Time for Nigeria to fly on the wings of gas

By Justice Darafaka

The initiative to rejuvenate Nigeria’s gas industry took a new turn on June 28, 2017, when the Federal Executive Council (FEC) – Nigeria’s highest decision-making body – approved the National Gas Policy, 2017 (“NGP” or “The Gas Policy”) at its monthly meeting. The Gas Policy, which was first released as a Consultation Draft by the Ministry of Petroleum Resources (“MPR”) in October 2016, was based on a fundamental review of the Government’s policy positions on Nigeria’s gas resources over the previous ten (10) years in order to attract needed private sector investment for critical infrastructure and development.

The Gas Policy is expected to be supplemented by a National Oil Policy and a Petroleum Fiscal Policy.

Fundamentally, the Gas Policy establishes the goals, tactics, and a plan for constructing the framework that will drive the institutional, legal, regulatory, and commercial reforms that are required to attract investment into the gas sector. The following are some of the most important aspects of the Gas Policy:

The National Gas Policy’s Strategic Objectives

The Gas Policy aims to make Nigeria a desirable gas-based industrial nation, with a focus on meeting local gas demand and establishing a strong presence in international markets. The Policy attempts to identify and establish the framework required to transition Nigeria from a crude oil export-based economy to a gas-based industrial economy.

Also worth noting is that the National Gas Policy recognizes that Nigeria’s current petroleum law, the Petroleum Act of 1969, is largely focused on crude oil and does not handle gas as a separate commodity. This is exacerbated by the lack of law that adequately addresses the regulation, production, and use of downstream gas; thankfully, the Petroleum Industry Act (PIA) 2021 addresses this.

The following are some of the Gas Policy’s strategic goals:

Separation of government and private sector roles and responsibilities in the gas sector, which is presently codified in the Petroleum Industry Act (PIA) 2021.

Implementation of complete legal separation of upstream and midstream activities, as outlined in the Petroleum Industry Act (PIA) 2021.

Separation of gas infrastructure ownership and operations from gas trading on a legal basis;

Pursuit of a project-based approach to domestic gas development rather than a centrally-planned model;

Identification of fresh gas resources in the Niger Delta, offshore, and inland basins, while also attempting to reduce gas flaring;

Creating a favorable investment climate for the gas sector by establishing a suitable institutional, legal, regulatory, and commercial framework;

Creating strong ties between the gas and electric power sectors, as well as agriculture, transportation, and industry;

Assuring adherence to the Nigerian Content Act’s standards.

The National Gas Policy presents a number of unique opportunities:

These include the implementation of a new gas network code, which was launched and operational last year despite the COVID-19 pandemic, and a revised gas pricing regulation provided by the National Gas Policy, which will provide more comfort to investors in Nigeria’s gas sector by providing open access to gas facilities and infrastructure, as well as a more competitive price to encourage further development.

Recall that the Federal Government began plans to review the price of gas in the country last year, with my boss, Minister of State for Petroleum Resources, Chief Timipre Sylva, inaugurating the Committee on Gas Sector-Wide Review of the domestic Gas Pricing Framework.

The committee was tasked with assessing and revising the country’s gas prices.

The gas review committee was purposefully enlarged and structured to accommodate people with a wide range of perspectives, dedication, and commitment, with the committee’s terms of reference (ToR) including a review of domestic gas prices and benchmarks, recommendations for appropriate gas prices for the various gas sectors, evaluations, and technical suggestions.

The Honourable Minister of State for Petroleum Resources, H.E Chief Timipre Sylva, officially received the recommended report by the Committee on Sector-Wide Review of Nigeria’s Domestic Gas Pricing Framework this year, in light of the recommendations for appropriate pricing for the strategic sectors of Nigeria’s domestic market.

Code for the network – The Nigerian Gas Transportation Network Code (NGTNC) was officially introduced in August of last year by the federal government’s Department of Petroleum Resources (DPR), with the goal of increasing gas delivery to the Nigerian market.

The gas network will aid in the expansion of gas infrastructure, the reduction of gas flaring, and the development of standards to standardize the gas value chain in accordance with worldwide best practices. And, as you know, this was one of President Muhammadu Buhari’s important reforms to develop domestic gas-to-power, gas-to-industry, and gas-to-manufacturing, as well as address the problem of gas flaring in the country.

Furthermore, the gas codes would contribute significantly to economic development, improved gas supply, increased liquefied petroleum gas supply, and increased investment prospects in the nation’s gas value chain.

It may interest you to know that less than a year after its inception, the gas network code initiative, which provided more clarity for Nigeria’s gas sector, had already received investment bids totaling more than $500 million. The request is for almost 500 mmscf every day, and it’s only for a year; image the amount of investment we’d get if we kept going like this.

Power generation, ammonia for fertilizer, local liquefied natural gas, methanol, virtual gas pipeline systems, new gas hubs, and the construction of a Nigeria gas trading exchange are among the investment suggestions.

As previously stated, one part of the network code program is to minimize gas flare from roughly 8% to 5% across the country through the Nigerian Gas Flare Commercialisation Programme (NGFCP).

The National Gas Policy also aims to encourage investment in gas liquefaction facilities by promising to pay a tolling fee to facility owners for liquefying, transporting, and regasification of the government’s equity gas.

The government’s objective is also expressed in the National Gas Policy, which encourages investment in innovative technology for capturing and using associated gas for power generation, replacing diesel with gas as a source of fuel, and establishing small scale or mini-LNG plants. Increased domestic gas processing and consumption for petrochemical plants, fertiliser plants, village power plants, embedded power plants, and transportation via Natural Gas Vehicles (NGV), LNG vehicles, and CNG transport by barge, rail, and/or road will be a focus of the National Gas Policy. Prospective investors in alternate modes of transportation that use gas as a fuel must submit plans to the government through the Ministry of Petroleum Resources, according to the National Gas Policy.

In terms of occupational health, safety, and environmental (HSE), the Gas Policy pushes for a significantly higher standard in the Nigerian Petroleum Sector’s maintenance, health, safety, and environmental (HSE) systems. As a result, it asks for the development and empowerment of a strong, independent safety regulator with inspection and investigation powers, as well as the reform and creation of safety legislation that contain stiff penalties for violations of regulations and safety standards. And I’m sure you’ll see it all in the PIA 2021.

In addition, the Gas Policy emphasizes the need to develop Nigerian human resources and provides guidance on how to do so. It underscores the significance of a policy strategy that supports indigenous involvement at reasonable pricing while remaining compliant with the law, given the difficulty of expanding Nigerian local content in a low-oil economy. The Gas Policy’s strategic objectives include improving the implementation of the Nigerian Content Act, developing competencies across the gas industry, building institutional human capacity for the public sector and industry, and instilling international oil and gas industry best practices in maintenance and safety.

Infrastructure is a significant problem in Nigeria, as you and I both know, and it is a foundational issue, particularly in the gas sector. The critical needs for gas infrastructure will be identified, and recommendations will be made for improving the design of the existing National Gas Infrastructure Blueprint (the “Infrastructure Blueprint”). The updated Infrastructure Blueprint will thus identify resources and resource clusters, identify vital infrastructure, and prioritize developments, according to the Gas Policy.

The Central Bank of Nigeria (CBN) introduced the N250 billion Intervention Facility for the National Gas Expansion Programme (NGEP) last year as part of the ‘Year of Gas’ mantra to improve access to finance for private sector investments in the domestic gas value chain and stimulate infrastructure development to optimize domestic gas resources for economic development.

On September 1, 2020, the CBN released a document titled ‘Framework for the Implementation of Intervention Facility for the National Gas Expansion Programme,’ in which the Bank stated that the natural gas industry presents an opportunity to diversify the economy through domestic commercial utilisation of its natural gas, with proven gas reserves of around 206 trillion cubic feet (tcf). It went on to say that because of the low level of investment in the industry, only a little amount of compressed natural gas (CNG) and liquefied petroleum gas (LPG) is produced and used as a clean alternative source of household energy in Nigeria. As a result, the country’s failure to exploit its gas resources has had negative economic, environmental, scal, and social effects, especially as the industry has the potential to drive rapid expansion in Nigeria’s non-oil economy.

To this end, the National Gas Expansion Programme (NGEP) was introduced to make CNG the fuel of choice for transportation and LPG, the fuel of choice for domestic cooking, captive power and small industrial complexes. Equally, gas-based industries, most especially the petrochemical (fertilizer, methanol, etc) are to be enabled to support large industries, such as agriculture, industrial applications, textile and so on.

The objectives of the facility which is to be implemented in collaboration with the Ministry of Petroleum Resources (MPR) include: Improved access to nance for private sector investments in the domestic gas value chain; stimulate investments in the development of infrastructure to optimize 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; fast-track the development of gas- based industries particularly petrochemical (fertilizer, methanol, etc) to support large industries, such as agriculture, textile, and related industries; provide leverage for additional private sector investments in the domestic gas market; and boost employment across the country.

Eligible activities under the intervention include: establishment of gas processing plants and small- scale petrochemical plants; establishment of gas cylinder manufacturing plants; establishment of L- CNG regasication modular systems; establishment of auto gas conversion kits or components manufacturing plants; establishment of CNG primary and secondary compression stations; establishment and manufacturing of LPG retail skid tanks and relling equipment.

Others are – 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; 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 Gas Policy also aims to liberalize and incentivize entry into the midstream sector, allowing private investors to build gas infrastructure. This is one of the least developed aspects of the Policy, as it simply reveals that Nigeria’s gas infrastructure is still in its infancy, with no definite financial policy orientations. The PIA 2021 has addressed the gap in gas policy, which had no explicit policy instructions on finance, by establishing a dedicated intervention mechanism called the Midstream and downstream Gas Infrastructure Fund to deepen gas usage in the country. The Fund’s mission is to make equity investments in infrastructure connected to midstream and downstream gas activities using government-owned participating or shareholder interests. Its goal is to increase domestic natural gas consumption in Nigeria through projects that are partially funded by private investment, as well as to encourage private investment in the midstream and downstream gas sectors.

The Midstream and Downstream Gas Infrastructure Fund would have the authority to buy, hold, and dispose of property, as well as sue and be sued in its own name, and it would be governed by a Governing Council that would oversee and make investment decisions on its behalf.

Finally, as you can see, the Gas Policy is aimed at using Nigeria’s significant gas resources by reducing the impediments to investment and development in the gas sector. And, with the way the Hon Minister of State for Petroleum Resources, H.E. Chief Timipre Sylva, is leading the institutional and regulatory reforms required to transform the country into a gas-based industrialized nation, he is ensuring that this happens.

First and foremost, as previously said, Nigeria is mostly a gas-producing country with little oil. However, over time, the country’s focus has shifted to oil. Gas production and use is now a national priority to stimulate economic growth, enhance the energy mix, drive investments, and offer much-needed jobs for our citizens.

The Buhari administration’s main goal is to turn Nigeria into an industrialized nation, with gas playing a key role.

There is a growing global desire for cleaner energy alternatives to fossil fuels, and Nigeria has a known gas reserve of around 206 trillion cubic feet and a potential upside of almost 600 trillion cubic feet, making it the largest in Africa and among the top ten globally.

Gas will undoubtedly become the major fuel for generating electricity in Africa and the rest of the world. It is a fantastic chance for Nigeria. And we are not resting on our oars.

We must and are addressing the country’s energy scarcity. We must and are finding methods to exploit Nigeria’s natural gas potential and lift more than 120 million Nigerians out of energy poverty.

The next few years should see the increased use of domestic Liquefied Petroleum Gas (LPG), and the transition to a wholly gas-powered economy.

Gas is both a source of energy and a source of power. It is a mode of transportation, as in Auto Gas. It’s a feedstock for petrochemicals. Gas is used in manufacturing and industries, as well as in food, thanks to fertilizers.

The Federal Government’s declaration of 2020 as “The Year of Gas” in Nigeria was a bold statement intended to highlight the government’s commitment to making gas production and usage a national priority. Now, the Federal Government has taken it a step further by committing to industrializing Nigeria with gas during this #DecadeOfGas from 2021 to 2030.

Remember that on March 29, 2021, Nigerian President Muhammadu Buhari unveiled “The Decade of Gas,” a plan to ensure that Africa’s largest oil producer (Nigeria) can benefit from the global energy transition. The introduction coincides with the government’s quest for major reforms in the sector, including the long-awaited Petroleum Industry Bill (PIB 2020), now PIA 2021, which could usher in the most significant restructuring of Nigeria’s energy industry in decades.

Let me also that H.E. Chief Timipre Sylva, Minister of State for Petroleum Resources, has a fundamental goal for the gas sector: to change Nigeria into an industrialized nation with gas playing a vital role, which he is proving through an improved expedited gas revolution… vis-a-vis Nigeria’s vast gas reserves would allow it to address the country’s energy shortages, create electricity, and power its industries.

For Nigeria’s economy to withstand the global energy shift and ultimately thrive in our #DecadeOfGas, a lot of things must go right. Clearly, my boss, H.E. Chief Timipre Sylva, Hon Minister of State for Petroleum Resources, is taking the much-needed dogged approach by strategically ensuring the much-needed reforms through the PIA to maximize revenue from our extractives while investing in the future.

For Nigeria, gas is now everything. To acquire what we desire, we must make the best of what we have. Saudi Arabia and Dubai have used oil to propel their economies to the top of the world. Qatar’s transformation from a fishing economy to a worldwide gas giant has been aided by gas. Nigeria is rich in both oil and natural gas.

Nigeria today plays an important role in the global energy market, as Africa’s largest oil and gas producer and the world’s sixth LNG supplier, thanks to Nigeria LNG Limited’s operations.

Nigeria has relied on oil for more than 50 years, but the time has come for the country to FLY on the wings of gas.

Justice Darafaka, Technical adviser on gas business and policy implementation to the Minister of State for Petroleum Resources, Chief Timipre Sylva,
writes from Abuja