Kachikwu: New Gas Terms for PSCs out by Year End

  • Penalties for gas flaring to also increase

Chineme Okafor in Abuja

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, has disclosed that the long awaited terms that will provide business clarity around Production Sharing Contract (PSC) gas will be out for use before the end of 2016.

Kachikwu also said the federal government has developed a draft national gas policy to be passed to stakeholders for consultation before its finalisation.

He said within the policy, new and improved penalties for gas flaring would be adopted to discourage flaring and wastage.

The minister spoke at the 2016 edition of the Nigerian Gas Association (NGA) annual conference and exhibition in Abuja, and explained that the government plans prioritise gas as a stand-alone business, separate from oil, in the new policy.

Kachikwu said the new PSC gas terms was designed to ensure robust gas production and supply growth over a long-term period for the country.

According to him, government will also clear the bottlenecks in gas production and utilisation as reported in the Petroleum Act, and discourage Greenfield investments without clear-cut plans for gas.

“Government has developed a draft national gas policy which will be released later today to stakeholders for consultation.

“The draft gas policy promotes a competitive business environment for both current and new investors, it articulates our vision for the sector and sets policy goals, strategies and implementation plans for our medium to long term targets for gas,” Kachikwu said.

He added: “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.”

The minister explained that government plans to make Nigeria an attractive gas based industrial nation, with specific attention on meeting local gas demands and then developing a significant presence in the international market.

“Emphasis is tilting towards local application. The priority of the government is the utilisation of natural gas for domestic needs with the power sector as key priority end user.
“Demands from the industrial, commercial and transportation sectors will also be focused on,” Kachikwu noted.

He however stated that the gas growth plan would be led by the private sector while the government would set the environment and support investors with appropriate infrastructure to bring their projects to fruition.

“Our policy challenge is therefore to develop a policy, the institutions and legal and regulatory frameworks that is attractive to private sector.
“Over the years, we have really focused on oil and neglected gas, but having seen the recession today, it is clear to us that if we develop a two window of economic earnings, a lot of emphasis will move to gas,” the minister added.

Providing more details into the draft policy, Kachikwu stated that there would be a lot of institutional reforms in the sector.

He said it would address issues that are critical to government and investors such as gas flaring, pricing, wholesale gas market development and basis for licensing activities throughout the gas value chain.

“A simplified licensing regime will be introduced for different activities including but not limited to constructing and operating gas processing plants, liquefaction plants, gas storage facilities, transportation network operation and distribution networks and retail trading of gas.
“There will be a liberalised entry into the midstream. In order to move the market towards wholesale competition, producers will be encouraged to focus their investments and activities more on the upstream while entering into the midstream will be liberalised and incentivised to allow private sector players to invest in process, transport and storage of gas,” he said.
According to him: “The new fiscal policy we are working on will make gas a stand-alone separate from oil and not consolidated on oil taxation.

“Our intention is to retain the current pricing framework for a limited period. It will end when sufficient gas volumes are built up to a level that will underpin a competitive gas market. Under such condition, wholesale gas price will be market led.”

He said on the planned increase of gas flaring penalty, “we will be increasing the gas flaring penalties to an appropriate level sufficient to de-incentivise the practice of gas flaring. Our focus really will not be on penalisation, we will seek quite frankly to simply stop it and not you throwing money at us.”

In his welcoming remarks, NGA’s President, Mr. Bolaji Osunsanya, said it was necessary for the government to begin to look towards private investors to raise fund for gas developments against its traditional self-reliance and on the International Oil Companies (IOCs).

Osunsanya said: “Entrusting IOCs or the federal government to develop the required gas infrastructure worked to an extent in the past; now, the public and private sector must work hand-in-hand on future developments.

“We should prioritise private sector-led investments while government restricts itself to the provision of securities and credit enhancements. Divestments, pledging currently owned tariff and cash flows, remain options for government to support the required capital mobilisation.”