Nigeria’s Cocktail of Policies towards Gas Revolution

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Global focus is tilting towards cleaner energy, especially with the impact of fossil fuel on the environment. However, despite the positive global outlook and growth in domestic production, Nigeria’s gas utilization remains low. This article highlights the various initiatives put in place by the government in recent times to deepen gas utilization in the country and also its push to ensure that gas plays crucial roles in the country’s quest for development.

Nigeria, it has been said, is more of a gas country than an oil nation, but the country had over the years, failed to utilize the enormous potential and harness the vast opportunities presented by gas.

Nigeria proven gas reserves is currently put at about 203.16 trillion cubic feet, and despite this huge quantity, Nigeria’s gas utilization still ranks low among its peers globally.

To put the situation in perspective, the Petroleum Products Pricing Regulatory Agency (PPPRA), for instance, recently disclosed that 71.35 per cent of the Liquefied Petroleum Gas (LPG) also known as cooking gas, consumed in the country in the month of August 2020 was imported.

According to the PPPRA’s report of LPG supplied in August 2020, a total of 123,554.329 metric tonnes (MT) of LPG in vacuum (VAC) was supplied in Nigeria  in August, by six companies, out of which 88,157.108 MT (VAC) of  LPG were imported, while 35,397.221 MT(VAC) were sourced locally.

The volume of cooking gas imported into the country in August 2020, by four companies out of the six, represented a rise of 44.44 per cent, compared to 61,035.814 MT (VAC) imported in July 2020, and also represented an increase of 7.71 per cent compared to 81,848.585 MT (VAC) imported in August 2019.

On the other hand, the volume of LPG sourced locally for consumption in August, was 52.84 per cent lower than the 75,062.834 MT (VAC) of LPG sourced locally in July 2020.

However, the total volume of cooking gas supplied in August 2020, was 9.22 per cent lower than the 136,098.648 MT(VAC) of LPG supplied in July 2020 and 50.96 per cent higher than the 81,848.585 MT (VAC) supplied in August 2019.

Specifically, in July 2020, a total of 136,098.648 MT (VAC) of LPG was supplied, with 61,035.814 MT (VAC) of LPG imported, while 75,062.834 MT (VAC) was sourced locally; in addition, in August 2019, 100 per cent of the 81,848.585 MT(VAC) of LPG supplied were imported into the country.

The fact that Nigeria continues to import cooking gas leaves much to be desired, especially when viewed against the huge gas resources in the country, as well as the launch of the National Gas Expansion Programme, NGEP, which seeks to increase gas utilization in Nigeria through the auto-gas scheme and LPG expansion programmes.

The cooking gas import scenario seems consistent with that of Premium Motor Spirit, PMS, also known as petrol. Despite having abundance of crude oil, the country continues to import PMS which consumes a huge portion of its foreign exchange. It further spends millions of dollars to subsidise the product, among others.

Gas Flare 

Ironically, despite the import of LPG, oil and gas companies operating in the country flared 225.1 billion standard cubic feet of gas, BCF, from January to July 2020, valued at $787.7 million, an equivalent of N299.33 billion.

According to report obtained from the Federal Government’s Gas Flare Tracker, the volume of gas flared between January and July 2020, declined by 19.86 per cent compared with 280.9 BCF of gas, valued at $1 billion, an equivalent of N380 billion, flared by the companies from January to July 2019.

In addition to the amount of money lost to gas flaring, the companies are expected to pay fines, totalling $450.1 million, an equivalent of N171.04 billion; while the volume of gas flared was also an equivalent of 12.0 million tonnes of carbon dioxide emission.

Also, the report stated that the 225.1 BCF of gas flared by the oil and gas firms in the first seven months of 2020 was capable of generating 22,500 gigawatts hour of electricity.

Defaulting Firms

Six companies were indicted of having the worst record of gas flaring in the period under review. The six companies flared gas from 10 oil exploration sites.

They are Mobil Producing Nigeria, which flared 16.4 billion cubic feet of gas and 8.0 BCF of gas from Oil Mining Lease (OML) 70 and OML 67, respectively; Nigerian Agip Oil Company (NAOC) flared 14.3 BCF, 12.5 BCF and 6.3 BCF from OML 61, OML 60 and OML 63 respectively; while Elf Petroleum Nigeria Limited flared 8.1 BCF from OML 56.

Famfa Oil flared 7.6 BCF of gas from Oil Prospecting Licence (OPL) 216; Shell Petroleum Development Company (SPDC) flared 6.9 BCF, 6.7 BCF and 5.4 BCF of gas from OML 11, OML 29 and OML 18 respectively; while Nigerian National Petroleum Corporation’s (NNPC) upstream subsidiary, Nigerian Petroleum Development Company (NPDC) flared 4.6 BCF of gas from OPL 091.

In 2019, 466.2 BCF of gas was flared between January and December, valued at $1.6 billion, an equivalent of N592 billion.

In addition, the volume of gas flared was also an equivalent of 24.8 million tonnes of carbon dioxide emission; capable of generating 46,600 gigawatts hour of electricity; while the defaulting oil and gas firms are expected to pay penalties of $932.5 million, an equivalent of N345.025 billion.

The value of gas flared by the oil companies in 2019 was higher than the N315.56 billion capital expenditure budgeted by the Federal Government for the Ministry of Works and Housing in the 2020 budget; In addition, the value of gas flared in the period under review, would conveniently finance the capital expenditure of the Ministry of Education, which is N185.34 billion; Ministry of Power, N129.08 billion and Ministry of Health, N109.91 billion, which stood at a combined total of N424.33 billion.

Gas Policy

However, to change the narrative, the Federal Government declared year 2020 as ‘The Year of Gas’ and introduced a number of measures to ensure that the country utilises its vast gas resources for the development of the nation.

Specifically, Minister of State for Petroleum Resources, Chief Timipre Sylva, disclosed that the declaration of 2020 as ‘Year of Gas’ was now being pursued through the National Gas Expansion Programme (NGEP), to deepen gas penetration and avail Nigerians options for alternative fuels and cleaner environment.

According to him, as the country fast-tracks its race to cleaner energy through gas, cognisant of the development in other climes, it is a wake-up call for Nigeria to increase efforts and reduce her dependence on oil.

Sylva noted that the growth of the Nigerian economy was hinged on constant power supply, stating that Nigeria has favourable conditions to bring electricity to its citizens at modest costs compared to many other nations.

He revealed that in collaboration with stakeholders, the Ministry of Petroleum Resources was seeking to ensure that the country converts the massive amount of gas being flared at the moment to energy for Nigerians at affordable rates.

He said: “Therefore, a significant network of additional gas pipelines is a priority. The flag-off of the construction of the Ajaokuta-Kaduna-Kano (AKK) pipeline is the first important step in this direction.

Chief Timipre Sylva

“The development of an optimal framework for electricity generation based on natural gas will create a strong basis for providing electricity to all Nigerians. Based on increased gas production, stable and predictable gas pricing framework, Nigeria will be able to attract further investment in this sector of our industry.  

“Industry must be aware of government’s effort at stabilizing gas pricing with the inauguration of a gas pricing committee, currently at work. The proposed Petroleum Industry Bill (PIB) will also provide a wide variety of features to ensure that natural gas makes the optimal contribution to sustainable industry and national development in the medium to long term.”

Furthermore, the minister stated that with the NGEP, existing policies, legal and regulatory frameworks and commercial instruments that hindered the development of the local gas sector were being reviewed.

Market Structure

He said that a cardinal objective of the NGEP was reforming and implementing the promotion of a market structure in a manner that would ensure the utilisation of gas infrastructure, assets and facilities on a common carrier and co-sharing basis.

He added that strategies that would promote cost-effective distribution of the various gas streams by marine, rail and road for achieving a most affordable, available, acceptable and accessible gas to Nigerians were being formulated.

“All these are being considered with the involvement of other stakeholders under the following: deepening domestic Liquefied Petroleum Gas penetration; auto-gas (LPG, CNG and LNG) for automobiles and other prime movers; Compressed Natural Gas (CNG) for electricity; and gas-based industries revitalization,” Sylva explained.

He maintained that substituting traditional white products with gas would cushion the effects of deregulation, foster human capital development through new investments and create enormous job opportunities for Nigerians.

The NGEP was part of the National Gas Policy that was approved by the Federal Executive Council in June 2017. The National Gas Policy led to the introduction of the Nigerian Gas Flare Commercialisation Programme (NGFCP), which is targeted at commercialising the gases flared in the country.

The National Gas Policy, is also an offshoot of one of the Seven Big Wins — Big Win No3 (Gas Revolution) — which has as its intention to drastically reduce gas flaring by harnessing otherwise flared gases to stimulate economic growth, drive investments and provide jobs in the Niger Delta through the utilisation of widely available innovative technologies.

In the National Gas Policy, the Federal Government made it clear that it would take measures to ensure that flare capture and utilization projects were developed, and would work collaboratively with industry, development partners, providers of flare-capture technologies and third party investors.

It also vowed to open an industry consultation mechanism, as an important measure in ensuring flaring targets are feasible and regulations are realistic; maximise utilisation of associated gas for supply to power generation and for other industrial uses.

Ending Gas Flaring

It hopes to increase the gas flaring penalty to an appropriate level sufficient to de-incentivise the practice of gas flaring, whilst introducing other measures to encourage efficient gas utilisation.

The National Gas Policy commits to ending gas flaring, creating an enabling environment for investors, seeking value addition for gas, and improving governance in the sector.

The Federal Government had promised that it would work to grant open access to all pipelines and other essential midstream infrastructure.

With respect to pricing of gas for the domestic market, which is largely controlled by the Federal Government under a transitional pricing framework, the current framework, the policy stated, would be retained for a limited period until a sufficient gas market is established.

The policy objective, it had stated, was to move to market-led wholesale gas pricing without gas price regulation, except where there are natural monopolies.

The design of the NGFCP, as conceptualized and launched on December 13, 2016 is an innovative, robust and scalable approach to gas flare reduction – consistent with the climate change action plans anticipated in the Paris Climate Change Accords, which could be replicable in many other gas flaring countries around the World with Nigeria setting the pace.

One key accomplishment of the Programme was the historic and record-breaking achievement of the enactment and approval of the Flare Gas (Prevention of Waste and Pollution) Regulations 2018 (Regulations).

The regulations were signed by President Muhammadu Buhari, on the 5th of July, 2018 as the regulatory instrument that would underpin the implementation of the NGFCP. It was gazetted within a record time on the 9th of July, 2018.

Justice Derefaka T.A (Gas Business &
Policy)Ministry of Petroleum Resources

Auto-Gas

In addition to the NGFCP, the Federal Government introduced the auto-gas policy, seeking to encourage motorists to convert their vehicles in order to run on LPG, CNG or LNG.

Chairman of the NGEP, Mr. Mohammed Ibrahim, disclosed that various gaseous fuels had been shown to be able to serve as propellant fuel for automotive purposes.

However, he noted that the practicability on large scale had been demonstrated mainly with Liquefied Natural Gas, Compressed Natural Gas and Liquefied Petroleum Gas respectively, expressing satisfaction that Nigeria has significant reserves of these gases.

Ibrahim added that auto-gas is cheaper than petrol and diesel, as engine oil and spark plugs need changing less often with LPG vehicles, and there is also reduced service costs than cars that run on petrol.

He said: “We are in times where concern for the environment has become a priority as depleting natural resources and an ever increasingly scarred earth is reeling from the consequences of unchecked and combustion of fossil fuels.

“Nigeria has, under the guidance of the President, assented to several climate change conventions which the country is bound by. This is one of the areas identified as having great potential to help us achieve these targets.

“Advances in technology have meant that natural gas has been adopted and is a growing fuel source for automotive and transportation purposes in many parts of the world. Nigeria is lagging behind.

“However, because of the technologies currently out there, Nigeria can easily catch-up with other nations and even surpass them in Natural gas usage for automotive and transportation because technologies are adaptable and we do not have to re-invent the wheel, but adapt to suit our needs.”

Vice President Yemi Osinbajo

LPG Expansion

There is also the National LPG Expansion Initiative, a Presidential Inter-ministerial Committee chaired by Vice President Yemi Osinbajo, with the Honourable Minister of State for Petroleum Resources as the deputy chairman.

The initiative was constituted and saddled with the responsibility of coordinating proposed interventions under the initiative, as well as oversee and drive all the disparate efforts undertaken by industry stakeholders for the growth of LPG consumption in Nigeria.

The committee’s objectives included providing strategic direction, overall leadership, and acting as focal point for ultimate resolution of issues, as well as have oversight functions for the implementation of the programme tasks and activities.

The mandate of the National LPG Expansion Initiative included facilitating the growth of Nigeria’s LPG consumption from the current 500,000 metric tonnes per annum (MTPA), to over five million metric tonnes per annum within 10 years.

The immediate target of the office is to implement the first phase of the expansion program – which is to convert 10 million households to LPG use as cooking fuel in two years.

The initiative is saddled with the responsibility of fostering the sustainable growth of the LPG Sector in Nigeria, by educating individuals and corporate bodies about LPG, its usage, safety and accessibility.

It was also designed to create an enabling environment for the use and exploitation of LPG in Nigeria; ensure that the expansion programme benefit both urban and rural communities; impact the Nigerian economy; add value to the gas sector by driving premium demand for LPG.

The programme is targeted at deploying Nigeria’s immense resources in Liquefied Petroleum Gas For affordable energy and sustainable economic growth.

Gas Transportation Code

Furthermore, the Federal Government, in August, launched the Nigerian Gas Transportation Network Code (NGTNC) aimed at deepening the use of gas in Nigeria, especially by the industrial and power sectors and also speed-up the country’s economic development.

The NGTNC is a contractual framework between the Network Operator, which is the Nigerian Gas Company (NGC), and the users, that would provide open and competitive access to gas transportation infrastructure in the country.

Speaking at the flag-off of the operation of the NGTNC and the Nigerian Gas Transportation Network Code Licensing and Administrative System (NCELAS), Minister of State for Petroleum Resources, Chief Timipre Sylva, stated that the implementation of the network code, which is a set of rules and principles, guiding the use and operations of gas transportation network system, would deepen the domestic gas market and unleash the potential of accelerated growth and economic development of the country.

He said, “In the coming months, this code, together with related interventions, would enable improved gas supply to power, growth of gas-based industries, domestic liquefied natural gas, LNG, liquefied petroleum gas, LPG, and compressed natural gas, CNG penetration, as well as enhance revenue to government and create investment opportunities for our people.

“To this end, the DPR has developed the Network Code Electronic Licensing and Administrative System (NCELAS), which would be used by the regulator to receive, process and issue all applicable licenses to all network players as well as administer all regulatory roles required to ensure the optimal market impact.

“The NCELAS is a secured online environment that would provide optimum value for all stakeholders that would be operating under the network code. With the unveiling of the NCELAS and the execution of the network code framework agreement the regime of gas transportation through a world class network code would have been firmly established in Nigeria for the benefit of all stakeholders.”

He explained that following the declaration of 2020 as a year of gas, the government was driving key policies and regulatory initiatives in the sector.

These policies and initiatives, he said, would enhance gas reserves growth to support domestic and export project; expand domestic gas supply and address the perennial challenges of gas flaring, with its attendant waste and environmental impact.

Deepening Gas Markets  

Also commenting on the launch of the NGTNC and the NCELAS, Director/Chief Executive Officer of the Department of Petroleum Resources (DPR) Engr, Auwalu Sarki, explained that all the critical milestones required to make the network code go live had been achieved.

These critical milestones, according to him, included extensive network stakeholders’ engagement; establishment of the NCELAS, that would issue licenses for network transporters, shippers and agents; commence migration of existing gas transportation agreements into the network.

He added that the DPR also established network code operating procedures; and also emplaced a robust stakeholders’ management support, with assistance from the Nigerian National Petroleum Corporation (NNPC).

He said the DPR would continue to work with all stakeholders to deepen the Nigerian domestic gas market, while he expressed optimism that the gas sector would benefit from the Code, especially as it is for the benefit of investors and for other sectors.

Sarki further stated that the NGTNC would ensure non-discriminatory access to pipeline system; guarantee secure, available, reliable and safe transmission system and ensure cost-reflective tariffs for pipeline service.

In addition, he explained that the NCELAS would ensure transparency and professionalism in the gas business; monitor activities in the network code; guarantee investments in the gas sector; enable participation and buoy activities in the sector.

Engr, Auwalu Sarki,

The government is also expanding Nigeria’s gas opportunities with the construction of the Ajaokuta-Kaduna-Kano (AKK) pipeline project, the Nigerian Liquefied Natural Gas (NLNG) Train 7 project, the Escravos-Lagos Pipeline System II Project, the Obiafu-Obrikom-Oben (OB3) gas pipeline projects, among others.

GSAA periodic review

To support these initiatives, the Gas Aggregation Company Nigeria Limited, GACN, said it was crucial to continually undertake periodic review of the Master Gas Sale and Aggregation Agreements (GSAA), to boost the growth of the Nigerian domestic gas market and deepen the utilisation of gas across the country.

Managing Director and Chief Executive Officer of GACN, Mr. Olalekan Ogunleye, disclosed that the Master GSAAs had made significant contributions to the growth of the domestic market, adding that in line with best practice, it was imperative to periodically review the Master GSAAs to ensure they continue to reflect current market realities.

He expressed optimism that the updated Master GSAAs templates would help promote gas utilization and increase domestic gas consumption, including for the purpose of enhancing power generation, deepening the growth of other gas-based business ventures and accelerating Nigeria’s industrialization.

Mr. Olalekan Ogunleye,

He added that the GACN was engaging with stakeholders having the hope that the review of the document would expedite negotiation and execution of transaction documents; incentivising payment and contract performance; and minimisation of risks and potential for contract disputes.

Ogunleye noted that it would also facilitate new investments in the gas sector; promote contract flexibilities consistent with market realities; facilitate gas trading and gas swap transactions; and transactional cost reduction for the gas sector.

Engineer Mansur Sambo,

On his part, Chairman of GACN and Managing Director, Nigerian Petroleum Development Company Limited (NPDC) Engineer Mansur Sambo, noted that 2020 had proven to be a pivotal year for the gas sector notwithstanding the challenges.

He said: “The Federal Governments’ prioritisation of this sector through its strong support for the Ajaokuta-Kaduna-Kano (AKK) Project, OB3 project, NPDC business expansion and the Petroleum Industry Bill (PIB), are huge enablers for oil and gas based industrialisation and sustainable economic development and growth for Nigeria.

“The Honourable Minister of State, Ministry of Petroleum Resources’ declaration of 2020 as the Year of Gas is backed-up by several game changing initiatives such as the National Gas Expansion Programme, nationwide gas penetration initiative through the Liquefied Natural Gas-Compressed Natural Gas, CNG, nationwide roll-out, ongoing domestic gas price review, among others, all providing further positive impetus. 

“It is in the foregoing context that GACN’s current effort to secure broad industry alignment on improvements to the key gas commercialization document — the Gas Sale and Aggregation Agreement (GSAA) — is most welcomed.

“It is also pleasing that other gas sector value expansion documents such as the Gas Swap Framework and the Interruptible Gas Sale Agreement (IGSA) Master template would be considered.”

CBN’s N250bn Fund 

Furthermore, to support the Federal Government’s gas expansion drive, the Central Bank of Nigeria (CBN) in collaboration with the Ministry of Petroleum Resources, have set up a N250 billion intervention fund to help stimulate investment in the gas value chain, under the NGEP.

In its ‘Framework for the Implementation of Intervention Facility for the National Gas Expansion Programme,’ released few weeks back, the CBN stated that the interest rate under the intervention facility shall be at not more than 5.0 per cent per annum, all inclusive, up to 28th February 2021, thereafter, interest on the facility would revert to nine per cent per cent effective from 1st March 2021. 

The apex bank explained that large-scale projects under the intervention would be financed under the Power and Airlines Intervention Fund (PAIF), in line with existing guidelines regulating the PAIF, while small-scale operators and retail distributors would be financed by the NIRSAL Microfinance Bank (NMFB) and/or any other Participating Financial Institution (PFI) under the Agribusiness/Small and Medium and Medium Enterprises Investment Scheme (AgSMEIS).

Godwin Emefiele

Projects eligible for financing by the intervention fund, according to the CBN, included the establishment of gas processing plants and small-scale petrochemical plants; establishment of gas cylinder manufacturing plants; establishment of Liquefied Compressed Natural Gas (L-CNG) regasification modular systems; establishment of auto gas conversion kits or components manufacturing plants and establishment of CNG primary and secondary compression stations.

The fund would also finance the establishment and manufacturing of Liquefied Petroleum Gas (LPG) retail skid tanks and refilling equipment; development/enhancement of auto gas transportation systems, conversion and distribution infrastructure; enhancement of domestic cylinder production and distribution by cylinder manufacturing plants and LPG wholesale outlets.

Others are the establishment/expansion of micro distribution outlets and service centres for LPG sales, domestic cylinder injection and exchange; and any other mid to downstream gas value chain related activity recommended by the Ministry of Petroleum Resources (MPR).

The CBN disclosed that the initiative, which was to be implemented in collaboration with the MPR, was aimed at improving access to finance for private sector investments in the domestic gas value chain; stimulate investments in the development of infrastructure to optimise the domestic gas resources for economic development; fast-track the adoption of CNG as the fuel of choice for transportation and power generation, as well as LPG as the fuel of choice for domestic cooking, transportation and captive power.

It also added that the initiative was targeted at fast-tracking the development of gas-based industries particularly petrochemical (fertilizer, methanol, among others) to support large industries, such as agriculture, textile, and related industries; providing leverage for additional private sector investments in the domestic gas market; and boosting employment across the country. 

Term loan

The CBN further stated that manufacturers, processors, wholesale distributors, among others shall be eligible for a maximum term loan of N10 billion per obligor and a working capital of a maximum of N500 million per obligor; while Small and Medium Enterprises (SME) and retail distributors are entitled to term loan and working capital of N50 million and N5 million respectively, maximum.

In terms of loan tenor and moratorium, the CBN said: “For manufacturers, processors, wholesale distributors among others, term loans shall have a maximum tenor of 10 years (not exceeding 31st December 2030) depending on the complexity of the project. Each project tenor shall be determined in relation to its cash flow and life of the underlying collateral. 

“Term loans shall be allowed maximum of two years moratorium on principal repayment only; working capital facility of one year with a maximum rollover of not more than twice, subject to prior approval.

“For Small & Medium Enterprises (SMEs) and Retail Distributors, term loans shall have a maximum tenor of five years (not exceeding 31st December, 2030). Each project tenor shall be determined in relation to its cash flow and life of the underlying collateral. 

“Term loans shall be allowed a maximum of two years moratorium on principal repayment only; working capital facility of one year with a maximum rollover of not more than twice and subject to prior approval.”

 The CBN stated that on repayment of the facility as it concerns deposit money banks, monthly interests on the facility would be amortised and transferred to it monthly; while for Nirsal Microfinance Bank (NMFB) interests on the facility would be paid monthly after the moratorium period.”

From the foregoing, if the various initiatives by the Federal Government and other stakeholders’ are implemented effectively, the immense potential of the Nigerian gas industry would be fully unleashed and the sector would be able to make the necessary contributions to the growth and development of the Nigerian economy.

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