Flaring of associated gas during oil production significantly impacts a nation's environment, health, and finances. Over the years, the Nigerian government has put in place measures to dissuade upstream oil companies from engaging in gas flaring. However, according to the World Bank's 2022 Global Gas Flaring Tracker Report, Nigeria still ranks as one of the top seven countries involved in gas-flaring in the world, a position the country has held since 2012.
Despite the punitive measures that have been deployed by the Nigerian government, some upstream oil companies still prefer to flare gas, as they consider the cost of gas flaring to be lower than the cost of capturing, storing, and processing for potential gas utilisation. This is especially the case with fields containing associated gas. Given that gas production was not the primary focus during field development, the need to install gas capturing and production infrastructure (which are ordinarily capital intensive), being an afterthought, may come at an exorbitant cost.
Gas is also sometimes flared for safety reasons due to the high pressure associated with crude oil extraction. The Petroleum Industry Act makes provision for this kind of situations where it exempts gas flared for safety purposes under established regulations, from being assessed to gas flaring penalty.
In addition to existing legislation on gas flaring, the Finance Bill, 2022, seeks to increase the Companies Income Tax (CIT) rate for gas flaring companies. In this article, we will examine prior legislative efforts to discourage gas flaring and we will also consider the implications of the proposed gas flaring provisions in the Finance Bill 2022.
Existing Legislation on Gas Flaring in Nigeria
Since 1969, there have been several regulatory initiatives to reduce gas flaring. Although many of these laws have been found to be ineffective, the government has not relented in implementing new laws and regulations to achieve its objectives. The key legislation include:
- Associated Gas Re-Injection Act (AGRA)
The main objective of the AGRA was to eliminate gas flaring in Nigeria. Section 3(1) of the AGRA provides that "...no company engaged in the production of oil or gas shall after 1 January, 1984 flare gas produced in association with oil without the permission in writing of the Minister". However, the AGRA empowered the Minister of Petroleum Resources (the Minister) to issue a certificate for continued flaring of gas to certain companies subject to certain conditions, one of which is payment of an amount prescribed by the Minister. The AGRA has now been repealed by the Petroleum Industry Act.
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