NIGERIA: October 30, 2007


ABUJA - Any penalty imposed on oil producers in Nigeria for gas flaring beyond a 2008 deadline should target only the operators and not their partners, the head of Nigeria's oil regulator said on Monday.


This means Western multinationals could face fines or other penalties for flaring while the Nigerian state oil company, which owns majority stakes in the joint ventures operated by the foreign firms and gets more of the profits, would be exempt.

"In my view we should have a system that penalises the actual operators and not their partners," Tony Chukwueke, head of the Department of Petroleum Resources, told Reuters in an interview.

The government has yet to decide whether to penalise producers and how, Chukwueke said, adding that the World Bank was acting as a mediator in talks with the industry.

Flaring means burning off gas found in association with oil. In Nigeria, companies flare gas because there is not enough infrastructure in place to make commercial use of it.

Investment in pipelines and processing is limited by very low domestic prices for gas and a lack of certainty over taxation and other regulations, foreign executives say.

Gas flares are a major source of carbon dioxide pollution and with an estimated annual volume of 23 billion cubic metres of gas flared, Nigeria is second only to Russia.

The government and the oil industry agreed a decade ago that gas flares should be eliminated by 2008 but the deadline is certain to be missed.

Today, flaring eats up a third of Nigeria's gas production.

Chukwueke said the deadline was supposed to be Jan. 1, 2008, but some in the industry were arguing that it should be Dec. 31. He said this was the subject of negotiations between the government and the companies.

"What is clear is that the government is committed that something needs to happen on this issue in 2008," he said.


EXCUSES

Royal Dutch Shell, which operates one big venture with the state oil company, has said it would miss the deadline because the government failed to provide funding for a joint project to install gas-gathering facilities.

Other joint venture operators are ExxonMobil, Chevron, Total and ENI.

Companies have also said that violence in the Niger Delta, the oil-producing region, had limited access to some installations and slowed down efforts to limit flaring.

Chukwueke said: "The industry knew the context when it agreed the 2008 deadline. Of course you can keep giving excuses but now something needs to be done."

He said options to penalise producers could include fines, restrictions on some of their installations or giving them a lower priority in filling Nigeria' OPEC oil supply quota. However, he declined to give details and said no decision had been taken on any form of penalty.

Joint venture operators say they will be forced to close oilfields if the penalty is too high.

Chukwueke said one way of tackling the problem would be to allow any reduction in gas flaring in Nigeria to qualify for carbon emissions trading. As things stand, the benchmark set for Nigeria means that it can only start taking part in emissions trading once it has already eliminated flaring.


Story by Estelle Shirbon


REUTERS NEWS SERVICE