In an interview with Chineme Okafor, the programme manager of the Nigerian Gas Flare Commercialisation Programme (NGFCP), Mr. Justice Derefaka, explained what the NGFCP means and how it will be used to end the age long immoral practice of gas flare in Nigeria. Excerpts.
Could you tell me about yourself and the entity you currently represent?
My name is Justice Opelamina Derefaka. I am a Marine Engineering graduate from the Rivers State University, Port Harcourt. I have a Master’s degree in Environmental Management from the University of Lagos and a second Master of studies degree in Sustainability Leadership from the University of Cambridge, United Kingdom (UK).
I work for the federal government currently as the Program Manager of the Nigerian Gas Flare Commercialisation Programme (NGFCP) in the office of the Minister of State, Petroleum Resources. In this role and reporting to the NGFCP Ministerial Steering Committee headed by the Senior Technical Adviser (STA) on Upstream and Gas Policy to the Minister. I manage the NGFCP which is designed as the strategy to implement the policy objectives of the government for the elimination of gas flares from Nigeria’s oil and gas fields in the near term – two to three years, with potentially enormous multiplier and development outcomes for Nigeria as well as Nigeria’s commitments as ratified at the Paris Climate Change Agreement (COP21) which included gas flaring reduction as a key national greenhouse gas emissions mitigation in the Nationally Determined Contributions (NDC).
Prior this role, I manage health, safety and environmental (HSE) for all pipeline asset for The Shell Petroleum Development Company (SPDC). Previously, I was with Shell Nigeria Exploration and Production Company Limited (SNEPCo) as the Head, Environment and Social Performance. At different times in SPDC, I was the Corporate Head, Materials and Waste Management Discipline and subject matter expert (SME) for Shell Companies in Nigeria (SCiN) and Shell Gabon respectively.
Recently, Nigeria again raised its voice against gas flaring like it always does, stating it is unacceptable to it and would move against IOCs who indulge in this, what does this mean?
Gas flaring is a tremendous waste we cannot simply tolerate, especially from a climate change perspective. Do you know that each cubic meter of associated gas flared results in about 2.5 kilograms of CO2e emissions and gas flaring account for two per cent of all greenhouse gas emissions? And in a world where we are under increased climate pressure, we cannot get rid of a precious natural resource and fuel in that way. Just so you know, the gas we flare is an important part of the global energy transition, the closet ally to renewables.
The UN has described energy as, ‘’central to nearly every major challenge and opportunity the world faces today. Be it for jobs, security, climate change, food production or increasing incomes, access to energy for all is essential.” Nevertheless, even today, little or no access to energy deprives part of the world’s population of the opportunity to improve their quality of life.
Let me give you some startling statistics, in a world where we still have about 1.1 billion people without access to electricity and another 1 billion people struggle with unreliable supplies of electricity, more worrisome is the fact that 95 per cent of these people are from sub-Saharan Africa and developing Asia. Of that 1.1 billion, Africa has 588 million. Coming back to where you and I are – West Africa, we have the highest with 175 million closely followed by Central Africa with 172 million. Now back home in Nigeria with a population of over 180 million people, only 12.5 per cent of Nigeria’s population have access to power supply and others with epileptic supply. Yet, we flare gas that can generate electricity for us and boost economic development.
It is based on this premise and other detrimental impact of gas flaring in the country that the government of Nigeria took a policy position that gas flaring is unacceptable and will no longer tolerate it. This aligns with the National Gas Policy approved in June 2017 and with the Ministry of Petroleum Resources’ “7 Big Wins”, which are short – and medium-term priorities to grow Nigeria’s oil and gas industry.
Just to add, the National Gas Policy commits to ending gas flaring, creating an enabling environment for investors, seeking value addition for gas, and improving governance in the sector. So it is in this regard, the FGN went ahead to initiate a number of actions to reiterate its commitment to ending the practice of gas flaring in our oil fields. Explicitly, the FGN ratified the 2015 Paris Climate Change Agreement in 2017, and is a signatory to the Global Gas Flaring Reduction partnership (GGFR) principles and the World Bank’s Zero Routine Flaring Reduction global flare-out by 2030 and submitted its first nationally determined contributions (NDC), which included gas flaring reduction as a mitigation measure to combat global warming whilst committing to a national flare-out target by year 2020.
Additionally, in acknowledgement that flared gas could be harnessed to stimulate economic growth, drive investments and provide jobs in oil producing communities and indeed for Nigerians through the utilisation of widely available innovative technologies, the Federal Executive Council (FEC) approved the NGFCP as the mechanism for implementing Nigeria’s commitment to eliminate routine gas flaring.
You at a couple of fora stated how much loses Nigeria records with its continuous flare of upstream gas, how bad is this, could you put this in figures?
The loses with respect to gas flaring from global to national level is humongous. And here is why, from the more than 16,000 flare sites in 90 countries globally, many of them in Nigeria, annual global flaring levels estimated at approximately between 145 and 150 billion cubic meters (bcm) of gas is flared per year globally which is enough to produce 750 billion kWh power – more than the entire power consumption on the African continent annually. And this is roughly equivalent to gas use in all US residences for a year.
In terms of revenue lose, it is around US$10 billion lost revenue at $2.00 per MMBtu. Looking at all these from a climate change impact, this results in about 350 to 400 million tons of CO2-equivalent emissions annually which is roughly equivalent to annual emissions from 77 million cars and two per cent of global CO2 emissions from energy sources and US$6 billion carbon credit value erosion at $15.00 per metric tonne.
Looking at it from the Nigerian perspective, of the 16,000 gas flare sites globally, Nigeria has 178 flare sites. These number is likely going to increase by the time we are through with our data request through the Department of Petroleum Resources (DPR) from producers. Now according to our 2017 records, these 178 flare sites flare around 324 Billion Cubic Feet (BCF) which is approximately 888 million standard cubic feet per day (mmscfd). In terms of revenue lose, it is around US$1 billion. The 22 million tons CO2 we emit, we lose approximately US$500 million emission credit value. If harnessed, we could power two to three LNG trains and if used for power, we could generate around 3000MW of electricity. Additionally, the gas could be put to good use and potentially displace other fuels like coal and diesel, that generate higher emissions per energy unit.
In terms of impacts on the environment, how much of damage has gas flare done to Nigeria’s Niger Delta region?
Although we are achieving and recording decline in gas flare, which is commendable. We still flared 1BCF of gas in Nigeria in 2017, exceeding the approximately 800mmscfd utilised for power generation and around 450mmscfd utilised in domestic industry.
What this tells us is that we could actually double our power generation with flare gas and quadruple our domestic utilisation. So, you will agree with me that the scale of gas flaring is still worrisome. Let me give you a recent information that will baffle you. Do you know that air pollution is the ‘new tobacco,’ affecting 90 per cent of all children globally? The massive majority of children across the globe are breathing toxic air, according to a striking new report published by the World Health Organisation (WHO). What this means is that the poisonous air being inhaled by children is creating a public health crisis as young people suffer from truncated brain development and a host of health problems that could result in early death. As a result of our flare volume, Nigeria is the seventh largest emitter of flared gas globally amongst the league of gas flare nations. And the NGFCP will take us out of that league.
So, tell me about the NGFCP which you currently manage, and its objectives?
The NGFCP is a special program jointly developed by the Ministry of Petroleum Resources, the Department of Petroleum Resources (DPR) and the Nigerian National Petroleum Corporation (NNPC). Like I said earlier on, it is established to implement the National Gas Policy commitments for stricter regulations on flaring and to provide a pathway to ultimate flare-out
The NGFCP is designed as the strategy to implement the policy objectives of the FGN for the elimination of gas flares with potentially enormous multiplier and development outcomes for Nigeria. The objective of the NGFCP is to eliminate gas flaring through technically and commercially sustainable gas utilisation projects developed by competent third party investors who will be invited to participate in a competitive and transparent bid process.
The commercialisation approach has been considered from legal, technical, economic, commercial and developmental standpoints. Just so you know, it is a unique and historic opportunity to attract major investment in economically viable gas flare capture projects whilst permanently addressing a 60-year environmental problem in Nigeria.
These third party investors are to access and utilise flared gas that is currently being sent to flare and convert into what we call the ‘Flare-Gas-to-Market-Products (FG-2-MP)’ and they must demonstrate project development experience and proven technologies in commercial application.
Let me also say this, consistent with Nigeria’s commitments for reduction of greenhouse gas under the Paris Climate Change Agreement, the Program would reduce Nigeria’s CO2 emissions by approximately 13 million tons per year, which could be monetised under an emission credits or carbon sale programme. We designed the NGFCP as an important climate change action plan for the nation. And just so you know, the NGFCP is the first market driven program undertaken on this scale globally – which means bidders will have flexibility of choosing which flare sites to bid for, the gas price, and the end market or gas product, as well as the technology to be used.
At the NGFCP, we also found out that the volume of gas flared in Nigeria could otherwise power millions of Nigerian homes as well as industrial areas with electricity access. The potential alternative uses for flare gas, alongside the need to curb negative environmental, social and economic impacts of gas flaring, have made a national strategy for gas flare commercialisation urgent and necessary.
To achieve this, we mapped out six key cardinal objectives: reduce gas flaring; benefit Niger Delta communities; positively impact the Nigerian economy; present a market-driven solution for the flares; be bankable for investors and lenders, and avoid any adverse impact on the level or safety of producers’ Exploration and Production (E&P) operations.
How is the NGFCP expected to work, what are its contents, milestones and expectations?
In terms of the workability of the NGFCP, when we started, we first had a meeting and carried out a diagnostics of the gas flare problem and why it has not succeeded 100 per cent over the years with several initiatives as you and know. So, we were able to gather some institutional memory at that meeting. After which preliminary groundwork, case studies and economic analysis of various flare gas utilisation options for the country.
Major highlights from the economic analysis shows that harnessing gas from the top 50 flare points would reduce our volume of flared gas by 80 per cent, given 2015 gas flare locations and volumes as the baseline at that time; majority of the gas flaring locations – about 65 per cent of them, are onshore; and at least 80 per cent of gas from the flaring locations can be viably utilised. Although pipelines present the most viable option for transporting gas, we also found out that there scalable, containerised, skid mounted, barge type ‘plug and play’ technologies, virtual pipeline as well as compressed natural gas (CNG) trucks would be used considering the Niger Delta terrain. And also about $3.5 billion worth of inward investments is required to achieve the gas flare commercialisation targets by 2020.
So under the NGFCP, the FGN takes associated gas at the flare site free of charge and bids it out to third parties in a series of auctions, the first of which is the subject of the Request for Qualification (RFQ) that would be issued soonest. Third parties will propose projects and be selected on the basis of their technical and financial qualifications, soundness of the project proposals, and several other criteria. The seller of the gas is the FGN, and crude oil producers supplying gas in the auctions are called producers.
It is on this basis that the FGN put up the NGFCP that will enable and stimulate market-driven solutions. We will not prescribe market applications nor markets for the flare gas, but will seek to attract technically and commercially viable and sustainable gas utilisation projects with the primary objective of significantly reducing flare gas volumes and put in place an open and transparent qualification and auction process to award permits to access flare gas to third parties.
In specifics, what would the gas captured be used for, how much in revenue if any is Nigeria likely to benefit from monitisation of the gas?
During the design of the NGFCP, four observed trends gave us confidence that an effective commercialisation strategy will yield desired results. This is because the flare gas when harnessed could produce high-value fuels and chemicals including methanol, ethanol and gasoline or diesel oxygenated fuel blends. Remember that Nigeria gas demand is projected to grow due to industrial growth and domestic LPG use. Trigger a set of mid-stream players that is the inflow of new infrastructure players to enable gas uptake and usage in previously unreachable regions as well as business development from gas companies to unlock new domestic markets for gas. We will also introduce and refine new end-use technologies like Gas to Liquids (GTL), small scale LNG as well as reducing costs and decreasing barriers like decline in the cost of CNG compressors.
Also, opportunities exist for host community involvement in the NGFCP where a portion of investment end-product is directed to the host community at concessional prices, investors will procure goods and services from local communities like workers for construction and on-going operations of site facilities and investors will build social infrastructure for the local community.
So, you can see that the benefits are huge ranging from an overall investment of around $3 to $3.5 billion; a potential annual revenues and GDP Impact around $1 billion. And, assuming an average project size ranging from $10 million to $40 million, the NGFCP has a potential of triggering 70 to 89 projects. And over a 1.5 and 2 year period, the NGFCP could generate approximately 300,000 direct and indirect jobs. And once operational, projects launched under the NCFCP would reduce Nigeria’s emissions by 13 million tons of CO2 per year. And don’t forget, the NGFCP can become an important source of additional gas for power sector.
Given Nigeria’s proclivity to talk more and do less, how will the NGFCP live out its objectives, what are its enabling laws?
No. I beg to differ, the Petroleum Act of 1969 and in indeed the Flare Gas (Prevention of Waste and Pollution) Regulations 2018 made pursuant to Sections 9 and 11 of the Petroleum Act and Paragraph 35 (b) (1) First Schedule, Petroleum Act recently approved by President Muhammadu Buhari, provide a legal framework to support the policy objectives of the government for the reduction of GHG emissions through the flaring and venting of natural gas.
The Regulations provide the legal basis for the implementation of the NGFCP, introduces a new payment regime (penalties) for gas flaring which adopts the ‘polluter pays’ principle and mimics a carbon tax. You will also notice in the regulations that significant obligations are imposed on producers and gas flare out projects for the reporting of data in respect of activities related to gas flaring. And as a minimum, the objectives of these regulations are: the reduction of the environmental and social impact caused by the flaring of natural gas; protection of the environment; prevention of waste of natural resources; and creation of social and economic benefits from gas flare capture.
The thrust of the regulations is consistent with the Petroleum Act. Government takes all flare gas free of cost at the flare and without payment of royalty. The current meagre flare payments (penalties) of N10 per thousand standard cubic feet is increased, in the case of any one producing 10,000 barrels of oil or more, to $2.0 per thousand standard cubic feet of gas and, in the case of anyone producing less than 10,000 barrels of oil per day, to $0.50 per thousand standard cubic square feet of gas. Remember also that there are mandatory additional payments by the producer of $2.50 for failure to produce accurate flare data; failure to provide access to flares or flare sites; failure to sign a connection agreement; and in the event of continuous or egregious breaches, there is a possibility of suspension of operations, or a termination of the producer’s license.
We recently saw the president refusing assent to the PIGB – a piece of governance legislation that sought to revive Nigeria’s oil sector, and experts suggest the development would hurt frameworks like the NGFCP. Is this an existential threat to this programme?
The National Assembly and the Presidency are handling the PIGB and the Ministry of Petroleum Resources is providing all the necessary support in that regard.
The PIGB will not hurt the progression of the NGFCP. I just mentioned to you that Mr. President has approved the Flare Gas (Prevention of Waste and Pollution)
Regulations 2018 made pursuant to Sections 9 and 11 of the Petroleum Act and Paragraph 35 (b) (1) First Schedule, Petroleum Act
So, where are you at with the NGFCP now, who are your partners?
Right now, we have completed the design of the key programme transactional, commercial framework and documentation. We therefore expect to announce the first bid round for the flare gas to the public soonest. It is important to note that only registered parties on the programme web portal can participate in the NGFCP bidding process.
Does the NGFCP have a timeline, that is, gestation period for actions and benefits?
Indeed it has. We will soon launch the first bidding round commencing with the issuance and publication of the commercial advertisements in national and international newspapers inviting parties interested in participating in the NGFCP to register and submit statement of qualification (SOQs) for participation in the programme. So, we are very optimistic that some projects will come up in 2020 to demonstrate that indeed we are on course.
In all ramifications, you can see that the NGFCP could be considered an innovative, robust and scalable approach to gas flare reduction which could be replicable in many other gas flaring countries around the World.