# 1. Introduction

Routine natural gas flaring – the combustion of the gas associated with crude oil – has been a feature of Nigeria’s oil industry ever since production began in the Niger-Delta region in 1956. There are several reasons why a low-income, energy-insecure country like Nigeria routinely burns a valuable source of energy and potential income earner. First, a focus on crude oil and the infrastructure needed to extract and transport oil for refining or for export makes gas an unwanted by-product. This is especially as gas capture and processing requires different infrastructure, with costs often upfront in the life of an oil well, and oil companies are typically unwilling to make these investments. Second, the weak regulatory and policy settings make it easier for companies to flare the gas rather than find alternative uses. For example, it was not until recently that the _2018 Flare Gas (Prevention of Waste and Pollution) Regulations_ increased the penalty for flaring from US$0.024 (10 naira) per thousand standard cubic feet (SCF) to <mark>US$2 per</mark> thousand SCF for companies that produce at least 10,000 barrels of oil per day (Obayomi, 2018).<sup>3</sup> Nigeria has the largest proven gas reserves in Africa (about 201 trillion cubic feet), or about 2.7 percent of global proven reserves of gas (OPEC, 2018). The latest statistics from the Nigerian Department of Petroleum Resources (DPR) indicated flaring volumes of 321 million SCF for 2018—around 11 percent of total gas produced in the country for that year (DPR, 2020). Prior to the enactment of the 2018 Flare Gas Regulations in July, based on the flaring volume, gas producing companies would only have been liable for a fine of around US$8m (even with 100% compliance with the regulations).<sup>4</sup> Yet PWC (2019) estimate a direct revenue loss of US$761m from flaring in 2018,<sup>5</sup> putting into perspective the wasteful impact of flaring on the Nigerian economy. To give another comparison, the value placed on gas burnt at the well is around 4 percent of annual fiscal revenue and 13 percent of the fiscal deficit in the 2018 national budget. Moreover, the situation was even worse in the past, with about half of all gas produced being flared in 2002. The on-going use of gas flaring reflects limited progress in commercialising the gas (including gas-using industrialisation) and in technological improvements. Overall, gas flaring represents a big revenue loss in a country with a significant income shortfall.

In addition to the economic waste entailed by gas flaring, there are claimed harms to human health due to light, noise, water, and air pollution. In the densely populated Niger-Delta region where oil production takes place, it is estimated that some 2 million people live within 4 kilometres of a gas flare

> 3 For companies that produce less than 10,000 barrels, the flare payment penalty is $0.5 per 1000 standard cubic feet of gas flared. Prior to the 2018 change, all companies faced a flare payment of US$0.024 (at October 2021 official naira to dollar exchange rate)

> 4 With the enactment of the law, the amount of fine will have been around $642m with 100% compliance based on official 2018 flare volumes.

> 5 This excludes lost value from the derivatives that can be produced if the gas was further processed

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