Unlocking Nigeria’s huge PSC gas potential

For years, several mega gas fields have been stalled leaving huge molecules of stranded gas for decades as a result uncertainty and lack of clarity on terms governing Production Sharing Contract (PSC) for gas.

International oil companies (IOCs) active in Nigeria since the 1960’s have discovered about 182 trillion cubic feet (Tcf) proven reserves of mostly associated gas, according to Nigerian National Petroleum Corporation (NNPC) data.

Most of those gas finds are however lying fallow like Exxon Mobil’s Erha field which was discovered some 15 years ago.

Some of the huge gas finds worth billions of dollars that remain undeveloped by the Nigerian government and some international oil companies who own the assets include Bosi which is reported to contain as much as 5-7 tcf of gas; the Nnwa/Doro structure reportedly carrying 6-9 tcf of gas; the Ngolo trap (OPL 219) and Assa-North.

Some of the fields were discovered as far back as in the 1990s and have been plugged after successful production test were carried out.

The Government/ NNPC claims of being majority owners of gas discovered by IOCs also mean they are often unable to pay their share to develop the assets.

Analysts say resolving JV funding could increase gas production by 2.8 billion cubic feet per day by 2020. Reasons adduced for the non-resolution of the PSC gas issues include poor fiscal terms; the low government dictated gas prices and lack of infrastructure are the major impediments to investments that would unleash gas into Nigeria’s domestic economy helping to boost industry, jobs and growth rates.

This informs the calls by oil and gas experts for a new fiscal and regulatory regime outside of the proposed Petroleum Industry Bill (PIB) as a catalyst to drive the development of the sector. The new framework should be designed specifically for gas and encompass pricing policies that are attractive to everyone active along the gas value chain as oil experts have identified pricing as key for the successful development of the emerging gas sector in Nigeria.

Snippets of proposed PSC gas terms

The terms for the resolution of all the issues relating to gas under the PSC regime are ready for unveiling soon. Maikanti Baru, Group Managing Director of Nigeria’s state-oil company, Nigerian National Petroleum Corporation (NNPC), while addressing the executive council members of the Nigerian Gas Association (NGA) said that the issues of the PSC gas which made contractors to dither on gas projects would be fully resolved with the terms. He said that the PSC gas terms have been clearly defined and categorized under three regimes; oil or liquid dominant, mixture or equal gas, equal liquid and gas oil regimes.

“For each of the regime, we have specific terms that govern negotiations with the PSC contractors”, said Baru.

For oil or liquid dominant regime, all the development of gas are chargeable to liquids or oil because it is the dominant resource.

“In that environment, we essentially give some beneficial interest to the contracting party”, said Baru.

For the equal gas, equal liquid regime, all the gas development costs are put into the liquid CAPEX and some beneficial interests in terms of profit gas from NNPC will still be given to the contractor.

Under the gas dominant regime, whatever little oil or liquid obtained will go into defraying the CAPEX.

“For this gas dominant regime, the gas will be sufficient to support its own economics and that is where we could share some of our profit gas with the contractors”.

The NNPC Group Managing Director stated clearly that under the terms, “PSC gas is 100 percent NNPC”.

Paradox of gas resource abundance

Nigeria has the world’s ninth-largest proven gas reserves at 188 trillion cubic feet (tcf) and potential gas reserves of 600 tcf.

Natural gas demand in Nigeria in recent years is however still overwhelming the suppliers. There is currently a shortfall of 4bcf/d of gas supply due to a lack of investment to explore for gas and infrastructure to meet rising demand.

Analysts have been lamenting the paradox of gas resource abundance in the country where Nigeria is swimming in gas yet the country is desperate for growth; growth that can be powered by gas.

While the non-associated gas discoveries remain fallow, associated gas flares remain unabated. To fast track gas development, there is need for fundamental structural reforms which the soon-to-be released PSC gas term would a big role. The current law and regulatory framework in the country is not responsive enough as the sector is still being governed by outdated legal and regulatory framework.

Experts say gas is not recognized in the petroleum laws and licenses as existing Production Sharing Contracts are all written for oil.

FRANK UZUEGBUNAM