September 21, 2018
The Federal Government has released the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018 (the Regulations). The Regulations, which has a commencement date of 5 July 2018, provides a legal framework for the utilization and commercialization of Flare Gas. It also introduces a new payment regime for gas flaring and imposes significant obligations on companies that engage in petroleum operations and other persons who utilize Flare Gas.
The Regulations was issued pursuant to Section 9 of the Petroleum Act and Section 5 of the Associated Gas Reinjection Act and it provides a legal framework for the implementation of the Nigerian Gas Flare Commercialization Programme (NGFCP). The NGFCP was launched by the Federal Government in 2016 and aims to eliminate gas flaring through gas utilization projects developed by third party investors.
Some of the key provisions in the Regulations are as follows:
- In the case of production of 10,000 barrels of oil and above (per day): $2 per thousand standard cubic feet (Mscf) of gas flared
- In the case of production of less than 10,000 barrels of oil per day: $0.50 per Mscf of gas flared
Notwithstanding the prescribed payments for gas flaring, a Producer will be required to pay an additional sum of $2.50 per Mscf of gas flared upon certain breaches including:
- Failure to prepare maintain and submit logs or records of flare gas within the time specified;
- Failure to provide accurate gas flare data upon request by the DPR; and
- Failure to install metering equipment within the time specified by the DPR.
In the event of continued breach, the Minister may suspend the operations or revoke any OML or Marginal Field awarded to the Producer.
The Regulations introduces a clear legal framework for the utilisation of Flare Gas in Nigeria. It also indicates an increase in the rates for gas flaring payments from the previous N10/Mscf to $2.00/Mscf and $0.50/Mscf, as applicable. In addition, the Regulations introduces additional compliance burdens for relevant stakeholders.
Furthermore, it is important to note that the definition of Flare Gas in the Regulations apply to gas that is diverted toward a ‘Flare Site’ for the purpose of flaring. Thus, associated natural gas that are designated for flaring by operators may be taken by the government in line with the Regulations. Although the right of the Federal Government over Flare Gas appears to be in line with the underlying principles for Back-in-Rights in the upstream sector, the Regulations seems to generate some new controversies around the extent of ownership that can be exercised by operators over the gas assets in any particular oil field within Nigeria.
It is also instructive to note that the Regulations reiterates the provisions of the AGRA on the requirement to obtain a Certificate from the Minister before engaging in gas flaring. However, in the light of the recent cases bothering on gas flaring penalties, it is disappointing to note that the Regulations failed to address the issue of whether monetary payments for gas flaring activities done without a Certificate from the Minister constitutes penalties. As indicated in our previous alerts, the difficulty in adhering to the provisions of the law in this regard may persist if the relevant authorities do not take necessary steps to issue the relevant Certificates that will facilitate voluntary compliance by Producers.