Last week, the Federal Government made what appears to be the final push to get major oil prospecting companies to stop flaring of associated petroleum gas. Under a new gazette aptly tagged – Flare Gas (Prevention of Waste and Pollution) Regulations, 2018, it jerked up gas flare penalty from N10 per thousand standard cubic feet of gas to N612.8. For marginal operators whose volume is less than 10,000 barrels of oil per day, theirs is a fine of N153.2 per thousand standard cubic square feet of gas.
Aside imposing a fine of N50,000 or six months jail term, or both, for anyone who provides inaccurate flare data, other highlights of the new regulation include a “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; in the event of continuous or egregious breaches…a possibility of suspension of operations, or a termination of the producer’s licence.”
If only for what seems to be a new resolve by the Federal Government to end the practice, and the underlying reasoning which is that flare-outs are achievable, we welcome the measures.
As we have said in several editorials in times past, flare-outs will not just happen; the government must work to make it happen. To the extent that the old flare penalty – considered a joke in the current circumstances – has proven to be anything but a disincentive to the menace, the latest measures would seem well calibrated to deal with the challenge.
In any case, considering that successive flare-out dates agreed with the oil companies have not only ended up being observed in the breach but have presented the government as utterly unserious about dealing with the menace, we wonder whether the Federal Government has any choice left.
Understandably, the task of ensuring that the government does not fall into the temptation of seeing the hike in penalties as an end in itself, or simply, another item in the long lines of federally-collectable revenues to be spent on the nation’s ever-expanding bureaucracies would of course remain a challenge; the correlate for the oil prospecting companies is the express understanding that the option represents the best of the worst possible choices given the continuing danger that the practice poses to the nation’s environment.
So, what will the new regulation do? For sure, it has the potential to boost the treasury. However, if our understanding of the primary goal is that the measure is essentially about putting out the flares in the long term, it is hard to see how the punitive fines by themselves can be said to offer guarantees that oil companies will put in their investment which is what is needed to change the current trajectory.
To put it simply, what will change the trajectory is massive investment in gas infrastructure both at the upstream and downstream segments. Expecting the oil companies to bring down the volume of flared gas at a time the Federal Government is yet to do anything about the stifling policies and the infrastructural constraints impeding investment in the gas value chain would seem at best a case of putting the proverbial cart before the horse. The way to go is for the Federal Government to find the right mix of policies and incentives to upscale investment in gas infrastructure by interested private sector players, particularly in the domestic infrastructure segment.
For a country whose proven gas reserves is among the highest in the world, the scandal isn’t just that the precious commodity is still routinely flared after more than half a century of exploration, but the very fact that basic infrastructure for household and industrial gas utilisation has remained hopelessly underdeveloped. This says a lot about our penchant to mismanage national resources and priorities.
