PIB seen providing support to Nigeria’s “Decade of Gas”
The new oil and gas law aims to address the concerns expressed by IOCs, but it also establishes incentives for delivering gas to the domestic market
WHAT: Abuja drew up the PIB partly because it needed to address foreign investors’ concerns about contracts, transparency, risk and other issues.
WHY: The bill also includes provisions that will offer concrete support to domestic gasification plans.
WHAT NEXT: These provisions do not guarantee success for “The Decade of Gas.”
When Nigerian President Muhammadu Buhari launched a major push for the passage and adoption of a new petroleum law last year, he had multiple reasons to do so.
One of the most important of these was the need to address the concerns that IOCs had expressed about Nigeria. These IOCs, including long-time investors such as Eni (Italy) and Royal Dutch Shell (UK/Netherlands) were worried about the country’s commitment to improving transparency and ensuring the stability of contracts.
They fretted about the progress of efforts to deter corruption, the risks of working in onshore areas populated by communities at odds with the federal government, investments in infrastructure and other issues. They did so frequently enough and loudly enough that industry observers started warning that Nigeria might lose investment to other countries unless it took action.
The Buhari administration certainly heeded that warning. It submitted the Petroleum Industry Bill (PIB) to both houses of the National Assembly in August 2020 and finally succeeded in securing the passage of the legislation in the third reading in mid-July of this year. The bill is now due to be submitted to Buhari, and the president is expected to sign it into law in the near future.
This has the potential to be good news for IOCs working in Nigeria (or hoping to do so), though it will take time to determine whether the PIB lives up to its promise. But it may also give a boost to Nigeria’s domestic fuel and energy sector, in the form of support for domestic gasification initiatives.
Another ambitious initiative
Buhari has voiced strong support for plans to promote the development of the country’s domestic natural and associated gas resources.
In late 2019, he declared that the time had come to focus on gas, asserting that Nigeria was not an oil-producing state but rather a gas-rich state that also happened to produce oil. He declared 2020 “The Year of Gas” and touted his administration’s support for a number of ambitious initiatives, including the construction of the Ajaokuta-Kaduna-Kano (AKK) pipeline, a domestic gas supply link, and the building of a seventh production train for the Nigeria LNG (NLNG) consortium.
This initiative did not live up to its full potential, largely because of economic and logistical disruption stemming from the coronavirus (COVID-19) pandemic. Nigeria did chalk up a few notable successes, such as the announcement of a final investment decision (FID) on NLNG’s Train 7 project in January 2020, but other projects encountered challenges and delays because of the pandemic.
Nevertheless, Buhari remained convinced of the need for Nigeria to concentrate more on gas than on oil, and in late March of this year, he unveiled an even more ambitious plan. During the pre-summit conference of the Nigeria International Petroleum Summit (NIPS) in Abuja, he announced that the 2021-2030 period would be known as “The Decade of Gas” and said that the government would use this time to make gas available across the country.
The programme envisions full gasification of the Nigerian economy, the president said at the pre-summit conference and in a subsequent series of Twitter posts. He explained that he wanted to see Nigeria extract much more gas and make it available to customers all over the country – to businesses and residences for heating, to power plants for electricity generation and to manufacturers for industrial operations. He talked about transforming Nigeria into a gas-powered country and urged all stakeholders in the industry to work together for this purpose.
Supporting domestic gasification
The Buhari administration’s support for the Decade of Gas has not waned since late March. Officials in Abuja are still talking up the plan and stressing its potential to help the Nigerian economy grow and diversify.
Nevertheless, the initiative has drawn fewer headlines than the PIB. Many local and foreign news agencies have paid closer attention to questions about how the new oil and gas law will affect IOCs (especially those working in the restive Niger River Delta) than to questions about how to achieve full domestic gasification during the Decade of Gas.
But the two issues can’t be separated. The PIB wasn’t drawn up solely for the purpose of placating IOCs; it will also affect domestic fuel and energy markets. Moreover, the new law will provide some concrete support for the Decade of Gas initiative, according to Obo Idornigie, vice president for sub-Saharan Africa research at Welligence Energy Analytics.
“We think the PIB offers support to the ‘Decade of Gas’ initiative,” Idornigie told NewsBase. “For the first time, Nigeria has introduced terms for developing gas under production-sharing contracts [PSCs]. This has been a sticking point for gas fields under PSCs.”
He also pointed out that Nigeria’s new petroleum law established special tax breaks for gas development “The PIB is also prioritising gas supply to the domestic market, and incentives to support this initiative have been included in the document,” he noted. “For example, royalty [rates] for gas produced and consumed in-country [are] 2.5%, versus 5% for export. Operators who are developing gas projects solely to supply the domestic market can also consolidate the midstream capital investment with upstream operations for the purposes of tax.”
However, Ian Simm, Principal Advisor at consultancy IGM Energy, notes that Nigeria may already be getting ahead of itself with Minister of State for Petroleum Resources, Timipre Sylva recently suggesting the renewal of efforts to extend the AKK pipeline across the Sahara to begin piping gas to Europe.
Sylva told press in late June: “The plan is if we can get it to Kano, then it can continue all the way to Algeria at the Trans-Saharan gas pipeline and then link up with the Algerian pipeline and then we move it to Europe.”
Simm contends that “while exports to Europe will be appealing, given the patchiness of domestic gas and electricity connectivity, Abuja should seek marginal gains locally rather than becoming distracted with a pipeline for which it has no way of guaranteeing security, particularly when doing this domestically has already proven challenging.”
No guarantee of success
On this point, Idornigie stressed that the PIB would not remove all obstacles to domestic gasification in Nigeria.
The bill will not, for example, eliminate the deficiencies in Nigeria’s domestic gas infrastructure, he said. “The lack of gas infrastructure will be a big issue for developing offshore gas reserves for the domestic market, particularly non-associated deepwater gas fields,” he told NewsBase. “The proposed midstream infrastructure commission is expected to help facilitate investment in gas infrastructure, but it is still early days, and it is unclear how this new commission will work.” (He was referring to provisions of the bill that called for establishing the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), an agency that will govern commercial, operational and technical operations in the downstream sector and the midstream sector of the oil and gas industry.)
Additionally, he pointed out that the passage of the PIB had not assuaged all the doubts of the IOCs, which are in a better position than Nigerian firms to fund and operate the projects that will provide the additional volumes of gas needed to achieve Buhari’s goals. “[We] think material gas production is expected to come from the joint venture contracts between the IOCs and NNPC [Nigerian National Petroleum Corp.] ... [and] the IOCs are not likely to commit to new joint venture projects until they get clarity on how NNPC will work as a commercial entity, plus how their outstanding liabilities will be paid.”
In short, the PIB is likely to prove an important source of support for the president’s “Decade of Gas,” and it aims to create incentives for gas development projects that will serve the domestic market. At the same time, though, the bill will not guarantee the initiative’s success. Instead, its impact will only become clear with time.