The draft Nigerian National Gas Policy (NNGP) is a long awaited document, essential for a country that has so far not been able to establish any viable legal and regulatory frameworks for natural gas, and that has regressed in the entire petroleum (crude oil and natural gas) sector for decades thanks to a lack of policy direction and an obsolete legal framework. Drafted by a team of specialists in the Ministry of Petroleum Resources (MPR), it is to ‘address gas issues, articulate the [the Federal Government of Nigeria’s] vision for the sector and set policy goals, strategies and an implementation plan to resolve the barriers currently affecting investment in the sector.’ This is a brief comment on the NNGP, written primarily from a governance perspective, and in alignment with the global move towards inclusive growth in energy use, commonly referred to by the catch phrase sustainable Energy for All (SE4ALL).
COMMENCEMENT: The NNGP is an articulate 130-page document. However, it commences with a jolt. After stating its aim, it appears to attempt to assume a quasi-legislative character by pronouncing that once it has been ‘issued and gazetted,’ it will bind government officials unless and until it amended or replaced by another formal restatement, which must also be gazetted.[1] One wonders; is this an attempt to ensure implementation just in case the recommended legislation on gas goes the way of past Petroleum Industry Bills? Any lawyer knows that a gazetted policy can never metamorphose into a legally binding document, and that law-making remains the preserve of the Legislature.
VISION AND MISSION: The Policy proclaims that it is a policy for Nigerians, and that it will meet the aspirations of the people.[2] Its Vision is for Nigeria ‘to be an attractive gas-based industrial nation, with significant presence in national and international markets.’[3] There are eight key aspirations contained within this vision, which revolve around moving ‘the economy from crude oil to gas’, diversifying the gas resource base, growing the domestic gas and international markets, ending gas flaring, and creating an enabling environment to promote private sector investments. The government will provide policy and regulation, while the private sector will provide the investments.[4] The idea is therefore that gas investments will be driven by the private sector- a point separately discussed shortly.
The Mission or purpose of the Policy, so as to meet the long-term vision, is ‘to move Nigeria from a crude oil export based economy to an attractive gas-based industrial economy, which is the first aspiration of the Vision.’[5] The eleven listed elements that are complementary to the Visions key aspirations, and revolve around creating an enabling environment.
The entire NNGP is an expansion of the Aspirations of the Vision, and are addressed under the following areas, each of which forms a chapter: Governance, Industry Structure, Developing Gas Resources, Infrastructure, Building Gas Markets, Developing Natural Human Resources, Communications, Road Map and Action Plan.
GOVERNANCE: The Policy provides that new legislation for gas will be passed, which will emphasize ‘gas as a fuel in its own right’ and which will provide the legal framework for implementation of the Policy. The law provides for midstream and downstream gas development, both areas that have never previously been adequately planned or legislated for.
It provides for a single regulator for the entire gas industry, which presumably is the same as the single regulator being proposed by the Ministry for the entire petroleum industry. It does a bit of micromanaging by ‘envisaging’ eight departments for that body.[6] It also specifies six new departments for MPR; Upstream Petroleum Policy, Downstream Petroleum Products Policy, Gas Policy, Policy research centre, Investment promotion, and Natural Gas Focal Point.[7] The latter is a small team within MPR, which the NNGP states is ‘not to duplicate’ activities of the government or the regulatory agency, but to ‘lobby and push projects or programmes’ relevant to the NNGP through government. Is the MPR now in the business of lobbying? And, why is there a department on investment promotion, when there is the Nigerian Investment Promotion Council? The NNGP provides for a Gas Resource Management Plan, which will be managed through the MPR with support from NNPC and industry.[8] Such statements show that the MPR could end up being a de facto regulator of the industry by assuming roles outside its policy functions, thus defeating an underlying purpose of petroleum industry reform, which is to separate policy, regulatory and commercial roles and institutions.
There will be separation of gas infrastructure ownership, operations, and gas trading; and separate companies will carry out the different activities.[9] Also, while pricing will be regulated initially, during a period referred to as the transition, it is envisaged that it will eventually be market driven. The end of deregulation and the emergence of a wholesale market will be declared by the Minister upon the emergence of some listed trigger points, which include when domestic gas volumes exceed export gas volumes.[10] The Nigerian Gas Company (NGC), which is currently a subsidiary of the Nigerian National Petroleum Company (NNPC), will be unbundled into a transmission operator and a gas marketing company. In a bid to diversify gas resources, currently concentrated in the volatile Niger Delta, the NNGP will encourage gas exploration and production in other areas.[11]
DOMESTIC MARKET: The NNGP aims to prioritise the domestic market and therefore Domestic Gas Supply Obligations are to be imposed on every producer.[12] In view of this, the Gas Aggregation Company of Nigeria, which was never very successful, is unlikely to be part of the new framework, and its role is to be reviewed.[13]The price for domestic gas will be the export price minus the costs of liquefaction, regasification and shipping. Thus the Policy states that there will be no disincentive for domestic gas supply. However, the export market will always have the edge because it provides foreign exchange, which has greater stability and versatility than the naira. It also aims (without stating how) to identify low cost gas resources, which will be dedicated to the domestic market.[14] The section on domestic gas projects is very promising because it is the clearest articulation of domestic energy needs in Nigeria seen by this writer, and because it supports the use of domestic gas for power development.[15]
The NNGP deals with gas for large and small-scale industries, Amongst others, it aims to support the use of compressed natural gas (CNG) domestically and the use of Liquefied Petroleum Gas (LPG) for those currently using basic biomass and kerosene.[16]
INFRASTRUCTURE: Infrastructure is a major problem in Nigeria, and it is a foundational issue. The NNGP plans to tackle this problem using private sector funds, through un-named incentives to investors. It is the shortest chapter in the Policy, and primarily highlights the problem via a map showing that gas infrastructure in Nigeria is still largely at the planning stage. A natural question arises: how can the gas sector grow in the absence of vital infrastructure? This is a very disappointing chapter.
THE PRIVATE SECTOR: The NNGP states that it sees the private sector as a partner, but classifies both private companies and government corporations as ‘the corporate sector,’ with the roles of creating markets, conducting environmentally-friendly activities, and serving stakeholders including consumers and the government.[17] According to the Policy, the Nigerian National Petroleum Corporation (NNPC), Nigerian Petroleum Development Company Limited (NPDC), Nigerian Petroleum Investment Management Services Limited (NAPIMS) and the Nigerian Gas Company Limited (NGC) will work together with the private sector to create a successful and profitable industry.[18] The NGC will be split into two companies- Nigerian Gas Transmission Company which will own and operate the gas transmission network (which the NNGP envisages as being expanded through private sector funds); and the Nigerian Gas Management Company, which will ‘own all the supply contracts and will operate the gas supply business.’[19] The NNPC through its subsidiaries will therefore be a controlling player in the gas business. The challenge will be to get sufficient private sector funding under those circumstances.
GAS FLARING: Currently, flaring is a cheaper option than gas utilization or reinjection, and Nigeria is one of the world’s top 5 gas flaring countries. The NNGP aims to increase the penalty ‘to an appropriate level sufficient to de-incentivize’[20] the activity. The government will ‘consider’ a sliding scale penalty for existing brown-field sites. Existing associated gas fields ‘need to start planning and investing in the utilization of AG and to come up with economic plans. Such vague language, found throughout this section, doesn’t give much hope that the end of flaring is imminent. This is a tragedy for the Niger Delta communities who live next to the endless horrors caused by constant gas flaring, exacerbated by their lack of the badly needed modern energy that they would get from the gas, if it was being utilized. To end gas flaring, the government has to see gas flaring for what it is; an environmentally harmful, unhealthy, development stunting and wasteful practice that is antithetical to sustainable development. Then maybe penalties that are truly disincentives to flaring, accompanied by incentives for gas utilization projects, ideally targeted at the energy poor, will emerge.
ROAD MAP: According to the Road Map, the Policy should be approved and gazetted before the end of 2016, The regulatory authority will be established by the first half of 2017, presumably by separate legislation, as the accompanying gas legislation should be in place by the end of the first half of 2018. Activity on infrastructure is scheduled to start at the same time, which is unlikely to happen, as laws provide the certainty needed for many aspects of the Policy, including for substantial investments.
CONCLUSION: The MPR has a maximum of two and a half years, possibly less than two years, to push its Gas Policy through, pass the necessary legislation and commence implementation. if one factors in the politicking that characterizes the last quarter of a presidential term. One hopes it will be able to do this, since it has a separate Oil Policy that is going through the same process. Whether piecemeal energy reform is best for the country is debatable. Energy is probably best treated as a whole, but so far, what Nigeria has is a lack of harmony between the Ministries of Power, Environment, and Petroleum Resources; and the Energy Commission of Nigeria. The ECN is under the Ministry of Science and Technology, which sole fact leads to it being regularly sidelined by the other more powerful entities. This is sad because the ECN Energy Policy is the only policy document for the entire energy sector .
The NNGP is a major milestone in the quest for a strong domestic gas industry. The Ministry is to be commended for opening up the Policy for discussion and input from the public. It is hoped that the various comments and suggestions will be incorporated into the final draft, so that the natural gas sector can become a vehicle for Nigeria’s development.
PROF. YINKA OMOROGBE
Prof. Omorogbe is an internationally recognized professor of energy law. She has an LL.B. from the University of Ife, Ile-Ife, and an LL.M from the London School of Economics, University of London, and is a member of the Chartered Institute of Arbitrators (UK).
NOVEMBER 29th 2016
[1] Pages 17 and 33.
[2] Page 65.
[3] Pages 15 and 66.
[4] Page 66.
[5] Page 66.
[6] Pages 70-71
[7] Page 71.
[8] Page 26.
[9] Page 76.
[10] Page 79.
[11] Pages 90-91.
[12] Page 88.
[13] Page 88.
[14] Pages 92-93.
[15] Pages 105-108.
[16] Page 112.
[17] Page 82.
[18] Page 83.
[19] Page 84.
[20] Page 98.
Prof. Yinka Omorogbe is a research professor of Energy Law at the Nigerian Institute of Advanced Legal Studies, Abuja, who has been involved in issues pertaining to petroleum industry reform and access to energy since 2000. She has previously lectured at the Universities of Benin, Lagos, and Ibadan, where she was Dean of the Faculty of Law from 2005-2009. She was Secretary to the Corporation/Legal Adviser, Nigerian National Petroleum Corporation from January 2009 – June 2011.
