International Herald Tribune: Pressure on oil companies grows to end gas flaring in Nigeria

By Sarah J. Wachter

Monday, October 29, 2007
 
PARIS: For three minutes, on the day last May when Royal Dutch Shell released its first quarter earnings figures, a flame shot high into the air in front of the company’s head office in The Hague, scorching a human chain of about 40 protesters that circled it, a few meters away, to block police efforts to stamp it out.

The 15-meter, or 50-foot, tall gas flare, created by the Dutch artist Erik Hobijn, was engineered by Friends of the Earth Netherlands to protest gas flaring by Shell in Nigeria.

Major oil companies, including Shell, are feeling the heat not just from environmentalists but also from local communities, the global community and the Nigerian government, to reduce flaring in Nigeria, and so curb the carbon dioxide emissions that flaring produces.

Nigeria and Russia have long been two of the world’s largest sources of flaring, which oil field operators use as a safe means of getting rid of gas that is released as an associated byproduct of crude oil production.

Enough gas is flared in Nigeria to supply half of the power needs of sub-Saharan Africa, excluding South Africa.

Most of the flaring takes place in, and off-shore from, the oil-rich Niger Delta, where finding an economically viable use for the gas is complicated by the location of many small wells, far apart from one another in remote areas, and where a local market for gas is barely developed.

Corruption, civil unrest, and funding problems at Nigerian National Petroleum have also discouraged investment in building the infrastructure needed for collection and processing.

Statistics on gas flaring are not very reliable, data gatherers say, especially for Nigeria. Reporting is usually voluntary, and information is especially unreliable for offshore flaring.

To provide some sort of independent check on flaring data, the World Bank this year started publishing satellite photos of flaring, country by country. The satellite photo of Nigeria looks like a dense galaxy studded with bright supernova stars.

Still, some progress has been made in reducing the burn-off. “Today about 40 percent of gas is flared in Nigeria, compared to 80 percent in 1993. That’s a major improvement,” said Bent Svensson, program manager for the Global Gas Flaring Reduction Partnership at the World Bank. The partnership brings governments together with international and state-owned oil companies to search for ways to put the gas to good use, including poverty reduction.

One reason for the improvement is a progressive expansion of liquefied natural gas output since 1999, when the first production train at Shell’s Bonny Island LNG plant started commercial production. There are now six operating, with a seventh planned.

Nigeria is a second-tier source of natural gas, with proven reserves well below those of the giants, Russia, Qatar and Iran, which together hold about 70 percent of global gas resources. But, if associated gas is included, it holds about 3 percent of the world’s reserves, putting it roughly on a par with Algeria, a major exporter to Europe, according to the international gas industry information agency Cedigaz, in Paris.

Exploited collectively, the offshore waters of Nigeria and its neighbors in the Gulf of Guinea could become a major new source of liquefied natural gas, or LNG, for export, both to Europe and to the huge U.S. market.

“Nigeria, in participation with the West Africa Gas Pipeline, Equatorial Guinea and Angola, is the next big increment of LNG capacity after Qatar,” said Ian Cronshaw, head of energy diversification at the International Energy Agency in Paris.

The West Africa Gas Pipeline currently transports gas from the Niger Delta to Togo, Ghana, and Benin.

Development plans under discussion for the region include an expansion of the eight-year-old Shell Nigeria LNG production plant on Bonny Island, in the Niger Delta; an expansion of the Equatorial Guinea LNG plant on Bioko Island, where Nigeria and Cameroon have expressed an interest in joining the Marathon Oil-led consortium; and an LNG project in Angola.

If all those are realized, the Gulf of Guinea could rival the current production of the world’s largest LNG producer, Qatar, Cronshaw said.

Soaring development costs, however, may crimp these plans and thwart ambitions to turn more flared gas into the commercially profitable liquefied form.

Costs of developing liquid natural gas processing capacity have risen by around 150 percent in the past two years, driven higher by heavy demand for skilled labor, soaring shipping costs, and steep increases in the prices of construction raw materials, like copper and nickel, because of demand from China and India.

Rising costs could particularly challenge plans by Nigerian National Petroleum, in partnership with ENI of Italy, ConocoPhilips and Total of France, to build a new $15 billion liquid natural gas plant on Brass island in the Niger Delta, Cronshaw said.

“Civil unrest makes it a tough decision for greenfield projects such as Brass, in an environment where costs are escalating,” he said.

Efforts to curb flaring so far have been “a qualified success story,” said Jonathan Stern, direct of gas market research at the Oxford Institute of Energy Studies.

In conjunction with rising costs, the endemic unrest in the Delta region has been a major and recurrent obstacle.

Shell, for example, through its local production unit, Shell Petroleum Development, plans to invest $3 billion over six years in 11 different flaring-reduction projects that would collect 85 percent of the associated gas that it produces. But sabotage has prevented the start-up of one gas-gathering project in the Delta, Sapele, that was scheduled to begin last year, and the company has been unable to send workers to complete another, aimed at turning surplus gas into liquefied natural gas at the Forcados Yokri field.

The unstable security situation has also blocked development of infrastructure, from pipelines to power plants, that would reclaim associated gas for local consumption. A pipeline delivering Forcados gas from the Delta to the country’s largest city, Lagos, has been frequently sabotaged in the past year. The most recent bomb damage took 16 weeks to repair.

Still, little by little, the flames are going out.

Exxon Mobil, for example, has invested about $3 billion in Nigeria to reduce routine gas flaring. Last year it inaugurated the East Area additional oil recovery project to raise oil output from its offshore fields by gathering, compressing and reinjecting into the oil reservoir gas that otherwise would be flared away.

Chevron, operator on the Agbami offshore field, which is scheduled to start production next year, would reinject all the associated gas that otherwise would be flared. Chevron is also planning to produce high-quality diesel from gas in its Escravos gas-to-liquids project, described by John Watson, president of Chevron International exploration and production, as a key component of the company’s strategy for reducing Nigerian gas flaring.

Looking farther ahead, associated gas could provide a clean fuel for power generation in a country where half the population has no access to electricity. President Umaru Yar’Adua pledged during his election campaign this year to develop enough power to turn the country into a modern industrial economy by 2015.

Nigeria now has just 3,700 megawatts of installed power generation capacity and needs an extra 10,000 megawatts over the next two decades, said Prasad Tallapragada, senior energy specialist of the World Bank.

A three-year master plan for the energy industry, being drafted by the government, must set a much higher domestic gas price to persuade gas producers to furnish gas for local power generation. The plan should also open pipeline construction, now a monopoly of the national oil company, to private investment, Tallapragada said.

Construction of seven power plants, mostly gas-fired, in the Niger Delta by private sector operators, including ENI of Italy, has been delayed by contract problems and other snags; but such developments could triple the amount of installed gas-fired capacity if the gas price is right, Tallapragada added.

“Nigeria is at a takeoff stage,” he said.

Pricing, however, is an issue in a country where half the population earns less than $1 a day. Nigeria’s electricity regulator is currently working on a draft tariff order aimed at extend access to the poor, particularly in rural areas.

The domestic gas price for power generators is about 0.40 naira, or 0.3 U.S. cents, per million British Thermal Units – a price considered ridiculously low by the World Bank. For comparison, liquefied natural gas sold into the U.S. market fetches about $7 per million units, although that has to cover processing and shipping costs.

Nigeria, meanwhile has set itself a non-binding target to end all routine flaring by next year. Few experts believe this target would be met. Still, “by 2011, flaring in Nigeria will be down to a very low level,” Svensson, at the World Bank, predicted.

Not convinced, environmental and local activists are trying to put legal pressure on both the government and the international oil companies to eliminate flaring faster.

In the Netherlands, Friends of the Earth, protesting Shell’s continued flaring, filed a complaint to the Dutch Advertising Commission against a company advertisement vaunting the use of carbon dioxide to grow flowers. The commission, in a nonbinding ruling, found that the ad exaggerated the company’s green credentials.

Shell pulled the ad.

http://www.iht.com/articles/2007/10/29/business/rennig1.php