Nigeria’s offshore gas production declines on lack of PSCs terms

The absence of gas terms in Nigeria’s PSCs has forced down by 19.6 per cent gas production in deep offshore between January 2015 and September 2016. This was stated in the Nigerian Extractive Industries Transparency Initiatives (NEITI) report on the review of NNPC’s monthly financial and operations report released December 20.

Monthly gas production fluctuated between 250 and 255 billion cubic standard feet (BCF) with the highest production of 255 BCF attained in January and July while the lowest production of 215 BCF was recorded in February. In 2016, gas production ranged between 247.9 BCF in January to 173.9 BCF in August.

Ironically, Joint Ventures are now the largest gas producers accounting for about 70% of gas production, even though deep water offshore where PSCs prevail have vast gas reserves. The absence of gas terms in contracts with the Federal Government prevents investments in the sector.

“A possible explanation for this is that the signed PSCs do not make any provision for how the parties should treat gas available for commercial exploitation; except that the parties define a separate agreement. No such agreements have been concluded,” NEITI says.

It further said, “Where gas is already in commercial production such as in Bonga, the absence of an agreement results in loss of income to the Federation. One of the reasons is inadequacy or an outright lack of infrastructure in the gas industry. This is even more evident in PSCs as they mostly operate deep offshore.”

NEITI reports that apart from Snepco and TUPNI, all other PSCs do not have the facilities to deliver gas onshore for commercial purposes. Consequently, they usually either flare gas, reinject or use for fuel.

At the 2016 edition of the Nigerian Gas Association (NGA) annual conference and exhibition in Abuja, Ibe Kachikwu minister of state for petroleum resources announced that the Federal government has developed a draft national gas policy that will be passed to stakeholders for consultation before its finalization.

“In order to ensure robustness in gas supply over a long-term, the following initiatives will be pursued – gas terms for PSCs will be produced before the end of 2016, exploration and development of new gas supply sources from inland and offshore basins will be actively encouraged, a national gas flare commercialisation plan will commence in the first quarter 2017,” Kachikwu said.
As the petroleum ministry collates views from stakeholders regarding the policy, experts advise that there is a critical need to address gas terms in PSCs which will reduce gas flaring, increase domestic gas utilisation and also remove uncertainties in investments in the gas sector due to policy inconsistencies.

“The major impact of this uncertainty on investors from the perspective of their financiers is that lenders are unable to conclusively ascertain the approvals that are required for the creation, perfection and (where necessary) enforcement of security interests in respect of oil and gas assets,” Isreal Aye, energy lawyer and managing partner of Sterling Partnership told BusinessDay.

Chuks Nwani, energy law and vice president Powerhouse International Limited, told BusinessDay that because gas infrastructure require huge capital outlay over a period of as much as five years, Nigeria’s policy inconsistences does not give investors’ confidence. Worse still, there is no synergy among related government ministries.

“When government came up with this policy (national gas policy), we felt that so many things needs to be addressed, especially having a synergy between the ministries of power, petroleum resources and Nigerian gas company. They are working at cross purposes and none understand what the other is doing,” he said.

ISAAC ANYAOGU