Operators in the Nigeria’s Midstream Oil Sector have expressed the hope that the country’s readiness to implement the National Gas Policy will unleash significant investment that will trigger industrial revolution, CHIKA IZUORA writes.
The approval of the National Gas Policy by the federal government is generating interesting discussions among investors in the midstream oil sector who appear elated that a new fiscal framework that would accompany the implementation would prompt new investments in the sector. The federal government has also promised that the policy would be reviewed and updated periodically to ensure it is consistent with government policy objectives at all times.
The director of press at the ministry of petroleum resources, Idang Alibi, in a statement explained that the policy document builds on the policy goals of the federal government for the gas sector as presented in the 7 Big Wins initiative developed by the ministry and the national economic recovery and growth plan, ERGP, 2017-2020
Alibi said the policy articulates the vision of the government, set goals, strategies and an implementation plan for the introduction of an appropriate institutional, legal, regulatory and commercial framework for the gas sector, as he explained that the regulation is intended to remove the barriers affecting investment and development of the sector.
Policy Thrust-Alibi said: “The gas policy intends to move Nigeria from an oil-based to an oil and gas-based industrial economy, which will be driven by the core principles that will “separate the respective roles and responsibilities of government and the private sector; establish a single independent petroleum regulatory authority.
“Implement full legal separation of the upstream from the midstream; implement full legal separation of gas infrastructure ownership and operations from gas trading; realise more of the LNG international downstream value; pursue a project-based, rather than a centrally-planned domestic gas development approach.”
Other contents of the policy, Alibi said, includes: “Make a strong maintenance and safety culture a priority; Implement international best practice for environmental protection; establish strong linkages with electric power, agriculture, transport and industrial sector; establish payment discipline throughout the energy chain. Honour stability of contract terms; Ensure security of assets and ensure compliance with the Nigerian Content Act.”
He also mentioned that the policy covers governance (Legislation and Regulation); industry structure; development of gas resources infrastructure; building gas markets and developing national human resources. The Minister of State for Petroleum, Ibe Kachikwu, had before this concrete step was taken said that the federal government has initiated gas policy interventions that would move the economy from oil to gas.
Kachikwu said with the new move, the country will diversify the gas supply options within Nigeria, ensure security of supply; extend gas penetration in the domestic market in order to facilitate the growth of the electric power, agricultural, and industrial sectors; gain a presence for Nigerian gas in international markets; and operate a gas industry with a clear division of roles between private and public sectors.
$51bn Market Opportunities-In his assessment of the sub sector and opportunities that lie ahead of potential investors, group managing director, Nigeria National Petroleum Corporation (NNPC), Dr. Maikanti Kacalla Baru, said about $51 billion investment opportunities exist in the midstream and downstream gas sector to achieve the growth phase in the industry in Nigeria.
According to Baru, about $35.4 billion investment will be required in the gas exploration and production activities, power plants projects, fertilizer plants, virtual pipelines and flare gas commercialization initiatives. The GMD added that $16 billion investment will also be needed in the Free Trade Zones (FTZ) infrastructure development and concessioning, port infrastructure, central gas processing facilities, gas transmission, LPG plants, real estate development, pipe milling and local fabrication yards among others.
Similarly, the managing director of the Nigerian Liquefied Natural Gas, NLNG, Tony Attah, said: “It is time for gas. We need deliberate decisions and policies to decouple oil from gas and attract investment. We need to do that now. Investments in the gas and LNG industry are declining. It is already difficult as things stand. To find Foreign Direct Investment (FDI) and growth in the gas industry has been cautious after the recent down-beat global crude oil price. In addition to this, Nigeria is ranked 167 of 189 countries in the ease of doing business index.”
He said: There is the strong likelihood of increased gas demand in future and that is where the silver lining is, but warned that, if we continue with the self-inflicted barriers in our gas industry, we might miss the opportunities to make this country a major player in the global energy mix.
“The industry has benefited the economy, diversifying the revenue and export base as well as channelling FDI into the country, creating jobs and contributing significantly to the local manufacturing capacity in the country, but all that would be laid waste if we continue to shift policies and renege on international agreements that put some framework into the business and generated investors’ confidence. We need to be creative with incentives that will attract investments and preserve the sanctity of contracts and agreements.”
The Gas Masterplan-The government in its bid to become a major international player in the international gas market as well as boost the domestic market and realize maximum revenue possible from gas initiated the Gas Master Plan, which recognized three components including the Domestic Gas Supply Obligation, the Gas Pricing Framework and the all important Gas Infrastructure Blueprint.
After approving the master plan, the federal government embarked upon a road show aimed at sensitizing the stakeholders on the investment opportunities it portends. The current stage of the master plan is the submission and compilation of bids from consortiums of firms interested in investing in the development of the infrastructure blueprint. The components of the master plan are aimed at addressing issues that have plagued the domestic gas market as well has leveraging gas for the economic growth of the country.
However, experts who took a critical analysis of the gas master plan contends that the absence of a proper legal, regulatory and policy framework will be a stumbling block in the achievement of its objectives, as government needs to pass into law relevant bills and implement proposed polices formulated in respect of the gas industry.
According to Bukky Oyinlola, an associate in the commercial law firm of Perchstone and Graeys, Lagos, the two major bills that could go a long way in aiding the realization of the master plan’s objectives are the Downstream Gas Bill and the Gas Fiscal Reform Bill.
“The former is a bill for an Act to provide for the regulatory regime for the Downstream Gas Sector, including open access principles and when passed into law, will lead to the creation of a regulatory commission and establish a gas regulator to oversee investments and operations of the domestic gas sector. The latter bill is a bill intended to remove the consolidation of gas investment with oil and provide for non discriminatory fiscal regime for all upstream players. Interestingly, these bills which will invariably boost the domestic gas sector are still pending before the National Assembly,” Oyinlola said.
There are also specific polices which will aid the implementation of the master plan. One of them is the National Domestic Gas Supply and Pricing Policy. This policy aims to fully bring the gas sector in line with the economic growth aspiration of the nation by providing solutions to the issue of gas pricing; addressing domestic gas supply availability in a manner that delicately balances the need for domestic economic growth and revenue generation from export. It would also implement an approach for the gas sector that enables full participation of all gas suppliers in the country in a way that ensures sustained gas supply to the domestic market.
Another challenge that may hinder the success of the master plan especially the Infrastructure Blueprint is the unrest in the Niger Delta region as the image of the region depicts violence and there have been series of disturbances on the operations of oil companies particularly the vandalism of capital intensive oil pipelines and kidnapping of key officials and family members. Oyinlola also argued that with the continued disorder in the Niger Delta, the Infrastructure Blueprint development might not be practicable.
Dealing With Gas Flare-The chairman, Nigerian council of the Society of Petroleum Engineers, SPE, Saka Matemilola while speaking with Leadership in Lagos said that government with that the decision of the government has demonstrated the commitment to support industrial growth in the country as the move will not only help realize its gas flare out objective but will increase gas supply to the power sector and encourage domestic gas utilization as well promote export potential of the commodity.
In West Africa, Nigeria’s gas flares has caused the country to lose over $850 million and an estimated $400 million carbon credit value emission, according to statistics released by the Department of Petroleum Resources (DPR), deputy director, head, upstream, Pat Maseli at the 10th Annual Sub-Saharan Africa Oil and Gas conference in the USA.
The statistics relate to gas flaring in 2015 which has led to a loss of 3,500MW of electricity generation. “55 million barrels of oil equivalent was lost and 25 million tons of carbon dioxide emitted. The country is recording decline, but the scale of gas flaring is still worrisome,” Maseli said adding that with almost 8 billion cubic meters of gas flared annually, Nigeria is the seventh largest gas flaring country in the world.
Statistics also showed that the government losses between $500 million and $1 billion in revenue due to unreported gas flare data by international oil companies operating in the country. Government would have accrued this money from penalties charged for gas flaring from these international oil companies (IOCs).
Kachikwu however said that recent reports about the country currently recording only 10 per cent of non-compliance in terms of gas flaring were incorrect but he said government would be putting up an independent tracking mechanism, not relying on figures from the IOCs, to find out really what the actual flare volume is.
Counting Losses-Kachikwu continued, “my take is that we lose over half a billion dollars to a billion dollars of government revenue, looking at the basis of present penalties position. “Nobody is effectively monitoring the volume. When you actually go for the real effect of what is flared, in terms of statistics, it is much higher than those figures.” The minister further stated that in ensuring that gas commercialisation, utilisation and transportation would go a long way in sustaining the economy of the country, the government and other stakeholders will have to find a way of putting down enough incentives for operators so as to enable them to deliver gas to the ultimate users.
“We must have a way of getting oil companies to build the infrastructure that is essential; to be able to get empowered by means of incentives on their taxes, and to be able to track necessary tariffs so that those who do this infrastructure development can go ahead,” Dr Kachikwu said. However, according to a study conducted by the US-based independent statistics and analysis organisation, Energy Information Administration (EIA), Nigeria ranks fifth amongst countries in the world that flare the highest volume of gas per day.
But the report also noted that this is an improvement against its second position held in 2011. The energy agency added that although Nigeria flares a significant portion of its gross natural gas production, the amount being thrown up has reduced by more than 50 per cent over the past decade.