Will New National Gas Policy Outlive Buhari’s Administration?

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The federal government will soon gazette the National Gas Policy approved by the Federal Executive Council last month. Ejiofor Alike expresses doubt that the new gas policy will outlast the administration, given that it failed to implement the Gas Infrastructure Blueprint approved by its predecessor

A bold step to develop Nigeria’s domestic gas market through the expansion of supply infrastructure was taken on February 13, 2008 when the Federal Executive Council (FEC) under the administration of the late President Umaru Musa Yar’Adua approved the Gas Infrastructure Blueprint.

The blueprint, which targeted a projected inflow of at least $30 billion investment, was the first deliberate attempt by any administration to develop Nigeria’s domestic gas market through the expansion of gas supply infrastructure.

Before the late Yar’Adua’s administration shifted focus to the development of Nigeria’s domestic gas market, the various successive administrations had laid emphasis on the monetisation of the country’s gas resources via the export market.

Initially, oil companies operating in the country had flared all associated gas (AG), that is, the gas produced in the course of crude oil production as there was no deliberate attempt to explore and produce gas in non-associated form, otherwise called non-associated gas (NAG).
To end gas flaring, the then military regime promulgated the Associated Gas Re-injection Decree 99 of 1979, which mandated oil companies to submit proposals for the utilisation of Associated Gas (AG) and end flaring from January 1, 1980.

According to the Decree, for a company to violate the deadline, such company must obtain permission by the minister or risk forfeiture of the acreage.
Later, the Associated Gas Re-injection Amendment Decree 7 of 1985 was promulgated to impose a penalty of 2 kobo per million thousand standard cubic feet (Mscf) imposed at fields where permission to flare are not obtained.
Subsequent amendments increased the penalty to 50 kobo per Mscf in 1988 and N10 per Mscf 1992.

However, exactly 38 years after the Associated Gas Re-injection Decree 99 of 1979 was promulgated to end gas flaring in Nigeria, oil companies have continued to flare gas as a result of lack of commitment by the various successive administrations to implement sanctions and incentivise investors to embark on massive gas utilisation projects.

To incentivise investors to produce and export gas in the form of liquefied natural gas (LNG), which was increasingly making impact in the global market, the then military regime of Gen. Ibrahim Babangida came up with the Associated Gas Framework Agreement (AGFA) of 1991 and 1992.

Essentially, AGFA provided fiscal incentives to improve economics of any gas utilisation project that could reduce flaring by empowering oil companies to offset capital expenditure from crude revenue.
Some of the incentives include: an initial tax-free period of 10 years for LNG projects; exemption from paying withholding tax on interests and dividends paid to non-residents for LNG projects; and capital allowance of 20 per cent per year in the first four years, 19 per cent per year in the fifth year and one per cent per year in the books.

So, before the late President Yar’Adua came to power, the various successive administrations had laid much emphasis on eliminating gas flare through the export market, thus neglecting gas supply to the domestic market for power generation and other industrial uses.
Even when the administration of former President Olusegun Obasanjo made a bold attempt to boost power generation by laying foundation for gas-fired power plants across the country, there was no clear domestic gas policy to guarantee adequate gas supply to the power stations.

Emphasis on domestic gas supply
The administration of the late President Yar’Adua changed the equation and developed aggressive mechanisms to shift emphasis from the export market to the domestic market.
Before the FEC approved the new gas blueprint on February 13 2008, the late President had approved two guidelines to ensure the realisation of his vision to boost domestic gas supply in the country.

These guidelines include: the Gas Pricing Policy; and the Domestic Gas Supply Obligation (DSO) regulation.
The Gas Infrastructure Blueprint and these two inter-related approvals constituted the ambitious Nigerian Gas Master Plan aimed at attracting $30 billion investments.

Under the Yar’Adua administration, the Nigerian Master Plan had pursued three-pronged strategies – stimulating the multiplier effects of gas in the domestic economy; positioning Nigeria competitively in high value export markets, and guaranteeing the long term energy security of Nigeria.

To achieve his vision in the gas sector, the late President had split the Ministry of Petroleum Resources into two – the Ministry of Energy (Gas) and the Ministry of Energy (Petroleum), and appointed different ministers to oversee each ministry.

Under the Domestic Supply Obligation in the Gas Master Plan, oil companies were mandated to set aside a pre-determined amount of gas reserves and production for the domestic market.
The DSO also stipulates that the Minister of Energy (Gas) should determine the requisite amount of gas periodically and all the operators were required to comply with their obligations or face penalty of $3.5 per thousand standard cubic feet of gas under supplied, restricted export or both as the Minister of Energy (Gas) may decide.

As a practical demonstration that it was no longer business-as-usual for oil companies to focus on gas exports and neglect the domestic market, THISDAY had reported exclusively on October 13, 2008 how the late President Yar’Adua refused to grant approval for the production and shipment of LNG cargoes from the Train 6 of the Nigeria LNG plant in Bonny Island, 10 months after the Train 6 project was completed, insisting that enough gas should be set aside for the domestic market before exports.

The late President’s FEC had also approved the short term gas supply proposed by the Gas Master Plan to double domestic gas availability to 1400mmcf/d by end 2008; triple it to 2050mmcf/d by end 2009.
With this plan, power generating capacity was projected to hit 4,500 megawatts, excluding hydro, by end 2008 and 6, 200MW, excluding hydro, by end of 2009.

However, the late Yar’Adua’s successor, President Goodluck Jonathan did not show equal commitment as the Ministry of Energy (Gas) was scrapped and powers concentrated on a Minister of Petroleum Resources at the detriment of the Nigeria’s gas development.

However, it was to the credit of the Jonathan’s administration that domestic gas price was increased from $0.5 per thousand cubic feet to $3 per thousand cubic feet per day to encourage gas producers to supply the local market, but the new increase was still below the $6 Henry Hub gas price in the United States, which incentivised producers to prefer the export market.

With the slow implementation of the Nigerian gas master plan, power generation is still around 4,000MW against the 6,200MW targeted for 2009, as many power plants are still idle due to lack of gas to fire their turbines, while the projected $30 billion investment did not come after several companies were shortlisted to invest in gas infrastructure under the Nigerian Gas Master Plan.

Buhari’s new gas policy
Under the current administration of President Muhammadu Buhari, the Federal Executive Council (FEC) meeting, presided over by the Acting President, Professor Yemi Osinbajo, on June 28, 2017, approved the National Gas Policy, following a presentation by the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu.

Kachikwu has told the fifth Triennial National Delegates’ Conference of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), that the country needed major changes in policy to make gas a hub of the nation’s economy.

He also highlighted the need to have a stream of revenues between petroleum and gas in order to see an improvement in the Nation’s economy and leverage on opportunities for gains from the oil and gas sector.

The Director of Press at the Ministry of Petroleum Resources, Idang Alibi said in a recent statement that the new gas policy document builds on the policy goals of the federal government for the gas sector as presented in the 7 Big Wins initiative developed by the Ministry of Petroleum Resources and the National Economic Recovery & Growth Plan (ERGP 2017 – 2020).

According to Alibi, the policy articulates the vision of the Federal Government of Nigeria, sets goals, strategies and an implementation plan for the introduction of an appropriate institutional, legal, regulatory and commercial framework for the gas sector.
The new gas policy is also intended to remove the barriers affecting investment and development of the sector.

Alibi added that the policy will be reviewed and updated periodically to ensure consistency in government policy objectives at all times.

The gas policy intends to move Nigeria from an oil-based to an oil and gas-based industrial economy, which will be driven by some core principles.
The targets aim to separate the respective roles and responsibilities of government and the private sector; establish a single independent petroleum regulatory authority; implement full legal separation of the upstream from the midstream; implement full legal separation of gas infrastructure ownership and operations from gas trading and realise more of the LNG international downstream value.

Others include: to pursue a project-based, rather than a centrally-planned domestic gas development approach; make a strong maintenance and safety culture a priority; implement international best practice for environmental protection; establish strong linkages with electric power, agriculture, transport and industrial sectors; establish payment discipline throughout the energy chain; honour stability of contract terms; ensure security of assets and ensure compliance with the Nigerian Content Act.

The main aspects of the recently approved National Gas Policy, which is soon to be gazette, include: governance (Legislation and Regulation); industry Structure; development of Gas Resources; infrastructure; building Gas Markets; developing National Human Resources.
But whether Buhari’s gas policy will be implemented by future administrations remains a matter of conjecture, given that the previous administrations did not implement the gas policy of their predecessors.