Gas Flaring Regulation In The Oil And Gas Industry: A Comparative Analysis Of Nigeria And Texas Regulations

GAS FLARING REGULATION IN THE OIL AND GAS INDUSTRY: A       Comparative Analysis of Nigeria and Texas Regulations.

                           TABLE OF CONTENT

1.     INRODUCTION                                                                        page 2

1.1            Background

1.2            Study Area

1.3            Research Objective

1.4            Research Question

1.5            Methodology

2.     UNDERSTANDING THE BASICS OF GAS FLARING          page 10

2.1            What is gas flaring?

2.2            What are the reasons for flaring gas?

2.3            What are the environmental impacts of gas flaring?

3.     International framework for gas flaring reduction                page 13

3.1            International convention on the environment

3.2            The United Nations Framework Convention on Climate Change (UNFCCC)

3.3            The Kyoto Protocol

3.4            Global Gas Flaring Reduction Initiative (GGFR)

4.     The Nigerian Institutional and Regulatory Framework       page 22

4.1            Background history on the regulation of gas flaring in Nigeria

4.2            The legislative and regulatory framework in Nigeria

4.3            The institutional framework for regulating gas flaring in Nigeria

4.4            The challenges, successes and failures at reducing gas flaring in Nigeria

5.     The Texas Institutional and Regulatory Framework                        page 34

5.1            Background history on the regulation of gas flaring in Texas

5.2            The legislative and regulatory framework in Texas

5.3            The Institutional framework for regulating gas flaring in Texas

5.4            The challenges, successes and failures at reducing gas flaring in Texas

6.     ANALYSIS AND CONCLUSION                                                        page 48

1. INTRODUCTION

1.1.          Background of the Study.

The production of oil and gas generate waste gases that need to be controlled in a manner that protects the environment. But a major problem with oil and gas exploration activities is the inability of governments and their regulatory agencies to control and prevent environmental pollution and other associated problems. Oil spillage, gas flaring and venting have caused loss of lives, and have adversely affected human health and the environment. These adverse effects have led to the clamor for strict environmental regulation of oil and gas operations, in order to control, reduce or prevent pollutions arising from exploration and exploitation activities.

Gas flaring is one of the most contentious energy and environmental issues facing the world that has persisted for decades. The World Bank estimated that the annual volume of natural gas being flared and vented globally in 2011 is about 140 billion cubic meters (bcm).[1] This is enough to provide for the annual gas consumption of Central and South America. The World Bank had warned that efforts to reduce gas flaring needs to be sustained because there has been a slight increase in global gas flaring from 138 bcm in 2010 to 140 bcm in 2011. The World Bank figures shows that Russia tops the world’s flaring countries with 37.4 bcm, followed by Nigeria with 14.6 bcm, while the United States is fifth flaring country in the world with 7.1 bcm.

Gas flaring is a waste of valuable non- renewable source of clean energy and causes the wasteful emission of greenhouse gases (GHG), which is directly linked to global warming.

The international community has realized the potential impact of gas flaring on the environment and seriously seeks to address it through the United Nations Framework Convention on Climate Change (UNFCCC)[2] and other conventions, including the Kyoto Protocol,[3] made pursuant to the UNFCCC. In 2002, the World Bank, in furtherance of its poverty reduction policy started a public- private partnership initiative called Global Gas Flaring Reduction (GGFR). This initiative was launched formally at the World Summit on Sustainable Development (WSSD), in Johannesburg, South Africa, with the aim of reducing gas flaring and venting worldwide by supporting national governments, development agencies, and oil producing companies in their efforts to reduce environmentally damaging flaring and venting of associated gas. A World Bank GGFR study identifies the lack of an effective regulatory framework, non-availability of local and international gas market, and financial constraints for the execution of gas reduction projects as the three main barriers to natural gas conservation[4].

It is generally believed that the enactment of environmental and conservation laws, coupled with the establishment of independent regulatory and enforcement framework will change the general behavior and attitude towards environmental protection and invariably reduce gas flaring. However some economists have argued that regulation is not the best approach to encourage the oil and gas industry to reduce gas flaring but rather market incentives aimed at reducing cost and stimulating innovations.[5]

1.2. Study Area

The area of study of this research is the Federal Republic of Nigeria and the State of Texas in the United States of America. Nigeria and Texas are both rich in oil and gas resources and have had the problem of gas flaring in the course of oil and gas production.

 In Nigeria, flaring of associated gas continues to generate adverse environmental and energy consequences against the backdrop of sustainable development. Presently Nigeria is still the second largest gas flaring country in the world despite legislation enacted to phase out gas flaring in 2008. In Nigeria there are several legislation and regulatory institutions regulating gas flaring in the oil and gas industry and Nigeria is also signatory to several international conventions and protocols aimed at reducing gas flaring. But these regulatory efforts have been unsuccessful as gas flaring continues unabated, and it remains the accepted industry practice, even though gas flaring has been illegal since 1984. As at 2012, it is believed that about 25 percent of gas production in Nigeria was flared, while only 75 percent of gas production was utilized. Though the MPR states that only 18 percent is being flared.

In contrast to Nigeria, Texas, the largest oil and gas producing state in the United States has recorded tremendous success in reducing gas flaring. Although United States is the fifth largest gas flaring country in the world, with a total flare of 7.4 bcm, Texas flared gas accounted for only 4.2 percent of that figure. Since 1866when the first oil well was drilled, Texas had enacted legislations and created institutions to regulate gas flaring in the oil and gas industry. The state’s efforts are complimented by national environmental legislations and regulatory institutions, which have successfully reduced gas flaring to a minimum level. Texas has long had a history of best practices with regards to gas flaring regulation. Texas regulators strictly enforce the rules and operators fully comply with existing regulations.  As at 2012, 0.5 percent of the gas production in Texas was flared, while 95.5 percent of gas produced was utilized. 

1.3.   Research Objective.     

This research will do a comparative analysis of all existing legislation regulating gas flaring in the oil and gas industry, the institutions created to regulate gas flaring and how the institutions’ regulations affect the operations of oil and gas companies. This research will assess the applicable enforcement strategies and its efficacy in the control of gas flaring in the oil and gas industry in Nigeria and Texas. The research will also conduct a comparative analysis of the enforcement provisions of various statutes and regulations so as to determine the powers conferred on the regulatory agencies in Nigeria and Texas.

A comparative study of gas flaring regulations in the oil and gas industry in Nigeria and Texas is imperative to the glaring difference in the regulatory framework between Nigeria and Texas, despite their similarity as big producers of oil and gas. The difference in the oil and gas jurisprudence as it relates to ownership structure of oil and gas is also instructive. While Nigeria lacks effective and efficient legislation and regulatory institutions to reduce gas flaring, Texas has an efficient regulatory regime aimed at reducing gas flaring.

The lesson that Nigeria can learn from Texas’s success will be explored to ascertain if similar regulatory framework can be replicated in the Nigerian oil and gas industry with little modification. The research will also make recommendations that will be helpful in the establishment of an effective legal regime and functional regulatory institutions in Nigeria.

There has been no known comparative study of gas flaring regulation in Nigeria and Texas and this research will be the first and it will provide lawyers in both jurisdictions a comparative perspective and understanding of the law on the issue. In addition the findings in this paper might create avenue for further research. 

1.4.   Research Question.

In order to achieve the aim of this research, the paper will address the following research question:

1.      What are the legal issues regarding gas flaring regulatory framework in Nigeria and Texas?

2.      What are the available legislative and institutional framework and enforcement strategies in Nigeria and Texas?

3.      What are the factors responsible for the success of Texas gas flaring reduction efforts?

4.      What are the factors affecting gas flaring phase-out regulations in Nigeria?

5.      What lessons can Nigeria learn from Texas in order to achieve complete gas flaring phase-out?

1.5.   Literature Review.

The issue of gas flaring is a global phenomenon with its attendant environmental consequences. Its importance has propelled lawyers and non-lawyers alike to write articles on the subject. Garba I. Malumfashi,[6] wrote on the review of the regulatory, environmental and socio- economic issues relating to gas flaring in Nigeria and concluded that phase-out of gas flaring in Nigeria in 2008 was feasible, depending on the commitment of the government in achieving that objective. Ismail O. Saheed and Umukoro G. Ezaina[7] conducted research on the multi faceted impact of gas flaring on a global scale and the different approaches employed by researchers to measure gas flared and its resulting emissions. The outcome of the research shows that there is no single global methods by which emission factors and estimation procedures in the oil and gas industry all over the world can be used to determine the volume of gas flared. Christen Kris,[8]focused on the environmental impact of gas flaring, venting and efforts by the world bank and governments to commercialize associated gas, including developing domestic markets and access to international markets, and creating legal and fiscal regulations for associated gas. Ologunorisa E. Temi[9] wrote on the impact of gas flaring on the Niger Delta region of Nigeria and concluded that there is urgent need for scientific study and analysis of the effect of gas flaring on the different environmental compartments in the Niger Delta, which is a necessary ingredient for achieving sustainable development. David F. Prindle[10] conducted a study on the efforts of the Texas Railroad Commission in reducing gas flaring from 1930 to 1949. He stated that the Commission was one of the most important regulatory bodies in the United States, and that it successfully prevented the destruction of the state’s natural gas reserve through strict regulations. The article enumerated the challenges faced by the commission and how it overcame those challenges. Howard R. Williams’s article[11] focused on various methods applied by the different states in the United States to conserve oil and gas, and discussed the steps taken by regulatory agencies to regulate the flaring of gas in some states including Texas, but concluded that they are not inclined to enter an order unless convinced that it is economically feasible to dispose of the residue of the casinghead gas by sale or reinjection. Moses [12] discussed extensively on the state of the law on gas flaring in the United States leading up 1945.

There is no research that has been conducted to do a comparative analysis of gas flaring regulations in Nigeria and Texas, and this research will abridge that gap and serve to be immensely beneficial to the oil and gas jurisprudence of both jurisdictions.

1.6.   Research Methodology.

This research will undertake an indebt study and comparative analysis of all legislations that regulate gas flaring in Nigeria and Texas, their respective regulatory institutions, their composition, powers and ability to perform their respective functions.  In addition this research is intended to identify the major environmental regulatory issues as it relates to gas flaring in the oil and gas industry in Nigeria and the state of Texas in the United States.

This research will also undertake a comparative analysis of the existing regal regime and institutions for the regulation of gas flaring in Nigeria and Texas, and analyze the lapses in existing legislation, the failure of Nigerian regulatory agencies to administer and enforce gas flaring regulations, and the role of major regulatory institutions such as the Ministry of Petroleum Resources, the Department of Petroleum Resources (DPR), and the Federal Ministry of Environment. The legislative framework and existing institutional approach by Texas and the United States’ Federal Government in controlling gas flaring will be critically examined, including the role of the main oil and gas regulatory agency, The Texas Railroad Commission, and its environmental counterpart, the Texas Commission for Environmental Quality in reducing gas flaring in the industry.

The research will be largely library based and will rely on both primary and secondary source materials in statutes, journal, case reports, historical records, books, legislative code, administrative regulations, conference papers, newspapers/ magazines and other internet based sources such as Westlaw, LexisNexis, Cali, Loislaw, Lawriter, Fastcase, Quardryonline ,nigerialawonline, Nigeria- Law, Nigeria Washlaw, Nigerialawreport and etc.