Developing commercial terms for natural gas
The idea that Nigeria is “a gas province with a little bit of oil in it” is commonly heard in oil and gas industry circles. The statement draws attention to the country’s substantial proven reserves of natural gas estimated at 187Tcf (trillion cubic feet). This gas volume confers on Africa’s largest economy the status of the country with the 9th largest gas reserves in the world (BP Statistical Review of World Energy/EIA, 2010). Experts have also concluded that Nigeria has the potential to grow its proven gas reserves to 600Tcf and emerge world’s 4th largest holder of gas reserves.
Despite this huge resource base, natural gas plays an insignificant role in Nigeria’s domestic economy. Particularly unacceptable are reports that the absence of clearly defined commercial terms for gas producers in the country is implicated in avoidable disputes with International Oil Companies (IOCs), with negative consequences for meeting the needs of the partially privatised successor companies to the Power Holding Company of Nigeria (PHCN). It has also been established that there is unmet demand by manufacturing companies for gas. Such industries include fertiliser producers and beverage companies.
We recall that Nigeria has, over the last decade, pursued gas utilisation policies in three strategic areas. First is a set of policies directed at gas-to-o power to deliver at least a threefold increase in power-generating capacity by 2015 (12,000MW). Another is delivery on President Goodluck Jonathan’s gas revolution agenda by creating industrial hubs for gas-based industries (fertiliser and petrochemicals) and establishing better linkages between the gas sector and the domestic economy. Thirdly, government sought to consolidate Nigeria’s position and market share in the export markets through regional gas pipelines and LNG.
Specifically, the Jonathan administration emphasised domestic supply obligation to jumpstart gas availability in the short and medium terms; provision of bankable commercial framework reforms in pricing and revenue securitisation to enable sustainable investment in domestic gas supply; and development of a national gas infrastructure blueprint for which supply flexibility through the use of open-access rules would be encouraged.
Limiting ourselves to gas-to-power policies, we note that the Petroleum Act (PA) 1969, Nigeria’s principal industry legislation (given the non-passage of the Petroleum Industry Bill after about six years in the National Assembly) states that the Federal Government has a right to take gas from licensees and lessees free of charge or at a price without payment of royalty. By this, the PA also authorises the Federal Government to approve the price at which produced gas is to be sold.
Despite the flurry of gas policies, Nigeria’s gas sector is considered by experts to be characterised by opaqueness, inadequate infrastructure and investments, regulatory capture and politicisation of policy implementation. These features, it is alleged, largely explain legal/regulatory uncertainties that currently stall implementation of major planned gas utilisation projects and developments in the country. Consequently, a history of poor commercial performance in the domestic gas sector persists.
Of particular concern is a clause in the Production Sharing Contract (PSC) which industry operators say vests exclusive ownership of the gas on the FG. It is alleged that disputes arising from this have prevented IOCs from developing the gas fields that would have been used to boost the supply of electricity. We understand that because of the nature of the contract, oil companies now concentrate on finding crude oil and shunning anything that has to do with gas development in the deep offshore. The clause which is contained in the 1993 PSC contract did not envisage huge gas discoveries in those fields.
Some of the fields affected in the controversy include Erha, Ngolo, Nnwa/Doro, Bosi and Ansah, some of which have been lying dormant for more than 10 years. The Erha field, operated by ExxonMobil, for example, is said to have gas reserves estimated at over 200 billion standard cubic feet. The gas volume in Erha is four times more than the reserve in Papua Guinea where ExxonMobil, the parent company of the Nigerian subsidiary, has built a Liquefied Natural Gas (LNG) plant.
People familiar with the industry say Erha is about 120 kilometres from Lagos and that with about $2 billion, the project would have been developed and put to use for the benefit of Nigerians, if not for the disagreement between ExxonMobil and government over fiscal terms. Experts say that laying pipelines from the location of the gas straight to Lagos is an uncomplicated operation in terms of technicality and time.
We therefore call on Muhammadu Buhari government to begin a process of developing commercial terms for gas development. We believe this could go a long way in mitigating the sufferings of Nigerians, especially as regards inadequate power supply due to shortage of gas.