Policies deter FG’s call for gas investments

The Nigerian government says it is keen on forming collaborative partnerships with the private sector in a bid to grow the economy using gas, showing a new oil law as evidence of its intention, but operators say more is required.

In a speech at the Business Forum organised by the Nigeria Gas Association (NGA) on Tuesday, Temipre Sylva, Nigeria’s minister of state for petroleum resources, who was represented by Justice Deferaka, his technical adviser, said, “The bedrock of the government’s ‘Decade of Gas’ pronouncement is collaborative partnership to achieve smooth gas transition by 2060 as stated by the president during the Conference of Parties (COP 26).

“We need to collaborate across a broad spectrum and dimensions that is government industry, academia and professional associations like the Nigeria Gas Association.

“To make that happen, individual and corporate Nigerians, as well as governments at all levels, must develop a new enlightenment, an energy literacy that includes a profound understanding that energy pervades all aspects of life.”

According to the minister, “The guiding principle for our country in creating an exceptional energy system for the 21st Century must be “responsible development.”

Development is responsible when it recognises the interests and values involved with energy matters in four dimensions, namely – economic, environmental, and social and energy security.

An indication of the government resolve is the passage of the Petroleum Industry Act, which prescribes terms for gas and provides incentives for investors, Sylva said.

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The Federal Government’s gas expansion programme seeks to expand gas domestically in transport as in natural gas vehicles, petrochemicals feedstock, in making fertilisers and cutting flaring.

“Gas is what Nigeria needs as we face up to a period of profound change,” he said.

Further evidence of this intention is seen in the fact that the sector is moving towards a willing seller, willing buyer commercial gas arrangement, according to Mele Kyari, Nigeria National Petroleum Corporation (NNPC) group managing director in his remarks.

“We know that the framework that is on ground today is enough for people to invest their money and get back their investment and also recover their costs,” he said.

However, the NGA at different times in the past has called on the government to liberalise gas pricing, a factor that inhibits investments into the sector.

“The gas supply industry must be anchored on a willing-seller willing-buyer framework to unlock further investments in gas exploration and delivery infrastructure. There should be a removal of price controls and concessional gas tariffs for sections of the market that are critical to achieving overall economic growth objectives,” noted the NGA in a recent communiqué.

The NNPC boss said the Corporation was getting huge commitments from partners across the globe and even locally to form partnerships. But it remains to be seen how much of these partnerships materialise and translate to value in the economy.

Partnerships with International Oil Companies have led to poor fiscal terms for oil in deep onshore basins before they were reviewed and have precipitated the absence of gas terms after over half a century of oil and gas production. This has led to vast amounts of gas being flared in a country where half the population lack access to electricity.

Faruk Ahme, chief executive for Nigeria Midstream and Downstream Regulatory Authority, said, “Unlocking the huge investment opportunities inherent in this sector request supportive regulatory frameworks that promote investors’ confidence and sustainable development of the sector.” Only his agency is tasked with creating these policies.

Some operators at the NGA Business Forum harped on some of the limitations of the PIA.

Osagie Osunbor, country chair of Shell Companies in Nigeria, said: “I’m glad that PIA in its present form now recognises gas as a standalone hydrocarbon provides a legal framework for gas activities like exploration, development and production in addition to a new framework for gas pricing, while we commend this act, I’m quick to say the act is not yet perfect.

“For instance, in the current PIA, gas incentives rely heavily on the amount of liquids than gas thus making non-associated gas reserves, that are low in liquids, ie. Dry Non-Associated Gas (NAG) projects, less attractive for development. This I believe requires another look into by the government and different agencies as well as the industry.”

The implication is that investors may not be as sufficiently motivated as the government claims.

According to data obtained from the Department of Petroleum Resources (DPR), as at 2016, Nigeria’s proven natural gas reserve stood at 192 trillion cubic feet (tcf), made up of 51 percent Associated Gas (AG), produced as a by-product of the production of crude oil, and 49 percent NAG.

By 2021, Nigeria’s proven natural gas reserves now stands at 206.53tcf with AG, accounting for 100.73tcf while NAG, now at 105.80tcf has surpassed associated gas. But operators say there is not much incentive for those developing non-associated gas.

The PIA has sprung gas out of the shadows of oil, set up a new regulatory framework and fiscal terms, legislated cost reflective tariffs for gas transportation assets, has even instituted better incentives for domestic gas supply and sanctions for the non-supply for of domestic gas delivery obligations, a liberalised pricing, the holy grail of investments still falls far short.

The NGA Business Forum with the theme “Petroleum Industry Act (PIA): Progress & Opportunities In The Decade of Gas,’’ saw industry experts speak on how collaboration taking advantage of the new Petroleum Industry Act has created new investment opportunities that could transform Nigeria’s economy.