A QUICK OVERVIEW OF THE NEW NATIONAL GAS POLICY
The Nigerian Federal Executive Council, on 28 June 2017 approved a new National Gas Policy (NGP) to replace the 2008 Nigeria Gas Masterplan.
In view of the volatility of crude oil price, it is apt that the NGP sets out quite clearly that the government is making a “gas play” and not an “oil play”. The NGP recognises that Nigeria has more gas reserves than oil. With proven gas reserves of 188 trillion cubic feet (tcf), Nigeria has the 9th largest gas reserve in the world. The NGP aims to move Nigeria from a crude oil export-based economy to a gas-based industrial economy.
Assessment of the new NGP
The NGP articulates government’s policy thrust and agenda for promoting investment in gas as an alternative means for generating revenue and driving economic growth. The NGP notes that while the 2008 Gas Masterplan recorded some successes with growth at 3.1% a year, it only barely kept pace with the national population growth of Nigeria which is approximated at 2.8% per annum. This implies that there was insufficient growth in the development of Nigeria’s gas in real terms. However, the NGP still makes growing domestic market its priority while developing a significant presence in international markets.
Key Features of the NGP
The NGP seeks to create a governance framework that will focus on gas as a ‘stand-alone commodity’ separate from oil and will address all the legal, regulatory, institutional, commercial, and fiscal issues concerning gas. It also intends to provide a clear market structure, promote investments in both upstream gas production and increased downstream gas processing and consumption through the use of Liquefied Petroleum gas (LPG), Natural Gas Liquids (NGL) and Compressed Natural Gas (CNG) for both industrial and domestic use.
The Market for Nigerian LNG:
The NGP takes into consideration the prevailing factors that might affect the patronage of Nigeria’s Liquefied Natural Gas (LNG) including the possibility of a shale gas development in China, stiff competition from Qatar, Abu Dhabi, Tanzania and Australia who are closer to LNG markets in the Pacific basin, the Shale gas revolution in North America, the dominance of Trinidad & Tobago as an LNG supplier in South America, and the agitation and drive for renewable energy in Europe
However, the NGP provides for how these factors could be surmounted, including suggesting that a comparatively better opportunity for Nigeria’s LNG will lie in targeting African markets.
Gas Governance, Legislation and Regulation
The NGP contains a comprehensive overview of the government’s policy objectives and the steps it will take towards achieving those objectives. Some of these steps include reforms of governance (legislation and regulation) in the gas sector, enforcement of domestic supply obligations, fiscal provisions, reworking the industry structure with a focus on public-private partnerships, providing incentives and opportunities for investing in natural gas products such as Natural Gas Liquids (NGL) and Liquefied Petroleum Gas (LPG), developing gas infrastructure and building markets among others.
The NGP acknowledges that Nigeria’s extant petroleum law, the Petroleum Act of 1969 is designed primarily for crude oil, and does not address gas as a commodity in its own right. This is compounded by the fact that there is no legislation that sufficiently provides for the regulation, production and utilisation of downstream gas.
The NGP provides that a new gas legislation will be enacted that will treat gas as a separate commodity and will implement separation of the upstream from the midstream; separation of gas infrastructure ownership and operations from gas marketing; licence different activities in the gas value chain; and provide for appropriate pricing, competition and a fiscal regime. The responsibility for the economic and technical regulation of the gas sector will be vested in a strong independent regulator.
Some of the other features of the NGP include:
- completely prevent gas flaring and limit the reinjection of associated gas in oil projects;
- separate activities between the government and private sector;
- pursue a project-based rather than centrally-planned domestic gas development approach;
- inclusion of a model Gas Development Agreements in Production Sharing Contracts
- make a strong maintenance and safety culture a priority;
- establish strong linkages with electric power, agriculture and the real sectors;
- provide relevant regulations and a network code; and
- implement and complete necessary infrastructure for gas.
Opportunities presented by the NGP
The implementation of a new gas network code and a revised gas pricing regulation as provided by the NGP will give more comfort to investors in Nigeria’s gas sector as there will be open access to gas facilities and infrastructure, and a more competitive price to encourage further investment and meet domestic demands. The NGP also seeks to incentivise investment in gas liquefaction facilities through a government undertaking to pay a tolling fee to the owners of such facilities for liquefying, shipping and regasification of the government’s equity gas.
The NGP also expresses the government’s intention to encourage investment in new technology for the capture and utilisation of associated gas for power generation; to replace diesel with gas as a source of fuel; and for the establishment of small scale or mini-LNG plants. The NGP will further focus on increased domestic gas processing and usage for petrochemical plants, fertiliser plants, village power plants, embedded power plants; and for transportation through Natural Gas Vehicles (NGV), LNG vehicles and CNG transport by barge, rail and/or road. The NGP specifically requests that prospective investors in alternative means of transportation using gas as a fuel should forward their proposals to the government.
If you are interested in getting more information on how this new policy will affect the present architecture of Nigeria’s gas sector, create opportunities for investors in the gas sector, as well as the legal ramifications, please feel free to contact us through our contact details as we will be happy to assist you.