Nigeria’s oil-rich environment has positioned it as a significant energy producer in Africa, boasting one of the largest oil reserves on the continent, along with substantial proven gas reserves. The commercial-scale discovery of oil in Olobiri, a rural village in Bayelsa state, in 1957, exemplifies the nation’s growing petroleum activities, resulting in the creation of over 170 offshore oil and gas installations.
As petroleum activities continue to flourish, the pressing question arises – how will Nigeria handle the inevitable disuse and abandonment of onshore and offshore oil and gas infrastructure? The answer lies in decommissioning, a concept that addresses the sustainable removal and disposal of these facilities, safeguarding the environment and public safety.
This article explores the significance of decommissioning in Nigeria, and how the Petroleum Industry Act 2021 addresses these critical issues.
Decommissioning refers to the decision and procedure made, regarding the condition of oil and gas installations after they are no longer in operation, to minimize their impact on the environment and other legitimate interests.
According to the United Kingdom Energy Act 2008, decommissioning is the physical removal and disposal of outmoded installations at the end of their useful life, which includes the operator’s and the government’s plan of action.
Types of Decommissioning
There are two categories of decommissioning, namely; Onshore and offshore decommissioning.
DECOMMISSIONING UNDER THE PETROLEUM INDUSTRY ACT 2021
The aim of the Petroleum Industry Act (PIA) is to establish a comprehensive legal, governance, regulatory, and fiscal framework for the Nigerian petroleum industry, which also addresses matters related to the development of host communities. To achieve these objectives, the PIA establishes two principal regulatory bodies: the Nigerian Upstream Petroleum Regulatory Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority.
The procedure for decommissioning is contained in Sections 232 and 233 of the Petroleum Industry Act (PIA), which require:
Furthermore, failure to comply with the decommissioning plan allows the Nigerian Upstream Petroleum Regulatory Commission or the Nigerian Midstream and Downstream Petroleum Regulatory Authority to access the fund and engage a third party for decommissioning. The Contributions to the fund depend on approved plans for upstream and midstream operations. Yearly amounts are estimated and approved by the Nigerian Upstream Petroleum Regulatory Commission or the Nigerian Midstream and Downstream Petroleum Regulatory Authority.
The contributions to the decommissioning fund are eligible for cost recovery and tax deduction, but decommissioning costs disbursed from the fund are not. Any excess in the fund after approved decommissioning will be considered income and returned to the licensee or lessee after withholding profit oil and taxes.
The Nigerian Upstream Petroleum Regulatory Commission or the Nigerian Midstream and Downstream Petroleum Regulatory Authority has enforcement power and maintains a public database of installations.
The Nigerian Upstream Petroleum Regulatory Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority have issued separate regulations:
This means Licensee, (incorporated companies validly existing in Nigeria under the CAMA 2020) whose permit or license has been granted by the issuing authority must submit “decommissioning plans” to the Nigerian Upstream Petroleum Regulatory Commission or the Nigerian Midstream and Downstream Petroleum Regulatory Authority, complying with the regulations, within one year of their effective date. The plan’s approval implies approval of the decommissioning plan.
In contrast to the well-established decommissioning regulations in the UK and other oil-producing nations, Nigeria has lacked adequate legislation under the previous Petroleum Act for decommissioning of onshore and offshore oil and gas installations, for example:
The PIA has significantly improved the situation by introducing regulations for both onshore and offshore decommissioning and establishing separate regulators for upstream and midstream/downstream sectors. The introduction of decommissioning funds addresses previous criticisms, and stiffer penalties for non-compliance align with international best practices. This enhances Nigeria’s approach to future decommissioning issues.
Read the latest issue of the OGV Energy magazine HERE