Poor policies that will rain on Nigeria’s gas year

Timipre Sylva, the minister of state for Petroleum Resources in a recent press conference said that 2020 is Nigeria’s year of unlocking gas investments but without concrete plans to review regulatory and failed policies, progress will be stymied.

Though with over 200 trillion cubic feet (TCF) of gas, Nigeria has often treated gas as the irritant to get out of the way in the search for oil. The Nigerian Petroleum Sector is oil-focused and gas is largely subordinated to oil for legislative and regulatory purposes.

The result of this is that even with the 9th largest gas reserves in the world, Nigeria lacks a comprehensive legal and fiscal regime for natural gas. It has no framework to attract sufficient investment in the gas industry.

What passes as strategy is the Nigerian Gas Master Plan created in 2008 to create a framework for gas infrastructure development. Its goal was to serve as a blueprint for infrastructure, guarantee domestic supply obligation and a commercial framework.

Analysts say the lack of comprehensive legal and regulatory framework inhibited the attainment of the overall objectives of the gas master plan.

In 2017, The Federal Executive Council passed the Nigerian National Gas Policy intended to remove the barriers affecting investment and development of the sector and transit Nigeria from an oil-base to an oil and gas-based economy but like the gas masterplan, it also lacked legal framework.

Sylva said this government will pass the Petroleum Industry Bill before the end of this year, but fears that the version that will be passed will be too nationalistic, it will turn off investors are legitimate. Nigeria passed a deep offshore act months ago and International Oil Companies are not persuaded to invest in the country.

Therefore, to make this year truly a gas year, the government will need to recognise gas a commodity in its own right. This involves creating a petroleum law designed for gas and inclusion of downstream gas in legislations and streamline current laws that are overlapping.

The legal and regulatory framework of the industry does not contemplate the midstream and downstream gas sectors as such it does not address the licensing, regulations and fiscal regime which would govern the activities in the sector. This has to be the priority of government if it is serious about developing gas.

Gas needs to be regarded as a fuel in its own right and is done in the oil sector, the upstream should be separated from the midstream. Regulation must engender competition, pricing should be liberalised, fiscal regime created, and ownership of gas infrastructure separate from ownership and operations of gas trading.

The gas chain has to be clearly delineated and backed by relevant legal framework which will activate the several laudable proposals made in the Nigeria Natural Gas Policy with respect to the legal and regulatory framework of the midstream segment of the natural gas sector.

This will entail the unbundling the petroleum industry thereby having a standalone natural gas sector. The critical task for government going forward according to experts is developing a robust legal and regulatory framework specifically for the midstream segment of the Nigerian gas sector and engaging competent policy and regulatory oil and gas experts with an in-depth knowledge and understanding of the Nigerian gas industry.

Presidential Directive on Gas Pricing to the Textile Industry

The Federal Government recently directed that end-user gas price of $3.85/Mscf for textile manufacturers based on a distribution tariff of $1.15 and a marketing margin of $0.50. The policy will apply retroactively from January 2018 ripping apart all contracts entered between producers and customers based on the government-approved price of US$7.62/Mscf.

Operators say this action of the executive arm of government was ultra vires as it did not possess the legal power or authority to issue such directives

In their view, Nigeria lacked a comprehensive legal and regulatory framework with the appropriate channels for issuing these types of directives in the gas sector, gas subsidies and appropriate gas policies/laws and

The proposed flat price provided for the textile industry failed to take into consideration the distinct investments undertaken by the distribution companies in the downstream sector and the underlying contractual framework by which they agree to supply gas to end-users.

“In a nutshell, the proposed gas regime only contemplated the gas producer’s and transportations cost to the detriment of the local distribution companies,” one operator said.