Regulatory mechanisms for the oil and gas industry in a developing world setting

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Regulatory mechanisms for the oil and gas industry in a developing world setting

Introduction

As today’s society is organized, oil plays a critical and immense role. Petroleum products represent a lot more than just a major energy source that mankind uses. Other than being a vital source of energy, oil serves as feedstock for a number of consumer goods, and it therefore plays a pertinent and increasing role in the lives of people (Mariano & Rovere, 2012). Conversely, the oil and gas industry holds a significant potential of hazards for the environment and it might impact the environment at dissimilar levels including soil, water and atmosphere, and subsequently every living being on earth.

In this context, pollution is the most dangerous and extensive consequence of the activities of the gas/oil industry (Buchsbaum, 2013; Mariano & Rovere, 2012). This essay critically examines the regulatory mechanisms for the gas and oil industry within the context of the developing world. The essay does so by presenting theoretical, legal framework and environmental policies employed by developing countries in managing the impacts of the gas and oil industry.

The essay will particularly explore the regulatory mechanisms in the following oil-producing developing countries located in the Middle East, Asia, Africa, and South America: Venezuela, Peru, Colombia, Trinidad and Tobago, Algeria, Yemen, Philippines, Cambodia, and Sudan. Others are Papua New Guinea, Kazakhstan, Thailand, Afghanistan, Mauritania, Angola, and the Democratic Republic of Congo.

This essay will also examine the efficacy of the regulatory mechanisms in the aforementioned oil producing developing nations. This will help to determine whether or not the regulatory mechanism has actually been effective in preventing companies in the oil and gas industry from contaminating the environment in their operations.

The paper may determine that in some oil-producing developing nations, there are regulatory mechanisms but their enforcement is weak. This poor implementation of regulatory mechanisms could be due to a number of reasons such as lack of monetary and human resources required to ensure effective environmental governance, as well as corruption (Ingelson & Nwapi, 2014). In the countries with weak environmental laws, this essay provides a number of recommendations to ensure strict enforcement of environment laws for environmental protection in oil-producing developing nations.

Environmental impact of oil and gas industry

Pollution is linked to almost every activity throughout every phase of the production of gas/oil from exploratory activities to refining. Exploration of oil brings about many environmental problems such as the environmental degradation and economic loss due to gas flaring; soil contamination as a result of oil leaks and spill; and increased deforestation (Perunović & Vidić-Perunovié, 2012).

Gas emissions, waste waters, aerosols, and solid waste produced throughout drilling, production, refining and shipping amount to more than 810 dissimilar chemicals, amongst which prevail petroleum and oil products. The other impacts on the environment include contamination of the ground water, poorer quality of water, acid rain, and the intensification of the greenhouse effect (Klare, 2014). Additionally, the gas/oil industry might contribute to the loss of biodiversity and the destruction of ecosystems, which might be unique (Mariano & Rovere, 2012).   

In any nation around the world, particularly developing nations, the discovery of natural resource could be the start of economic growth in that nation. If managed well, the wealth derived from that natural resource can promote sustained economic development within that nation. Duncan (2013) noted that the exploration and exploitation of natural resources usually comes with a number of challenges, the major one being the industry’s negative environmental impact.

It is notable that the environmental impact of the gas and oil industry could be very disastrous to the country, that it necessitates a properly designed policy for managing controlling, and monitoring the industry’s negative impact on the environment (Ingelson & Nwapi, 2014). In many developing countries such as Mauritania, Cambodia, Kazakhstan, Colombia, Algeria, Nigeria, Trinidad and Tobago, Argentina, Peru, Angola, Venezuela, and Ghana among others, the gas and oil industry is marred by various environmental challenges (Tan, Faundez & Ong, 2015).

The environmental challenges are even considered a significant national concern since most of these developing nations have actually not performed well in terms of managing environmental problems brought about by the oil and gas industry (Vining, 2012).

The regulatory mechanisms in developing countries

The aim of environmental regulations in the natural gas and oil industry is basically to develop the framework in which regulatory programmes ensure that safeguarding of the environment is given greatest consideration as regards the development of gas and oil resources (Duncan, 2013). The goals of gas and oil regulation are to: present an effective and efficient framework for facilitating development and exploration of the nation’s oil/gas resources; reduce or eliminate risks to public safety and health and the environment and ensure proper resource management; and provide certainty and clarity to license holders with regard to the regulator’s requirements (Anejionu et al., 2015).

There are many developing nations that are producers or potential producers of oil and gas. These are illustrated in the table below:

In most of these developing nations, there is in place an adequately appropriate, though mostly theoretical, legal framework and environmental policy that is used to manage the impacts of the gas and oil industry (Tan, Faundez & Ong, 2015). On the whole, the regulatory system principles that have been adopted already in many developing nations are for the most part transposed onto the national legislation of these countries.

Put simply, most developing nations that produce oil have developed, in theory, a regulatory and legal framework consistent with the ones in place for the benchmark nations (Tan, Faundez & Ong, 2015). Most of these nations have established a dedicated institution whose purpose is to manage the social and environmental impacts of gas and oil industry; in most cases, this is usually a ministry for environment.

The regulatory, legal, and contractual frameworks in oil producing developing nations are as described below: environmental governance objectives – in these countries, the legal system is mainly reliant upon incentives or penalties to accomplish its environmental objectives. Constitutional rights and obligations – in oil producing developing countries, there are constitutional obligations and rights which specifically address ownership of natural resources, address the status of indigenous communities, sustain and protect the environment, and protect the health of people (The World Bank, 2011).

Environmental policy for the oil and gas industry – in the oil producing developing nations,

(i) specific laws have been put in place which establish policy for the development of this industry. Relevant regulations have also been duly enacted which give direction to executing the policy.

(ii) There are environmental laws which set policy for addressing environmental issues which arise from the exploration and development of oil and gas. There are a number of regulations duly passed providing direction for execution of policy (The World Bank, 2011).

(iii) Within the context of gas and oil industry development, oil producing developing countries have a set of laws which establish policy regarding use of water; emissions and effluents into the water, into the atmosphere, and onto land; noise; pollution; abandonment and decommissioning; and waste management including the management of hazardous wastes (The World Bank, 2011).

In addition, appropriate regulations have been duly enacted which give direction to the execution of the policies and have quantitative standards.      

Production-sharing agreement/host government agreement –

(i) in the oil producing developing countries, there is a particular host government agreement which clearly spells out the contractual obligations and rights of the host government that arise out of a gas and oil development. In addition, this specific agreement directly addresses the host government’s related environmental obligations and rights (The World Bank, 2011).

(ii) In these oil producing developing countries, there is a particular production-sharing agreement which spells out the contractual obligations and rights of the proponents of a gas and oil development. Moreover, this production-sharing agreement addresses the proponents’ related environmental obligations and rights (The World Bank, 2011). International agreements and obligations –

(i) most national governments of the oil producing developing countries have included international law rights as well as obligations in their legal system which addresses the environmental issues that arise out of gas and oil industry development.

(ii) The governments of these developing nations have established policy for addressing possible environmental impacts which affect adjacent nations by means of consultation or notification.

(iii) For transnational firms that operate in the gas and oil industry in these nations, the companies are required to comply with the corporate policies developed due to the jurisdictional requirements followed within its country of origin (The World Bank, 2011).

Environmental disputes –

(i) in these nations, there is actually an important access to a quasi-judicial commission or board as well as access to a national court system for every stakeholder to a functioning judiciary for ultimate, independent adjudication of disputes and determination of remedies that arise out of the environmental implications of the gas and oil industry development.

(ii) These countries also have laws which identify and establish public hearings or appeals process for projects that are complex and/or controversial.

(iii) Members of the public have access to the legal system and the court to get remedies for environmental nonconformity (The World Bank, 2011).

Protected areas, parks, and other restrictions on gas and oil activities – in many oil producing developing nations, the development of gas and oil is inadmissible within protected areas and parks. Before the bidding process, there are clearly identified restrictions which apply (The World Bank, 2011).

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Many developing nations have in place regulations and laws on the environment that seek to regulate the activities of companies in the oil and gas industry to minimize the negative impact of their activities on the environment (Abdalla, Siti-Nabiha & Shahbudin, 2013). There are oil/gas drilling and production regulations that restrict oil/gas companies operating in the developing country from using land within 50 yards of any public road, reservoir, dam or building; establish that oil/gas companies should take appropriate measures to prevent pollution of water, and to stop it if it happens; and prohibit oil and gas companies, without rightful permission, from cutting down of trees in the developing country’s forest reserves (Abdalla, Siti-Nabiha & Shahbudin, 2013).

Furthermore, many oil-producing developing nations have in place petroleum refining regulations which require the manager of an oil refinery to take the reasonable measures in preventing and controlling environmental pollution, and which stipulate how infringement of the regulation would be punishable, for instance through imprisonment or fine (Anifowose et al., 2014).

Oil-producing developing nations have also put in place regulations that set down the necessary precautions that any oil and gas company in the production, loading, transportation as well as storage of petroleum products is required by law to take in order to prevent pollution on the environment (Laurent, 2015). There are also relevant regulations concerned with the control and licensing of oil and gas refining activities. Such regulations prohibit unlicensed refining of hydrocarbon oils and petroleum products in locations outside an oil refinery, and require hydrocarbon oil refineries in the oil-producing developing country to maintain pollution prevention facilities (Aldhous, 2012).

In addition, these countries have in place regulations that seek to prevent the discharge of hydrocarbon oil and petroleum products from ships. Such regulations prohibit ships of oil and gas companies in the oil-producing developing country from discharging oil into shorelines or territorial waters (Abdalla, Siti-Nabiha & Shahbudin, 2013). These regulations have also made it an offence for companies that transport petroleum products to discharge any oil on the waters of the developing nation.

Oil and gas companies are required to install antipollution equipment in their ships (Atsegbua, 2012). The laws actually make such discharge punishable with a heavy fine and require the oil/gas company to keep records of incidences of oil discharge into the country’s shorelines or territorial waters. The oil-producing developing nations in which oil/gas is extracted offshore have in place relevant laws for oil pollution prevention offshore (Laurent, 2015). All discharges of oil from gas/oil offshore installations need to be controlled in a careful manner in order to reduce marine environment contamination and the contamination of the living resources which the marine environment supports (Farrington, 2014). 

Many oil producing developing nations also have some type of Environmental Impact Assessment (EIA) process which has been included in their regulatory and legal framework. Nonetheless, the emphasis of the process is largely directed towards regulatory approval of gas and oil projects and not towards developing a life-cycle approach for reducing social and environmental impacts all through the life of the whole project (Duncan, 2013).

Environmental Impact Assessment is essentially a legal procedure wherein the oil and gas company is required to present environmental information to a consenting body so that the information could be utilized to make better informed decisions. In addition, EIA entails publication and public disclosure/comment or consultation. Visser and Larderel (2012) reported that this information is often presented in an Environmental Impact Assessment Report.

There are a number of goals of an Environmental Impact Assessment. An EIA is a tool for identifying possible environmental impacts of a proposed project, assessing how important or significant these environmental impacts are and propose suitable mitigation, monitoring and management measures for preventing or reducing impacts to levels that are good enough (Visser & Larderel, 2012).

Environmental Impact Assessment is also a tool and process that aids decision-making. The information collected during an Environmental Impact Assessment could feedback into project design. Outcomes of Environmental Impact Assessment are usually utilized in managing subsequent stages of project design, construction, as well as operation (Visser & Larderel, 2012).

As dictated by best practice, the full extent of the Environmental Impact Assessment process in some oil-producing developing nations has yet to be executed. What lacks in particular is adequate and systematic participation of local stakeholders and the public, access to baseline social and environmental information within the affected areas, comprehensive examination of project alternatives, as well as consideration of cumulative and regional impacts further than the project level (Visser & Larderel, 2012).

In most of these nations, project follow-up and environmental monitoring are seen as part of the Environmental Impact Assessment framework regulatory enforced. Even so, actual enforcement practices is usually insufficient, there is inadequate environmental monitoring, and monitoring data are either not divulged or they are not made extensively accessible to the affected stakeholders and the public (The World Bank, 2011). Furthermore, many oil producing developing nations have inadequate – at times completely absent – enforcement and control mechanisms in the post-Environmental Impact Assessment approval stage.

Although a lot of oil-producing developing nations claim that risk management procedures and regulatory enforcement mechanisms for gas and oil activities are included into the regulatory framework, actual enforcement of Environmental Impact Assessment approval conditions and regulatory limits on-the-ground is not happening systematically and effectively (The World Bank, 2011).        

Regulations and policies to reduce environmental impact of pit-wastewater: some oil-producing developing countries such as Brazil, Venezuela, Mexico, Colombia and Thailand have in place appropriate regulations aimed at reducing the environmental impact of pit-wastewater which include wastewater and sludge that is generated through drilling activities (Mariano & Rovere, 2012). Oil and gas companies are required to install pit-wastewater processing systems.

To avoid affecting local environments, these companies are expected to return pit-wastewater – wastewater that treatment facilities emit and production water attendant to gas and oil – underground, and treat pit-wastewater with the use of microorganisms and discharge the treated water into the ocean (Perunović & Vidić-Perunovié, 2012). Companies are also required to design and install their facilities and establish operating manuals basing upon their risk assessment in order to prevent contamination as a result of crude oil and pit-wastewater leaks (Anomohanran, 2012).

Gas and oil companies are also required to establish an operating structure under which they monitor the operations of their facility with the use of twenty-four hour patrols and remote systems. This ensures that even in case of an accident, any leakages could be reduced (Mohamed & Al-Thukair, 2013)

Regulations and policies to prevent air pollution: in a number of oil-producing developing nations including Argentina and Thailand and Egypt, there are laws that require oil and gas companies to avoid air pollution as much as possible. Emissions from combustion equipment utilized in production sites such as gas engines and boilers are required to be below the regulation standard limits for concentrations of nitrous oxide and dust (Managi et al., 2012).

Critique of the impact and application of the regulatory framework in oil-producing developing nations 

Even though these developing nations have a regulatory framework, the efficacy of the regulatory frameworks is compromised by the lack of an adequately organized administrative structure which facilitates effective regulatory conformity and enforcement. Furthermore, the other factor that compromises the effectiveness of regulations is the lack of monetary and human resources required to ensure effective environmental governance.

In the oil producing developing nations, the institutions that are responsible for environmental management generally have inadequate or little resources – information systems, technology, training, personnel, and budget – to properly execute their strategies and perform their regulatory mandate (The World Bank, 2011).

Although the governance structure and frameworks are in existence in oil producing developing countries, the execution of governance in an effective and efficient environmental management system for gas and oil activities is not well established. As such, efforts are required for strengthening the technical and administrative capabilities of governments in such countries so as to improve the environmental governance of the gas and oil industry (Duncan, 2013).    

Nowadays, environmental concerns are not regularly taken into account in plans for offshore gas and oil exploration and development. Depending on the oil producing nation where they are working, most oil and gas corporations also operate to different social and environmental standards. In some oil producing developing nations, this implies that even the most fundamental requirements are not met (Tan, Faundez & Ong, 2015).

Decommissioning of infrastructure is also a key issue and is rarely taken into account during planning and control. The life of a lot of oil exploration wells is limited; some wells with as short as just 1 – 3 months, though their construction often has long-term impacts. If planning for decommissioning is taken into consideration in the process of design, then environmental disruption will be decreased (Vining, 2012). All in all, thanks to weak environmental laws in many oil producing developing countries, many oil and gas companies continue to cause irreparable damage to the environment through their gas and oil exploration and development activities.

What the governments need to do to strengthen their regulatory framework

Governments of these nations need to establish stringent laws and regulations and take drastic actions against any oil and gas company that violates such laws and regulations not only through paying of fines (Anejionu et al., 2015). Firms that violate the established laws/regulations have to be fined very exorbitantly to serve as a deterrent against other oil and gas companies that plan on deliberately and carelessly polluting the environment during their gas/oil exploration and development in developing nations.   

Conclusion

In conclusion, most developing nations that produce oil have developed, on paper, a regulatory and legal framework similar to the ones established in the benchmark nations. Many oil-producing developing countries have established a dedicated institution whose main purpose is to manage the environmental impacts of gas and oil industry. Although oil-producing emerging economies have a regulatory framework in place, the efficacy of the regulatory frameworks is compromised by the lack of a properly organized administrative structure that actually facilitates effective regulatory conformity and enforcement.

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