In November 2016, the Ministry of Petroleum Resources released the draft National Gas Policy. This release was followed by a stakeholder consultation to discuss and to deliberate on the feedback received from industry players. What issues were raised during the consultation? Which major actions and resolutions were reached? And what matters are still left hanging? This article tells the story.
The draft National Gas Policy is a statement of the government’s commitments and proposed actions to accelerate the development and utilization of Nigeria’s gas resources. After it was released by the Ministry of Petroleum Resources (MPR), the Ministry invited comments from various stakeholders groups to provide feedback on the draft policy. These comments were consolidated and further discussed by concerned parties at a Stakeholders Consultation which was convened by the MPR and held in Abuja, Nigeria, on 17th November 2016. Key issues raised during the consultation ranged from upstream to midstream to downstream gas, infrastructure and investments, LPG, and gas-to-power.
Primarily, the consultation recognized and advocated for an urgent need to consider a “Nigeria first” gas plan as a strategic economic goal for the country.
With respect to infrastructure, a big game changer that stood out in the deliberations – and as hinted on in the draft policy document itself – was the move to separate the upstream gas sector (i.e. exploration and production) from the midstream gas sector (i.e. pipelines and gas transportation activities). Stakeholders considered this to be very significant as the dearth in infrastructural investments has been a major challenge in the industry. Till date, investments in the midstream, particularly in gas pipelines, have typically been made by upstream players, i.e. the International Oil Companies. However, being part of Joint Ventures with the Nigerian Government, the IOCs have not unilaterally invested in a pipeline network. Based on this prevailing pattern, no significant additional investments in the midstream have happened as a result. Now, it is expected that the commitment to have midstream and upstream operations under separate legal entities, will stimulate midstream gas investments. If the stimulation works, oil companies with existing licences for oil and associated gas would establish separate companies in order to move into the business of transporting ‘their gas’ through pipelines.
Although the policy envisages and commits to strengthening linkages to the agricultural, power and real sectors; stakeholders also identified the need for extending linkages to the transport sector.
On gas flaring, there was an impasse over what constitutes the best approach to ending the menace. Although the draft policy recognizes that all new oil developments must have Gas Flare Utilisation Plans before they can be approved, stakeholders were divided as to whether or not increased penalties for gas flaring was the way to go, at least for existing operations.
Stakeholders stressed the lack of security of Gas Supply Agreements, especially regarding gas-to-power, as there has been little respect for gas supply agreements between GenCos and gas suppliers. A related major setback has been the breach of project contracts in the sector. This is hampering progress in market development. Although this is somewhat hinted at in the policy document, participants stressed on the need for a framework that ensures that contracts are honoured by all parties, in a manner that is upheld and enforced by the judicial system.
Stakeholders recognised the need to significantly upgrade the country’s gas infrastructure. There was indeed a strong consensus on its urgency. In this regard, it was mentioned that a number of projects were ongoing such as the Obiafu-Obrikom-Oben gas pipeline (OB3), and that other pipelines are being considered as part of the national gas infrastructure blueprint. However, some individuals felt that many of the gas infrastructure projects were taking too long to complete, and should be considered as already failed projects. Attention was brought to the significance of the Port-Harcourt-Owerri-Nwewi-Onitsha corridor for Nigeria’s economic growth and development. As such, it was agreed that the gas infrastructure blueprint should capture the need to build a pipeline in this axis of the country. Representatives of the Ministry stated that the Gas Infrastructure Blue Print is being revised and will be updated in the medium term as part of the process of implementing the Policy’s roadmap.
Although some highlighted the need for an investment promotion department in the MPR, others pointed out that such a department/unit would be counterproductive as it would only be attempting to duplicate the efforts of the Nigerian Investment Promotion Commission (NIPC).
The issue of the Gas Aggregator Company of Nigeria (GACN) was also considered. Although the draft policy commits to reviewing GACN’s role and executing its eventual dissolution, a number of stakeholders moved against the dissolution of GACN given that some long-term Gas Supply and Aggregation Agreements (GSAAs) have been signed with gas suppliers and buyers. In the end, the workable alternative appeared to be to allow GACN operate the existing GSAAs during a transition period, after which a full-fledged willing-buyer, willing-seller gas market would prevail.
Talking of markets, and ensuring that gas reaches the average Nigerian home, the issue of LPG was well discussed. Stakeholders agreed to the urgent need to develop and implement a National LPG Development Plan.
One of the big issues raised during the consultation was the need to create an independent regulator that would harmonise the downstream gas sector and the power sector (within the transition period), and then eventually become one that is subsumed under the power sector regulator, NERC. Proponents of this kind of structure argued that there was no need for a mammoth single regulatory agency as proposed in the draft policy to also oversee gas-to-power. They argued that NERC should be in charge of the downstream gas sector, as Nigeria’s most pressing domestic need for gas utilization is, at this time, power generation.
The security of gas infrastructure was a pertinent concern to stakeholders. Participants debated whose responsibility the security of these infrastructures is. Although the government has a role to play, it was agreed that the primary responsibility to secure and protect gas pipelines rests with project developers.
Although the Ministry made it clear that the policy’s intent is for the government to regulate, while investments in gas pipelines and other infrastructure are primarily expected to come from the private sector; industry players wondered if the much-needed investments would be stimulated with safety concerns still present. In addition, there was also the question of tariffs and pricing on outsourcing gas infrastructure and whether investors can be assured of attractive returns on their investment. Ministry representatives mentioned that a Fiscal Policy, which will cover issues relating to tariff structures, pricing etc. was still being drafted. Important questions were left unanswered during the government’s consultation meeting: Is this policy in itself, all alone, sufficient to inspire investor confidence? Would there be a legislative backing to transform this policy into law? Will the protracted history around signing the Petroleum Industry Bill (PIB) affect this Gas Policy? Can the mere unbundling of the midstream from the upstream really trigger midstream investments? Given the lack of security, will investors really be happy to invest? To what extent will the upcoming Fiscal Policy address the question of securing attractive returns on gas investments?
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