THE LEGAL AND REGULATORY

INTERVENTIONS REQUIRED FOR

THE DEVELOPMENT OF NIGERIAS
GAS SECTOR

Gbite Adeniji
Chief Consultant

Calabar, Nigeria
22nd May2014

SCOPE OF PRESENTATION
Sector diagnostics
Recommendations for policy,
legislative and regulatory
interventions for accelerated
development of Nigerias gas
sector.

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INTRODUCTION Abundance
Natural gas sector especially critical to Nigerias socio
economic development
Abundance: 187tcf of proven natural gas resources
[2003 figures]!
If the correct policy choices are made, huge potential
for accelerated socio economic development
Economic linkages [electricity, agro allied and
industrial sectors] and potentially massive revenues
from large scale investments in the gas value chain
[contra Mozambique with 100tcf = estimated revenues of
$300bn]
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GAS SECTOR REFORM INITIATIVES

2003

Natural Gas Strategy

2004

Nigerian Natural Gas Policy

2005

Draft Natural Gas (Fiscal Reform) Act

Draft Downstream Gas Act

2008

Nigerian Gas Master Plan

Nigerian Domestic Gas Pricing & Supply Policy

2009

Template Commercial Contracts [Gas Sale & Aggregation Agreement; Gas

Transmission Agreement; Escrow Agreement]

Recent

Gas Network Code

National Pipeline Specifications

Most Recent

Petroleum Industry Bill (PIB)

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THE OUTCOME OF THE REFORMS

Significantly more gas supply into the domestic market
BUT: very little has occurred by way of mega projects
WHY:
- perception that Nigerias doors are not sufficiently open for
business
- failure to enact the Downstream Gas Bill
- perceptions that the regulatory framework remains unclear
- policy inconsistencies and confusion over PIB
- negative signals in the PIB re: taxation of gas upstream projects
- upstream discouraged by regulated gas prices
- tectonic shifts have since occurred in the global gas industry
- the world is now awash with gas & Nigeria is not the only game in
town
..

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The Paradox - The Chickens have

come home to roost!!!

A full - blown energy crises

Inadequate gas supply to the electricity and industrial sectors
Limited prospect of near term gas supply
Massive reduction of local industrial capacity and high cost of
off grid power throughout the economy
Default on WAGP supply obligations
A youth bulge but limited opportunities for millions of young
Nigerians
A paradox: resource abundance vs an economy in desperate
need for diversification and growth.
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THE DOWNSTREAM GAS BILL

A one-stop gas code designed to stimulate investment and the regulation of the
downstream and midstream
Establishes an independent regulator sector regulator for the midstream and the
downstream
A framework for liberalised entry into the midstream and the downstream
Provides for the licensing of gas supply, transportation, distribution and network
operation.
Introduces the usual regulatory instruments and rules for managing a gas sector
e.g. network code for access to sector infrastructure; antitrust regulation; and a
third party access regime.
Unbundling of the Nigerian Gas Company into separate gas merchant and gas
transportation companies
A transitional pricing framework recognized the importance of cost reflectivity and
a fair rate of return for all participants in each segment of the gas chain.
To much disappointment the Downstream Gas Bill never became law and expired
in parliament by 2006.
Recommendation
- the DGA is a discrete piece of legislation and does not need much further work
- Its a legislative low hanging fruit. Revisit it. Enact it.

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WHATS THE COUNTRYS STRATEGY?

The major shifts in the geopolitics of the gas sector
and the socio - political economy of Nigeria calls for a
revision of Nigerias gas policy
Basically, redefine Nigerias priorities for its gas
resources
Key issues: update the countrys Natural Gas
Strategy and Masterplan/revisit gas
regulation/sector governance/gas pricing/gas supply
security/PSC Gas/taxation of investments/the role of
the private sector vis--vis government etc.
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NIGERIAS GAS POLICY where and what is it?

Formulated in 2004 and restated in 2007, but not gazetted
Policy now needs to be updated through a process involving
Government, the private sector, civil society and development
partners
- Take account of current realities and the future
- Declaration of strategic positions of the Government re: the resources
- Near and long term vision and action plan for the sector within the
overall socio economic development agenda
- Demonstrate a desire for huge and sustainable impacts to Nigeria
[e.g. the development of downstream markets, service industries, transportation
infrastructure, multiplier effects, accelerated development of large scale
industries]

- Recognise importance of consistent sector governance by a well

trained cadre of officials

The public is unclear about what the policy is

Gas policy needs to be published for public information and use.
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WEAK SECTOR GOVERNANCE

Limited capacity in key regulatory institutions leading to
overreaching and pseudo regulation by other agencies
- Policy initiatives has been driven over the years by NNPC
- GACON oversees gas supply and pricing
Evidence of regulatory capture apparent in the sector
Recommendations An urgent need for effective sector
governance
Empanel a deep bench within the Ministry staffed with experts
charged with policy development and co-ordination and
surveillance over the regional and global gas markets
Institutional reforms with a capacity building and governance
reform component
The Department of Gas [Regulation] needs to be resourced as an
interim measure pending the establishment of a substantive
sector regulator.
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POLICY & REGULATORY CONSISTENCY

Important to have policy and regulatory consistency across the energy
chain
Both the gas and electricity sectors are network bound systems with
monopolistic features
Both sectors are part of an intricate energy chain and therefore have
common regulatory issues
The Electricity sector
- Government is the policy maker
- Independent regulation by NERC
- Investment largely driven by the private sector
The Gas sector needs to be regulated in a manner consistent with the
electricity sector
- needs to be private sector driven
- replace central ownership of the midstream with liberalised entry
- legislation should provide for independent regulation of the sector.
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ON INDEPENDENT REGULATION
Independent regulation will:
- insulate the regulatory process from political interference
- professionalise the regulatory process

There is ample precedent for independent regulators

within the various sectors of the Nigerian economy:
-

the Securities and Exchange Commission (SEC)

the Central Bank of Nigeria (CBN)
The Nigerian Communications Commission (NCC)
The Mining Cadastre Office (MCO)
The Nigerian Electricity Regulatory Commission (NERC)

Why should the Gas sector be different?

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LIMITED INFRASTRUCTURE
Sector infrastructure is woefully inadequate to respond to demand
from load centers.
A key plank of the Nigerian Gas Masterplan (NGMP) is the Gas
Infrastructure Blueprint
H/w, Infrastructure development driven by Government and funded
from the treasury will always be inadequate to meet the pace of gas
demand & drain resources from other social sectors
The midstream segment is amenable to private sector capital
Faster growth can be achieved by liberalising access by the private
sector into the midstream
Recommendations
-

Policy, legislative and fiscal inducement for investment in infrastructure

NGC to compete for network expansion against private sector players

Where necessary, PPPS btw NGC & private sector investors

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LIMITED INFRASTRUCTURE

Sector infrastructure is inadequate to respond to demand

from load centers.
A key plank of the Nigerian Gas Masterplan (NGMP) is
the Gas Infrastructure Blueprint
H/w, Infrastructure development driven by Government
and funded from the treasury will always be inadequate to
meet the pace of gas demand & drain resources from
other social sectors
The midstream segment is amenable to private sector
capital
Faster growth can be achieved by liberalising access by the
private sector into the midstream
Recommendations
-

Policy, legislative and fiscal inducement for investment in

infrastructure

NGC to compete for network expansion against private

sector players
Where necessary, PPPS btw NGC & private sector
investors

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THE FISCAL REGIME

There is a need to revisit the fiscal regime for gas
Fiscal incentives do work
Nigeria is a major player in the global liquefied natural gas (LNG) and natural gas
liquids (NGLs) business and has derived significant revenues from gas exports

The countrys strategic imperative for the near and mid term is in
domestic gas development, especially the accelerated development of gas
infrastructure
Infrastructure projects typically pay out over a longer term
The current fiscal framework is not sufficiently responsive to Nigerias
need for accelerated development of midstream and downstream
infrastructure
Recommendations
- a fiscal break for investment in infrastructure projects will be a positive
signal for the private sector [7 year tax holiday recommended] and
ultimately beneficial to the country
- Also, consider a rethink of the proposed fiscal regime for upstream gas
development. Nigeria must be globally competitive.
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GAS FLARING
Gas flaring traditionally addressed by flare out deadline
dates and flare penalties
They have not worked
More recently, NAPIMS & DPR introduced an integrated
solution to hydrocarbon discovered in any oil block an IOG
Programme
Evidence has shown that gas flaring is ultimately best
addressed by gas utilization
Gas utilization occurs when the investment environment for
gas projects is attractive.
By the way.. right of Government to take flared gas free of
cost at the flare. Hardly ever exercised. Why?
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GAS AGGREGATION
The Gas Aggregation Company of Nigeria (GACON), Nigerias
domestic gas aggregator, was established for the implementation of
the National Domestic Gas Supply and Pricing Policy and
Regulations.
The aggregator manages the allocation of the DSO
The National Domestic Gas Supply and Pricing Policy introduced a
regulated gas pricing framework based on the ability of a strategic
grouping of demand sectors to bear the gas price introduced for the
sector
Wholesale gas transactions are now being conducted on a willing
buyer, willing seller basis
Q: the continued relevance of the gas aggregator if a properly
resourced gas regulator is established?
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OFFSHORE PSC GAS TERMS

PSCs for offshore blocks were designed for oil

Terms for gas commercialization unclear in the PSCs
Issue of PSC gas terms not addressed by the NGMP
Estimates of over 60tcf of gas located in offshore gas blocks covered by
PSCs
Stranded: either flared, re-injected or capped after discovery
Offshore gas resources could significantly alter the countrys balance
sheet [Nigerias elusive potential could finally become a reality]
Gas terms for offshore PSC blocks will help unlock tcfs of stranded gas
for Nigerias domestic gas market
Urgent attention to this issue now required, but please be careful
with the prospective fiscal regime: offshore gas resources are more
expensive to develop, process and transport than onshore gas
resources.

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KEY POLICY CHOICES

Monopolize, Liberalize or Privatize?
Appropriate role of Government, going forward?
[enabler or commercial participant?]
NGCs role in a liberalized environment?
What arrangements should govern further
extensions to the gas grid?
Private sector VS public sector investment.

FINALLY .
Nigeria no longer has the luxury of the time it
had in 2003
The country is now confronted with a massive
youth bulge
Depending on the policy or legislative
interventions taken or the lack thereof,
Nigerias gas abundance could pivot the
country for unprecedented growth (boom).
The alternative can only be imagined.
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