Oil majors, Nigeria bicker over gas flare deadline
In most parts of Africa, oil is often the only reason why multinationals and governments invest in crude oil exploration and drilling. Gas, which is a by-product of the oil-drilling process, was for many years seen as a waste product and burnt. Oil firms only started harvesting natural gas after its several advantages over more traditional sources of energy like hydro, nuclear, biomass and coal were discovered.
Traditionally, oil firms operating in Nigeria have always flared gas since oil production started in the 60s. A lazy practice by oil majors that experts say has resulted in huge losses for Nigeria.
According to the World Bank, gas flaring costs Nigeria at least $2,5bn per year. The Bank also says that gas wasted through flaring can be used to produce about 50 percent of the current electricity consumption across Africa. The country is said to have lost $45bn as a result of flaring in the last 20 years. In 2005, Nigeria’s natural gas production was an estimated 2,2 trillion cubit feet of gas; of this, officials of the petroleum ministry said about 38 percent was flared.
A desire to staunch this loss and strong pressure from Nigerian and international environmentalists are the major reasons why Nigeria opted to set a 2008 deadline for all oil multinationals operating in the country to put an end to gas flaring.
Ten years after it was agreed on, this deadline is at the centre of a squabble between oil multinationals, which seemed disposed to dumping an initial promise to meet the deadline and authorities who insist that it must be met. Oil firms are believed to have met with government arguing that this previously agreed deadline is not likely to be met. However, neither government nor the oil majors have confirmed this.
Last month, Chevron, one of Nigeria’s major oil multinationals, which initially subscribed to the 2008 deadline, listed a set of conditions that it says must be fulfilled if the deadline is to be met. Analysts have pointed out that some of these conditions are currently outside government control, particularly in the short run, as the Niger Delta is widely acknowledged as restive and efforts are on-going to reduce some of its volatility.
At a major oil and gas seminar recently, Chevron’s GM, Gas Marketing and Commercial, Charles Adeniji, said the oil firm could only meet the 2008 deadline if there was, “adequate and timely funding, no disruption to project execution arising from community and labour disputes, and pragmatic agreement on Nigerian content”.
Adeniji who described Chevron’s gas flaring reduction strategy as “a robust utilisation programme which will achieve complete flare elimination in 2008” said the company wanted special consideration to be extended to investors to ensure that development of gas resources is continued and the domestic gas market demand is continually met. “Clear criteria must be established and communicated for determining the volumes of national gas resources to be allotted to domestic, sub-regional and international markets.”
Although Adeniji could claim he was speaking for Chevron and not for the other majors, experts say the company’s position is likely to be shared by other firms in the industry. And in a country where major oil firms sometimes leverage their combined status to negotiate with government, such thinking is not likely to be wrong. Indeed, the oil majors have banded together in the past to beat time frames that government sought to use to stop flaring. In 1996, the Nigerian military government set up a committee to prepare a lengthy policy paper to guide a proposed reform of all public institutions and to prepare a 15-year development plan. It was that committee, the “Vision 2010” committee, that first set a 2008 deadline for gas flaring. But with the advent of democracy, representatives of oil firms met with the federal government in 2000 and protested that the 2008 deadline was not feasible. At one time the deadline was shifted to 2010 before it again reverted to 2008.
However, the oil majors may be in for a rude shock if what they are hoping for is a shifting of the deadline by government. Reaction in government circles to the new conditions have ranged from disappointment to anger and even a senior figure threatened that government may shut down some oil firms if the deadline is not met.
Tony Chukwueke, a director at the department of petroleum resources, at a recent seminar in Lagos told the oil majors that, “The 2008 deadline is embedded in stone and there is no going back”. He also accused the oil majors of contributing little to government’s reduced gas flaring initiatives in the last ten years.
The chairman of the committee with oversight functions over the Nigerian gas sector, Senator Rufus Spiff also echoes Chukwueke’s views. “The 2008 deadline is not negotiable. The gas flaring deadline is a government policy and there is no move to change it. So the instruction must be upheld and enforced,” Spiff says.
Environmentalists say the oil multinationals have never taken any of government’s gas flaring deadlines seriously. They say government’s disinclination to sanction oil firms when they step out of line and its lack of interest in goings-on in the Niger Delta in past years emboldened these oil firms and made them to be contemptuous of deadlines. “Oil giant Shell was told twice to stop gas flaring. Nevertheless, Shell plans to continue flaring until 2010. It is time that Shell starts to respect Nigerian law and stops breaching human rights in the Iwherekan community and in the rest of Nigeria,” chairman of Friends of the Earth International, Meena Raman, says.
Out of despair, Nigeria’s environmental activists have taken the oil majors to court in a bid to stop flaring.
In April 2006, a Nigerian High Court ruling on a suit instituted against Shell by a group made up of an oil producing community, the Environmental Rights Action and the Friends of the Earth International, deemed flaring unsustainable and ordered the company to come up with a plan to stop it by 2007.
Experts agree that stopping gas flaring and harnessing it for profit is enough incentive for oil companies to embrace the deadline. But oil firms have countered that the cost of gas gathering projects and the inability of the government to fulfill its part of joint venture obligations are slowing down the pace of harnessing natural gas. They also say that oil production would have to be shut down totally if the deadline is to be met as natural gas would have to be produced if production is to go on.
So what should Nigeria do with its unwanted gas flares? One solution that neither party is thinking of is that of gas running out. Experts in Nigeria have warned of a severe gas deficit starting from 2009. The Nigerian Association of Petroleum Explorationists (NAPE), says with the estimate of Nigeria’s gas reserves standing at about 173 trillion cubic feet of gas and the short, medium and long term demand for gas standing at about 160 trillion cubic feet a deficit seriously threatens.
“Nigeria’s gas reserve currently stands at about 173 tcf of gas and the short, medium and long term demand already on ground for Nigeria’s gas stands at no less than 160 tcf. Given that during gas production, no less than 30 percent of the reserves will be lost as associated gas, it is clear that if an intensive search for gas does not begin we may run out of gas around 2009. If we do not actively begin to explore for more gas reserves, we may actually have a shortage,” NAPE says. -Business in Africa Magazine
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