500,000 barrels of oil for each day’s generation. Thus, Nigeria fares more than any other country, accounting for ”a quarter of the gas flared in the entire world”.

The statistics above, however, according to the special adviser to the President Obasanjo on petroleum and Energy, Dr. Edmund Daukoru, became brighter in 2004, because of the progress so far made by Nigeria in its war against gas flaring. He said ” only 43% of the Nation’s Associated Natural Gas is currently flared as against the 70% flared in 1999”.

Gas flaring has indeed become one of the major environmental concern of the industry. Flaring has been traditionally blamed of lack technology to harness the gas, on the one hand, and until the 70’s after the 1st oil shock, absence of the market for the gas as an alternative source of energy. Equally relevant is the fact that in the 1960s and 70s, there was little or no environmental consciousness in Nigeria. As a matter of fact, it was not until 1980 before global warming became an issue. The gas thus was flared into the atmosphere without regard to the environmental consequences.

One should not lose sight of the economic intricacies of gas flaring versus utilization. Algeria, for instance, has worked hard to reducer flaring and venting, it still occurs at location deep in the dessert where no local market exist and there is no way to bring the gas to the cost. As succinctly stated by Worika, the economics of associated gas utilization cost ten times as Non-Associated gas or re-injection is more expensive than flaring. Thus, the oil companies choose the cheaper option of flaring. Indeed, it sounds rather paradoxical, and as Worika puts it, “if gas has not been flared, the oil could not have been

produced economically”. This then strengthens the assertion that the gap between people who are looking for gas and those who have excess gas and routinely flares it, is “infrastructural lapse’ .(and) the driver for building infrastructure is the price for which the gas will be sold. If the gas will not be sold at competitive price, which will enable investors get good returns for their investment, there will be no incentive to invest in these gas infrastructures and facilities”. On the whole, considering the new status of gas in the global energy security debate, coupled with the associated environmental and social considerations, the economics of gas utilization is incomparably more favourable and viable for Nigeria than flaring it.

HARNESSING NIGERIA’S GAS RESOURCES

Nigeria, according to a World Bank estimate is currently losing on the average more than $2.5 billion (N332.5 billion) annually to gas flaring. At about 57% of the daily production of over 2bn cf, the volume of gas flared is said to be capable of generating up to 6GW of electric power annually. Nigeria could earn about $12 billion annually from natural gas export by 2009 when projects designed to end the burning of gas associated with oil extraction come on stream.

In a very recent report, Nigeria is stated is having the 7th largest gas reserves in the world, which is estimated at some 160 trillion cubic feet (equivalent to about 27 billion barrels of confronted by the enormity of its Gas reserves, the Nigeria Government and the oil companies were finally prompted into doing something about utilizing Natural Gas, as an alternative to the incessant Gas flaring which was prevalent in the country. This need to take active step in harnessing Nigeria’s Gas Reserves was made even more expedient, because the Anti-flaring laws in Nigeria had failed to achieve the desire result. The oil companies and the government had previously shied away from investing in the Natural Gas Industry, because of its Capital Intensive Nature.

Other factors, which delayed adequate exploitation of Nigeria’s Gas reserves, are that: the domestic demand for gas was not high enough and nether was international demand for the commodity firm enough to guarantee that investments by the oil companies will yield short-terms profits. Concerning the capital intensive Nature of the Natural Gas Industry, Philip Swanson an economic and flaring consultant for the World Bank had this to say: “Associated gas is unpredictable and difficult to collect, requiring huge investments in infrastructure that oil companies don’t find profitable”.

Nonetheless, the Nigerian Government in partnership with oil companies has geared some projects toward exploiting Natural Gas and thus reducing Gas Flaring. One of them is the Nigeria Liquefied Natural Gas (NLNG) venture, which is the almost publicized and possibly the largest of them all. In furtherance of this venture, a company Nigeria LNG limited, has been registered with the Nigeria National Petroleum Corporate (NNPC). The Nigeria LNG is a Joint Venture Company owned by the Federal Republic of Nigeria, represented by the NNPC, which owns 49% of its shares and other companies, such as Shell, which owns 25.6%, Totalfina Elf, which owns 15% and Agip, which owns 10.4%.

The entire LNG project is said to cost about 3.8 billion and has already commenced operations, with exports of LNG from the complete liquefaction plant, located at Finima, in Bonny Local Government of Rivers State. This venture is not a recent phenomenon as it has been at some stage of planning or implementation since the 70’s. The Nigeria LNG Limited purchases and liquefies Natural Gas for export to overseas Markets Long term Natural Gas supplies have been secured by the company from its shareholders and in addition, four LNG ships have been bought with three of them currently hired out. There has also upfront sale of LNG expected from the plant; to buyers in Europe and USA fro 22.5 years starting from 199 (the expected date of commencement of production of liquefied natural gas). The company is exporting to the following European buyers: ENEL (Italy), ENAGAS (Spain), Botas (Turkey), Gaz de France (France) and Transgas (Portugal).

As was said earlier, the Nigeria (LNG) venture has an estimated cost of $3.8 billion. This is owning to the fact that such a project involves huge capital investments and huge risks. For instance, the cost of building the LNG ship which that will carry the liquefied gas is estimated at almost $200 million. Also, LNG ships are peculiar in the fact that they cannot carry any other commodity except LNG. This is because it is specially designed, and thus, an LNG venture cannot be without an LNG ship. It also takes huge amounts of capital to develop, construct and acquire LNG equipment, production installations, and distribution facilities.

As at the end of September 1995 only $1.36 billion had been contributed by the shareholders as equity and deposited in an escrow account. The company thus has the daunting task of raising the remaining amount either from International sources, or from further equity contributions by the shareholders. The Nigerian Government is also very earnest in its desire that the LNG venture meets with success. LNG project is expected to earn Nigeria $37 billion in 30 years, starting from 1999, and because of its huge economic prospects the Nigeria Government has gone to some extent, to attract and secure foreign investors in the venture and has even enacted a law that spells out the benefits and granted to the Nigeria LNG limited.

This law is known as the Nigeria LNG (Fiscal Incentives, Guarantees and Assurances) Decree no 39 of 1990 (hereafter, the Decree/ Act). This Act grants Fiscal incentives and investment protection to investors. Some of the fiscal incentives are as follows:

a) The status of pioneer company for taxation purposes is conferred on the company by virtue of the Act
b) The Company is granted tax relief for a period of 10 years commencing from the date of commercial delivery of LGN to Purchaser
c) Section 7 of the Decree/ Act exempts the Company and its contractors or sub-contractors from payment of import duties or other duties in respect of all necessary imports of plant, machinery, goods and material s to be used in the construction of, or incorporation in the plant, jetties, shipping, transmission facilities and ancillary work used in the company’s business; amongst others.
The second schedule to the Decree contains the guarantee assurances and undertakings made by the government of Nigeria, to Nigeria LNG limited and its shareholders and it granted these guarantees in recognition of the huge investments, which have been made by the company to carry out purposes. These guarantees have effect from the 24th of April 1980 and will remain in force so long as the company exist and is carrying on the business of liquefying and selling LNG.

The Decree/ Act also provides for stabilization clauses, which are designed to reassure the foreign shareholders that there will be no unilateral changes in the fiscal and legal regime governing their contracts. This is welcomed by multinational oil companies who are more concerned with stability in their contractual relations with government as opposed to flexible contractual relation which may expose them to sporadic changes in the law of the host country.
Gas supply to the LNG project is to come initially from non-associated gas reserves and then it is expected that Associated Gas (AG) will fully used. However it has been alleged that the former is still being put to more use than the latter, despite the fact that the LNG project was originally designed to utilize Associated Gas that was being constantly flared away. As a matter of fact, it was only in November 2002 that the LNG plant was able to utilize 100% AG, but the amount of AG utilized since then has dropped far below that figure.

Oil companies in Nigeria are being accused of using as much associated gas as they can get away with wh

ile only a barely significant amount of AG is actually sold. Shell, for instance has stated that only 17.6% of Associated Gas was sold to the Nigeria LNG ltd, between the years of 2002 and 2003, and that the 17.6% represents 350 MMSCF/D, which constitutes a small portion only of the total amount of 1982 MMSCF/d of gas sold to the company, during that time.

This state of Affairs totally defeats the purpose for which the LNG project was created, as the implication of using more none-Associated Gas than A.G is to further encourage flaring of the latter. It has thus, suggested that a legal obligation to use AG, be imposed on the Oil Companies as it believed that they will not supply AG to the LNG project, where such a legislation is absent.
The next promoted as viable means of reducing gas flaring is the West African Gas Pipeline 9WAGP). This project has received even more criticism that the LNG project.

The West African Gas pipeline, like the LNG project is one that has been in the works for sometime (about 25 years), but actual construction work on the project only began in August of 2005. A feasibility report, prepared by the World Bank in 1992, determined that a natural gas pipeline originating from Nigeria to Benin, Togo to Ghana would be commercially feasible. The (WAGP) project aims to deliver Gas from Nigeria (via an approximately 680 kilometre pipelines) to Benin, Ghana and Togo. The World Bank gave support to this project in November 2004, when it guaranteed US$125 million for the construction of the pipeline. The project is estimated to cost about $590 million and is being promoted (by Chevron and Shell) as a gas flare reduction project. According to the US government: “the major positive environment impact of WAGP will be the development and use of gas currently flared in Nigeria.

Promoters of the project also claim that it will reduce carbon emission, produce chapter, more reliable and environmentally friendly energy and foster economic development and integration in Ghana, Togo, Benin and Nigeria. The WAGP project is to be built, owned and operated by a new company called: the West African Gas Pipeline Company (WAPC). This Company is to be owned by Chevron Nigeria Limited (36.7%, NNOC (25%), SPDC (18%) Volta River Authority of Ghana (16.3%) Society Beninoise de Gaz ((2%) and Societe Togolaise de Gaz S. A. (2%). This project, has however met with stiff oppositions from host communities, and severe criticisms from environmental and civil society groups.

Firstly, it has been argued that sponsors of this project have not been able to show just how; the pipelines would reduce flaring of associated gas in the Western Niger Delta region. The pipeline will be connected to the Escravos Lagos Gas pipeline, which was built to transport unflared non-associated gas, and was constructed without an environmental impact assessment (EIA). Also as concerns this project there are no means by which the use of AG can be enforced and so it seems that WAGP will end up another non-AG project (like its Predecessor, the LNG project).
Secondly, although the promoters of WAGP claim that the project is West African by origin and meant to address the needs of the people from that region, WAPCo, the company that will manage the WAGP is not registered in any West African country. It is rather registered in Bermuda, and will operate as an offshore company with major fiscal, environmental and social exemptions specifically allowed by the WAGP treaty and Enabling legislation.

Also in a bid to protect themselves from future liabilities, and compensations, the project proponents have demanded that, a West African Gas Pipeline Project Enabling Legislation be enacted at the National Assembly. The legislation will exempt WAPCo from compliance with Nigerian Laws that will guarantee good corporate practice and environmental protection. This move by the promoters has been criticized as a poly to subvert the sovereignty of Nigeria, because if such a Bill is passed it will have the effect of robbing the Government of the right and power to prosecute them.

Thirdly, Ghana’s Energy Commission has stated that the WAGP project will not be economically viable for the people in Ghana. This is because, the Ghanaian Government will be committed under its terms to buy WAGP’s gas at a set price for twenty years, impacting on the countries budget and ruling out possible future alternative energy sources.

A Fourth ground for criticism of the project, is based on the fact that, the local people through whose communities the pipelines will pass know very little about the projects. Representatives from communities living near the pipeline route in Nigeria and Ghana report that they have not been properly consulted, suggesting that the World Bank, one of the main project financiers of the WAGP, would be violating its own commitment to invest only in projects that have broad community support. It is also alleged that only a few land owners have been approached by Chevron’s agents and some have been paid a very small compensation of $20 for their land

Fifthly, it is maintained by civil society groups that the pipeline project risks prolonging ongoing conflicts in the oil and gas – rich Niger Delta. Representatives of these groups do not also believe that the pipeline would provide cheap energy or promote regional integration. Prominent amongst all these criticisms and oppositions however, is the fact that the WAGP project will seemingly use more non-associated gas and this render ineffective the claims made by the promoters that the pipeline will channel away associated gas’ from existing oil fields where it is currently being burned, and thus contribute to putting an end to dangerous Gas Flaring in Nigeria.

This is a fundamental flaw in the Project, which takes after its predecessor (the LNG project) once again. These problems which have been associated with the above project, make it all the more doubtful that Government will be able to make its 2008 deadline. Apart from the NLNG and WAGP, there are other projects designed for gas utilization in Nigeria.