Nigeria’s oil and gas industry regulator intends to start fining companies $3.5 for every 1,000 standard cubic feet of gas flared from Jan. 1 next year, a senior official at the regulator said on Monday.
The Department of Petroleum Resources (DPR) also said oilfields that still flared gas associated with oil extraction would be closed down after Dec. 31, 2008.
At present, the vast majority of onshore Nigerian oilfields flare gas and their closure would slash output from the world’s eighth biggest exporter of crude oil, which currently stands at about 2.2 million barrels per day.
It would mean a huge loss of revenue for the government, which relies on oil as the country’s economic lifeline.
The DPR says it wants to enforce the drastic measures to end decades of dithering by oil companies and the government, which has been talking about ending flaring since 1979. But oil analysts say the plans are unrealistic.
“From January 1, 2008, government will impose fines on operators that still flare gas and from December 31, 2008, the oilfields of defaulting operators will be shut,” Oliver Okparaojiako, a senior DPR official, told a public hearing about flaring at the National Assembly.
Oil industry executives present at the public hearing said they doubted whether the DPR would be able to enforce the measures, especially as shutting down over 100 oilfields would be a disaster for Nigeria’s public finances.
Nigerian officials respond that oil production capacity is growing but is constrained by the country’s quota within the Organization of the Petroleum Exporting Countries.
Thus, if onshore fields that practice flaring are shut down, production could be ramped up at offshore fields to make up for the shortfall.
HEALTH HAZARD
Oil companies in Nigeria flare about 2.5 billion cubic feet of gas per day because there is no infrastructure to make use of it. Only Russia flares more gas than Nigeria.
Gas flares burning day and night are a health hazard to nearby communities and contribute to global warming, environmentalists say. The Nigerian government also wants to end flaring because it is a waste of a valuable resource.
Government and the oil industry agreed in 1998 to end flaring by 2008 but at least one of the major producers, Royal Dutch Shell (RDSa.L: Quote, Profile, Research), has said it would miss the deadline.
Oil majors Shell, Chevron (CVX.N: Quote, Profile, Research), ExxonMobil (XOM.N: Quote, Profile, Research), Total (TOTF.PA: Quote, Profile, Research) and Eni (ENI.MI: Quote, Profile, Research) operate joint ventures with the Nigerian state oil company which together account for most of the flaring.
The head of the DPR, Tony Chukwueke, told Reuters in October he thought only the foreign operators and not the state oil company, which owns a majority stake in the fields, should be fined. However, the DPR did not specify at Monday’s public hearing who the fines would target and how it would work.
The firms and the government are supposed to jointly fund investment in the industry through a system called the joint venture cash call.
The companies blame the government for delays in eliminating flares, arguing that it has failed to provide its share of cash call funding to build gas gathering plants and pipelines that would allow them to make use of the gas.
The DPR disputes this, arguing that the firms have made use of cash call money to invest in new projects to extract gas separately from crude instead of solving the flaring problem.