Legal experts and stakeholders met in Lagos to discuss how to make the Flare Gas (Prevention of Waste and Pollution) Regulations 2018 effective, reports JOSEPH JIBUEZE.
Gas flaring not only wastes valuable energy, it has significant detrimental effects on the environment and the economy.
The Federal Government has, therefore, come up with policies aimed at reducing gas flaring by 2020.
In 2016, it approved the Nigerian Gas Flare Commercialisation Programme (NGFCP).
Last year, President Muhammadu Buhari issued the Flare Gas (Prevention of Waste and Pollution) Regulations of 2018.
The Regulations focus on the reduction of the environmental and social impacts of gas flaring, prevention of waste of natural gas resources and creation of social and economic benefits from gas flare capture.
The Regulations aim to incentivise the commercialisation of flare gas because of the zero royalty regime.
On other hand, it discourages continued gas flaring through the imposition of a new flaring fee regime.
The Regulations underpin NGFCP’s implementation, which involves a bidding process.
Speakers at a two-day workshop in Lagos believe that if properly implemented and enforced, the subsidiary legislation will erase the historical narrative of Nigeria’s associated gas wastage.
The workshop’s theme was: Taking advantage of the Flare Gas (Prevention of Waste and Pollution) Regulation 2018.
It was organised by George Etomi & Partners in collaboration with Syncrest Energy Limited and the Federal Ministry of Petroleum Resources.
Lawyers, in-house counsel, industry players, investors, representatives of the ministry and regulatory bodies in the oil and gas sector were in attendance.
Key issues
The workshop unravelled insights into the nitty-gritty of the flare gas regulatory environment.
Issues such as gas monetisation strategies, gas dynamics in sub-sahara Africa and other regional markets, the NGFCP, the transnational and commercial structures, project bankability, among others, were discussed.
NGFCP Programme Manager Mr. Justice Derefaka spoke of the importance of eliminating gas flare.
“Flare gas is a waste of natural resources. Only 12.5 million out of 180 million people have access to electricity,” he said.
He said the NGFCP is designed to eliminate routine and non-routine gas flaring through gas utilisation projects which are technically and commercially sustainable.
“These projects would be developed by competent third-party investors who are being invited to participate in a competitive and transparent bid process, the first stage of which commenced in January 2019.
“The NGFCP hopes to attract investment of about $ 3Billion USD, creating over 300, 000 direct and indirect jobs and reducing CO2 emissions by over 20, 000MT yearly,” he said.
The NGFCP Programme Manager observed that there are over 16, 000 flare sites in 90 countries globally many of which are in Nigeria.
He said about 145 to 150 Billion Cubit Meters of gas is flared per year globally, enough to produce 750 billion kwh of power, which is more than the annual power consumption in the entire African continent.
He noted that over US10billion in revenue at $2 per MMBtu is lost yearly and over 600,000 people die of air pollution as a result of flare gas, which can be akin to wiping an entire community like Polaku in Bayelsa State within a year.
He explained the bid process as well as the expectations under the NGFCP.
‘Crucial to the economy’
Giving an overview of the gas industry, Principal Consultant with Wycliffe Advisory & Consulting, Mrs Abimbola Olufore, said gas was crucial to the economy.
“With respect to commercialisation of gas, there is a nexus of gas with virtually all sectors of the economy, from the power sector to the healthcare sector, the agriculture sector and the textile industry,” she said.
The seasoned consultant underscored the importance of factoring non-technical as well as resource bearing host community risk issues into the risk matrix during the gas flare project development process, in order to ensure they are well addressed.
Olufore made a case for the development of the gas industry, emphasising that gas was in abundance, affordable and acceptable.
She said there is need for each component of the gas value chain to be bankable.
Olufore highlighted the various risk components associated with gas project development in Nigeria, some of which are: transport risk, infrastructure risk, regulatory risk, political risk, contract risk and project management risk.
On the commercialisation of gas, she said there is need for massive investment in physical and virtual pipelines, storage facilities, among others, as there currently exist 40 per cent of stranded gas assets in Nigeria.
Olufore said there were enormous opportunities within the gas space.
She underscored the novelty of the Greenville project which deploys virtual pipeline trucking technology solutions and recommended the Greenville model for developers amongst other key gas projects.
In her closing presentation, she emphasised the need for thorough evaluation of non-technical host community risk associated with gas projects in Nigeria.
She provided a case study of how the $20Billion USD project in Ogidigben Delta State was stalled and delayed due to failure in thoroughly evaluating host community issues as a potent risk to be factored into the project development life cycle.
She underscored the importance of avoiding time stealers during the project development stages or delay in project timelines due to the impact of erosive currency value effect or forex change impact which may ultimately derail a project or make it unduly expensive and, therefore, unattractive for financing.
‘Remotely operated solutions’
General Manager of Pioneer Energy, Ann Norman, discussed the benefits of various remotely operated modular flare gas processing solutions.
She highlighted the various technologies that exist to support the flare gas commercialisation programme.
According to her, said there were technologies that can be applied to difficult terrains in the Niger Delta region in order to deliver solutions.
Norman indicated that the new technologies, such as flare gas capture technology and the fractioning unit, are remotely controlled modular solutions relevant to the Niger Delta terrain and designed for stranded gas.
She stressed the importance of deploying end to end modular technology solutions in delivering comprehensive projects that are commercially viable.
‘Gas-energy nexus’
A financial expert and Chief Executive Officer at Tranergy & Co, Abolaji Femi-Ishola, discussed the gas-energy nexus.
“The core of gas production goes to power consumption to ensure that power plants are not stranded and have enough gas as feedstock,” he said.
The financial expert emphasised that “as gas prices come close to market prices, there will be an increase in gas deals”.
Femi-Ishola explained the need for gas projects to be bankable.
According to him, the few and sparse projects available in the pipeline today are not a function of lack of capital but because projects are not well structured and bankable to attract the needed capital in Nigeria.
He stressed that a project is bankable when the banks become comfortable with it because the risks have been efficiently allocated.
Femi-Ishola, therefore, advised developers and sponsors alike to recruit investment bankers and legal counsel from the onset of project development so that it will be easy to manage the various risks associated with capital raising both locally and internationally for project delivery.
He added that when all forms of risks, such as macroeconomic risk, are well managed, gas projects will most likely succeed in Nigeria.
Senior Partner with Primera Africa Legal, Israel Aye, enlightened participants about the legal and regulatory expectations within the Regulations.
He underscored the importance of approaching the investment opportunities under the NGFCP with different lenses in order to fully appreciate the significance of the programme.
He noted the need for all stakeholders to be realigned with the objectives of NGFCP for the laudable aspirations of the programme to be achieved.
Head Energy and Infrastructure Projects at George Etomi & Partners, Ivie Ehanmo, discussed the legal, regulatory, transactional and commercial structures and strategies for flare gas commercialisation and sale to off-takers.
The energy and infrastructure expert underscored the imperative for evaluating projects carefully under the NGFCP while deploying adequate commercial and contractual structures envisaged under the legal and regulatory framework.
He further reiterated the need for an end-to-end understanding of the niceties in the commercial agreements, milestones, financial and performance guarantees, licencing regime, approvals and permits.
This, he said, is particularly as it relates to Gas to Power Projects (G2P), in order to deliver robust projects that can attract private and development capital.
Key takeaways
Speakers noted:
- Flare gas is a tremendous waste of natural resources which can be used to develop the economy.
- Nimble, scalable and modular technologies for capturing flare gas now exist and are economical and applicable to the difficult terrain where gas flaring sites are located.
- Bidders under the NGFCP have the flexibility of choosing which flare site to bid for, how much they wish to buy the flared gas from a floor price of $0.25c/1000scf, the end market or gas product, as well as the technology to be used.
- Bidders and project developers would be required to develop a comprehensive approach in ensuring that their flare gas projects are well structured to attract the much-needed finance.
- Project developers would require the support of legal counsel and finance advisors in drafting the commercial terms and agreements that would take into account the entire value chain of the specific project development.
- There is need for all industry stakeholders, lawyers, legal advisors, participants and investors alike to realign towards supporting the laudable objectives of the NGFCP in order to achieve a win-win outcome.
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