Effective Legislation Needed for Gas Devt

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The absence of legislation meant to encourage gas development has continued to hamper the implementation of the country’s gas-to-power agenda, Ejiofor Alike reports

Since Nigeria became a major player in the global energy market, most of the relevant regulations have continued to prioritise crude oil exploration and production with little focus on gas finds.

Most of the laws in the oil and gas sector are grounded on the Petroleum Act of 1969, as amended, which governs crude oil production activities.
In the absence of specific regulations on the development of the gas industry, all efforts have been geared towards oil production.

With over 183 trillion standard cubic feet of proven gas reserves and 600 trillion standard cubic feet of unproven gas reserves, according to the American Geological Survey, Nigeria is reputed as a gas province with little crude oil reserves of about 36 billion barrels.
But despite Nigeria’s abundant gas resources, there have been no deliberate efforts to explore gas as most of the gas finds in the country are accidental finds made in the course of searching for oil.

The absence of legislations to define gas terms and create the certainty that could incentivise investments have made Nigeria to sit on huge oil reserves and still lacks gas to power her industries and electricity generating stations.

Existing regulations
Apart from the Petroleum Act of 1969, the country has several gas-related legislations but these do not address the issue of gas development.
For instance, the Associated Gas Re-injection Act of 1979 and the Associated Gas Re-injection Regulation of 1980 were targeted largely at eliminating gas flare in the country and providing for penalty against erring operators.

Also the NLNG Fiscal Incentives, Guarantees and Assurances Act 2004 provided the assurances and comfort needed by foreign investors to stake $6 billion to build the Nigeria LNG, which has arguably become the most successful company in Nigeria.
The Associated Gas Framework Agreement of 1992 focused on the fiscal area to incentivise gas utilisation projects, while the latest gas regulations issued in 2008 to impose Domestic Supply Obligations (DSOs), among others, focused on domestic gas utilisation with no emphasis on gas E & P.

Even on the contractual arrangement between the federal government and the multinational oil majors in Production Sharing Contracts (PSCs) in the deep waters have not provisions for gas terms.
It is expected that when gas is discovered in the deep waters in the course of searching for oil, the operators will enter into new agreement with the federal government.

This provision has largely been ignored as some of the deepwater fields have been producing hydrocarbons without any deliberate efforts to sign agreements on the gas finds.
The Petroleum Industry Bill (PIB), which intended to consolidate these regulations into one single document, could not be passed after almost 10 years.

Enacting regulation on gas
In the absence of effective regulations to harness the country’s huge gas resources, operators have called for new regulations that would focus exclusively on gas exploration and development.
One of the most recent calls was made by petroleum engineers under the aegis of the Nigeria Council of the Society of Engineers (SPE), which urged the federal government to provide the terms for investors to develop gas in deep offshore terrain.
SPE had also raised concern over ongoing plans by the federal government to cancel the 1992 Associated Gas Framework Agreement (AGFA).

AGFA, which was introduced in 1992, but has never been fully implemented.
AGFA contains a package of fiscal incentives for utilisation of gas.
Chairman of SPE, Nigeria Council, Dr. Saka Matemilola had told journalists ahead of 2017 Oloibiri Lecture Series & Energy Forum (OLEF 2017) held recently in Abuja that a favourable gas terms would incentive investors to develop gas in the deep offshore.

He said huge undeveloped gas resources were locked up in the offshore terrain as a result of lack of terms for the development of gas in this challenging environment.
Matemilola argued that the current policy where oil producers in the deep offshore do not have right over the gas resources do not encourage investment.
“But the question is what gas terms will make it profitable? Don’t forget that operating in deep offshore is a lot more expensive than onshore and some offshore. So, you have to give the right terms,” he said
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According to him, the issue of gas pricing is a major issue, adding that the current policy where the government directs the gas producers to sell at a particular price does not encourage investment in gas infrastructure.

“But there are small companies in some other areas where it is a willing-buyer, willing-seller agreement. And you see that that is where a lot of companies are interested because I cannot go and look for funds and you tell me that I can’t sell above this particular price when someone is willing to buy at that price because the person who is buying it at the market rate knows that it is profitable. That is why he is buying it at that rate, anyway. But if a company is forced to sell at a particular rate, which the company thinks will not make economic sense, it will be very tough,” Matemilola explained.

He also raised concern on government’s plan to stop the implementation of the Associated Gas Framework Agreement (AGFA), adding that the government should find alternative policy to AGFA.
“It has not been replaced yet, but that is something government needs to think about a replacement because the policy is still going round through stakeholders’ engagement. The government needs to be careful about the implication because if with AGFA in place currently, what that means is that if you have oil infrastructure and gas is there, you can then net off the cost of the gas infrastructure from the whole.

I understand the government trying to say that it favours companies that have oil and gas. How about the companies that have only gas? These companies won’t have oil profit to use to net off gas infrastructure when they want to start the gas,” he added.
He insisted that the government should work out incentives that will make it easy for investors to be willing to invest in gas infrastructure.

According to him, the gas industry needs to diversify from just exporting through Nigeria LNG and make sure that domestic gas is profitable as well for those who want to invest, so as to also to spur gas-based industries for the benefit of the economy.

He noted that in The Netherlands and Western Europe where the oil and gas industry is mature, the requirements for incentivising investors in the gas sector are quite different.
Also speaking at the event, a member of SPE, Nigeria Council, Mr. Rotimi Adefarasin identified specific incentives that could spur investment in gas sector.

“The enabling environment is for those who want to build infrastructure to do it. That is why in some countries, you may find investors enjoy tax holidays for certain period of years to enable them recoup their investment and plough that back into the industry to make sure that the industry keeps improving by the day,” Adefarasin explained.

In a more detailed presentation on the subject, Partner and Head of Energy and Natural Resources at Streamsowers & Kohn, Mr. Chiagozie Hilary-Nwokonko recently called on the federal government to enact effective legislations to develop the Nigerian gas sector, stressing that the current legislation of Petroleum Act of 1969 prioritised crude oil production.

Hilary-Nwokonko, who spoke during a three-day Nigeria Gas Summit 2017, which ended recently in Lagos, argued that for the country to maximise her potentials in the gas sector, all the political, regulatory, structural and fiscal challenges in the gas sector have to be addressed and all contractual or policy-based issues legislated.

In his lead presentation on “Updating the Nigerian Gas Framework for a Gas Intensive Future,” Hilary-Nwokonko, who was a member of the technical committee of the Special Task Force for the review and implementation of the previous version of the Petroleum Industry Bill (PIB), stated that the current legislative framework is insufficient to catapult Nigeria into the gas-intensive future.

Hilary lauded the federal government’s National Gas Policy but argued that the country needs an effective legislation for the new policy to be implemented.
“We have all heard about the huge natural gas endowment that Nigeria has; the large market that we have in principle; the even larger regional markets and the sub-par performance so far in harnessing these resources to meet our requirements in Nigeria. Most of what actually happened in Nigeria in terms of gas has been more export-led or export-oriented.

But going forward, I think we all agree that with what is happening in the broader world and also what is likely to have in Nigeria, that we are destined for a gas-intensive future. The thing is how do we get there; how do we deliver that and how do we maximise the potentials that we have,” Hilary-Nwokonko said.
He said for the country to achieve its potentials in the gas sector, effective legislations have to be developed to create the needed certainty that would incentivise investments.

“My view is that for us to achieve maximisation of our potential for a gas-intensive future, a lot of what today is either contractual or policy-based has to be legislated and not just in secondary legislation but in primary legislation because that is what is going to create the certainty that investors need to be able to invest in gas projects, which are long term projects,” he explained.

With the protracted oil and gas reform and absence of a gas legislation to provide clarity of terms that will incentivise investments, gas suppliers have continued to groan under unfavourable investment climate, which has hampered Nigeria’s efforts to make gas available for power generation.