Solving the gas flaring problem in the delta

An interesting proposal to solve the problem of gas flaring and the lack of power in the Niger Delta in one fell swoop, written by energy journalist Chris Cragg:

Gas flaring in Nigeria: Towards an alternative solution

A new start is desperately needed for the Nigerian gas industry, both in its relations with its western co-partners and on the issue of natural gas flaring in the Niger Delta. This is needed, not merely for the health of the Nigerian economy in these difficult times, but also, literally for the health of its people.

The declaration of Force Majeure on 40% of the supply of Nigerian natural gas to the country’s Bonny Island Liquefied Natural Gas (LNG) plant in early December 2008 is the culmination of a decade-long three-sided struggle between the Nigerian Government, the oil and gas companies and the inhabitants of the region in which they operate. The abrupt termination of supply from Shell Petroleum Development Company’s (SPDC) Soku upstream plant in Rivers State was due to the need to remove some 50 illegal valves from its pipelines. These had been used to siphon off significant quantities of condensate, but effectively made the pipelines unsafe to operate.

The economic consequences of this “temporary” shut-down should not be underestimated. Bonny Island LNG plant is Nigeria’s only existing LNG export terminal and in 2007 delivered some 10% of the world’s seaborne natural gas. It is also important for the European Union’s energy security, some 9.7 million tons of the LNG, or 62.3%, being contracted to Spain, France and Portugal.

However, the existence of some 50 illegal valves on a gas pipeline is not the end of the story. With an average of two oil and gas workers kidnapped every week, numerous deliberate pipeline fractures and explosions, it is becoming increasingly difficult for the oil and gas industry to operate in the region. This means not merely that the industry that supplies 95% of Nigeria’s export revenues is having difficulty functioning efficiently, but also that it cannot explore for the necessary reserves that will safeguard such income into the rest of the 21st century.

Failure to find and exploit such additional resources – which are known to be available – also means that Nigeria’s laudable plans not merely to export oil and gas but to electrify the 40% of the country currently without power and develop its neighbours in West Africa will come to naught. Its production of high quality crude oil will continue to decline, while its opportunities to develop fertiliser production for better agriculture and power for future indigenous industrial development will slip away.

A three-cornered problem; the indigenous people

In essence the issue has three major actors, all of whom are distinctly at odds with each other; the central government, the oil companies and the indigenous peoples of the Rivers State and other states in the hydrocarbon-producing belt of the south-west.

To take the last first, it is hardly a surprise that the indigenous peoples of the south-west regard the oil industry as an enemy, regardless of the numerous attempts by the companies to ameliorate the situation. For, since oil production began in the late 1950s, the industry has been flaring the associated gas that comes up with the oil in huge quantities on land. Official statistics suggest that in spite of numerous attempts to stop flaring, in the first half of 2008 some 1.8 billion standard cubic feet per day (bscfd) of untreated gas was still being flared. This may be significantly down on the amounts flared in, say, 2005, when officially some 40+% of all gas produced was flared. However such is the level of mutual suspicion involved that many doubt the official figures. Equally the decline in the percentage of gas production flared may well be the result of increased unassociated gas produced and the shut in of significant amounts of oil production.

Either way, however, few can doubt the health and societal effects of this gas flaring. The situation would be better if it was merely purely natural gas (methane) that was flared. But it is not. The flare stacks emit particulate, sulphur dioxide, benzene, toluene, hydrogen sulphide and a good many other identifiable toxins. The effect on health does not need to be imagined. It is cancers, asthma, chronic bronchitis, numerous heart and lung complaints and, in effect, a great many premature deaths and a high infant mortality rate. Given the spread of these flare stacks in the region, it is highly likely that more than 30,000 people actually live within a kilometre of one flaring well.

Secondly, in societal terms, the effect of this is widespread anger and resentment. For those in the region, the benefits of hydrocarbon extraction for the economy as a whole are seen as simply passing them by. The oil that is produced is taken away and the toxins stay behind. The system of allocation of revenues from central government that goes to the state governments is seen as inadequate for the sacrifice involved.

However, attempts to change this relationship by extracting oil and condensate locally are deemed illegal and penalties are harsh. While such activities carry a high level of danger – some 2,800 people having been killed horribly in explosions in the past decade – illegal refineries and localised production still flourish in secret. This, in turn, creates a high level of resentment at any attempt by the central authorities to stop it, regardless of health and safety arguments.

Given such a situation, it is hardly surprising that those without adequate electricity and deep in poverty resent the intrusion of the industry and seek to profit from kidnapping.

The companies

So what of the companies? Here the first thing that has to be said is that the flaring is not the result of some gigantic conspiracy to pollute West Africa. When these wells were first drilled to produce Nigeria’s high quality oil in the 1960s, 1970s and 1980s, flaring natural gas was common practice throughout the oil industry from Texas to Saudi Arabia. The natural gas industry was in its infancy. The use of it in combined cycle gas turbine (CCGT) power generation was unheard of, when most power was produced directly by raising steam from oil products. Nobody suspected climate change.

In places like the North Sea, the associated gas produced in oil production found a market close by in an existing gas grid that had previously used coal-produced town gas. To be valuable, natural gas needs a market and an infrastructure to get it to that market. None of this was immediately available in the Niger Delta. Now however, it is more or less unheard of for associated gas to be flared in the western world, by western oil companies, except in emergency for safety. Flaring on this scale is nowhere found outside the former Soviet Union and nowhere in areas of such population density.

There are in practice two ways to stop flaring. The operating companies can find a market for the gas and gather it from the individual wells, or they can shut in the oil they are producing. In relation to the latter, Nigeria’s production of crude oil is already falling. Since 2005, Nigeria’s oil production has fallen from around 2.5 million barrels a day (mbd) to 2.1 mbd, or by 400,000 bd. Even at an average price of around $50 a barrel, this is a revenue loss of $20 million a day, or $3.7 billion a year. Logically, to maximise the reduction in flaring, the choice is to shut in those wells producing the lowest level of crude for the highest level of associated gas. There is some evidence that the companies have been doing this, hence the fall in crude production.

Getting the gas to market is a different proposition altogether. For SPDC, one of the more open of the companies, the dilemma is best shown by the point that to cut its own remaining flaring of 256 million standard cubic feet a day (mscfd) requires creating a gas-gathering system linking over 1,000 wells in an area the size of Portugal, or roughly one well per 91 square kilometres. If averaged out, this would suggest that each well is producing around 256,000 standard cubic feet a day (scfd). While having devastating consequence on the local environment, in terms of gas produced, these are not, individually, very large gas producers.

In truth, it would require some 400 of these wells to produce enough gas to power a 1,000 MW gas-fired power station, or the yearly output of almost 550 of them to produce a million tons of export LNG.

The companies thus face a considerable dilemma; either shut in crude, or build substantial gas-gathering networks across hundreds of kilometres to gather small batches of gas. Naturally, the current security situation in the delta does not help such an undertaking. Indeed SPDC’s plan to eliminate flaring on the Forcados Yokri field, due for completion in 2006, has been stalled for precisely this reason.

However, before suggesting that the companies are entirely blameless in the current situation, it has to be said that the instinct towards secrecy that pervades this difficult issue effectively prevents a better understanding of the problem in Abuja. Chevron, for example, may or may not be the biggest flarer of gas, but is certainly not going to admit to it. Total flatly refuse to reveal anything at all on the subject. The net result has been a chronic failure to adequately define the problem and thus seek a better way to resolve it.

The Government

This level of secrecy has created a high level of expectation in the Nigerian Government about reducing flaring that is largely a delusion. This delusion is twofold. First there is a belief that the flaring can be stopped by governmental decree, or legal means. Second, there is a belief that large LNG, power station, or pipeline projects will make a big difference.

In relation to the former issue, gas flaring has been illegal in Nigeria since 1984. It has been punishable by fines on the companies, these being mitigated in recognition of reality by being tax deductible. If this seems faintly ridiculous, it is joined by Presidential pronouncements that gas flaring will cease on such and such a date. The latest is December 31st 2008, which embarrassingly followed on from the previous one of January 1st 2008 and no doubt will be followed by yet another.

In practice, the level of investment required, plus the length of time needed to put in place the kind of projects thought by the Government to solve the problem, make nonsense of any strict timetable or legal fiat. This relates to the second delusion.

Nigeria currently has very substantial plans for the expansion of its gas export industry. There are now six completed LNG trains producing 22 million tons (mt) of LNG at Bonny Island, needing 3.5 bscfd of gas. A seventh train is planned, needing a further 1.2 bscfd. Two other projects, Brass LNG and Olokola LNG are planned to produce a further 22 mt. In total, existing and planned LNG capacity will need 8.3 bscfd.

Furthermore, a gas to liquids project from Chevron already underway needs 300 mscfd. The existing, but not fully loaded, World Bank funded West African Gas Pipeline (WAGP) will require 400 mscfd. Finally, there is a plan to pipe gas to Algeria and thence to southern Europe over 4,300 km, scheduled for 2015. This in term will need 2.9 bscfd. In short, export plans require a grand total of 10.9 bscfd.

At home, the National Gas Infrastructure Development plan calls for a massive increase in centralised electricity production of say 10,000 MW and a high voltage transmission system by 2014. This will be in addition to the supposed 6,000 MW that currently exists of which only 2,000-3,000 MW is actually functioning. Putting it simply, a 1,000 MW state of the art CCGT power station needs very approximately 200 mscfd to function at capacity, so this ambition will need around 2 bscfd of reliable gas supply.

While a sceptical eye might be raised at the sheer level of investment required for these projects and the timetable, there can be little doubt that with 184 trillion cubic feet of gas reserves, Nigeria has the resources to meet these ambitions. The problem is that such projects have little to do with solving the issue of flaring gas in the delta. If anything, the idea that these projects will reduce flaring is a major distraction from the real challenge of finding and producing enough non-associated gas to make them work.

LNG projects, major pipelines, gas-to-liquid plant and power stations are expensive investments and require above all a stream of gas that is likely to be reliable for the 20-30 year lifetime of the project, or at least a promise of it. This overwhelmingly favours non-associated gas.

By comparison associated gas, particularly such as is produced in the delta, is ultimately reliant on the continuing production of crude from the associated wells. If the crude output falls below economic levels this gas is liable to be shut in. And as noted, the volume of gas-per-well, is relatively small in the context of the requirements of such large projects. Indeed the force majeure closure by SPDC of the Soku plant reveals precisely this. The vast majority of the gas going into the existing LNG trains appears to be non-associated.

The Government is thus wrong to expect that its current big projects are likely to substantially reduce flaring. Equally, given its past record in relation to equity investment in such projects, in the power industry as well as oil and gas, it might be as well to concentrate on maximising non-associated gas in its investment plans. For there is a way out of the flaring problem. The point is that it is local, small and at the heart of Nigeria’s problems in the delta. The flared gas should be used for local power generation.

A rational and radical solution

Given the chronic problems of rural electrification, where the area around Port Harcourt averages three hours of power a day, it is hardly surprising that Nigeria has almost as much power capacity in stand-by diesel-fuelled generator sets – at an estimated 2,500 MW – as it has centralised functioning power stations. What remains astonishing is that few seem to have realised that such generating sets, ranging from a few hundred kW to 5-10 MW can be run not merely on natural gas but on mixtures of methane, butane and propane.

Indeed, of all engines, compression engines commonly known as “diesels” are far more tolerant of different fuel mixes than either turbines or petrol engines. Nor is there anything new about using gas in them for power production. Oil industry platforms have been doing it for decades. Consequently using them to run on the gas that is currently being flared is not only possible, but has numerous advantages.

For a start, there are a lot of them in place. They do not need additional investment in significant transmission capacity like high voltage lines, because they have their own local networks. They are cheap at $12 million for a new 10 MW unit and they do not require a high level of expertise to run.

Given the close proximity of the wells flaring gas to small rural centres of population, the extent of the necessary gas pipelines bringing gas to gen-set is likely to be only a few kilometres. Naturally, this will require a level of well-by-well analysis to step up, or step down, the level of pressure needed for both generator and pipeline, as will issues of localised pollution from the generators themselves. These however are likely to be minor in relation to the existing problems. There are likely to be local technicalities that will need solving. Nonetheless, these are soluble on a case-by-case basis.

Given such a localised solution, the obvious objection is that it could take decades to actually end flaring. Yet to be frank, the current means to reduce it looks like taking just as long. In addition, this ignores the momentum that is likely to increase as each flare is put out and the waste gas utilised for electricity. Virtually all experience with rural electrification across the developing world suggests that, once started, it proceeds at an increasing velocity. People want electricity and if as in the case of the Niger Delta, small and reliable power grids come with an immediate, rapid and obvious fall in the level of pollution any such projects are likely to be very, very popular.

Above all, for the people of the delta, this would not merely mean access to power and a fall in chronic levels of pollution. It would mean that, for once, some of the benefits of the hydrocarbon economy that is so important to Nigeria as a whole, would come home. As such, it might, just might, transform the existing high level of resentment that creates such a difficult operating environment for both companies and government alike.