Given the shortcomings of the Nigerian Gas Masterplan of 2008, the Federal Government of Nigeria, through the Ministry of Petroleum Resources has drafted a new National Gas Policy to help grow and transform the country’s gas sector. This article outlines key elements of the draft Policy and enjoins readers to make comments, which the Nigerian Economic Summit Group will forward to Government at the required date. The initial deadline is 14th November 2016.
Nigeria’s previous policy positions emanated from the Gas Master Plan (GMP) of 2008, which was designed to ensure the development of a mature domestic gas market by 2015. However, with minimal investments made in the gas sector over the period, the GMP has not delivered on all its set targets. For example, Nigeria still lacks critical gas infrastructure and continues to fall short of Domestic Gas Supply Obligations.
Meanwhile, Nigeria continues to experience a full-blown energy crisis in spite of its abundant gas resources. As such, the Policy seeks to bring solutions to this challenge, with a vision “to be an attractive gas-based industrial nation, giving primary attention to meeting local gas demand requirements, and developing a significant presence in international markets”, and a mission “to move Nigeria from a crude oil export-based economy to an attractive gas-based industrial economy”. To achieve this, the Policy contains a set of core principles, namely to:
- separate activities between the government and private sector;
- establish a single 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 marketing;
- realise more of the LNG international downstream value, through retaining ownership of molecules and through direct international gas marketing;
- pursue a project-based rather than centrally-planned domestic gas development approach;
- make a strong maintenance and safety culture a priority;
- implement international best practice for environmental protection;
- establish strong linkages with electric power, agriculture and the real sectors;
- establish payment discipline throughout the energy chain;
- honour stability of contract terms;
- protect security of assets; and
- ensure compliance with the Nigerian Content Act.
Although the Policy considers the local market huge and largely untapped, the rate of growth in local gas demand is considered slow. Major challenges recognised include the lack of infrastructure and investment in the gas sector, hence the failure of the GMP in delivering on its targets; inadequacies in legislative provisions for the gas industry – especially the midstream and downstream sectors – separate from existing oil legislations (e.g. the Petroleum Act, 1969), growing market competition in both the Atlantic and the Pacific gas basins; and gradual decline in global investment flows getting into Nigeria.
The Policy commits to putting the legislative and commercial framework in place, while intending that the actual development of the gas sector will be driven by the private sector. The document outlines in detail the following aspects: governance (legislation and regulation), industry structure, developing gas resources, infrastructure, building gas markets, developing national human resources, communications strategy and a roadmap and action plan. The Policy outlines the intended short term, medium term and long term framework to grow the country’s gas sector, under each of these aspects.
Short term strategies (one year)
The short term policy actions are mostly institutional in nature and are expected to be executed within one year after the Policy is finalised. These actions are deemed to be within the direct control of the Ministry of Petroleum Resources (MPR). Key actions to be taken include drafting the Petroleum Legislation and establishing a single regulatory authority. With respect to downstream gas regulations, an effective Gas Network Code will be developed to govern open access to gas infrastructure and to promote wholesale gas gathering. A more realistic framework for Domestic Gas Supply Obligations will be established, and the terms allowable for developing gas resources under Production Sharing Contracts (PSCs) will be clarified and finalised.
Within the short-term as well, a range of market development studies are to be conducted. These include: a Gas Resource Management Plan, Natural Gas Market Study, and Strategy for Gas-based industries (GBI). Amongst others, these studies will identify gas market clusters, deliver national LNG and LPG penetration strategies, and revise the existing gas pricing framework. A number of initiatives will commence within this period, including, a Gas Flare Commercialisation programme, beginning with industry consultation, studies and engagement workshops; and commencement of a range of groundwork activities for the downstream such as identifying gas sources for the proposed Obiafu-Obrikom-Oben gas pipeline (OB3), identifying small-scale gas flare capture projects, developing investor selection criteria, and identifying 1 to 3 infrastructure or supply projects for fast-tracking. Institutional restructuring measures are listed, such as the restructuring the Ministry of Petroleum Resources and completing the unbundling of the Nigerian Gas Company.
Medium term strategies (1 to 2 years)
The medium term actions are expected to be executed within one or two years after finalising the Policy. These actions are mostly regulatory and institutional, and are not entirely within the control of the MPR. Major action strategies include conducting reviews of the international gas market, including in Africa and globally. Two main legislative actions are to be taken, namely, enacting the Petroleum Industry Reform Bill and the Petroleum (Fiscal Reform) Bill. On the regulatory side, major actions will include developing gas regulations, technical codes and standards, finalising and implementing the Gas Network Code and developing a number of pricing regulations, market price monitoring systems and fiscal principles/frameworks.
Pilot programmes to replace the use of wood/kerosene with LPG will also begin during this phase and studies will be undertaken to identify alternative fuel strategies for compressed natural gas (CNG).
In order to institutionalise the system, the National Petroleum Policy Directorate will be set up and the single petroleum regulatory authority will be implemented. Also, a scheme to promote workers’ competency would be created, as well as the initiation of sector-wide capacity building schemes. The Gas Flare Commercialisation programme planned in the short term will begin to be implemented and a number of industry-wide restructuring will be implemented, particularly by incorporating wholesale gas market mechanisms.
An important aspect of this phase will be to achieve major infrastructural milestones and to strengthen the upstream sector. Such strengthening will be done by implementing the Gas Resource Management Plan, securing a database of all reserves and production, identifying offshore resources, implementing a Gas Management Model, identifying mechanisms for developing marginal gas field clusters, securing contracts for the OB3 pipeline, amongst others. On the infrastructural side, the OB3 is to be completed and commissioned, whereas progress would be made on the following projects: the Ajaokuta-Kaduna-Kano Pipeline Project (AKK), the Assa North and Ohaji South gas development, and at least one to three other infrastructural or gas supply projects. Infrastructural development initiatives for growing the LPG market will also commence in this phase.
Long term strategies
The long term actions strategies are mainly industry-based actions. It is expected that these actions will be executed from two years post finalising the Policy and beyond. Key actions would include bringing in new gas from dedicated gas fields in inland and offshore basins, implementing the LNG downstream strategy, and making infrastructural strides such as completing and commissioning of the AKK pipeline, as well as building the country’s gas transmission backbone infrastructure. At this stage, complete establishment of the wholesale market is envisaged in the downstream gas sector. As the Gas Policy is anchored on local content development, continuous institutional and occupational capacity building and training is also a major action element over the long-term. This is deemed necessary to build the human resources and skills required to grow the gas sector.
In all, the National Gas Policy document outlines specific timelines for each of the outlined strategic actions and it details the institutions – whether in government or in industry – responsible for undertaking them.
Click here to view National Gas Policy (Consultation Draft Nov 2016)
Click here to view letter from Petroleum Ministry to Gas Industry Stakeholders