Professional Documents
Culture Documents
U n i v e r s i t y o f Tu l s a C o l l e g e o f
Law
May 2013
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
1 World Bank Press Release dated July 3, 2012, available at www.worldbank.org.
2
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 worlds 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
2 Printed in 31 ILM (1992)
3 Printed in 37ILM (1997)
3
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
4 World Bank, Report on Consultation with Stakeholders. Global Gas Flaring
Reduction- GGFR Report No. 1 (Washington: World Bank 2002)
5 Jack I. Knetsch, Environmental Economics, Environmental Law: An Intensive Short
Course for Practitioners. (1992), 32, cited in Roger Cotton & Cara Clairman, The
Effect of Environmental Regulation in Technological Innovation in Canada 21
Canada- U.S. L.J. 239
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 1866 when the first oil well was
drilled, Texas had enacted legislations and created institutions to
regulate gas flaring in the oil and gas industry. The states 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.
The lesson that Nigeria can learn from Texass 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?
1.5.
Literature Review.
6Garba I. Malumfashi, Phase Out of Gas Flaring in Nigeria by 2008: The Prospect of
a Multi- Win Project, University of Dundee, Scotland, United Kingdom
7 Ismail O. Sahad and Umukoro G. Ezaina, Global Impact of Gas flaring, Energy &
Power Engineer, 290-302, vol.4 issue 4, (July 2012)
8 Christen Kris, Environmental Impacts of Gas Flaring, Venting Add Up
Environmental Science &Technology, vol. 38, issue 24, 480 (2004)
12
1.6.
Research Methodology.
10
11
stack and pipes that feed gas back to the stack, and the gas
flows into a vertical pipe and is immediately lit to burn off. In the
night the flame of the flared gas is easily seen in the sky. The
flare size and brightness depends on the amount and type of
liquid in the stack.
Gas flaring takes place at oil drill sites, refineries, natural gas
plants, chemical plants, and landfills. The process emits gas from
pipes in oil or gas wells, or through smoke stacks at industrial
plants and burns it.15 But this paper is concerned primarily with
the flaring of associated or casinghead gas that is produced
along with crude oil.
2.2. What are the reasons for flaring gas?
In most developed countries natural gas is valuable and 95
percent of natural gas is captured and utilized. However there
are several reasons why natural gas is flared in those countries
during drilling or production process. It might be necessary to
flare gas during well production testing after the completion of
drilling, in order to release unsafe pressure levels in wells during
maintenance and emergencies, for managing gas compression,
processing and to recover oil.16 Flaring of casinghead gas might
be necessary in a new area of exploration, while awaiting the
construction of gas gathering pipeline to connect the well to
major pipeline or sales outlet.
15 Definition of gas flaring, retrieved at www.ehow.com on 3/6/2013.
16 Ohio EPA, Understanding the Basics of Gas Flaring. Newsletter (May, 2012).
Retrieved at www.epa.ohio.gov on 1/19/2013.
12
17 Gerner, Franz; Svensson, Bent; Djumena, Sascha, Gas Flaring and Venting: A
Regulatory Framework and Incentive for gas Utilization World Bank, Washington,
DC. 2 (2004). Retrieved at www.openknowledge.worldbank.org on 3/7/2013.
18 Ibid at p3.
13
communities that are situated near the oil wells. The associated
gas flared into the atmosphere contains GHGs, as well as other
poisonous substances such as dioxins, benzene, toluene,
nitrogen, and sulphur dioxide19. These poisonous gases cause
serious health problems such as cancer, asthma, blood disorder,
chronic bronchitis, and respiratory illness to the people living
near the gas flaring points.20
The sulphur and nitrogen emitted from the flared gas causes acid
rain, which adversely impact soil fertility, thereby reducing crop
yield. The roofs of houses in the area are also susceptible to
accelerated rusting because of the acid rain from the flared
gas.21 According to Nwankwo and Ogagarue,22 waters in gas
flaring environment contains higher concentration of harmful
metals such as barium, cyanide, selenium, chromium, iron,
manganese and copper, which have concentration levels above
permissible limits by the World Health Organization.
Gas flaring negatively affects the human development of the
people living near the flare points as a result of disease, low crop
yield, environmental degradation and other socio-economic
impacts.23
19 Intergovernmental Panel on Climate Change, The Report of the Working Group 1
of the IPCC, Survey for Policy Makers. (IPCC. 2001)
20 Environmental Rights Action, Fact Sheet: Harmful Gas Flaring in Nigeria. ( ERA
2008)
21 Amnesty International, Nigeria: Petroleum Pollution and Poverty in the Niger
Delta. 18. (2009)
22 C.N. Nwankwo and D.O. Ogagarue, Effects of Gas Flaring on Surface and Groung
Waters in Delta State Nigeria. Journal of Geology and Mining Research. vol. 3 no.5,
131-136 (May 2011) .
23 Friends of the Earth, Gas Flaring in Nigeria Media Briefing. 4. (October, 2004)
14
16
17
18
28 (1992) 31 I.L.M. 849.the Convention was adopted on May 1992, opened for
signature in June 1992 and came into force in March 21, 1994, after deposit of the
50th instrument of ratification.
29 UNFCCC, Art. 2.
19
39 Birnie, P. W. and Boyle, A. E., International Law and Environment, 2nd Ed. 526
(2002).
22
23
24
and capacity building to obtain carbon credits for gas flaring and
venting projects.
The United States is a sponsoring member, while Nigeria is a
member of the partnership. The work program in Nigeria has
continued to focus on supporting the ongoing dialogue between
the Nigerian government, the international oil companies, and
other relevant stakeholders in developing a feasible approach to
flare reduction through the Nigerian flare Reduction Committee
(NFRC).41
25
43 IMF Country Report No. 12/194, 2011 Article IV Consultation Report on Nigeria,
(July, 2012).
44 UNGA Res. 1803 (XVIII), UN GAOS, 17th Sess., Supp. No17, UN Doc. A/5217, 15
(1962).
45 Cap. P. 10 LFN 2004.
46 Id 1(1).
26
27
Act imposes a duty on oil and gas companies to submit, not later
than April 1st 1980, a preliminary program providing for schemes
for the viable utilization of all associated gas produced from a
field, and projects to re-inject all non- utilized associated gas in
an industrial project, not withstanding the provisions of
Regulation 42.53 Thus, this section transformed Regulation 42
into a mandatory provision. The Act also makes it illegal for any
oil and gas company to flare gas after January 1st 1984, without
the written permission of the Minister.54 The penalty was
forfeiture of concession and the Ministers discretion to order the
withholding of all or part of any entitlement of an offender.55
However, the Act also empowers the Minister to issue a
certificate specifying such terms and conditions for the continued
flaring of gas in a particular field, if the Minister is satisfied that
gas re-injection is not feasible.56 In addition the Act also reserves
the right to the Government to take gas at the flare free of cost.
The huge financial resources required for gas re-injection and the
inability of the Government to meet their financial obligations in
the various joint ventures, coupled with the lack of required
infrastructural facility, and the insistence by the oil and gas
companies of their inability to meet the 1984 deadline,57 led to
53 Id 1(a) & (b).
54 Id 3(1).
55 Id 4(1) & (2).
56 Id 3(2).
57 Akaakar, F.O., The Law and Natural Gas Development in Nigeria, in Natural Gas:
The Energy for the Next Millennium. Proceeding of the 29th Annual Conference of the
29
30
31
32
37
promulgated rules and regulations that govern the oil and gas
exploration, development, and production process.84
Issues of oil and gas industry regulation in Texas started with the
discovery oil near oil springs in Nacogdoches County in 1866, the
drilling of the first gas producing well at Young County in 1890,
and the discovery of the Corsicana oil fields which was a major
oil field that was discovered while the City of Corsicana was
drilling for water in 1894.85 These discoveries caused a great oil
boom in Texas. The rule of capture motivated operators to
engage in unrestrained and competitive production with a view
to maximizing output. This caused physical and economic waste
of oil and gas resources and a drastic depletion of reservoir
pressure in the various fields in the state.
The situation prompted the Texas Legislature to pass a law
declaring that gas wells are to be shut in within ten days after
completion until it can be used for light, fuel, or power
purposes.86 The State Legislature in 1905, 1913, and 1917,
added further amendments to the statute. In 1917, the People of
Texas adopted what is now commonly referred to as the
conservation amendment to the Texas Constitution.87 It states
that the natural resources of the state are declared public
84 American Petroleum Institute website, Environmental regulations of the
Exploration and Production in the Oil and Gas Industry. Retrieved at www.ipo.org on
03/23/13.
85 Ernest O. Thompson, Conservation of Oil and Gas in Texas, 5th World Petroleum
Congress, 13 (New York, May 30 June 5, 1959)
86 Acts 26th Leg. Reg. Session, 1899, Ch. 49, p.8.
87 Tex. Const. art. 16, 59a.
38
rights and duties; and the Legislature shall pass all such laws as
may be appropriate thereto. This amendment primarily relates
to water but it was broad enough to cover oil and gas.88
Consequently the Legislature passed a comprehensive
conservation law in 1919, which requires the conservation of oil
and gas and prohibited waste, and granted extensive regulatory
and enforcement powers to the Railroad Commission (RRC).89
Thereafter the RRC, in July and November 1919 adopted thirtyeight rules to regulate the oil and gas industry.90
The next several years were eventful years as many famous and
prolific oil fields such as Goose Creek, Breckenridge, Ranger
Burkburnett and Panhandle were discovered.91 As the production
of oil increased, the flaring of gas also continued in an alarming
rate, and the efforts to stop it was met with stiff resistance from
oil producers who were not ready to lower their profits by
spending money on gas utilization, which was considered at that
time valueless.92 Though the 1899 statute and its subsequent
amendments prohibited the flaring of unassociated gas from a
gas well, Texas legislature succumbed to pressure from the oil
producers by passing a law in 1925 permitting the flaring of
88 James R. Norvell, The Railroad Commission of Texas; Its Origin and Relation to Oil
and Gas Industry, 40 Tex. L. Rev. 230, 239 (1961 1962)
89 Tex. Civ. Stat. art. 6029 (Vernom, 1948)
90 Ernest O. Thompson, see n 96 at 14 15.
91 David F. Prindle, The Texas Railroad Commission and the Elimination of the Flaring
of Natural Gas 1930 1949, The Southwestern Hist. Quarterly, vol. 84, no. 3, 293,294
(Jan, 1981).
92 Id. at p 297.
39
40
42
The Oil and Gas Conservation Act of 1919104 prohibited the waste
of oil and gas and delegated powers to the RRC to make rules,
regulations, and orders to prevent such waste.105 Although the
Act had undergone several amendments, its purpose of declaring
all waste illegal has been incorporated into each successive
amendment, and it is presently codified in chapters 85 and 86,
which deals with conservation of oil and gas, and regulation of
natural gas, respectively in the Texas Natural Resources Code.
The Act declares waste unlawful by prohibiting the production,
storage, or transportation of oil and gas in any manner that
constitute waste.106 The Act defined waste among other things
to include; operation of any oil well with inefficient gas oil ratio;
the permitting of any natural gas well to burn wastefully; and
escape of gas into open air.107 The Act also authorizes the RRC to
make and enforce rules and orders for the conservation of oil and
gas and the prevention of waste.108 It also empowers the RRC to
do all necessary things for the conservation and prevention of
waste.109 In addition the Act states that, no gas from a gas well
may be permitted to escape into the air after the expiration of
ten days from the time the gas is encountered in the gas well or
from the time of performing the casing opposite a gas bearing
104 Tex. Laws 1919, Ch. 155.
105 Id. arts 6008, 6014
106 Tex. Nat. Res. 85.045 and 86.011
107 Id. 85.046 and 86.012
108 Id. 85.201
109 Id. 85.202(b)
43
zone but the commission may permit the escape of gas into
the air for additional time if the operator of the well or other
facility present information for the necessity of the escape110
The RRC pursuant to the authority vested on it by the Texas
Legislature, adopted Rule 3.32, which states that gas well gas
and casinghead gas shall be utilized for legal purposes.111 The
rule stipulates that gas must be used for lease operations or
sold, if it can be readily measured by devices routinely used in
the operation of oil wells, gas wells, gas gathering systems, or
gas plants. However there are exceptions to the gas releases.
All wells that releases gas for more than twenty four hours period
must be burnt the gas in a flare, while gas releases of less than a
twenty four hours duration may be vented to the air, if not
required to be flared for safety reasons. But operators are
required to notify the RRC of gas being flared as soon as possible.
Operators must accurately measure or estimate all flared or
vented gas and obtain a Rule 32 Exception Form for the gas
flaring or venting for more than twenty four hour duration. The
form must be filed with the RRC on the next business day after
the initial twenty-four hours of venting or flaring, and a copy
must also be filed with the RRC district office where the operation
is taking place.
Paragraph h of the Rule authorizes the RRC or its delegate to
administratively grant an exception permit to flare or vent gas
110 Id. 86. 185
111 16 T.A.C. 3.32.
44
The oil and gas operators must determine whether their facility
requires a permit under the CAA. This involves a determination of
the amount of each regulated pollutant the facility is capable of
emitting during an operational year, the location of the facility,
and the geographical impact of its emissions.130 The CAA
regulates major sources of air pollution. However the definition
of major source can vary depending upon the location of the
emission source and the pollutant involved.
Two different regulatory approaches are used to achieve air
pollution control. The first approach is the NAAQS approach,
which is used to regulate six criteria air pollutants (sulphur oxide,
particulate matter, carbon monoxide, ozone, nitrogen dioxide,
and lead).131 The second approach is the NSR permitting
program, which is designed to maintain air quality by ensuring
that emissions from new and modified major source will be
reduced by technically practicable, and economically reasonable
air pollution control methods. The CAA in Title V codifies all
applicable requirements into a single authorization to ensure
ambient air quality standards.132
The EPA pursuant to the CAA had adopted rules and regulations
for the control and enforcement of ambient air quality standards.
130 John S. Lowe, Owen L. Anderson, Ernest E. Smith and David P. Pierce, Casas and
Materials on Oil and Gas Law, 5th ed. 1131 (West, 2008).
131 See 40 CFR Part, 50.
132 For example 40CFR parts 51, 52, 60 and 61.
49
51
136
ensuring that states SIP are in conformity with the NAAQS and
that the states rules comply with federal rules.
53
The NLNG project, the Escravos Gas Project and other gas gathering
projects embarked upon by the NNPC, in conjunction with other joint
venture partners had utilized a large quantity of hitherto flared. The
supply of gas to domestic and international markets enormously
reduced the quantity of gas flared in the country.
The 2008 amendment to the AGRA increased the gas flaring penalty
from $0.07 mmscf to $3.50 per mmscf, which is a considerable
140 Id. at p6.
54
56
regulation of the NNPC. Oil and gas companies usually blame their
inability to meet the gas-flaring deadline on the failure of NNPC to
meet its Joint Venture financial obligations.147 Most importantly, since
the government takes majority of the oil revenues, a stringent
enforcement of gas flaring regulations will adversely affect the
revenues that will accrue to the government, So the legislature and the
agencies relax the rules to allow for a continuous production of oil and
gas.
Nigerian oil and gas legislations are not aimed at the conservation of
the natural resources and prevention of waste. Therefore the
regulators rely merely on safe and good oilfield practice as the
standard for enforcement. This allows international oil companies to
dictate applicable standards in the industry.
A major challenge to the effective enforcement of gas flaring
regulations is the lack of autonomy and independence of the
regulatory agencies. The DPR is a department of the MPR, and is under
the control and direction of the Minister, while the NEASRA is a
parastatal under the FMENV. These agencies are subject to political
control from their respective supervising Ministers. These agencies
lack adequate technical manpower and funds to efficiently discharge
their statutory duties. The agencies do not have access to the best
available scientific technology to accurately measure, adopt
147 Ibironke T. Odumosu, Transferring Albertas Gas Flaring Reduction Regulatory
Framework to Nigeria: Potentials and Limitations, 44 Alberta L. Rev 863, 877 (June
2007)
57
58
the laws on gas flaring. Petroleum is within the exclusive legislative list
in the Nigerian Constitution, which vest exclusive legislative powers to
the National Assembly. Although environment is in the concurrent list
where the federal and state government has concurrent jurisdiction to
enact legislation, the laws have virtually vested powers to solely to
federal agencies and these agencies lack the capabilities to establish
offices in all the states where oil and gas operations are going on, in
order to effectively monitor and enforce the laws.
The continues flaring of gas has resulted into a full blown conflict
between the host communities, the oil and gas companies and the
federal government in the Niger Delta region of the country where the
majority of the oil and gas is produced.
During the initial stage of oil and gas exploration and production
activities, Texas had serious problems on how to regulate and reduce
gas flaring. The oil and gas operators lobbied to ensure that gas flaring
was not prohibited. However the success story of the effective
regulation of gas flaring started when the RRC took the bold step to
issue orders prohibiting the production of oil or gas from the Seeligson
Field, until the operators ceased the flaring of casinghead gas, and
took measures to utilize the gas. The Texas courts supported the move
by declaring that the RRC had the authority to regulate gas flaring in
order to prevent waste.
59
the main goals of the federal and Texas clean air acts was to set and
achieve NAAQS with a view to address the public health and welfare
risk posed by some widespread pollutants. These statutes provides for
a tripartite regulatory mechanism where the federal, state and local
governments were authorized to regulate and enforce the laws. This
gives a sense of responsibility to all the tiers of government in making
concerted efforts to reduce gas flaring.
The Institutions created to enforce these laws at the federal and state
levels are independent with guaranteed tenure, and a clear area of
authority. The agencies are well funded and adequately staffed with
the requisite technical expertise to effectively enforce the laws. Thus,
the agencies have been able to evolve operational processes and
efficient regulatory procedures aimed at reducing the health, safety
and environmental impacts of gas flaring. The EPA, RRC and TCEQ have
all adopted comprehensive permit systems that are based on scientific
and technological data and evidence. The agencies also coordinate and
cooperate with each other in order to achieve their set goals by
entering
into
MOUs
that
enumerate
spheres
of
authority
and
61
62
6.2
CONCLUSION
Nigeria and Texas, that despite the fact that both are experiencing a
boom in oil and gas production, their regulatory regimes have a lot of
differences.
Texas has been able to record a high degree of success in reducing gas
flaring to 0.4 percent due to several factors which includes; purpose
driven laws, effective and efficient regulations, independent and
capable regulatory institutions, willing and committed operators, well
developed gas gathering infrastructures and network of pipelines,
available domestic gas market, government non-interference, accurate
154 Letter retrieved was from
http://democrats.energycommerce.house.gov/index.php?q=news/reps-waxman-rushand-degatte-call-for-hearing-on-natural-gas-flaring on 2/14/13.
63
flare
measuring
and
reporting
procedures,
investment
in
new
64
encouraging
the
construction
of
gas
infrastructure,
and
management
objectives,
and
introduce
combination
of
65
This study will be helpful not only to Nigeria but to other countries
suffering similar fate with Nigeria, to effectively and adequately enact
and establish the right regulatory and institutional framework to
reduce or abate gas flaring. This study is relevant to oil rich
underdeveloped countries in Africa and other parts of the world with
high gas flaring ratio. The study will also be relevant to developed
countries like the United States to ensure that the development of gas
infrastructure is in tandem with oil development especially in new
fields and offshore areas, so as to reduce gas flaring.
Though it is obvious that there is no single approach that is considered
the best in eliminating gas flaring for all countries, there are basic
fundamentals such as an effective and efficient political, legal, and
institutional framework that are essential for a country to develop its
own regulations to curb the menace.
66