Policy and Targets
Background and the Role of Reductions in Meeting Environmental and Economic Objectives
Nigeria’s oil production fell by nearly 40 percent from 2012 to 2021. During this period, the flaring intensity barely changed. The volume of gas flared declined broadly in proportion to oil production, falling 25 percent, from 9.6 bcm to 6.6 bcm. There were 166 individual flare sites in the last flare count, conducted in 2019.
Gas flaring volume and intensity in Nigeria, 2012–21
In June 2016, Nigeria endorsed the World Bank’s Zero Routine Flaring by 2030 initiative (World Bank, n.d.). It also participates in the Global Methane Initiative (n.d.) and the Climate and Clean Air Coalition (n.d.0). Nigeria submitted its first NDC to the UNFCCC in 2015. It included gas flaring reduction as a mitigation measure, it submitted an updated NDC in July 2021. The update does not include unconditional contributions pertaining to the energy sector. Among the sector’s conditional contributions are zero routine flaring by 2030 and a 60 percent reduction in fugitive methane emissions by 2031.
Early oil and gas legislation—such as the Petroleum Act, 1969, and the Associated Gas Re-injection Act, 1979—included the prevention of atmospheric pollution and the conservation of resources. The Associated Gas Re-injection Act, 1979, prohibited gas flaring without the written permission of the minister in charge of oil and gas after January 1, 1984. However, measures to reduce flaring gained only limited traction, and the deadlines for ending routine flaring were repeatedly postponed.
In December 2017, the Ministry of Petroleum Resources published the National Gas Policy in the official gazette. The policy commits the government to taking measures to ensure the development of flare capture and utilization projects and to work collaboratively with the industry, development partners, providers of flare-capture technologies, and third-party investors. The policy also points out that the gas flaring penalty (at the time equivalent to US$0.03/thousand standard cubic feet [mscf]) was too low to act as a disincentive (making it more economic to flare than to pay the penalty) and needed to be raised substantially. The annual Oil and Gas Industry Reports published by the Nigeria Extractive Industries Transparency Initiative (NEITI) show that, even at this very low penalty rate, some producers have not paid flaring penalties in full or at all.
In 2016, the government launched the Nigeria Gas Flare Commercialization Program (NGFCP), targeting 2020 as the year by which routine flaring would be ended. This target was not met. In 2018, the government issued the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018, followed by four sets of associated guidelines. An important feature of the 2018 regulations was a marked increase in the flare payment rate. The 2018 regulations also provided a mechanism, similar to the one in Indonesia, for the government to take natural gas that would otherwise be flared and bid it out to third parties to commercialize it.
In August 2021, President Buhari signed the Petroleum Industry Act, 2021 (Petroleum Industry Act hereafter), an omnibus act covering the entire the oil and gas value chain. Although it repealed some previous laws, such as the Associated Gas Reinjection Act, 1979, the Petroleum Industry Act considers most other laws and regulations equivalent to having been issued by the new regulators as long as they provisions are not inconsistent and until such a time as amendments to the new law repeals them. In particular, it retains Petroleum Act, 1969, and several other laws until all licenses and leases signed under them are terminated. The Petroleum Industry Act contains five articles on gas flaring, promoting minimization of flaring and reinforcing the basic principles in the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018.
Targets and Limits
The Associated Gas Re-injection (Continued Flaring of Gas) Regulations, 1984, set criteria for when flaring is allowed. No evidence of enforcement is available in the sources conducted. The National Effluent Limitation Regulation, 1991, issued by the Federal Environmental Protection Agency, placed limits on the concentrations of hydrocarbons in atmospheric emissions. Section 12.3 of the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018, ban routine flaring for greenfield projects.
Legal, Regulatory Framework, and Contractual rights
Primary and Secondary Legislation and Regulation
The Petroleum Act, 1969 granted to the minister in charge of oil and gas the exclusive power to issue regulations, including regulations supporting the conservation of petroleum resources and the prevention of atmospheric pollution. The Petroleum Industry Act narrows the powers of the minister and transfers some previously held powers to the newly established Nigerian Upstream Regulatory Commission (the Commission hereafter) and Nigerian Midstream and Downstream Regulatory Authority (the Authority hereafter). Section 105 authorizes the Commission to take gas destined for flaring at the flare stack free of charge. Section 107 authorizes issuance of permits for flaring or venting for a specific period if flaring or venting is required to start up a facility or for strategic operational reasons, including testing. Section 104 earmarks the flaring penalties paid to the Commission for environmental remediation and relief of the host communities in the oil-producing area on which the penalties are levied. Section 108 requires all producers of natural gas to submit a plan to eliminate flaring to the Commission within 12 months of the effectiveness date of the Petroleum Industry Act, or by August 2022, in accordance with the regulations issued by the Commission. This provision is not entirely consistent with the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018, which prohibit, at a cost of a significant additional penalty, producers of associated gas that was being flared as of January 1, 2020, from making attempts to monetize the gas and eliminate flaring if the gas was selected for an auction. Although the 2021 law refers to the 2018 regulations, the Commission will revise those regulation and issued new regulations, including regulations that clarify that flare payments are now penalties under the Petroleum Industry Act.
Section 13 of the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018, increased the payment for flared gas by nearly two orders of magnitude (see the Monetary Penalties section of this case study) and set out procedures for competitive bid processes to auction the gas being flared to third parties. These auctions are integral to the NGFCP.
The Federal Environmental Protection Agency Act, 1988 empowers the agency to take measures to reduce air and noise pollution. In performing its functions, the agency may inspect permits, licenses, and devices used for environmental protection; enter land, buildings, and vehicles; and perform tests. The Environmental Impact Assessment Act, 1992 requires the authorization of any decision likely to affect the environment (Section 1) and names the oil and gas industry as one of the industries requiring a mandatory study (Section 12).
Section 7 of the Niger Delta Development Commission (Establishment, etc.) Act, 2000, states that the Niger Delta Development Commission is to tackle economic and environmental problems in the Niger Delta region and advise the federal government and member states on preventing and controlling oil spills, gas flaring, and environmental pollution. It states that the Niger Delta Development Commission is to liaise with oil and gas prospecting and producing companies on pollution prevention and control.
Flaring and venting are under national jurisdiction. All laws are signed by the president of the Federal Republic of Nigeria, and regulations are prepared by line ministries in the federal government, except in oil and gas, where they are prepared by the Commission and the Authority.
Associated Gas Ownership
Associated gas is owned by producing companies, except in fields governed by PSCs and technical service contracts. The Petroleum Industry Act assigns ownership of associated gas not used or commercialized by licensees to the Commission, which auctions the gas. Following a bidding process, selected bidders can assume the associated gas ownership (without royalty obligations) and commercialization rights. PSC contractors are entitled to use associated gas for their own purposes, but any gas—associated or nonassociated—that will be monetized is owned by a newly restructured national oil company, the Nigerian National Petroleum Company Limited (NNPC Ltd). Previously, only gas produced under already signed PSCs belonged to the Nigerian National Petroleum Corporation (NNPC), predecessor to the NNPC Ltd.
Regulatory Governance and Organization
The Petroleum Industry Act assigns significant regulatory powers to the Commission and the Authority. The Commission has regulatory authority over gas flaring and venting in upstream oil and gas production. The Authority regulates activities midstream and downstream of oil and gas production, including previously flared gas.
The Federal Environmental Protection Agency regulates air quality and other environmental emissions, including in the oil and gas industry. The National Environmental Standard and the Regulations Enforcement Agency ensure compliance with international treaties in the oil and gas sector.
Regulatory Mandates and Responsibilities
Under the Petroleum Industry Act the minister of petroleum is responsible for policy formulation. The Commission and the Authority are responsible for technical and commercial regulation of their respective areas. Sections 6 and 7 enumerate the objectives of the Commission, which include ensuring strict implementation of environmental policies, laws, and regulations; ensuring minimization of waste and optimization of government revenues; setting and enforcing standards and regulations; issuing permits and other authorizations; and conducting all licensing rounds. Previously, many of these responsibilities belonged to the minister under the Petroleum Act, 1969.
The Environmental Protection Agency Act, 1988, empowers the agency to inspect, search, seize, and arrest in its areas of responsibility, which include air quality control, ozone protection, and noise control. Regarding oil-related pollutants, Paragraph 24 explicitly mentions providing support to the Ministry of Petroleum Resources when requested. The National Environmental Standard and Regulations Enforcement Agency (Establishment) Act, 2007 empowers the agency to enforce compliance with international treaties and agreements in the oil and gas sector in Paragraph 7 but explicitly excludes authority over any other activities in the sector.
Monitoring and Enforcement
The Petroleum Industry Act grants nearly all monitoring and enforcement powers to the Commission and the Authority. The Minister of Petroleum revokes or suspends licenses upon the recommendation of the either of the regulators.
Flaring or Venting without Prior Approval
No evidence regarding flaring or venting without prior approval could be found in the sources consulted.
Authorized Flaring or Venting
No regulations have yet been issued to support Section 107 of the Petroleum Industry Act, which provides for permits for flaring or venting for a specific period if either is required to start up a facility or for strategic operational reasons. There is no reference to venting, except in greenfield developments, where it is forbidden (along with routine flaring) in Section 12 of the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018.
Section 108 of the Petroleum Industry Act requires all licensees and lessees to submit a natural gas flare elimination and monetization plan to the Commission prepared in accordance with (yet-to-be-issued) regulations by the Commission. The clause suggests that development plans in the will need to include measures to eliminate routine flaring and venting.
Paragraph 43 of the Petroleum (Drilling and Production) Regulations, 1969 requires the producer to submit a feasibility study, program, or proposals for the utilization of natural gas no later than five years after the commencement of production. However, the Petroleum Industry Act grants the ownership of all gas produced in PSCs to the restructured national oil company NNPC Ltd, which also signs all future PSCs representing the Federation. As such, there will be no economic evaluation of gas monetization by any PSC contractors.
Measurement and Reporting
Measurement and Reporting Requirements
Part IV of the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018 contains measurement and reporting requirements, including procedures, that are further detailed in the Guidelines for Flare Gas Measurement, Data Management and Reporting Obligations issued by the previous regulator, the Department of Petroleum Resources (DPR). Section 21 of the 2018 regulations levy a substantial unit payment for noncompliance with any of the requirements imposed on oil producers with respect to currently flared associated gas.
Measurement Frequency and Methods
The Flare Gas (Prevention of Waste and Pollution) Regulations, 2018, require daily log-keeping of all associated gas for flaring and venting and annual reporting of flare gas volumes. Section 3 of the Guidelines for Flare Gas Measurement, Data Management and Reporting Obligations spell out data measurement, accounting, and reporting requirements. They include 13 subsections and many detailed technical specifications.
Section 3.9 of the Guidelines for Flare Gas Measurement, Data Management and Reporting Obligations provides for computation procedures during the transition period before the required meters are fully installed. The same procedures are to be followed in the event that one or more meters are unavailable or not functioning properly.
Section 15 of the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018, calls for maintenance of daily logs of metered volumes of flared and vented gas, the format and manner of which are specified by the DPR. The logs must be submitted to the DPR—the Commission as soon as it becomes operational—within 21 days of the end of the reporting period. The producer is to keep them for at least 36 months.
Data Compilation and Publishing
Section 19 of the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018, requires the DPR to collect gas flaring data and publish them in its annual reports, which are posted on the agency’s external website with a time lag. In addition, NEITI collects data and publishes them in its annual Oil and Gas Industry Reports. As of October 2021, the DPR’s website had posted reports covering flaring data from 2001 to 2018 but no information on the penalties paid. NEITI’s Oil and Gas Industry Reports from 1999 to 2019 contain flaring data and penalties paid by individual companies.
In January 2020, the NNPC created a new web page entitled EITI Support Open Data, which includes data on gas utilization, re-injection, and flaring from operations with NNPC participation; there are no data from operations that do not include NNPC participation. The data, in spreadsheet format, are uploaded on the NNPC’s external website with a time lag as short as a month. Separately, in August 2015, the NNPC began publishing its monthly financial and operational performance reports, covering data going back to January 2015 for gas flared in operations with NNPC participation. As of September 2021, the most recent data published on the EITI Support Open Data website were from July 2021.
Fines, Penalties, and Sanctions
Section 21 of the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018 imposes a payment of US$2.50 per mscf for all gas flared or vented in noncompliance with any of seven specified requirements in the regulations, including those for reporting, granting site access to the regulator, and using metering equipment. Repeat offenders risk license revocation. Section 21 describes the current flare payments.
Under Section 3 of the Petroleum Industry Act, the minister of petroleum can revoke or suspend petroleum licenses and leases for noncompliance, upon the recommendation of the Commission. Section 217 states that any dispute between a licensee or a lessee and the Commission is to be settled by the Federal High Court. Sections 21 and 22 of Flare Gas (Prevention of Waste and Pollution) Regulations, 2018, allow suspension or revocation of the license in the event of continued noncompliance with seven listed requirements. No evidence of license revocation because of flaring-related offenses has been made public.
No evidence regarding performance requirements could be found in the sources consulted.
Fiscal and Emission Reduction Incentives
Section 13 of the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018, imposes a flare gas payment of US$2.00 per mscf in a license area or field producing 10,000 barrels a day of oil or more and US$0.50 per mscf in areas producing less. The fees apply to all associated gas flared, whether routine nonroutine and whether the producer has the right to commercialize the gas or not. Even before the enactment of the Petroleum Industry Act, no PSC contractor had been permitted to monetize gas, although such authorization was in principle possible by asking the government to issue a supplementary agreement, an avenue closed by the 2021 law. There are, however, two exceptions to this otherwise universal payment:
- war, community disturbance, insurrection, or a natural disaster beyond the control of the oil producer
- the signing by the oil producer of a deliver-or-pay agreement with a third party that has been granted a permit to access gas in an auction conducted by the federal government.
Payments are to be made within a month of the end of each quarter. NEITI has been tracking the payment record. According to the Oil and Gas Industry Audit Report 2019 published by NEITI, US$308 million was paid in 2019, up from US$15 million in 2018. The DPR began issuing invoices for the new flare payments only in 2019. The huge increase that year illustrates the impact of the substantial increase in the flare payment rates. At the time of writing, the DPR had not yet published data on flare payments.
Paragraph 11 of the Petroleum Profits Tax Act, 1958 provides incentives for gas separation and treatment investments by making such investments deductible against revenue. The incentives were extended to nonassociated gas in 1999, and therefore they are no longer specific to associated gas. The Petroleum Industry Act repeals the Petroleum Profits Tax Act, 2018, for new acreages. Section 39 of the Companies Income Tax Act, 1990, provides large fiscal incentives for gas utilization. The section offers the following benefits:
- an initial tax-free period of three years, renewable for an additional two years, or an additional investment allowance of 35 percent
- accelerated capital allowance of 90 percent a year after the tax-free period and an additional capital allowance of 15 percent without reducing the asset value
- tax-free dividends during the tax-free period if the investment is in a foreign currency and imports are not less than 30 percent of the company’s equity share capital
- the deductibility of loan interest payments, provided the minister of petroleum resources approved the loans.
These incentives do not apply to gas produced in fields governed by PSCs.
Use of Market-Based Principles
The Flare Gas (Prevention of Waste and Pollution) Regulations, 2018, provides for auctions organized by the government in which third parties can bid for gas currently being flared. The NGFCP announced the first auction in November 2018. It announced the applicants deemed qualified in mid-2019, and the bidding round was closed at the end of June 2020. At the time of writing, the outcome of the first auction had not been announced.
As mentioned in section 12, the Petroleum Industry Act grants the ownership of all gas produced in PSCs to the NNPC Ltd, depriving the contractors of the right and ability to commercialize associated gas and reduce flaring. Restricting the right to commercialize any gas to one entity stifles competition and limits the leveraging of market principles and forces to facilitate flaring and venting reduction.
Negotiated Agreements between the Public and the Private Sector
No evidence regarding negotiated agreements between the public and the private sector could be found in the sources consulted.
Interplay with Midstream and Downstream Regulatory Framework
The Companies Income Tax Act, 1990, provides incentives for the utilization of associated and nonassociated natural gas. Gas utilization is defined as the marketing and distribution of natural gas for commercial purposes and includes power generation, LNG, gas-to-liquid plants, fertilizer production, and gas transmission and distribution pipelines. Nigeria also adopted a gas transportation network code in 2020, formalizing third-party access to critical gas infrastructure.