The document provides an overview of Nigeria's petroleum industry bill (PIB) and gas sector, highlighting several key issues:
1) The PIB aims to deregulate and commercialize the petroleum sector but its provisions are inconsistent and powers of the minister and institutions are unclear.
2) Nigeria has large gas reserves but production and infrastructure are underdeveloped due to low investment, price caps, and an unclear legal/fiscal framework.
3) A new gas pricing mechanism is recommended to stimulate investment and growth in the gas sector instead of price caps, which have discouraged development of domestic gas supplies and infrastructure.
Presentation on Petroleum Industry Bill to Nigeria Transition Committee May 13 2015
1. OVERVIEW OF THE PETROLEUM INDUSTRY BILL:
PERSPECTIVES ON THE GAS SECTOR
Presented To
GEN MOHAMMADU BUHARI TRANSITION
COMMITTEE
(SUB COMMITTEE ON FINANCE & ECONOMY)
May 7,2015
by
Benjamin Ogbalor
EverlinkSourcing Ltd
#45 NNPC Housing Complex Road
Ekpan – Warri
Delta State.
bogbalor2@icdngo.org,everbenjamin@yahoo.com
Mobile :08036681396
Presentation on PIB to Transition Committee 1
2. At the end of this session, participants should be able
to:
Have an Overview of the PIB
Understand Some of the Critical Issues in the PIB
Key Short Comings of the PIB & Recommendations
Have an Overview and State of the Gas Sector in
Nigerian Economy
Appreciate the Issues and Reforms in the Gas Sector
Understand the Context for Gas in the PIB
Understand the significance of the PIB and Gas
Sector to the Nigeria Economy
OBJECTIVE OF PRESENTATION
Presentation on PIB to Transition Committee 2
3. CONTENT OVERVIEW OF THE PIB
• Goals and vision
• Objectives
• Institutions Establishment in the PIB
• Regulatory and Licensing Issues in Upstream and Downstream
• Key findings and Recommendations
OVERVIEW OF NIGERIAN THE GAS SECTOR
OIL vs. Gas Revenue Stream Projection
• Growing Market for Natural Gas & State of Infrastructure
• Available Domestic Market for Gas & Global Fiscals
ISSUES AND CHALLENGES IN THE GAS SECTOR
• Issues and Challenges in the Gas Sector & Consequence of Inaction
STRATEGY/MECHANISMS IN PLACE TO SHORE UP THE GAS SECTOR
• Response Strategy and Mechanisms
GAS SECTOR IN THE PIB 2012
• DGSO Price Capping
• Nigeria GDP Growth Rate in Sellected Sectors
• Recommended Price Mechanism
• Gas Sector in Petroleum Industry Bill 2011
Way Forward & Recommended Price Regime
CONCLUSION AND NEXT STEPS
4. OVERVIEW OF PIB
GOAL AND VISION
Deregulated Petroleum Sector with Privatize and or
Commercialized Institutions ,Reduced Government Expenditure
,Enhance Private Sector Investment and get Ample Return to both
Government and the Private Sector
STRATEGY
I. Repeal 16 Existing Legislation to ONE
II. Create NEW Institutions and Governance Structure
III. Enact New Regulatory, Fiscal & Legal Regimes for The Sector
EXPECTED OUTCOMES
I. Increase Competition and Commercialization
II. Privatized Upstream and Downstream ---E & P , refining ,gas
processing, transportation,pipelines ,marketing etc
III. Increase Revenue for Government
Presentation on PIB to Transition Committee 4
5. a. Objectives
a. Create a conducive business environment for petroleum operations
b. Enhance exploration & exploitation of petroleum resources in Nigeria
c. Establish commercially oriented and profit driven oil & gas entities
d. Create efficient and effective regulatory agencies
e. Establish a progressive investor friendly fiscal framework
f. Utilize petroleum resources to stimulate economic development
g. Optimize domestic Gas supplies (power generation and Industrial development)
h. Establish commercially oriented and profit driven oil and gas entities
i. Deregulate and liberalize the downstream sector
j. Promote transparency and openness
k. Protect health, safety and environment in the course of pet. Operation
l. Attain such other obj. to promote a viable & sustainable pet ind. In Nigeria.
OVERVIEW OF PIB
6. 1. Institutions Established by The PIB
a. Petroleum Technical Bureau
b. Upstream Petroleum Inspectorate
c. Downstream Petroleum Regulatory Agency
d. Petroleum Technology Development Fund
e. Petroleum Equalisation Fund
f. Petroleum Host Community Fund
g. Nigeria Petroleum Assets Management Company
Limited
h. National Oil Company
i. National Gas Company
j. Frontier Exploration Services
k. Petroleum Training Institute (extant)
l. Nigerian Content Development and Monitoring
Board (extant)
OVERVIEW OF PIB
7. OVERVIEW OF THE PIB
2.Regulatory and Licencing Issues in Upstream and
Downstream Petroleum Sector
a. Petroleum Exploration Licence
b. Petroleum Prospecting Licence
c. Petroleum Mining Leases Marginal Fields
e. Transportation Pipeline Owner Licence
f. Transportation Network Operator Licence
g. Gas Supply Licence
h. Gas Distribution Licence
i. Oil Prospecting Licence (extant)
j. Oil Mining Licence (extant)
k. Production Sharing Contracts (extant)
3. Pricing, Tax Regime and Fiscals
4. Legal Issues
5. Staffing
Presentation on PIB to Transition Committee 7
8. Key Findings
a) Objectives and Guiding Principles Well Articulated to Support
and Sustain the growth of the Sector and Nigerian Economy
b) Sections of the Text Not Consistent With The Underlying
Principles Of The PIB 2012(Powers & functions of the
Minister, structure, powers, functions and management of
the Institutions, the licences, pricing and the fiscals).
c) Powers and Functions of the Minister & Regulatory
Institutions are not clarified and conflicting
d) Appointment of Board Members and Management Team of
Institutions Subjective.
e) No clauses to ensure Efficiency & Abate Delays
Presentation on PIB to Transition Committee 8
9. Key Findings
f) Except for the Frontier Service,3Nos Institutions Created:
Regulatory
Funds Administration and
Management and Commercial Companies.
g) Petroleum Host Community Fund is Undeveloped
h) Too Many and Idle Licenses (GAS)
i) The Gas Master Plan (GMP) Poorly Articulated
j) Inbuilt Price Fixing Mechanism
k) Aggregator potentially may impede investment and
growth of the gas sector.
l) The Fiscals & Domestic Gas Obligations may impede the
ability of Nigeria to harness the gas resources optimally.
Presentation on PIB to Transition Committee 9
10. Key Findings
m) Mechanism to stimulate development of petroleum
resources in the hinterland absence.
n) Fiscal Regime is harsher than pre-PIB.
o) Subjection of Royalties and Fees Regime to the Minister
may deter the Investments and Growth
p) Presidential Discretionary Powers to Grant PPL & PML
Diminishes Accountability.
q) Repetition of Several Sections
Presentation on PIB to Transition Committee 10
11. Key Recommendations
1. Clarification and Streamlining of the powers and functions of
the Minister and the Regulatory Institutions: The Minister
should
i. Give Policy Direction & Development of Regulations and
Guidelines for the Sector
ii. Oversight ,Compliance Enforcement ,Sanction & Reward
iii. Refrain from serving in Boards of the Institutions
iv. Refrain from Policy and Project Implementation
v.Recommend for Appointment the Chairman and Members
Board Except the Chief Executive Officer (CEO) and
Management of the Institutions.
2. The Inspectorate and Agency shall
i. Be the Sole Organs to Implement and Enforce Government
Policies and Guidelines and shall Refrain from making
Policies and Guidelines.Presentation on PIB to Transition Committee 11
12. ii. Be sacked based on the recommendation of the President
and approval by the Senate.
iii. Appoint through a merit based process The Chief Executive
Officers and Management members of the Institution.
iv. Should have one term of 5 years only.
v. Appoint the Chief Executive Officers and Management Staff
one term of 6 years only.
vi. Hire, discipline and fire the management
team, including the CEO, with at least 75% vote of members.
Presentation on PIB to Transition Committee 12
13. 3. In light of the role of the Recommended Role of the Minister
the Petroleum Technical Bureau be deleted entirely from the
PIB.
4. The Frontier service is not consistence with deregulation and
private sector led development of the petroleum sector as
envisaged by the PIB so should not be considered in the Bill.
5. The Petroleum Host Community Fund is to provide
content for the effective utilization of the resources that will
be made available to the fund.
6. There should be Streamlining of Licenses and optimisation of
the development of the downstream sector:
Presentation on PIB to Transition Committee 13
14. Key Recommendations
I. The guidelines, terms, conditions and requirements for
Licenses shall be established by the Minister.
ii.The Agency and the Inspectorate shall be the bodies to
grant, award and revoke licenses following the directives
established by the Minister
iii.The Petroleum Mining License should give a person a right
to sell the gas and develop the market, so a gas producer
shall invest and do business along the gas value market
chain.
iv.The following Licenses may be allowed
o Transportation Pipeline Owner Licence
o Gas Supply Licence
Presentation on PIB to Transition Committee 14
15. 7. The Gas Master Plan (GMP) shall be a 20 year plan
with 5 years mid-term strategic plans drawn from it to give
effect to articulating and actualization of the domestic gas
obligation regime.
8. The Aggregator is deleted to allow the operators to fix
prices within the context of the benchmarks and the
domestic gas obligations of the various gas producers to
promote investment, increase access to gas for consumers
and promote the growth of the gas sector.
9. The fiscal regime for gas improved to ensure that investors
can provide financing to prospect for gas and also develop
the domestic gas market and ultimately grow the economy
and increase government review revenue plus attendant job
creation.
Presentation on PIB to Transition Committee 15
16. 10.Improve the fiscals and policy for Frontier Acreages to
accelerate petroleum exploration and production in the
Hinterland of Nigeria.
11.Restrict the power of the President to grant a licence or
lease under this Act only on the grounds of overriding
national interest Subject to Senate Approval
12.A higher degree of certainty should be introduced in the PIB
for the fiscal regime for Royalties, Rents and Fees by stating
in very clear terms the applicable volume, value and
monetary thresholds and limits.
13.The sections on institutions be streamlined to reduce the
volume of the PIB by eliminating undue repetition of sections
common to all institutions in the PIB.
Presentation on PIB to Transition Committee 16
17. Overview of Nigeria Gas Sector
• Gas reserves:183.5 Tct (600tcf potential)
• Produces:8.0 bcf/d (Export: 3.05 bcf/d) Reinj:2.9bcf/d
• Demand : 4 bcf/day (2013) .Flares 0.75bcf/d (AG)
• 2.7bcf/d Power Demand (DGSO: 1.3bcf/d)
• Domestic and Regional Market Undeveloped.
• Govt. fix prices & Control Market /DGSO
• Production(2016): 8.24 bcf/d: DGSO (3 Bcf/d).
• <$1-$2 per mcf till June 2014
• $2.5/mcf + ç80 for transport (June 2014)
Presentation on PIB to Transition Committee 17
18. OIL vs. GAS REVENUE STREAM PROJECTION
PARAMETERS OIL GAS
Reserves 36 billion barrels 180.5 trillion cubic feet
Postulated Reserves (in
2020)*
40 billion barrels 600 trillion cubic feet
Economics (Current) 36 billion barrels x 60
USD/barrel = USD
2.16Billion
180.5 trillion cubic feet x
2.5 USD/cf =
USD 451.3Trillion
Economics (If Fiscals
and Legal Framework for
Gas is improved)
36 billion barrels x 100
USD/barrel = USD 3.6B
180.5 trillion cubic feet x
3.5 USD/cf =
USD631.6Trillion
NIGERIA LOCKS IN GAS DEVELOPMENT FOR
ELECTRICITY GENERATION. 40,000MW <$80BILLION.
*Source: BP Statistical Review of World Energy June 2012Presentation on PIB to Transition Committee 18
19. OVERVIEW: GROWING MARKET FOR NATURAL GAS
OK & Brass LNG due
since April 2010.
EGTL Budget overrun
from $1.7b ->$6.ob due
since 2009.
NLNG Asset :$9.0b &
netted $10.0b in 2011.
Govt take is unclear
Stalled
ready
Presentation on PIB to Transition Committee 19
20. STATE OF GAS INFRASTRUCTURE
Presentation on PIB to Transition Committee 20
22. COMPARISON OF NIGERIAN AND GLOBAL FISCAL TERMS - GAS
Nigeria capped gas prices and has the lowest gas price <$ 1/mcf
$1/mcf was implemented in June 2012 .
Nigeria’s Gas Master Plan expects a transition in gas prices, starting with an
increase in the minimum gas price to US$1/mcf by 2012. Suppliers have
reported payment recovery difficulties at above rate.
Presentation on PIB to Transition Committee 22
23. Lack of Effective Legal and Fiscal Regime
Fiscal and Legal Framework-Unclear.
Low Investment in The Gas Sector
Huge Loss of Revenue.
Inefficiency, Subsidies and Price Capping.
Lack of Effective Institutions and Programmes
Low Exploration Activities
Dearth of Pipeline and Transportation Architecture
Inadequate Gas Processing and Storage Facilities
GMP & PIB Deficient in two respects:
I. Disincentive: Low Private Sector Investment in
Infrastructure & Market Delivery Systems
II. Gas :Foreign Markets, Domestic Market Undersupplied.
ISSUES & CHALLENGES IN THE GAS SECTOR
Presentation on PIB to Transition Committee 23
24. Stunted Economy Growth –Industry, Agric, etc
Continuous Gas Flaring
Gas-fertilizer, power, cooking fuels.
Power consumption per capita <40 watts
<15% of the world average.
Nig. farmers use, on average, 10 kg of fertilizer
per ha. ( 5% of the recommended usage).
80,000 die each year from indoor air pollution.
Loss of Biodiversity & huge contribution to green
house gas emissions, global warming, and
climate change.
CONSEQUENCES OF LACK OF ACTION
Presentation on PIB to Transition Committee 24
25. GOVT. RESPONSE STRATEGY & MECHANISMS
Downstream Gas Bill 2005
National Gas Master Plan 2008
National Domestic Gas Supply and Pricing Regulations 2008
National domestic Gas Supply and Pricing Policy 2008
National Infrastructure Blueprint
Gas Flaring (Prohibition and Punishment) Bill 2009
Petroleum Industry Bill 2008, Inter-Agency Memorandum 2009
Petroleum Industry Bill 2012
Presentation on PIB to Transition Committee 25
26. (RESPONSE MECHANISM cont,,,)THE GAS MASTER-PLAN
Feb 2008 Jan 2011 Jan 2013 Jan 2014
Presentation on PIB to Transition Committee 26
27. Relevant Objectives to the Gas sector (Section 1):
• Create a conducive business environment for petroleum operations
• Establish a progressive investor friendly fiscal framework
• Utilize petroleum resources to stimulate economic development
• Optimize domestic Gas supplies (power generation and
Industrial development
• Establish commercially oriented and profit driven oil and gas
entities
• Deregulate and liberalize the downstream sector
• Promote transparency and openness
• Protect health, safety and environment
GAS SECTOR IN PETROLEUM INDUSTRY BILL 2012
Presentation on PIB to Transition Committee 27
28. PIB :DGSO CAPPING OF GAS PRICES
Proposed Government’s Role in GMP
Presentation on PIB to Transition Committee 28
29. Table 3: GDP Growth in Selected Sectors : 2011 – 2013 (New Estimates)
A Comparison of Newly Re-Based and Older GDP Estimates by World Bank 2014
2011 2012 2013
Total 5.3 4.2 5.5
Non-Oil GDP 5.8 5.8 8.4
Agriculture 2.9 6.7 2.9
Crude Oil and Gas 2.3 -4.9 -13.1
Manufacturing 17.8 13.5 21.8
Including food, beverages, tobacco 7.3 6.6 11.8
Electricity, Gas, and Utilities 39.5 14.6 14.6
Construction 15.7 9.4 14.2
Trade 7.2 2.2 6.6
Transportation 6.0 -3.4 3.8
Telecommunication and Info services 1.2 3.7 4.7
Entertainment, Broadcasting, Movies,
Music
10.5 1.9 24.1
Real Estate 0.4 5.6 12.0
30. RESPONSE MECHANISM: RECOMMENDED
IMPROVE & DEPLOY PIB:
Effective Legal and Fiscal Regime
Effective Institutions and Programmes
Leading To
Huge Investments & Capital Inflow
Gas Infrastructure & Market
31. WAY FORWARD :IMPROVE & DEPLOY PIB
Ensure
Decontrol and Deregulate--graduated
Less Tariffs and licensing
Incentives for investments in infrastructure: import
duties/tax waivers, insurance, guarantees,
Downstream Operations -Develop Commercial, Open
Market Efficiencies.
Contractual Agreements- Supply and Sales Agreements
Gas sector – Create Competitive Environment
Transmission and Distribution
Separate from power sector inefficiencies
Deregulated Gas prices & Remove caps
Appropriate funds for Power Utilities /Provide Subsidies
Delete Gas Aggregator & Review DGSO Regime
Inclusive Long Term Gas Development Plan
33. CONCLUSION AND NEXT STEPS
Nigeria is a Gas Country with Little Oil.
Capital Flight & Low Investment in the Gas Sector
Unable to Unlock $451.3 Gas Revenue Stream
Inappropriate & Unclear Fiscal & Legal Framework & GMP prog.
Tie Power and Gas Strategy & Impede Gas Devt.
Increasing Govt. TAKE & Diminish Investments( Poor Fiscals)
REVISE,IMPROVE & ROLE OUT PIB
Deregulate the Petroleum Sector
Maximize returns for Private Sector through Incentives & Fiscals
Increase Development value of Gas, THRU Processed and Local
Marketing
Deregulate Power Sector and Separate from Gas Economics
Delicense the Gas Sector & Stop Fixing Prices.
Create Incentives to unlock potential of gas and Hinterland
Acreages
Ensure supply of gas to strategic sectors & Create attractive terms for
both supply and demand.
Consider the balance between the domestic rate of gas and the rate
sold to power producers as a Tax Write Off For Gas Producers
Presentation on PIB to Transition Committee 33
34. PIB CAN BE PRESENTED TO NASS
BY THE BUHARI ADMIN IN
90 DAYS
Thank You
Presentation on PIB to Transition Committee 34
35. Table 2: Sectoral shares in Nigeria GDP: 2012
A Comparison of Newly Re-Based and Older GDP Estimates
New Old
Agriculture 22.1 33.1
Crude Oil and Gas 15.8 37
Trade 16.5 15.5
Manufacturing 7.4 1.9
Of which food and tobacco 4.4 -
Construction 3.1 1.3
Transportation 1.3 1.6
Telecommunications 8.3 0.8
Electricity and Gas 0.5 0.2
Finance and Insurance 2.8 1.6
Real Estate 7.7 4.5
Entertainment, Broadcasting, Motion pictures,
music
2.0 -
Public Administration 3.1 -
Prof., Scientific, and tech. services 3.7 -
Other 5.7 2.5
36. Table 3: GDP Growth in Selected Sectors : 2011 – 2013 (New Estimates)
A Comparison of Newly Re-Based and Older GDP Estimates by World Bank 2014
2011 2012 2013
Total 5.3 4.2 5.5
Non-Oil GDP 5.8 5.8 8.4
Agriculture 2.9 6.7 2.9
Crude Oil and Gas 2.3 -4.9 -13.1
Manufacturing 17.8 13.5 21.8
Including food, beverages, tobacco 7.3 6.6 11.8
Electricity, Gas, and Utilities 39.5 14.6 14.6
Construction 15.7 9.4 14.2
Trade 7.2 2.2 6.6
Transportation 6.0 -3.4 3.8
Telecommunication and Info services 1.2 3.7 4.7
Entertainment, Broadcasting, Movies,
Music
10.5 1.9 24.1
Real Estate 0.4 5.6 12.0
37. Current Power Generation-Gas Supply Details
Average Daily Generation in early September 2013 3,233MW/d.
Egbin PHCN: 4 of 6 turbines in operation. Average generation
~544MW/d. Gas constraints.
Ughelli PHCN: 4 of 18 turbines in operation. Average generation
~191MW/d. Gas constraints.
Olorunsogo PHCN: 2 of 5 available turbines in operation due to low gas
pressure. Average generation ~40MW/d.
Olorunsogo NIPP: 1 of 4 available turbines. Low gas pressure. Average
generation ~110MW/d.
Omotosho PHCN: 2 of 8 turbines in operation. Average generation ~
51MW/d.
38. Current Power Generation-Gas Supply Details
Omotosho NIPP: 1 of 4 turbines in operation. Average generation
~110MW/d due to gas supply constraints.
Sapele PHCN: 1 of 3 functioning turbine in operation due to
turbine faults. Average generation ~34MW/d
Sapele NIPP: 1of 3 available turbine in operation. Average
generation ~93MW/d.
Geregu PHCN: 1 of 2 available turbine in operation. Average
generation ~ 113MW/d.
Geregu NIPP: 1 of 3 available turbines in operation due to gas
supply constraint. Average generation ~ 118MW/d.
Ihovbor NIPP: 1 of 2 available turbines in operation. Average
generation ~116MW/d
39. Ongoing Gas Projects
Oben/Sapele Expansion
-Seplat/NPDC To Increase 130MMscf/d To 250MMScf/d By 2015
“We have no gas for any company other than the contracts we have signed”
Uquo Scalability
100MMscf/d Plant by Frontier/SevenEnergy, scalable to 200MMscf/d.
Contracts in hand: 173MMscf/d
Utorogu Expansion? 300MMscf/d, 450MMscf/d
Escravos Gas Projects (EGP Series: 300MMscf/d, to what?). Not clear if
Chevron will take FID on Agura IPP
Obite(TOTAL) Qua Iboe(ExxonMobil)-2018?
Shell Eastern Cluster, including Assa North/Ohaji South- 2020?
Shell leaves “pure oil play”, to big domestic player?
40. JV Gas – Overview of main fiscal terms
Existing PIB Gazetted PIB Probable Rate
PPT/NHT 30% 45% 50%
CIT 0% 0% 30%
Dividend Tax 10% 10% 10%
Royalties 5 – 7% Royalty schedules
omitted
5-7 (5 years
exemption)
Funding levy 0 2% -
Tax deductibility
of cost (not
allowable)
None, all expenses incurred
wholly, exclusively and
necessarily for petroleum
operations are deductable
Non-BVA cost
80 % of non –
Nigerian costs
80% of Non-Nigeria
overhead cost
Investment
incentives
PIA & cost consolidation PIA Unknown Uncapped gas
allowance & tax
consolidated.
Basis for tax &
royalty
Volumes lifted and sold /
Actual sales prices
Production
Netback value
Depreciation When capex is incurred When capex is
incurred