Gas Flaring Regulation in the Oil and Gas Industry: A Comparative Analysis of Nigeria and Texas Regulations

U n i v e r s i t y o f T u l s a C o l l e g e o f L a w M a y 2 0 1 3

GAS FLARING REGULATION IN THE OIL AND GAS INDUSTRY: A Comparative Analysis of Nigeria and Texas Regulations. By Dennis Otiotio

GAS FLARING REGULATION IN THE OIL AND GAS INDUSTRY: A Comparative Analysis of Nigeria and Texas Regulations.

TABLE OF CONTENT 1. INRODUCTION page 2

1.1 Background1.2 Study Area1.3 Research Objective1.4 Research Question1.5 Methodology

2. UNDERSTANDING THE BASICS OF GAS FLARING page 102.1 What is gas flaring?2.2 What are the reasons for flaring gas?2.3 What are the environmental impacts of gas flaring?

3. International framework for gas flaring reduction page 13 3.1 International convention on the environment3.2 The United Nations Framework Convention on Climate Change

(UNFCCC)3.3 The Kyoto Protocol3.4 Global Gas Flaring Reduction Initiative (GGFR)

4. The Nigerian Institutional and Regulatory Framework page 224.1 Background history on the regulation of gas flaring in Nigeria4.2 The legislative and regulatory framework in Nigeria4.3 The institutional framework for regulating gas flaring in Nigeria4.4 The challenges, successes and failures at reducing gas flaring in

Nigeria5. The Texas Institutional and Regulatory Framework page 34

5.1 Background history on the regulation of gas flaring in Texas5.2 The legislative and regulatory framework in Texas5.3 The Institutional framework for regulating gas flaring in Texas5.4 The challenges, successes and failures at reducing gas flaring in

Texas

6. ANALYSIS AND CONCLUSION page 48

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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 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 world’s 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.

1 World Bank Press Release dated July 3, 2012, available at www.worldbank.org.

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Gas flaring is a waste of valuable nonrenewable 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 regulatory framework, non-availability of local and international gas

market, and financial constraints for the execution of gas reduction projects as the

three main barriers to natural gas conservation4.

It is generally believed that the enactment of environmental and conservation laws,

coupled with the establishment of independent regulatory and enforcement

framework will change the general behavior and attitude towards environmental

protection and invariably reduce gas flaring. However some economists have

2 Printed in 31 ILM (1992)3 Printed in 37ILM (1997)4 World Bank, “Report on Consultation with Stakeholders.” Global Gas Flaring Reduction- GGFR Report No. 1 (Washington: World Bank 2002)

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argued that regulation is not the best approach to encourage the oil and gas industry

to reduce gas flaring but rather market incentives aimed at reducing cost and

stimulating innovations.5

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 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.

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

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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 state’s 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.

This research will do a comparative analysis of all existing legislation regulating

gas flaring in the oil and gas industry, the institutions created to regulate gas flaring

and how the institutions’ regulations affect the operations of oil and gas companies.

This research will assess the applicable enforcement strategies and its efficacy in the

control of gas flaring in the oil and gas industry in Nigeria and Texas. The research

will also conduct a comparative analysis of the enforcement provisions of various

statutes and regulations so as to determine the powers conferred on the regulatory

agencies in Nigeria and Texas.

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A comparative study of gas flaring regulations in the oil and gas industry in Nigeria

and Texas is imperative to the glaring difference in the regulatory framework

between Nigeria and Texas, despite their similarity as big producers of oil and gas.

The difference in the oil and gas jurisprudence as it relates to ownership structure

of oil and gas is also instructive. While Nigeria lacks effective and efficient legislation

and regulatory institutions to reduce gas flaring, Texas has an efficient regulatory

regime aimed at reducing gas flaring.

The lesson that Nigeria can learn from Texas’s 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?

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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?

5. What lessons can Nigeria learn from Texas in order to achieve complete gas

flaring phase-out?

1.5. Literature Review.

The issue of gas flaring is a global phenomenon with its attendant environmental

consequences. Its importance has propelled lawyers and non-lawyers alike to write

articles on the subject. Garba I. Malumfashi,6 wrote on the review of the regulatory,

environmental and socio- economic issues relating to gas flaring in Nigeria and

concluded that phase-out of gas flaring in Nigeria in 2008 was feasible, depending

on the commitment of the government in achieving that objective. Ismail O. Saheed

and Umukoro G. Ezaina7 conducted research on the multi faceted impact of gas

flaring on a global scale and the different approaches employed by researchers to

measure gas flared and its resulting emissions. The outcome of the research shows

that there is no single global methods by which emission factors and estimation

procedures in the oil and gas industry all over the world can be used to determine

6Garba I. Malumfashi, “Phase –Out of Gas Flaring in Nigeria by 2008: The Prospect of a Multi- Win Project,” University of Dundee, Scotland, United Kingdom7 Ismail O. Sahad and Umukoro G. Ezaina, “ Global Impact of Gas flaring,” Energy & Power Engineer, 290-302, vol.4 issue 4, (July 2012)

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the volume of gas flared. Christen Kris,8 focused on the environmental impact of gas

flaring, venting and efforts by the world bank and governments to commercialize

associated gas, including developing domestic markets and access to international

markets, and creating legal and fiscal regulations for associated gas. Ologunorisa E.

Temi9 wrote on the impact of gas flaring on the Niger Delta region of Nigeria and

concluded that there is urgent need for scientific study and analysis of the effect of

gas flaring on the different environmental compartments in the Niger Delta, which is

a necessary ingredient for achieving sustainable development. David F. Prindle10

conducted a study on the efforts of the Texas Railroad Commission in reducing gas

flaring from 1930 to 1949. He stated that the Commission was one of the most

important regulatory bodies in the United States, and that it successfully prevented

the destruction of the state’s natural gas reserve through strict regulations. The

article enumerated the challenges faced by the commission and how it overcame

those challenges. Howard R. Williams’s article11 focused on various methods applied

by the different states in the United States to conserve oil and gas, and discussed the

steps taken by regulatory agencies to regulate the flaring of gas in some states

including Texas, but concluded that they are not inclined to enter an order unless

convinced that it is economically feasible to dispose of the residue of the casinghead

8 Christen Kris, “Environmental Impacts of Gas Flaring, Venting Add Up” Environmental Science &Technology, vol. 38, issue 24, 480 (2004)9 Ologunorisa E. Temi, “ A Review of Gas Flaring on the Niger Delta Environment” IJSD&WE, Vol. 8, 249 (2001)10 David F. Prindle, “The Railroad Commission and the Elimination of the Flaring of Natural Gas 1930 - 1949” The Southern Historical Quarterly, vol. 84, 293 - 308 (1981)11 Howard R. Williams, “ Conservation of Oil and Gas” Harvard Law Review, vol. 65, no.7, 1155-1183 (1952)

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gas by sale or reinjection. Moses 12 discussed extensively on the state of the law on

gas flaring in the United States leading up 1945.

There is no research that has been conducted to do a comparative analysis of gas

flaring regulations in Nigeria and Texas, and this research will abridge that gap and

serve to be immensely beneficial to the oil and gas jurisprudence of both

jurisdictions.

1.6. Research Methodology.

This research will undertake an indebt study and comparative analysis of all

legislations that regulate gas flaring in Nigeria and Texas, their respective regulatory

institutions, their composition, powers and ability to perform their respective

functions. In addition this research is intended to identify the major environmental

regulatory issues as it relates to gas flaring in the oil and gas industry in Nigeria and

the state of Texas in the United States.

This research will also undertake a comparative analysis of the existing regal regime

and institutions for the regulation of gas flaring in Nigeria and Texas, and analyze

the lapses in existing legislation, the failure of Nigerian regulatory agencies to

administer and enforce gas flaring regulations, and the role of major regulatory

institutions such as the Ministry of Petroleum Resources, the Department of

Petroleum Resources (DPR), and the Federal Ministry of Environment. The

legislative framework and existing institutional approach by Texas and the United

States’ Federal Government in controlling gas flaring will be critically examined,

including the role of the main oil and gas regulatory agency, The Texas Railroad

12 Moses, “Statutory Regulations in the Carbon Black Industry” 20 TULANE L. Rev. vol. 83, (1945)

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Commission, and its environmental counterpart, the Texas Commission for

Environmental Quality in reducing gas flaring in the industry.

The research will be largely library based and will rely on both primary and

secondary source materials in statutes, journal, case reports, historical records,

books, legislative code, administrative regulations, conference papers, newspapers/

magazines and other internet based sources such as Westlaw, LexisNexis, Cali,

Loislaw, Lawriter, Fastcase, Quardry online , nigerialawonline, Nigeria- Law, Nigeria

Washlaw, Nigerialawreport and etc.

2. UNDERSTANDING THE BASICS OF GAS FLARING

2.1. What is Gas Flaring?

In the early development of oil and gas production, operators did not

consider natural gas as a useful product and therefore burned it off at the

well or vented it into the atmosphere, through a process called gas flaring.

Gas flaring is the controlled burning of unutilized natural gas that is

associated with crude oil when it is pumped from the ground.13 A flare

system which is similar to the lighting of a burner tip on a gas stove,14 is

made up of a flare 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.

13 Justice in Nigeria, “Gas Flaring in Nigeria: an Overview” Newsletter, 1 (April 2010)14 Chesapeake Energy, “Gas Flaring in the Barnett Shale: A safe and regulated practice” March 2009, p1. Retrieved from www.askchesapeake.com on 1/19/2013.

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http://www.askchesapeake.com/

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.

In contrast, gas flaring goes beyond normal industry practices in Russia and

most developing countries in Africa and Middle East.17 Gas is continuously

flared in high volumes because it is the cheapest means of separating the

associated gas from the crude oil. The non-availability of a viable domestic

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. 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.

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http://www.openknowledge.worldbank.org/

http://www.epa.ohio.gov/

http://www.ehow.com/

gas market and the lack of requisite infrastructure such as liquefied natural

gas facilities and pipelines are a major obstacle to many developing

countries’ effort in reducing gas flaring.18 Therefore, gas flaring is allowed to

burn the associated gas that is produced along with the crude oil, and

thereby guarantees continued production, which results in increase revenue

to the government. The low domestic gas prices also contribute to gas flaring

because it makes utilization of the gas unattractive.

2.3. Environmental Impact of gas flaring.

Gas flaring is a waste of potentially valuable source energy and a global

source of black carbons, because the process emits a considerable amount of

carbon dioxide into the atmosphere, which causes global warming.

In most developing countries like Nigeria, gas flaring occurs on a daily basis

on the oil production platforms, thereby adversely affecting the environment

and health of the people living in the 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

18 Ibid at p3.19 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)

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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

According to the United States Environmental Protection Agency (EPA)24, the

effects of gas flaring are “ complex, not well summarized by a global warming

potential.”

3. INTERNATIONAL FRAMEWORK FOR GAS FLARING REDUCTION

3.1. International Convention on the Environment.

Nations were not seriously concerned about environmental issues until

1972, when the United Nations Conference on the Human Environment was

held in Stockholm Sweden. At the conference, nations met for the first time to

deliberate on global environment and development issues. This conference

was seen as a success, because it brought together developed countries who

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)24 US EPA Report to US Congress, (March 2012).

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laid emphasis on environmental protection and developing countries who

laid emphasis on social and economic development, to the discussion table.

The Conference came up with 26 Principles, calling on states and

international organizations to “play a coordinated, efficient and dynamic role

for the protection and improvement of the environment.” In 1973, the United

Nations, pursuant to the proposal of the Stockholm Conference, established

the United Nations Environment Programme (UNEP), with a mandate to

coordinate UN environmental activities, and assist developing countries in

implementing environmentally sound policies and practices. In 1988, UNEP

and the World Meteorological Organization established the

Intergovernmental Panel on Climate Change (IPCC).

In 1985, the Vienna Convention on the Protection of the Ozone Layer was

agreed upon at the Vienna Conference, and it entered into force in 1988. The

convention enjoins parties to appropriate measures to protect human health

and the environment against negative effects that will modify the ozone layer

due to the human activities. Article 2.1. Unfortunately the Convention did not

include legally binding goals for the reduction of CFCs.

The Montreal Protocol on Substance that Deplete the Ozone Layer, which is a

protocol to the Vienna Convention is a treaty established to protect the ozone

layer by phasing out the production of chemicals that deplete ozone layer

while searching for ozone friendly alternatives. The treaty was opened for

signature in September 16, 1987 and entered into force on January 1, 1989.

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197 states and the EU have since ratified the two ozone treaties, thus they

are regarded as the most successful international agreements in the history

of the United Nations.

But significant progress in creating international awareness on the impact of

gas flaring was achieved in 1992, in the United Nations Conference on

Environment and Development (UNCED), commonly referred to as the Earth

Summit. The conference was held in Rio de Janeiro, Brazil from 3rd June to

14th June 1992. The conference, which was attended by about 172

governments, and 2400 representatives of non- governmental organizations

(NGOs), addressed urgent problems of environmental protection and socio-

economic development. The Earth Summit influenced subsequent UN

conferences, and its major achievements were the agreement on Climate

Change Convention, which subsequently led to the Kyoto Protocol, and the

Convention on Biological Diversity (CBD). The Summit also endorsed the Rio

Declaration on the Environment and Development which contained 27

Principles to help guide international action, and Agenda 21 which is a non

binding, voluntary implementation action plan of the UN, multilateral

organizations and national governments that demands new ways of investing

in our future to be executed at local, national, and international levels.

The Summit balanced the aspirations of both the supporters of economic

development and environmental conservation by proclaiming the concept of

sustainable development as a workable objective for all concerned.25

25 United Nations, Johannesburg Summit 2002 Basic Information. 2. Retrieved from www.un.org/jsummit/html/basic_info/unced.html on 3/15/13.

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http://www.un.org/jsummit/html/basic_info/unced.html

Furthermore, success was achieved in the 2002 World Summit on

Sustainable Development or Rio + 10 (Johannesburg Summit) which is the

fourth major environmental conference held under the auspices of the United

Nations since 1972. The summit was the follow up to the 1992 Earth

Summit, was the first environment and development conference to allow

formal input from non-state parties identified as stakeholder in the Rio

conference. Although the Summit did not produce any new treaty or financial

commitment, it nevertheless provided an opportunity for concrete steps to

be taken towards implementing the principles agreed at earlier

environmental conferences.26 The Summit encouraged and recognized a

total of 266 partnerships on sustainable development.27 The most significant

of which was the Global Gas Flaring Reduction Initiative (GGFR).

The most recent international attempt at resolving environmental problem

was the 2012 United Nations Conference on Sustainable Development

(UNCSD), also known as Rio + 20 held in Rio de Janeiro from 13 to 22 June

2012. It was the third international conference on sustainable development

targeted at resolving the global conflicting issues of economic development

and environmental protection. The main outcome of the Summit was the

adoption by world policy makers of a series of sustainable development goals

(SDGs), the 49 page document contained many loosely define steps aimed at

addressing the challenges of poverty eradication, environmental protection,

26 Gill Seyfang and Andrew Jordan, The Johannesburg Summit and Sustainable Development: How Effective are Environmental Mega-Conferences? Yearbook of International Co-operation on Environment and Development. 3 (2002/2003). 27 The UN Secretary-General, Report of the Secretary-General on Partnership, P3, delivered to the Economic & Social Council, UN Doc. E/CN.17/2004/16. (February 10, 2004)

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and sustainable consumption and production. The SDGs are to complement

the UN’s Millennium Development Goals (MDGs) and aimed at providing the

foundation for a global green economy. However some environmentalists

have lambasted the outcome document as being inadequate to tackle the

challenges posed by a deteriorating environment. Nonetheless it is a step in

the right direction.

3.2. United Nations Framework Convention on Climate Change (UNFCCC).

One of the two legally binding agreements adopted at the 1992 United

Nations Conference on Environment and Development (UNCED) was the

United Nations Framework Convention on Climate Change (UNFCCC).28 The

UNFCCC was the first international effort to address the problem of climate

change caused by the emission of greenhouse gases through human

activities.

The ultimate objective of the Convention is to stabilize the emission of

greenhouse gases, “at a level that would prevent dangerous anthropogenic

interference with the climate system.”29 It went further to state that, “such a

level should be achieved within a time frame to allow ecosystems to adapt

naturally to climate change, to ensure that food production is not threatened,

and to enable economic development to proceed in a sustainable manner.”30

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. 2.30 Ibid.

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It is important to note that the UNFCCC specifies that the human interference

must be “dangerous” not simply interference that will impact the

environment.

There are a number of requirements built into the Conventions. First,

industrialized countries are required to reduce their overall emissions of

greenhouse gases to 1990 levels by the year 2000.31 Secondly, industrialized

countries have a general commitment to make financial and technological

transfers to developing countries.32 Thirdly, all parties are required to

periodically report the emission of greenhouse gases (GHGs), as well as

national mitigation and adaptation programs, although different timetables

are specified for annex 1 and non-annex 1 parties.33 The Convention

explicitly embraces the concept of common, but differentiated

responsibilities (CBDR),34 which puts the greater share of responsibility and

cost for battling climate change on the industrialized nations.35

The United States, since signing the Convention as an Annex I party, has been

taking actions to address the serious challenges of climate change, and to

promote a sustainable and prosperous clean energy future.36 These efforts

are occurring at all levels of government, and in the private sector. Over the

past decade, United States has promulgated several legislation and regulation

31 Id. art. 4(2)(a) & 4(2)(b). 32 Id. art 3(2), 4(1)(c), & 4(2)-(4).33 Id art. 4.34 Id art. 3(1).35 These are mostly UNFCCC Annex 1 Parties.36 United States, U.S. Climate Action Report 2010, 1 (2010 CAR)

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to provide a comprehensive long -term framework for combating climate

change.

While Nigeria, which became a signatory as an Annex II Party in June 13,

1992, has the responsibility to perform its obligations under the Convention.

This includes a duty to “ promote and cooperate in the conservation and

enhancement, as appropriate, of sinks and reservoirs of all greenhouse

gases.”37 Which duty also include the phasing out of gas flaring within its

capabilities with regards to finance, manpower and technology. In 1994,

Nigeria ratified its commitments to the convention, and thereafter entered

the agreement and commitments of the convention into force.

The United States and Nigeria are active participants in the Conference of

Parties (COP), which functions as the supreme organ of the UNFCCC and has

the legislative powers to create additional protocols and amendments to the

Convention, as well as the power to make other “decisions necessary to

promote the effective implementation of the Convention.”38

3.3. The Kyoto Protocol

The Kyoto Protocol was signed at COP – 3 in 1997 as a protocol to the

UNFCCC and entered into force on February 14, 2005. The detailed principles

of implementing the protocol were adopted in COP 17 at Marrakesh in 2001.

The Protocol constitutes the most important move by the international

community to strengthen undertakings embodied in the UNFCCC. The

37 UNFCCC, art. 4(1)(d).38 Id. art. 7(2).

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Protocol recognizes that the industrialized nations are responsible for the

high level of greenhouse gases as a result of years of industrial activities, and

it sets binding targets for industrialized nations to reduce their greenhouse

gases emissions below 1990 levels by 5% over a period of five years

beginning from 2008 to 2012.39 The Protocol covers the emission of six

primary greenhouse gases: carbon dioxide, methane, nitrous oxide, hydro

fluorocarbons, and sulfur hexafluoride.

In 1998, parties adopted the Buenos Aires Plan of Action, which established a

list of 140 items that must be agreed upon before a country could ratify the

Protocol.

One important element of the Kyoto Protocol is its flexibility mechanisms

that enable nations to achieve their emission target by means other than

reducing their domestic emission of greenhouse gases. Such mechanisms are

the Clean Development, Join Implementation, and Emission Trading

Mechanisms.

The United States signed the Protocol in November 12, 1998, but the Clinton

Administration did not submit it to the Senate for advice and consent, due to

the Byrd – Hagel Resolution.40 This resolution declared that the United States

should not be party to any mandatory reductions of GHGs unless developing

countries are also parties to such an agreement. Thus the United States is not

a party to the Kyoto protocol, even though it came into force after Russia’s

ratification in 2005.

39 Birnie, P. W. and Boyle, A. E., International Law and Environment, 2nd Ed. 526 (2002).40 U.S. Senate Res. 98, 105th Congress (1997) 143 Cong. Rec. S8113 – 05 (daily ed. July 25, 1997).

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Nigeria became a signatory to the Kyoto Protocol on the 23rd of October

1998, and ratified the Protocol in 30th of September 2004. Nigeria, as a non-

Annex I country has the possibility and the potentials to benefit from the

market-based mechanism created by the Protocol. Nigeria has indeed

collaborated with the United Nations Industrial Development Organization

(UNIDO) and CDM Secretariat in accessing some projects targeted at

reducing gas flaring such as the West African Gas Pipeline project and other

gas utilization projects.

3.4. The Global Gas Flaring Reduction Initiative (GGFR).

The Global Gas Flaring Initiative was launched formally at the World Summit

on Sustainable Development (WSSD), in Johannesburg, South Africa, on

August 30, 2002, with the objective of reducing carbon emissions and

environmental impact of flaring, monetization of wasted resource, and

improve energy efficiency and access to energy. It was the World Bank

Group, in collaboration with the Government of Norway that initiated this

global public – private partnership to facilitate gas flaring reduction with a

view to reducing air pollution, save energy and money, and reduce associated

poverty. The membership consists of government representatives from oil

producing countries, state owned companies and major international oil

companies who are committed to reducing wasteful and undesirable

practices of gas flaring and venting through policy change, stakeholder

facilitation and project implementation.

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The GGFR has already achieved specific results aimed a reducing flaring.

Some of these results include: endorsement of a “Global Standard for gas

flaring reduction,” implementation of demonstration projects for associated

gas utilization in seven countries; assistance to Nigeria, Equatorial Guinea,

Cameron, Algeria, Kazakhstan, and Qatar in meeting flaring out targets by

specific dates; potential avoided flared gas, through GGFR facilitated carbon

projects, which is approximately 12 billion cubic meters per year; and

development of a web- based tool to report flared and vented data on

country basis.

The GGFR work program, managed and facilitated by a World Bank team,

focuses on four key areas to overcome the obstacles to gas flaring reduction

in partner countries namely; commercialization of associated gas; regulation

of associated gas; implementation of the global flaring and venting standard;

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

4. THE NIGERIAN INSTITUTIONAL AND REGULATORY FRAMEWORK

41 Omeke Chukwuebuka, A Critique on the Legal Regime Governing Gas Flaring in Nigeria

22

4.1. Background History of Gas Flaring Regulation in Nigeria

Gas flaring started in Nigeria with the discovery of oil in commercial quantity

at Oloibiri, in the Niger Delta Region, in 1956. Since then the flaring of

associated gas has continued unabated, as the oil companies regard the

practice as the cheapest method of removing the associated gas and a

majority of the wells in the Niger Delta produces oil in association with gas.

The increase in oil production has proportionately increased gas flaring in

Nigeria. It is estimated that about 45% of Nigeria’s gas is flared as it is

produced in 2011, thereby accounting for 12.5% of the world’s flared gas

second to Russia.42

The Nigerian economy is largely dependent on the oil and gas sector, which

accounts for about 95% of its foreign exchange earnings, 40% of its GDP, and

75% of federal government total revenue.43 This prompted the federal

government to initiate policies and regulatory framework to attract more

investment, guarantee increased production and ensure a sustainable

environment.

Initially government interest in the oil industry was limited to the collection

of royalties, lease rentals and taxes, but that changed with the United Nations

Resolution on Permanent sovereignty over Natural Resources,44 which

spurred the federal government into enacting legislation to regulate the oil

industry. Consequently in 1969, the Nigerian government enacted the

42 Gbite Adeniji, “Approaches to Gas Flare Reduction in Nigeria,” Paper presented at GGFR Global Forum, London, (October 25, 2012). 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).

23

Petroleum Act,45 which vested the ownership and control of all petroleum

resources in the Federal Government of Nigeria.46 Subsequently Nigeria

joined the Organization of Petroleum Exporting Countries (OPEC) in 1971,

and in furtherance of OPEC’s resolution urging member states to acquire

controlling interest in concessions held by foreign companies, the Nigerian

Military Government in 1971, established the Nigerian National Oil

Corporation (NNOC).47 Pursuant to the powers granted the NNOC, it acquired

controlling interests in the oil companies operating in the country, thereby

making the government a majority shareholder in the oil and gas produced.

The provisions of the Petroleum Act was reinforced by §44(3) of the 1999

Constitution of the Federal Republic of Nigeria that, “… the entire property in,

and control of all minerals, mineral oils and natural gas in, under, or upon

any land in Nigeria or in, under or upon the territorial waters and the

Exclusive Economic Zone of Nigeria … vests in the Government of the

Federation…” and the Federal Government is to manage such minerals in

such manner as may be prescribed by the National Assembly. Thus the

Constitution confers exclusive jurisdiction on the National Assembly to

legislate on matters relating to oil, gas, and other minerals.

Due to the impact of the oil and gas production on the environment, the

Nigerian Government has promulgated many laws and regulations aimed at

abating gas flaring in the country. However, this has not been successful.

45 Cap. P. 10 LFN 2004.46 Id § 1(1).47 Decree No. 18 of 1971. But the NNOC later became the Nigerian National Petroleum Corporation in 1977, as a result of a merger between the NNOC and the Ministry of Petroleum Resources.

24

Some of these laws and regulations are: The Petroleum Drilling and

Production Regulations of 1969,48 The Associated Gas Re-Injection Act of

197949 as amended and the Regulations made pursuant thereto, The DPR

Effluent Limitation Regulations 1991, and The Environmental Impact

Assessment Act of 1992.

4.2. The Gas Flaring Legislative and Regulatory Framework in Nigeria.

The Petroleum Act remains the primary law regulating oil and gas

exploratory activities in Nigeria. The Petroleum (Drilling and Production)

Regulations,50 made pursuant to the Petroleum Act provides that the

Licensee or lessee of an Oil Mining License (OML) shall not later than five

years after the commencement of production, submit to the Minister of

Petroleum Resources, a feasibility study, program, or proposals that it may

have for the utilization of any natural gas that has been discovered in the

relevant area.51 Although the regulation require oil companies to submit their

strategies for gas utilization, the provision was not seen to be mandatory and

no penalty was provided for defaulters. The regulation also allowed

producers to flare gas for a period of five years before submitting the

feasibility study.

48 Decree No. 51 of 1969.49 Decree No. 99 of 1979.50 The Regulations are made pursuant to § 9 of the Petroleum Act, see Note 49.51 Regulation 42.

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A concrete step at regulating gas flaring was reached in 1979 with the

enactment of the Associated Gas Re-Injection Act (AGRA),52 which is a legal

framework for gas utilization that applies to both land and the Exclusive

Economic Zone (EEZ). The 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 Minister’s 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

52 Decree No. 99 of 1979. (Cap. A.25 LFN 2004)53 Id § 1(a) & (b).54 Id §3(1).55 Id §4(1) & (2).56 Id § 3(2).

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deadline,57 led to the promulgation of the Associated Gas Re-Injection

(Continued Flaring of Gas) Regulation.58 The Continued Flaring of Gas

Regulation, which commenced on January 1st, 1985, gave more powers to the

Minister under certain conditions to issue a certificate to oil companies for

continue flaring of gas under section 3(2) of the Associated Gas Re-Injection

Act. The Act and the attendant regulations could not be enforced, and gas

flaring continued unabated in the country, thus prompting the government to

amend the Act by resorting to an economic enforcement mechanism.

The Associated Gas Re-Injection (Amendment) Act,59 introduced a penalty of

two kobo per 1000 standard cubic feet (scf) of gas flared at any place

authority to flare was not granted. This amount was increased to fifty kobo

per 1000 standard cubic feet of gas in 1990, and the amount was further

increased in 1998 to ten Naira per 1000 standard cubic feet of gas. The

penalty amount has been further increased in 2008 to $3.50 per 1000

standard cubic feet of gas flared. The international oil companies are

disposed to paying the meager penalty to flare the gas which is

comparatively cheaper than utilizing the gas.

In 1991 /1992, the Government, in consultation with international oil

companies, introduced the Associated Gas Framework Agreement (AGFA),60

which served as a broad based fiscal incentive for natural gas utilization in

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 Nigerian Society of Chemical Engineers, 201-210 (November, 1999).58 S.I. 43 of 1984.59 Decree No. 7 of 1985.60 AGFA is incorporated into §11 of the Petroleum Profit Tax Act.

27

regard to its processing, production, transmission, and supply to NLNG and

other facilities.61

The government also enacted the Nigeria LNG (Fiscal Incentive Guarantee

and Assurances) Decree (FIGAD),62 as incentive to encourage and facilitate

the development of the Nigerian Liquefied Natural Gas Project (NLNG), which

in turn will reduce gas flaring. The Act grants ten years tax holidays to the

NLNG companies and also exempts the companies involved in the NLNG

project from import duties and certain taxes.63

The government in furtherance of its policy to encourage investment on

projects that will facilitate the utilization of gas, entered into a treaty with

three west African countries for the West African gas Pipeline Project in

January 31, 2003, and the treaty was domesticated into national law by the

National Assembly in the Treaty on West African Gas Pipeline Project

(Ratification and Enforcement) Act.64 The Treaty established the West

African Gas Project Authority (WAGP Authority), an international institution

having legal personality and financial autonomy with powers to implement

the project on behalf of member states.

The Petroleum Profit Tax Act65 also provides some tax incentives to

companies engaged in gas utilization projects.66

61 Omeke Chukwuebuka, A Critique on the Legal Regime Governing Gas Flaring in Nigeria. University of Nigeria (2011)62 Decree no 30 of 199063 Id. §§ 2 & 764 Act of 2004.65 Cap. 354 L.F.N. 1990; Cap. P14 L.F.N. 2010.66 Id. §§ 10A & 11.

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The Nigerian National Assembly in 201067 amended the Associated Gas Re-

Injection Act by providing that, “ No company engaged in the production of

oil or gas shall after 31st December, 2012, flare gas produced in association

with oil, or other than such minimum allowed by the Minister….”68 The

amendment set December 31, 2012 as the deadline for the abatement of gas

flaring,69 but went ahead to provide a new section that permitted companies

to continue the flaring of gas on the payment of a temporary gas flaring

penalty of $5.00 per 1000scf of gas flared.70 However the President has not

signed this amendment into law.

A significant legislative effort by the Nigerian Government to combat the

menace of gas flaring is the provisions incorporated into the Petroleum

Industry Bill, 2012.71 This bill seeks to consolidate all the existing oil and gas

laws in the country into one piece of legislation. The fundamental objectives

of the bill included amongst others, the prudent management and allocation

of petroleum resources and their derivatives in accordance with the

principles of good governance, transparency and the sustainable

development of Nigeria.72 The bill provide that natural gas shall not be flared

or vented in any oil and gas production operation, block or field after the

flare – out date to be prescribed by the Minister in regulations to be made

67 Associated Gas Re-Injection Amendment Act of 2010.68 Id. § 3(1).69 Id. § 3(2).70 Id. § 3(2)(b).71 The Bill was presented to the both Chambers of the National Assembly by the Nigerian President in July 19, 2012.72 Petroleum Industry Bill 2012. §§ 8 – 9.

29

pursuant to the Act.73 The bill further provides that any licensee or lessee

who flares or vents gas without a permit from the Minister shall pay a fine,

which shall not be less than the value of the gas flared.74 The bill prohibits the

issuance of a license or lease for the production of oil and gas to any

applicant without an acceptable comprehensive program for the utilization

or reinjection of natural gas.75 It mandates all operators to install metering

equipment within three months of the Act coming into force to measure the

volume of gas flared,76 and makes gas flaring without a permit a criminal

offence,77 and mandates any person, group of persons or community to lodge

a documented report of gas flaring or venting with the nearest office of the

Inspectorate.78 An officer of the Inspectorate is required to inspect the

facility within forty eight hours of receiving the report, and within seven days

submit a verification report to the Inspectorate, which is required to make a

determination on the matter, and if satisfied impose a fine or issue a shut

down order.79 The proposed provisions are an innovation to the provisions of

the Associated Gas Re-Injection Act.

The PIB in addition to the Ministry of Petroleum Resources, provide for the

establishment of two regulatory agencies, three funds, three companies and

one support bureau namely; Upstream Petroleum Inspectorate, Downstream

Petroleum Regulatory Agency, Petroleum Technology Development Fund,

73 Id. § 275.74 Id. §277(3).75 Id. § 278.76 Id. §279.77 Id. §281.78 Id. §280(1)79 Id. §280(2) – (6).

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Petroleum Equalisation Fund, Petroleum Host Communities Fund, National

Oil Co., National Gas Co., National Petroleum Assets Management Co., and

Petroleum Technical Bureau.

The government also enacted the Environmental Impact Assessment (EIA)

Act,80 which requires the developers of major development projects to

subject their projects to the provisions of the EIA Act by conducting an

environmental impact assessment before commencing work.

The National Environmental Standard and Regulations Enforcement Agency

(NESREA) Act81 was also promulgated to establish the NESREA as a

regulatory and enforcement agency under the Federal Ministry of

Environment.

4.3. The Institutional Framework for Regulating Gas Flaring in Nigeria.

There are Institutions established by the Nigerian government to regulate

and enforce gas-flaring regulations in the oil and gas industry. Most of these

institutions are established by legislation, which prescribe the nature and

extent of their powers and functions.

Ministry of Petroleum Resources (MPR):

The MPR is the main executive organ of the federal government. It is

responsible for the articulation and implementation of policies relating to

petroleum and other mineral resources, excluding solid minerals. The MPR

also maintain standards, monitor quality and quantity, and regulate practices

80 Act No. 86 of 1992.81 NESREA Act published in FRN Official Gazette No. 92, Vol. 94 of July 31, 2007.

31

in the industry. The Minister of the MPR is responsible for coordinating the

affairs of the MPR and issuing the necessary regulations and permits under

the Petroleum Act and other laws heads the MPR.

The MPR has several departments and corporations under its control and

supervision, including the state oil company – the Nigerian National

Petroleum Corporation (NNPC), and the Department of Petroleum Resources

(DPR). The MPR delegates most of its functions to the DPR to perform.

The Federal Ministry of Environment (FMENV):

The FMENV is the federal ministry saddled with the primary responsibility to

protect and improve water, air, land, forest, and wildlife of Nigeria. The

ministry was established for the first time in 1999 to comprehensively

prepare, coordinate and implement environmental policies and programs. It

is also mandated to prescribe standards for and make regulations on water

quality, effluent limitations, air quality, atmospheric and ozone protection,

and monitor and enforce environmental laws and regulations.

The FMENV has some parastatals and departments under its control and

supervisions, such as the National Environmental Standard and Regulations

Enforcement Agency (NESREA), and the Department of Environmental

Assessment (DEA). The DEA is charged with implementing the provisions of

the EIA Acts No. 86 of 1992.

The Department of Petroleum Resources (DPR): I

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t was the first statutory agency established to supervise and regulate the

petroleum industry in Nigeria. In 1975, the DPR was constituted into the

MPR and in 1977, the MPR and the Nigerian National Oil Corporation (NNOC)

were merged to form the Nigerian National Petroleum Corporation (NNPC).82

But the Decree also created the Petroleum Inspectorate as an integral part of

the corporation with a semi autonomous status. In 1988, the NNPC was

commercialized and the Petroleum Inspectorate Division was removed from

the NNPC and merged with the MPR as the DPR, which became the

inspectorate arm of the Ministry.

The DPR oversees all the activities of oil companies that are granted leases or

licenses to engaged in oil and gas production operations in Nigeria. It ensures

that operations are carried out in compliance with the applicable laws and

regulations. The DPR also enforces safety and environmental regulations and

advise government and relevant agencies on technical matters and policies

that would have impact on administration and control of petroleum.

The National Environmental Standards and Regulations Enforcement Agency

(NESREA):

This is a parastatal of the FMENV, established by the NESREA

(Establishment) Act of 2007.83 NESREA is empowered to enforce all

environmental laws, guidelines, policies, standards, and regulations in

Nigeria, as well as enforcing compliance with all international treaties,

conventions, protocols and agreements on the environment to which Nigeria

82 Decree No 33 of 197783 NESREA Act, published in FRN Official Gazette No. 92 Vol. 94 of July 31, 2007, repealed the FEPA Act Cap F. 10 LFN 2004.

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is a party. It is the regulatory agency of the FMENV. It regulates air quality

standards in Nigeria.

5. THE TEXAS INSTITUTIONAL AND REGULATORY FRAMEWORK

5.1. Background History on the Regulation of Gas Flaring in Texas.

In the United States, exploration and production of oil and gas occur in over

33 states. In order to conserve the natural resources and protect the

environment from degradation from these activities, the federal and state

governments have enacted laws and created agencies to regulate the oil and

gas industry. Several conservation and environmental agencies have

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

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)

34

http://www.ipo.org/

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 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 thirty-eight 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

86 Acts 26th Leg. Reg. Session, 1899, Ch. 49, p.8.87 Tex. Const. art. 16, §59a.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.

35

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 associated or casinghead gas from oil wells in

Texas.93 This posed great difficulty to the RRC in regulating and enforcing the

laws because of the difficulty in distinguishing between a gas well and an oil

well.94 The RRC after getting scientific data promptly classified hundreds of

wells as gas wells and ordered them to stop flaring. The operators objected

to these orders, which led to several litigations commonly known as the “

Clymore cases”95 where the court upheld the commission’s orders.

After intense lobbying and political maneuvering, the Texas Legislatures in

1935 passed house bill 266, which prohibited the production of gas in any

manner that causes underground waste, and gave RRC power to enforce the

Act.96 The courts upheld most of the provisions in HB 266 and the RRC

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 297.93 Tex. Rev. Civ. Stat. 6008, 6014 (1925).94 Berth P. Walker, “What is an Oil Well? What is a Gas Well? What Difference Does it Make?” Southwestern Legal Foundation Proceedings of the Fourteenth Annual Institute On Oil and gas Law, and Texation, 173-232 (Albany, 1963). 95 Clymore Production Co., v. Thompson, 13 F. Supp. 469 (W.D. Tex. 1936); Clymore Production Co., v. Thompson, 11 F. Supp. 791 (W.D. Tex. 1935)96 Tex. Gen Laws. Ch. 120 1935.

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quickly adopted rules prohibiting the flaring of unassociated gas in Texas, but

flaring of associated gas continued unabated.

In 1946, when commissioner Jester was elected Governor of Texas, he

immediately appointed William Murray, the foremost waste prevention

crusader to serve out his unexpired tenure in the RRC.97 And on April 1947,

the RRC issued an order shutting in all 615 oil wells in Seeligson Field in

South Texas until flaring of casinghead gas was eliminated and measures

taken to utilize the gas. Major operators in the field such as Shell, Magnolia

(Mobil), and Sun immediately filed suits challenging the orders. The Texas

Supreme Court upheld the RRC orders98 The RRC having won the cases, went

further to issue several orders shutting down seventeen fields for gas

flaring.99 These orders were also challenged in court, and the Texas Supreme

Court once again upheld the RRC’s orders.100 Thus by 1949, the RRC had won

the battle and from henceforth gas whether unassociated or casinghead

could not be flared without a valid permit.101

In the 1963, the United States Congress enacted the Clean Air Act (CAA) to

regulate air quality, and in 1967, the Texas Air Control Board adopted its first

air quality regulations. In 1969, the Environmental Protection Agency (EPA)

was created by a presidential executive order and Texas took over most of

the air monitoring responsibilities from the federal government. In 1970 the

CAA was amended and states were required to develop a State

97 Oil and Gas Journal, 76 (June 16, 1945 ed).98 Railroad Commission v. Shell Oil Co., 206 S.W. 2d 235 (Tex. Sup. 1947)99 David F. Prindle, see note 102, at p 308.100 Railroad Commission v. Flour Bluff Oil Co., 219 S.W. 2d 506 (Tex. Civ. App. 1949)101 David F. Prindle, see n 102, at 308.

37

Implementation Plan (SIP). In 1971 Texas passes its new Clean Air Act. In

1979, Texas submitted its SIP to meet compliance by 1982 except Harris

County. While in 1991, the Texas legislature created the Natural Resources

Conservation Commission (TNRCC) with effect from September 1, 1993,

which consolidated the Texas Water Commission and the Texas Air Control

Board.

In 1998, the EPA delegated to the TNRCC the National Pollutant Discharge

Elimination System (NPDES) program, which became the Texas Pollutant

Discharge Elimination System (TPDES), administered by the TNRCC. The

Texas Legislature established the Texas Emission Reduction Plan (TERP)

program in 2001. The TNRCC in 2002 changed its name to the Texas

Commission on Environmental Quality (TCEQ). The Legislature through

House Bill 1365 provided a stable funding source for TERP programs. 1n

2011, house bill 2694 gave the TCEQ another twelve-year mandate until

2023.

5.2. The Legislative and Regulatory Framework in Texas.

There are four principal legislations that were enacted to prevent wasteful

gas flaring and control air quality in Texas by the state and federal

government.

The 1917 amendment to the Texas Constitution,102 declares that the

conservation and development of the natural resources of the state are

public rights and duties, and directs the legislature to enact appropriate law

102 Tex. Const. Art. XVI, §59a.

38

to achieve these ends. This provision is seen as given broad powers to the

Legislature to enact laws for the conservation of oil and gas, including the

prohibition of gas flaring.103

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

103 Railroad Commission v. Sterling Oil & Refining Co., 218 S.W. 2d 415, 419 (Tex. 1949).104 Tex. Laws 1919, Ch. 155.105 Id. arts 6008, 6014106 Tex. Nat. Res. §85.045 and §86.011107 Id. § 85.046 and §86.012108 Id. §85.201109 Id. §85.202(b)

39

gas well or from the time of performing the casing opposite a gas bearing

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 escape…”110

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.

110 Id. §86. 185111 16 T.A.C. §3.32.

40

Paragraph h of the Rule authorizes the RRC or its delegate to

administratively grant an exception permit to flare or vent gas for a period of

one hundred and eighty days. But such an application must be accompanied

with the prescribed fees as required by §3.78(b)(5). But if the permit is for a

period longer than one hundred and eighty days, and the volume is higher

than 50 mcf/day, then the application will require a RRC administrative

hearing.

Whereas for permanent exception permit of 50mcf/day, the applicant must

submit cost benefit analysis, a map showing the nearest pipeline capable of

accepting gas, and the estimate of gas reserve, together with a fee of $375.00

per gas well, oil lease, or commingled venting or flare point.

Where an operator needs additional time to flare or vent gas, the operator

must re-file an application within twenty- one days before the expiration of

the existing permit. Once the application is filed within the twenty-one days,

the operator is authorized to vent or flare until final approval or denial of the

permit extension. The application for extension permit must be accompanied

with a fee of $150.00.

The Rule 32 exception permits are not transferable upon a change of

operatorship. Therefore the new operator must re-file the application for

exception permit within ninety days of the approval of the P-4 Transfer.

The Texas Clean Air Act of 1989,112 is another legislation that regulates gas

flaring in Texas. The original Act was enacted in 1965 with the purpose of

112 V.T.C.A., Health & Safety Code §382.001 et seq.

41

safeguarding the state air resources from pollution and protection of the

public health, general welfare and physical property, including the esthetic

enjoyment of air resources by the public and the maintenance of adequate

visibility.113 The Act had undergone several amendments and its scope

enlarged to incorporate changes made to the Federal CAA and its

amendments. The TCEQ, which is the successor to the Texas Air Control

Board, is empowered to administer and enforce the TCAA, establish and

control the level of air quality to be maintained in the state.114 The Act enjoins

the TCEQ to use practical and economically feasible methods in controlling

air contaminants,115 and grants it the necessary powers to carry out these

responsibilities.116 The Act also authorizes the TCEQ to adopt rules,117 issue

orders,118 and issue special permits, general permits and standard permits.119

The TCAA requires all persons planning to construct a new facility or modify

an existing facility that may emit air contaminant to obtain permit before

commencing such construction.120 The permit process differs in requirement

and applicability. The facility may qualify for permit by rule (PBR), if it does

not make a significant contribution of air contaminant to the atmosphere.121

But facility that does not qualify for PBR may be eligible for standard permit

113 Id. §382.002114 Id. §382.011(a)115 Id. §382.011(b)116 Id. §382.011(c)117 Id. §382.017118 Id. §382.023119 Id. §382.051120 Id. §382.0518(a)121 Id. §382.05196(a)

42

for oil and gas facilities.122 But the TCEQ is required to conduct a regulatory

analysis, determine and establish the emission limits based on the evaluation

of credible air quality data before issuing or adopting a new permit by rule

on oil and gas facilities.123

No person is allowed to operate a federal source without obtaining a permit

from the TCEQ under sections 382.0541, 382.0542, or 382.0543 of the

TCAA.124 All major sources of air emissions are subject to Title V of the

Federal CAA.

The TCAA also empowers local government or municipalities to enact and

enforce ordinance for the control and abatement of pollution that is

consistent with the Act.125 The municipalities are also authorized to inspect

the air quality, and to enter public or private property to determine whether

the level of air contaminants meet the level set by the municipality or

TCEQ.126

The TCEQ pursuant to the TCAA had promulgated rules and regulations to

establish ambient air quality standards in line with the federal air quality

standard and the SIP, and a permitting regime to control air quality in Texas.

These permits ordinarily specify the types and maximum amount of

contaminant a permit holder may be allowed to discharge into the air or

waterways of the state.127 The regulations relevant to oil and gas operations

122 Id. §382.051961(a)123 Id. §382.051961(b)(1), (2), and (3)124 Id. §382.054125 Id. §382.113126 Id. §382.111127 30 TAC§101 et seq.

43

that emit contaminants into the air are codified in chapters 106 and 116 of

Title 30 of Texas Administrative Code. The TCEQ regulations are required to

be in compliance with the provisions of the Federal CAA.128

The EPA’s authority for air pollution control is derived from the 1990

amendment of the CAA. The amendment modified and enlarged the federal

authority provided by the Acts of 1963 and 1970. The goal of the Act is “to

protect and enhance the quality of the Nation’s air resources so as to

promote the public health and welfare and the productive capacity of its

population.”129

Gas flaring activities of oil and gas companies create air emissions that may

be regulated under the CAA. In order to attain the goals of the CAA, the EPA

was authorized to establish National Air Quality Standard (NAAQS), and

establish the requirement of SIP to achieve the NAAQS. The CAA also

authorizes the establishment of New Source Performance Standards (NSPS)

for new and modified stationary sources, the establishment of National

Emission Standards for Hazardous Air Pollutants (NESHAP), and it also

establishes the New Source Review (NSR) permitting program.

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

128 42 U.S.C. §§7401 to 7671q (1970)129 Id. §7401(b)(1)

44

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.

5.3. The Institutional Framework for Regulating Gas Flaring in Texas.

There are three institutions responsible for regulating and enforcing gas

flaring laws in the oil and gas industry in Texas. Two state institutions and

one federal institution work in harmony to regulate and enforce oil and gas

conservation laws and air quality in the state.

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.

45

The Texas Railroad Commission (RRC):

The RRC is the state conservation agency with primary jurisdiction over the

oil and gas industry, while the TCEQ is the state environmental agency

responsible for air quality control. There is a Memorandum of Understanding

(MOU) between the RRC and the TCEQ detailing areas in which each could

exercise jurisdiction.133

The RRC is authorized by statute to prevent waste of oil and gas, and enforce

the prohibition of flaring of gas without permit. The Texas Legislature

originally created the RRC in 1891 with jurisdiction over rates, operations of

railroads, terminals, wharves, and express companies. But when the Oil and

Gas Conservation statute was enacted in 1919, authority was granted to the

RRC to prevent waste and take all necessary actions to enforce the ACT.

Presently the RRC consist of four regulatory divisions; Oil and Gas;

transportation and Gas Utilities; Surfacing Mining Reclamation; and Liquefied

Petroleum Gas. The Oil and Gas Division maintains ten offices for the purpose

of regulating oil and gas operations.

The RRC pursuant to the powers delegated to it by the Texas Legislature

adopted statewide Rule 32 to regulate gas flaring by oil and gas operators by

requiring that gas well gas and casinghead gas must be utilized for lawful

purposes. The Texas courts have consistently upheld the authority of the RRC

to prevent waste by regulating gas flaring in oil and gas fields.134

133 16 TAC §3.30; 30 TAC §7.117.134 See Railroad Commission v. Shell oil Co., 206 S.W. 2d 235 (Tex. Sup. 1947); Railroad Commission v. sterling Oil & Refining Co., 218 S.W.2d 415 (Tex. 1949)

46

The Texas Commission of Environmental quality (TCEQ):

The TCEQ is the environmental agency created by Texas Legislature in 1993,

by consolidating the Texas Air Control Board (1965 – 1993) and the Texas

Water Commission (1985 – 1993). The TCEQ is the primary state agency

empowered to regulate and enforce air quality standards, and regulates the

design of and emissions from flares in oil and gas facilities. It issues air and

water operating permits to businesses operating in Texas. The EPA had given

the TCEQ authority to enforce federal air quality standards in Texas. The

TCEQ regulates certain aspects of exploration and production activities of oil

and gas operations in Texas.

Owners and operators of oil and gas stationary facilities are required to

obtain permit from the TCEQ to emit air contaminant from the facility.135 The

TCEQ is empowered to issue PBR, where the facility is not a major source

pollutant, or a standard permit for oil and gas facilities where the facility

does not qualify for PBR, or a NSR permit, where the facility does not qualify

for PBR or standard permits. 136 The oil and gas operator with major source

emission facilities are also subject to Title V of the CAA and the TCEQ is also

authorized to regulate and issue permits under Title V.137

The Environmental Protection Agency (EPA):

The EPA is the federal agency responsible for administering the CAA. It was

created by an executive order of President Nixon in 1970, with the purpose

135 30 TAC §116.10136 See 30 TAC §116 Subchapter B. 137 See 30 TAC §112

47

of protecting human health and the environment by adopting and enforcing

rules and regulations pursuant to the authority delegated to it by the United

States Congress. The EPA, in order to achieve its objectives collaborates with

state environmental agencies to ensure compliance with the CAA. In this

regard the EPA had delegated its authority to the TCEQ in Texas.

The EPA has ten regional offices and Texas is under region 6 together with

Arkansas, Louisiana, New Mexico, and Oklahoma. The regional offices are

responsible for implementing the agency’s programs within the states under

their jurisdiction, and they also enter into MOU with states to specifically

delegate authority to the states to regulate and enforce air quality on behalf

of the EPA. The regional offices are responsible for ensuring that states SIP

are in conformity with the NAAQS and that the states rules comply with

federal rules.

6. COMPARATIVE ANALYSIS AND CONCLUSION

6.1 Comparative Analysis of the Successes, Challenges, and Failures of the

Gas Flaring Reduction Enforcement Mechanisms in Nigeria and Texas.

The Nigerian government has since 1999 vigorously pursued the objectives of

reducing gas flaring by encouraging accelerated gas development and utilization

projects through its pro- gas utilization policy, rather than rely on gas flaring

penalties.138 This has led to a drastic reduction of gas flaring in Nigeria. Although

Nigeria is still the second largest flaring country in the world, gas flaring has been

138 Sarah Ahmed Khan, Nigeria: The Political Economy of Oil, 168 (Oxford University Press, 1994).

48

reduced from 24 percent to 18 percent in the country between 2011 and 2012.139

The MPR has established an accelerated gas development and utilization program,

whereby the Ministry will give flared gas to any third party company that is ready to

invest in gas utilization and monetization projects.

In addition the Nigerian Government has directed more efforts at constructing a

network of gas pipelines across the country in order to deliver gas to domestic

markets, notable among such pipeline include the East – West Interconnector

Pipeline, Calabar – Umuah – Ajaokuta – Maiduguri Pipeline, and Ob/Ob – Owerri –

Umuahia Pipeline.

The establishment and the implementation of the National Domestic Gas Supply and

Pricing Policy also helped to reduce gas flaring. This policy instituted a domestic gas

supply obligation (DGSO) scheme that ensured the supply of an adequate quantity

and quality of gas by oil and gas producers to all active power plants in the country.

According to the MPR, between 2011 and 2012, one Bscf per day supply of gas to the

domestic market was achieved through the scheme.140

The MPR has also commenced implementation of a zero flaring policy for new oil

and gas fields. Thus projects are designed and operated from start – up without

continuous flaring and no permission is granted for gas flaring in new projects. The

Ministry had also installed pilot gas flare meters on a few flare lines to help measure

the value of the gas being flared accurately and the actual penalty to be paid.

139 Ministry of Petroleum Resources Bulletin, Achievements of the Ministry of Petroleum Resources and its Parastatals During Mr. President’s First One Year in Office. 4 (May 22, 2012). 140 Id. at p6.

49

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 improvement compared to the

initial penalty. But the government had departed from its previous command and

control approach to gas flaring reduction, to the provision of incentives to

encourage investment in gas utilization projects. Most of the incentive regimes are

incorporated into the Finance (Miscellaneous Taxation Provisions) Decree,141 and

the Finance (Miscellaneous Taxation Provisions) (No. 2) Decree.142 These laws gave

legislative force to the 1992 Associated Gas Fiscal Incentive Arrangements. Other

incentives include the creation of Export Free Zone to encourage investment in gas

utilization projects.143

The government acceded to the Kyoto Protocol in 2004 and established a

Designated National Authority, although the awareness of the CDM process is

limited with a weak institutional framework. But only a few projects have qualified

for CDM.

The promulgation of the EIA Decree144 has incorporated EIA as an integral and

mandatory part of the planning process for the development of oil and gas fields in

141 Decree No 18 of 1988.142 Decree No. 19 of 1988. 143 Oil and Gas Export Free Zone Decree No. 8 of 1996 as amended. 144 Decree No. 86 of 1992.

50

Nigeria. Therefore, permit to flare are now granted in consonance with the EIA

procedures that are supervised by the FMENV and DPR.

Despite these seeming successes in the gas flaring reduction efforts by the Nigerian

government, the country is still ranked second in the global gas flaring chart and

only a small percentage of gas produced is utilized. This is due to the challenges and

the legislative and institutional failures in the system.

The 1984 amendments of the AGRA was done to allow for continued flaring of

associated gas under permit issued by the Minister, subject to the payment of

penalties which is small compared to the cost of gas re-injection or utilization. This

was a great drawback to the government’s effort to stop gas flaring. Since then,

subsequent amendments have continuously postponed the abatement date with the

payment of penalty. The penalty is considered meager and does not pose as a

deterrent to oil and gas companies, which find it easier to pay the penalty than

utilize the gas.145 The amendments repeatedly pushed back the deadline to end gas

flaring. This demonstrates the complete lack of seriousness and political will on the

part of government to end gas flaring.146

One of the major challenges of gas flaring reduction in Nigeria is the government’s

role as a regulator and owner – operator in the oil and gas industry. The ownership

structure of the Nigerian oil and gas industry greatly impacts on the effectiveness of

the regulatory regime. The government owns the oil and gas in place, and through

the NNPC, owns major interests in joint ventures with oil and gas companies.

Therefore a regulation of the oil and gas operation is an indirect regulation of the

145 Environmental Right Action, Gas Flaring: Assaulting Communities, Jeopadizing the World, 6 (Dec 10 – 11, 2008,). 146 Justice in Nigeria Now, Gas Flaring in Nigeria: an Overview, JINN Newsletter, 3 (April, 2010).

51

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 appropriate rules, and enforce gas-flaring regulations. They mostly rely on

funds appropriated and remitted to them by their supervising Ministries. The oil

and gas companies fund most of the agencies activities thereby raising serious

conflict of interest issues.

147 Ibironke T. Odumosu, Transferring Alberta’s Gas Flaring Reduction Regulatory Framework to Nigeria: Potentials and Limitations, 44 Alberta L. Rev 863, 877 (June 2007)

52

There is also the problem of jurisdictional conflict between the MPR and the FMENV

on the one hand, and between MPR and DPR on the other hand. The functions given

to the agencies by the various statutes are overlapping, and thereby create conflicts

in regulating and enforcing gas flaring laws.

There is lack of gas infrastructure, and it takes time and huge resources to build the

required pipelines, and gas gathering and treatment plants in the country. The oil

and gas companies are not showing interest in committing investments to build the

needed infrastructures, and gas pipelines that will transport the gas to domestic and

international markets. Although the government, in partnership with some

international oil companies, are building pipelines, they appear to be grossly

inadequate for the country. The lack of infrastructures greatly affected the

development of the domestic gas market. Nigeria has a population of over 150

million people, with a 50 percent electricity generation capacity. The flared gas

would have been a valuable source of energy for the country.

Another challenge in the enforcement of gas flaring regulation is the fact that only

federal agencies are empowered to regulate and enforce 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.

53

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.

Presently, Texas is the highest producer and consumer of oil and natural gas in the

United States, providing one- fourth of U.S supplies and consuming one- sixth.148 In

2012, Texas produced about 546 million barrels of oil and 7.3 billion mcf of gas.149

But it has a low gas- flaring ratio of 0.4 percent,150 compared to states like North

Dakota with a gas flaring ratio of about 35 percent, and this success is as a result of a

plethora of factors.

148 Texas Energy Report, Natural Gas Ch. 5, retrieved from www.window.state.tx.us/specialrpt/energy/nonrenewable/gas.php on 2/7/13.149 Railroad Commission of Texas, Monthly Oil and Gas Production by Year Jan. 2007 – Jan. 2013. Retrieved from www. Rrc.state.tx.us/data/production/ogismcon.pdf on 4/20/13.150 Railroad Commission of Texas, Gas Flaring – Frequently Asked Questions (FAQs), P. 3. Retrieved from www.rrc.tx.us/about/faqs/flaringfaq.hph on 4/20/13.

54

http://www.rrc.tx.us/about/faqs/flaringfaq.hph

http://www.window.state.tx.us/specialrpt/energy/nonrenewable/gas.php

There is an effective and efficient legislative framework in place that is aimed at

prevention of waste, and the safeguarding of air resources and protection of the

health, general welfare and physical property of the People of Texas.

The Texas Constitution declares the preservation and conservation of all natural

resources of the state as public rights and duties.151 The Texas Oil and Gas

Conservation Act was enacted to conserve and prevent waste of the oil and gas

resources, protect correlative rights and promote economic recovery. Pursuant to

this Act, the RRC has been able to effectively regulate gas flaring since 1947. The

CAA and the TCAA were enacted to safeguard air resources and protection of the

health, general welfare, and physical property of the people. One of 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

151 Tex. Const. Art XVI, §59a

55

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 cooperation between the agencies.

The availability of gas utilization infrastructures and pipelines in Texas and its

environments has considerably helped in reducing gas flaring. There are over 1,200

pipeline operators with over 366,274 miles of pipeline in Texas. Natural gas pipeline

runs through all the 254 counties in Texas.152 This has encouraged the emergence of

a well-developed local and international natural gas market.

The operators in the oil and gas industry strive to be in full compliance with existing

rules on gas flaring. The operators’ work to ensure that they comply with all

regulations to avoid sanctions and they report to the RRC on a monthly basis the

volume of gas flared on the Production Report form (PR form). The agencies also

amend their rule regularly to reflect increase in production and take into account

latest available technologies that will encourage the use of the most efficient

emission reducing flares.

The RRC encourages operators to utilize gas for on-lease power generation, instead

of flaring, and it collaborates with Texas electricity energy regulators to identify

opportunities for the utilization of excess gas as a source of power generation.

Despite these successes in reducing gas flaring in Texas, the number of permits to

flare gas has more than quadrupled from 2008 to 2012. The RRC issued 1,963

permits in 2012, compared to 651 permits in 2011, 306 permits in 2010, 158

permits in 2009 and 107 permits in 2008.153 The situation prompted some Ranking

152 David J. Porter, “Effective Regulations for Flaring Reduction” GGFR Forum, 3 (London October 24 – 25, 2012).153 See n. 150 at P. 2

56

Members of the U.S. House of Representatives, Henry A. Waxman, Bobby L. Rush,

and Diana DeGette to write a letter dated May 14, 2012 to the Chairman of the

House Committee on Energy and Commerce, Hon. Fred Upton, requesting for a

hearing on the practice of natural gas flaring at oil production facilities in the U.S.,

and its potential energy and environmental impact. They stressed that Members of

the Committee realize the importance of natural gas to the nation’s energy future,

and therefore, they are ready to work together with all stakeholders in order to

reduce the harmful waste of precious natural resource. The letter specifically cited

the increase in gas flaring permits in Texas.154 Therefore it can be seen that though

Texas has not been able to completely solve the problem of gas flaring, it is far ahead

of Nigeria in this regard.

6.2 CONCLUSION

It is obvious from the foregoing discussion on the institutional and regulatory

framework of the gas flaring reduction mechanism of 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-rush-and-degatte-call-for-hearing-on-natural-gas-flaring on 2/14/13.

57

http://democrats.energycommerce.house.gov/index.php?q=news/reps-waxman-rush-and-degatte-call-for-hearing-on-natural-gas-flaring

http://democrats.energycommerce.house.gov/index.php?q=news/reps-waxman-rush-and-degatte-call-for-hearing-on-natural-gas-flaring

flare measuring and reporting procedures, investment in new technologies, realistic

policy targets, regular update of flaring rules to meet changing circumstances, three

tier enforcement system and collaboration amongst agencies and stakeholders.

While Nigeria had recorded some results in reducing gas flaring, its effort has not

been that successful in eliminating gas flaring because of several factors that have

prevented the country from realizing its set goal of abating gas flaring. These factors

include ineffective, inefficient, and non transparent gas flaring laws and policies;

lack of political will to implement policies that will eliminate gas flaring; the absence

of capable, independent and well funded regulatory agencies with the requisite

technical and scientific knowledge; conflict of interest on the part of the

government, regulatory officials and the oil and gas companies; unavailability of gas

infrastructure and market; large scale corruption in the oil and gas industry; no

coordination amongst the federal, state, and local governments, and the oil and gas

producers; lack of proper alignment between incentives and punitive based

mechanisms to eliminate gas flaring, absence of accurate and regular flare reporting

system; and the delay in passing the PIB into law.

For Nigeria to succeed in its effort to eliminate gas flaring, it must adopt the Texas

regulatory and enforcement measures. Nigeria must demonstrate the political will

by immediately passing the PIB as submitted to the National Assembly. This must be

accompanied by the formulation of realistic policy targets aimed at utilization of

flared gas by encouraging the construction of gas infrastructure, and development of

viable gas market. This could be achieved by resorting to international financial

institutions, and reliance on public – private partnership to raise the needed funds.

58

The challenge of the Nigerian government is to formulate and adopt a natural

resources conservation and management objectives, and introduce a combination of

regulatory and non-regulatory measures that balances punitive and incentive based

approaches to reduce gas flaring.

This study have been able to show that there are competing claims between oil and

gas production for economic development and environmental protection in all oil

and gas producing countries. And for a country to be able to protect its people and

its environment from the impact of the oil and gas industry, the country must have

the political will to set a natural resources conservation and management objective

and create the appropriate regulatory and institutional framework to regulate the

activities of the oil and gas industry. This study had made a comparative analysis of

the successes and challenges inherent in the gas flaring laws in Nigeria and the state

of Texas, and why Texas had recorded much success than Nigeria. The study had

enumerated measures Nigeria needs to take in order to attain its target of

eliminating gas flaring.

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.

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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.

60

Documents

Gas Flaring Regulation in the Oil and Gas Industry: A Comparative Analysis of Nigeria and Texas Regulations