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PIB: Oil firms to pay fine for gas flaring

Tue, 13 Oct 2020 Source: Economic Confidential

Operators in the oil and gas sector involved in gas flaring will be expected to pay a yearly fine to the government for the offence, according to the Petroleum Industry Bill (PIB) before the National Assembly.

The companies are also expected to submit a natural gas flare elimination and monetisation plan to government within 12 months from the effective date of their licence or lease.

President Muhammadu Buhari had asked the lawmakers to expedite action in the passage of the bill which he said will boost confidence and attract investment into the oil and gas sector as well as increase government revenue.

The bill provides that “a licensee, leassee or operator that flares or vents natural gas, except in the case of an emergency; pursuant to an exemption granted by the Commission; or as an acceptable safety practice under established regulations commits an offence under this Act and shall be liable to a fine as prescribed by the Commission in regulations under this Act”.

Although it was not specific on the fine, it states: “A fine due under this section shall be paid in the same manner and be subject to the same procedure for the payment of royalties to the government by companies engaged in the production of petroleum. A fine paid pursuant to this section shall not be eligible for cost recovery or be tax deductible.”

The proposed law prohibits flaring or venting of natural gas, saying in Section 105: “A licensee or Lessee shall pay a penalty prescribed pursuant to the Flare Gas (Prevention of Waste and Pollution) Regulations.”

When passed, the law will makes it mandatory for companies operating in the oil and gas sector to install metering equipment in facilities where gas may be flared or vented in accordance with the regulations that may be put in place by the Commission or Authority or both.

It says: “A licensee shall, prior to the commencement of petroleum production, install metering equipment conforming to the specifications prescribed on every facility from which natural gas may be flared or vented as the Commission or the Authority may prescribe in a regulation.”

“A licensee or lessee who fails or refuses to install metering equipment pursuant to subsection (1) of this section commits an offence under this Act and is liable to a fine as the Commission or the Authority may prescribe under a regulation.”

It, however, makes provision for exemption to the rules, saying: “The Commission or the Authority may grant a permit to a licensee or lessee to allow the flaring or venting of natural gas for a specific period (a) where it is required for facility start-up; or (b) for strategic operational reasons, including testing”.

The oil companies are also to draw a gas flaring elimination plan, saying in Section 108: “Notwithstanding any provision to the contrary under this Act, a licensee or lessee producing natural gas shall, within 12 months of the effective date, submit a natural gas flare elimination and monetisation plan to the Commission, which shall be prepared in accordance with regulations made by the Commission under this Act.”

The law also states that the supply of supply of crude oil and condensates for the domestic market on a willing supplier and willing buyer basis.

It mandate the Upstream Commission to issue regulations or guidelines on the mechanism for the imposition of a domestic crude oil supply obligation on lessees of upstream petroleum operations, where in its opinion, the domestic market results in shortages or inadequate supplies of crude oil and condensates for holders of crude oil refining licences.

The law makes provision for the sale of crude oil to holders of crude oil refining licences, whose refineries are in operation, while the supply of crude oil shall be commercially negotiated between the lessee and the crude oil refining licensee, having regard to the prevailing international market price for similar grades of crude oil.

Also, holders of crude oil refining licences shall provide payment guarantees as required by the applicable lessee and payment for crude oil purchased pursuant to obligations shall be in US dollars.

Similarly, Section 110 of the law empower the Upstream Commission to “prescribe and allocate the domestic gas delivery obligation on a lessee before 1st March of each year based on the domestic gas demand requirements determined or updated pursuant to Section 173 of this Act”.

It allows holders of lease licence to, “on a voluntary basis, conclude contracts with wholesale customers of the strategic sectors or with wholesale gas suppliers supplying the sectors for delivery of marketable natural gas to the customers or suppliers and notify the Commission of the contracts, provided that where the volume of the contract is equal to or higher than the domestic gas delivery obligation for the lessee.

It states further: “The volume of natural gas to be dedicated by a lessee towards the domestic gas delivery obligation shall be based on an allocation system among lessees as determined by the Commission upon consultation with the Authority with consideration of supporting infrastructure availability.

“A lessee shall be obliged to deliver the volume of natural gas prescribed under subsection 6 of this section to a wholesale customer determined by the domestic gas aggregator and at a location indicated by the domestic gas aggregator pursuant to section 156 of this Act.

“Subject to the provisions of subsection 7 of this section, a lessee who fails to comply with the domestic gas delivery obligation shall incur a penalty of $3.50 per MMBtu not delivered, provided that, where the lessee has signed a gas purchase and sale agreement with a wholesale supplier of the strategic sectors, the penalty for failure to deliver shall be as stated in that agreement.

“The penalty amount of $3.50 per MMBtu referred to under Subsection (8) of this section may be adjusted as the Commission may prescribe in a regulation made under this Act.”

Source: Economic Confidential