Nigeria has large natural gas reserves but much of it is currently flared. The Nigerian Gas Policy aims to optimize gas utilization and integrate gas into the economy through a gas masterplan. The masterplan establishes a pricing framework, domestic gas supply obligations, and a blueprint for gas infrastructure development including processing facilities and a national transmission pipeline network. This will help reduce flaring and ensure adequate gas supply at affordable prices to strategic domestic and industrial sectors.

1. Nigerian Gas Policy
Dr. Adeoye Adefulu
Odujinrin & Adefulu
Barristers, Solicitors & Notaries Public
Barristers Solicitors & Notaries Public
Lagos – Abuja – Port‐Harcourt

2. Background
g
• Nigeria has an
estimated 182 TCF of
proven natural gas
reserves;
• 7th largest natural gas
reserve holder in the
world;
g g q y
• High grade quality: 0%
sulphur & rich in NGLs
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3. Background (contd.)
g ( )
• Most gas discoveries have been made in the
p
process of exploring for oil;
p g
• Nigeria is globally the No. 1 gas flarer :
– 40% f Ni i ’
40% of Nigeria’s annual production is flared;
l d ti i fl d
– The country accounts for 12.5% of the gas flared
in the world (Source: World Bank).
• The current legal and fiscal framework for the
g
petroleum industry is geared towards oil
production and utilisation with very little
production and utilisation with very little
focus on gas
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4. Historical Background
Historical Background
• Petroleum (Drilling and Production)
g
Regulation
• Licensee was expected to submit feasibility study, programme or
proposal for gas utilisation not later than five years of the
commencement of production
• No adequate penalty for violation
• Petroleum (Amendment) Act
• Government may take the gas at the flare at no cost
• Absence of infrastructure to develop and utilise the produced gas
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5. National Energy Policy
National Energy Policy
• Policies
– The nation's gas resources shall be harnessed and optimally integrated
into the national economy, energy mix and industrial processes.
h l d d l
– The nation shall engage intensively in gas exploration and
development with a view to increasing the reserve base to the highest
p g g
level possible.
– The nation shall put in place necessary infrastructure and incentives to
encourage indigenous and foreign companies to invest in the industry.
encourage indigenous and foreign companies to invest in the industry
– The nation shall put in place necessary infrastructure and incentives to
ensure adequate geographical coverage of the gas transmission and
distribution network.
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6. National Energy Policy (contd.)
National Energy Policy (contd.)
• Objectives
– To eliminate the flaring of associated gas by 2008.
– To expand the utilization of natural gas as industrial and domestic fuel,
as well as for power generation.
– To increase the use of natural gas as industrial feedstock for
To increase the use of natural gas as industrial feedstock for
petrochemical, pharmaceutical and fertilizer plants, etc.
– To use gas to diversify the foreign exchange earning base of the nation.
– To accelerate the process of technology acquisition and diffusion in
the gas industry.
– To encourage indigenous entrepreneurial capability in the gas industry
To encourage indigenous entrepreneurial capability in the gas industry
including the development of end‐use devices.
– To determine the level of gas reserves available to the nation.
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7. National Energy Policy (contd.)
National Energy Policy (contd.)
• Strategies
– Encouraging the oil‐producing companies to gather and utilize
associated gas in order to eliminate flaring by 2008.
d d l fl b
– imposing appropriate and effective penalties to discourage gas flaring.
– Encouraging the establishment of the necessary infrastructure for the
Encouraging the establishment of the necessary infrastructure for the
effective gathering, transmission and distribution of gas nationwide.
– Formulating suitable urban and regional planning regulations needed
for the effective distribution of natural gas to, and its utilization by,
f h ff i di ib i f l di ili i b
domestic and industrial consumers.
– Providing necessary incentives to indigenous and foreign
g y g g
entrepreneurs to facilitate their participation in the gas industry.
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8. National Energy Policy (contd.)
National Energy Policy (contd.)
– Providing incentives to encourage industrial and domestic consumers
d d l dd
to use gas or to convert to gas.
– Providing incentives to encourage the introduction and use of LPG
g g
appliances in areas not accessible to natural gas so as to encourage
the consumer preference for gas.
– Establishing suitable infrastructure for the export of natural gas
Establishing suitable infrastructure for the export of natural gas.
– Expanding and promoting gas related R & D outfits in the country.
– Ensuring that the price of natural gas is cost‐effective, while giving due
g p g , g g
attention to the effect on local consumption.
– Embarking on deliberate exploration for as deposits in all parts of the
country.
country
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9. Nigerian Gas Masterplan
Nigerian Gas Masterplan
• Approved by the Federal Executive Council
• Hinged on 3 critical elements
Hinged on 3 critical elements
– Gas pricing policy
–DDomestic gas supply obligation
i l bli i
– Gas infrastructure blueprint
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10. Elements of the Nigerian gas masterplan
Elements of the Nigerian gas masterplan
Gas Infrastructure Gas Pricing Regime Domestic Gas Supply
Blueprint
Bl i t Obligation
Obli ti
Envisages the development of:
Pricing regime to be Regulation to impose:
•3 Central processing
differentiated across sectors: •Mandatory reserves allocation
Facilities;
•Strategic D
St t i Domestic S t
ti Sector for domestic use;
f d ti
•A network of gas transmission
(cost of supply basis) •Compliance to be a
pipelines;
•Strategic Industrial Sector condition of export
•LPG storage & supply
(product netback basis)
Facilities.
•Strategic commercial sector
St t i i l t
(alternative fuels basis)
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11. Gas Pricing Policy
Gas Pricing Policy
• The objective is to Demand Sectors
create a structured and
transparent framework
for gas pricing Strategic domestic
Sector (Power)
• It establishes 3 broad
categories of domestic Strategic Industrial
buyers of gas: Sector (methanol,
GTL, fertiliser)
Commercial Sectors
Cement, Steel, CNG,
Other domestic industries
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12. Demand Sectors
Demand Sectors
• Strategic Domestic Sector – this refers to sectors that have
a significant direct multiplier effect on the economy. The
strategic intent is to facilitate low cost gas access
strategic intent is to facilitate low cost gas access
• Strategic Industrial Sector – use gas as feedstock in the
production of value added products typically destined for
production of value added products typically destined for
export. The strategic intent is to ensure that feedgas price is
affordable and predictable
affordable and predictable
• Commercial Sectors – use gas as fuel and are able to bear
high prices
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13. Differentiated Pricing Structure
Differentiated Pricing Structure
• The pricing policy does not fix gas prices but
p
provides a framework for establishing the
g
minimum gas price that can be charged to any
category of buyer.
category of buyer
– Strategic Domestic sector – lowest cost of supply + 15% IRR
– Strategic Industrial sector product netback but gas floor
Strategic Industrial sector – product netback but gas floor
price must not be lower than cost of supply of gas
– Commercial sector – indexed to price of alternative fuels
Commercial sector indexed to price of alternative fuels
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14. Aggregate gas price and the domestic gas
aggregator
• Aggregate domestic price is the forecast
g p p j
average domestic price based on projected
total demand portfolio and using the pricing
framework
• All suppliers would be paid the aggregate
domestic price
• The gas aggregator manages the
The gas aggregator manages the
implementation of the DGSO & aggregate
price
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15. Domestic gas supply obligation
Domestic gas supply obligation
• In recognition of the need to have sufficient
g
gas to meet the need of the demand sectors,
the government has introduced a DGSO by
regulation
• It is an obligation to dedicate a specific
volume of gas towards domestic gas and to
l f
deliver the gas to a purchaser
– Volumes are to be set by minister
– Allocation to be based on principles of “equity” to be determined by
minister
i it
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16. Domestic gas supply obligation (contd.)
Domestic gas supply obligation (contd.)
• Failure to meet obligations would lead to:
– Penalties (obligation to pay for the volumes not
( g p y
supplied)
– Prohibition not to supply gas to any export project
Prohibition not to supply gas to any export project
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17. Gas infrastructure blueprint
Gas infrastructure blueprint
• Current state of gas infrastructure is poor!
• The Escravos to Lagos Pipeline System (ELPS),
g p y ( ),
completed in the nineties is the main
transmission pipeline system dedicated to
pp y
domestic consumption in the country
– ELPS also serves as the source of gas supply for the West
African Gas Pipeline System
– repeated sabotage of the pipeline and feeder systems has led
to frequent supply disruptions
to frequent supply disruptions
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18. • The other major downstream pipeline systems
are dedicated to single projects leading to sub
optimal pipeline configurations
– These pipelines are mainly to export oriented projects and
cover areas already served by other single project pipelines.
cover areas already served by other single project pipelines
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19. Gas infrastructure blueprint
Gas infrastructure blueprint
• Blueprint provides a framework for future gas
p g
infrastructure developments in Nigeria
• Provides for 3 gas gathering and processing
facilities and a network of gas transmission
facilities and a network of gas transmission
lines
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20. Gas gathering facilities
Gas gathering facilities
• Indicative locations
– Warri/Forcados
– Obiafu area
– Calabar/Akwa Ibom
• Each CPF to cover a designated exclusive
franchise area
franchise area
– A network of gas gathering pipelines and compressor
stations to be developed in each area
stations to be developed in each area
– Each franchise area to serve as regional hubs
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21. Gas transmission lines
Gas transmission lines
• The blueprint proposes 3 backbone gas
y
transmission systems:
– South to North transmission backbone
– Western transmission system
Western transmission system
– The Interconnector system
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22. Gas infrastructure blueprint
Gas infrastructure blueprint
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23. Contractual framework
Contractual framework
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24. Downstream gas
Downstream gas
• Petroleum industry bill incorporates some of
the terms of the moribund Downstream Gas
Act
• The bill lays the foundation for the
The bill lays the foundation for the
establishment of a wholesale gas market
• Appears to conflict with NGMP
– No recognition of the pricing policy
No recognition of the pricing policy
• Authority required to monitor anti‐
competition activities
ii i ii
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25. Gas flaring
Gas flaring
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26. Gas produced, utilised, flared
Gas produced, utilised, flared
Gas Produced: Utilised and Flared
2,500 80%
2,000 70%
% Gas Flared
BScf
1,500 60%
s
1,000 50%
500 40%
- 30%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
GAS FLARED INJECT./LIFT FUEL NGL
GAS SOLD LNG % FLARED
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27. • The percentage of gas flaring has reduced
g y
significantly from 98% in the 70s
• Several gas flare out dates have been set
–L t ti D
Latest is December 2008
b 2008
– Has routine gas flaring ended?
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28. Gas flaring policies
Gas flaring policies
• Associated gas reinjection act 1979 and
– Set deadlines for ending gas flaring
gg g
• Flaring was meant to end January 1, 1984
• Flaring is illegal without the permission of the Minister
Flaring is illegal without the permission of the Minister
• Penalty for flaring was forfeiture of all concessions
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29. Gas flaring policies (contd.)
Gas flaring policies (contd.)
• Associated gas reinjection (continued flaring
g ) g
of gas) regulations
– Flaring could continue:
• More than 75% is effectively utilised or conserved;
More than 75% is effectively utilised or conserved;
• Produced gas contains 75% impurities;
• Ongoing utilisation programme is interrupted by equipment
failure;
• If the volume of gas produced is small in relation to the distance to
a possible utilisation point and it is not technically advisable to
p p y
reinject
• Where the minister, as hemay deem fit orders the production of
oil from a field that does not satisfy the above conditions
oil from a field that does not satisfy the above conditions
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30. Gas flaring policies (contd.)
Gas flaring policies (contd.)
• Associated Gas Re‐injection (Amendment) Act
1985
– More circumstances for exemption
– Minister may issue exemptions when he is
Minister may issue exemptions when he is
satisfied that utilisation or reinjection of produced
gas is not appropriate or feasible
gas is not appropriate or feasible
What does history say about our gas flaring policy?
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31. Gas flaring policies (contd)
Gas flaring policies (contd)
• Routine flaring continues
• Coys happy to pay penalties
Coys happy to pay penalties
• Mechanisms available to government not fully
utilised
ili d
– Ministerial permission
– Legislation
– NNPC’s position in JVs
NNPC s position in JVs
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