New Petroleum Industry Bill outlaws gas flaring from December 2012, abolishes secrecy in oil business

The draft of the new Petroleum Industry Bill (PIB) approved by the Executive Council of the Federation (FEC) on Wednesday has set a very ambitious deadline for the elimination of all forms of gas flaring in the operations of the oil and gas industry.

Chapter D of the draft document, which focuses on Gas Flaring (Prohibition and Punishment), stipulates that no natural gas shall be flared or vented in the country in any oil and gas production operation beyond December 31, 2012.

The only exceptions as may be granted by the Minister of Petroleum Resources for a period not longer than 100 days pursuant to section 253(1)(b)of the law include cases of start-up operations in an oil field, equipment failure, shut down, safety flaring or due to inability of gas customer to off-take.

Outside this, the new law demands strict adherence to a gas flaring plan, along with gas utilization plans, to be submitted by all oil and gas operators to the Nigerian Petroleum Inspectorate within six months of the coming into effect of the law, indicating data on their daily flare quantity, reserve, location, composition.

The Inspectorate on receipt of the said plan is expected to grant approval within 60 days and post all such approved plans as well as data of planned and unplanned natural gas resources for public consumption.

Section 253, which provides sweeping prohibition orders to gas flaring, states: “No person shall direct, permit or otherwise aid, empower or authorize, howsoever, any company engaged in oil and gas operations to flare or vent gas with the exception of such permits granted under section (1)(b) of this section.

It imposes stiff sanctions on any operator who violates the order without the permission of the Minister, saying such a company shall be liable to pay a fine not less than the value of gas flared, subject to the prevailing aggregate gas price from January 1, 2013.

Observers are quick to point out that such provisions are likely to generate vigorous debates among industry operators, who point at various deadlines since 2004 set by government to outlaw gas flaring in the industry, which failed to materialize.

Henceforth, prospective oil and gas operators, whether onshore, offshore or deepwater locations, risk being denied approval for their application for licenses or leases if such applications are not supported by a comprehensive gas utilization or reinjection programme approved by the Minister of Petroleum Resources in line with the National Gas Master Plan, domestic gas supply obligation, and national policy objectives.

At the expiration of the flares-out deadline, any person, group or community are authorized to document and report of all incidence of gas flaring or venting to the Inspectorate, which is expected to visit the location, inspect, verify and authenticate the report within 48 hours for appropriate sanctions, including a shutdown order.

Third party violations would attract sanctions of up to three months imprisonment or an option of fine not less than the value of 50 per cent of the volume of gas flared or vented.

The new law also imposes on operators obligations and sanctions for domestic gas supply, particularly the volumes to be supplied, to take care of the peculiar requirements of the domestic market for national development

Other radical provisions in the new draft law include abolition of the controversial confidentiality clauses in oil contracts and agreements and the requirement for upstream petroleum companies to remit on a monthly basis 10 per cent of their net profit as the Nigerian Hydrocarbon Tax (NHT).

 Section 152 of the draft law states: “Confidentiality clauses or other clauses contained within any licenses, leases, agreements or contracts for upstream petroleum operations that are for the purpose of preventing access to information and documents by third parties in respect of any payments of royalties, fees and bonuses of whatever sort, and taxes shall be, void and of no effect.”

Where proprietary industrial property rights are applicable, such shall however be “exempted from the scope of mandatory disclosure to the extent that confidentiality in such cases is protected by any law in force in Nigeria relating to the freedom of information, or by any treaty obligations of Nigeria under international law.”

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