Country
Assessment
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 flared or vented 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.
According to Section 12 of the Emissions Regulations , flaring is allowed without a permit only in case of an emergency.
Subject to Section 104(1) of the Petroleum Industry Act , flaring, venting, or wasting gas without Commission authorization is an offense according to Section 3.7 of the Emissions Regulations . Section 12 states that flaring is allowed under the threshold approved by the Commission as long as flaring fee is paid. According to Section 3.3.1 of the NUPRC Guide 0024-2022 , cold venting is prohibited without a waiver from the Commission.
Section 108 of the Petroleum Industry Act requires all licensees and lessees to submit a natural gas flare elimination and monetization plan (FEMP) to the Commission, which is codified in Section 3 of the Emissions Regulations . The FEMP must outline the methodology for flaring elimination and monetization, and an associated implementation plan and timeline. Also, NUPRC Guide 0024-2022 requires the submission of a GHG management plan during design, installation, and modification of facilities. This plan can be submitted as part of the field development plan, concept and front-end engineering design, or as requested by the Commission. GHG management plans are due within six months of the issuance date of the guidelines (November 2022). The Authority’s Environmental Regulations require mandatory monitoring, estimation of volume, and reporting of GHGs; and plans for carbon capture, decarbonization, and net-zero targets of midstream and downstream operations. The Authority is expected to release guidelines for GHG inventory reporting and mitigation.
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 associated gas produced in PSCs to the restructured national oil company NNPC Ltd, which also signs all future PSCs representing the Federation. As such, there is no stand-alone economic evaluation of associated gas monetization. The costs of gas capture are recovered from the crude oil revenue, and gas flaring is an offense under Section 104 of the Petroleum Industry Act (see section 10 of this case study).
Section 106 of the Petroleum Industry Act codifies the requirements of metering according to the regulations of the Commission or the Authority. Part V of the Gas Flaring, Venting and Methane Emissions (Prevention of Waste and Pollution) Regulations, 2023 , contains measurement and reporting requirements, including procedures, that are further detailed in the Guidelines for Flare Gas Measurement, Data Management and Reporting Obligations. NUPRC Guide 0024-2022 requires proper tracking and reporting of activities that emit fugitive emissions, including flaring and venting and other methane leaks. Appendix A of the Guide summarizes various reporting requirements. An annual report should demonstrate compliance with each section of the guidelines. The report should include the total number of facilities inspected, inspections, leaks identified (by component and type of facility), leaks repaired, and leaks waiting to be repaired. Data on flare efficiency, cold venting, unlit flares, and records on testing of flares should be included for each flare.
Section 21 of the Emissions Regulations imposes an administrative fine of US$3.50 per mscf if gas is flared, vented, or wasted without Commission authorization. Any licensee, lessee, or producer that fails to submit gas data according to regulations or fails to install metering equipment according to the regulations, or commits another specified violation, is subject to an administrative fine of US$10,000. There have been flaring fees based on previous regulations. NEITI has been tracking the payment records. According to the Oil and Gas Audit Reports published by NEITI , US$308 million was paid in 2019, up from US$15 million in 2018. In 2020, payments fell to US$257 million, in line with the fall in overall production. The Commission (Department of Petroleum Resources [DPR] at the time) 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. According to the Midstream and Downstream Gas Infrastructure Fund Regulations, money received from flaring penalties “shall be for the purpose of environmental remediation and relief of the host communities.”
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.
NUPRC Guide 0024-2022 introduces several performance requirements for oil and gas equipment. For example, it requires the 98 percent destruction removal efficiency of flares. Inspections are necessary to ensure proper flare operations and repair of malfunctioning flares (for example, an unlit flare causing venting must be repaired within 48 hours). Pneumatic controllers must be zero bleed or low bleed (emitting less than 0.17 scm per hour of natural gas). There are similar performance requirements for other equipment with the potential to emit methane.
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. Section 104 of the Petroleum Industry Act (footnote 9) states that fines paid for flaring are not eligible for cost recovery and are not tax deductible. Section 264 disallows the deduction of “expenditure incurred as a penalty, natural gas flare fees or imposition relating to natural gas flare” for the “purpose of ascertaining the adjusted profit of a company in the accounting period from its upstream petroleum operations applicable to crude oil.” Section 260 exempts production of associated and nonassociated natural gas from the new hydrocarbon tax; it allocates costs of producing associated gas to crude oil as a deduction in calculation of the hydrocarbon tax. Part IV, Section 10(6) of the Seventh Schedule sets the royalty for natural gas utilized in-country at 2.5 percent versus 5 percent for all other natural gas and natural gas liquids. Royalties are applied to chargeable volumes as defined in Part III, Section 7(5) of the Seventh Schedule and exclude “volumes burned, flared or vented with the approval of the Commission.”