- Plans selling directly to large consumers Invests N60bn on phased injection of 20m cylinders to homes
Chineme Okafor in Abuja
The federal government has adopted a new approach in its investment in new joint venture Liquefied Natural Gas (LNG) projects in the country, wherein, it would retain ownership of its shares of the volume of natural gas produced up till the point of delivery in the international market.
Also, the government plans to spend N60 billion over a five-year period to provide up to 20 million cylinders to escalate the adoption of liquefied petroleum gas (LPG) as a primary cooking fuel in Nigerian homes. These are contained in a newly approved National Gas Policy. According to the document which THISDAY obtained at the weekend in Abuja, the tolling arrangement would serve the government in the exports of its equity LNG from new projects that would be coming on board.
Under this new plan, the LNG liquefaction facility would be paid a fee for liquefying the government share of gas produced from its assets, as well as the LNG shippers who would be paid a transportation fee for transporting the LNG to their destinations.
Pretty different from what exists in its joint venture arrangement in the countryâ€™s only LNG company â€“ the Nigeria LNG (NLNG), experts however told THISDAY that the new arrangement appears complex and could be unhealthy to adopt in a market that has remained highly competitive in the last 10 years. This they added could lead investors to shy away from committing to new LNG projects in the country.
Though not stated in the document which the federal executive council (FEC) has already approved, these experts suggested that it could also affect LNG projects such as the Brass and Olokola which are still in the pipeline, but not the NLNG which has locked-in LNG contracts already.
â€œNigeria will continue to seek opportunities in the global LNG market either through the expansion of the capacity of the Nigerian LNG company or through the development of the OK and Brass LNG or other LNG projects as may be considered appropriate and commercially feasible.
â€œThe intention, however, is for Nigeria to retain ownership of its natural gas up to the point of delivery into markets. The government therefore intends to move to a tolling arrangement with respect to exports of governmentâ€™s equity LNG from new projects, whereby the LNG liquefaction facility is paid a fee for liquefying the government share of gas produced from its assets, and LNG shippers are paid a transportation fee for transporting it,â€ said the document.
It added: â€œOwnership and title to the gas therefore remains with the government entity up to the point where it is regasified at the export market regasification terminal and sold to shippers.
â€œAs Nigerian government entities become more experienced in gas marketing, it is expected that the government entity will be able to retain ownership further downstream, gaining access to transport networks and selling directly to large consumers.â€
Quoting an example where such arrangement exists, the document stated: â€œAs an example of the concept, Russian Gazprom has an equity shareholding in the UK-Belgium Gas Interconnector. Gazprom subsequently applied for a UK shipperâ€™s licence and now operates a gas marketing operation in the UK, selling Russian gas directly to consumers in the UK.â€
The government also explained in the document which it said would define its medium to long-term targets for gas reserves growth and utilisation in accordance with Nigeriaâ€™s economic development priorities that gas as a resource would be treated as a standalone industry separate from oil.
It stated in this respect that it would accord greater priority to using gas to develop Nigeriaâ€™s domestic economy, adding that the countryâ€™s transport; power; industrial; and agriculture sectors would get improved attention in using gas to drive their operations.
On LPG usage in the country which is still considered very low, the government said in the document: â€œTo support the goal of improving the development of LPG infrastructure such as cylinder manufacturing plants, mini-gas plants/skid plants, gas plants and trucks, an LPG availability gas intervention fund of sixty billion naira (N60, 000,000,000) will be established by the government due to a shortage of local cylinder manufacturing capacity, the policy will promote the phased injection of 20 million cylinders over a period of five years.â€
It said with regards to the fiscal framework for the gas market, that a market based pricing will have to prevail against price fixing to enhance investment in gas infrastructure.
â€œThe fiscal framework intends to remove the distortions in AGFA (Associated Gas Framework Agreement) from the effective cross subsidy of oil to the gas sector. The gas policy will therefore ensure that gas project costs are attributed to gas projects, and gas projects are standalone; at the same time, the government intends to have separate fiscal treatment for exploration, production and midstream gas activities, to relax royalty and tax rates for gas, and incentivise entry into the midstream.
â€œThe government intends to develop regulations which will prohibit any Greenfield oil and or gas project from moving forward until there is a proper integrated plan for the development of the hydrocarbons thereby ensuring that no gas flaring occurs during production of hydrocarbons, except in very special circumstances such as emergencies for operational reasons,â€ it explained.
But assessing the document, another expert in international gas business, Mr. Dan Kunle, told THISDAY that the focus of the policy on driving the countryâ€™s domestic economy with gas was perhaps its most critical aspect, and thus asked the government to firmly commit to this.
â€œThe policy wants to use gas to drive our domestic economic activities in the power; transportation; agriculture; and manufacturing sectors, which is good, but the government must now execute it in a very rational way to make sure that it truly secures gas for the domestic market,â€ said Kunle.