Oil firms resist Nigerian fines for gas flaring

ABUJA Dec 4 (Reuters) - Oil companies operating in Nigeria complained on Tuesday about government plans to start fining them for flaring gas next year, saying the deadline was unrealistic and the economic damage would be immense.

The industry regulator had said on Monday it would fine companies $3.5 for every 1,000 standard cubic feet of gas flared from Jan. 1, and shut down oilfields that still burnt off gas associated with oil extraction after Dec. 31, 2008.

"It is not practical to end flaring (in 2008) or shut in by 2009 because of the economic consequences. It would defer income from 480 million barrels of oil between 2009 and 2012," said Charles Adeniyi, an official from oil major Chevron (CVX.N).

He was speaking on behalf of the oil industry at a public hearing on flaring held at the National Assembly, which was also where the regulator detailed its planned sanctions on Monday.

The 2008 deadline was agreed between the industry and the government a decade ago.

Adeniyi said the industry wanted the deadline to be shifted to 2010. He said even that timeframe was not entirely in the companies' hands but depended on government action.

"Even 2010 depends on the removal of barriers. There are still issues of security, funding and infrastructure," he said.

He was referring to violence in the oil and gas heartland, the Niger Delta, which has delayed several industry projects, due to a long-running argument between the state oil firm and its private partners over cash and to a dearth of gas pipelines.

At present, the vast majority of onshore Nigerian oilfields flare gas and their closure would slash output from the world's eighth-biggest exporter of crude oil, which currently stands at about 2.2 million barrels per day.

APATHY

The regulator says it is serious about the fines and the threatened oilfield closures because it wants to end decades of apathy by oil companies and government.

Gas flares burning day and night are a health hazard to nearby communities and contribute to global warming, environmentalists say. They are also a waste of resources.

But oilfield closures on such a scale would mean a huge loss of revenue for the government, which relies on oil as its economic lifeline. Many analysts doubt that Nigeria will enforce the measures to the detriment of its public finances.

Nigerian officials respond that oil production capacity is growing but is constrained by the OPEC quota. Thus if onshore fields that practice flaring are shut down, production could be ramped up at offshore fields to make up for the shortfall.

Oil companies in Nigeria flare about 2.5 billion cubic feet (bcf) of gas per day because there is not enough infrastructure to make use of it. Only Russia flares more gas than Nigeria.

It exports 3 bcf per day through the Nigerian Liquefied Natural Gas plant, but supplies only 0.5 bcf per day to the gas-starved domestic power sector, for lack of sufficient infrastructure.

The government and the five oil majors that operate joint ventures with the state oil company -- Chevron, ExxonMobil (XOM.N), Royal Dutch Shell (RDSa.L), Total (TOTF.PA) and Eni (ENI.MI) -- blame one another for the failure to stop flaring.

The companies say the government has never produced its fair share of the funding needed to provide gas gathering infrastructure that would allow them to put out the flares. But the government accuses them of dragging their feet. (Editing by James Jukwey)