Post on 09-May-2015
description
transcript
Nigerian Gas PolicyDr. Adeoye AdefuluOdujinrin & Adefulu
Barristers Solicitors & Notaries PublicBarristers, Solicitors & Notaries PublicLagos – Abuja – Port‐Harcourt
Backgroundg
• Nigeria has an estimated 182 TCF of proven natural gas reserves;
• 7th largest natural gas reserve holder in the world;
• High grade quality: 0% g g q ysulphur & rich in NGLs
Odujinrin & Adefuluestd. 197221/09/2009 2
Background (contd.)g ( )
• Most gas discoveries have been made in the process of exploring for oil;p p g
• Nigeria is globally the No. 1 gas flarer :40% f Ni i ’ l d ti i fl d– 40% of Nigeria’s annual production is flared;
– The country accounts for 12.5% of the gas flared in the world (Source: World Bank).
• The current legal and fiscal framework for the gpetroleum industry is geared towards oil production and utilisation with very little
Odujinrin & Adefuluestd. 1972
production and utilisation with very little focus on gas21/09/2009 3
Historical BackgroundHistorical Background
• Petroleum (Drilling and Production) Regulationg
• Licensee was expected to submit feasibility study, programme or proposal for gas utilisation not later than five years of the commencement of production
• No adequate penalty for violation
• Petroleum (Amendment) Act•• Government may take the gas at the flare at no cost
• Absence of infrastructure to develop and utilise the produced gas
Odujinrin & Adefuluestd. 197221/09/2009 4
National Energy PolicyNational Energy Policy
• Policies– The nation's gas resources shall be harnessed and optimally integrated
h l d d linto the national economy, energy mix and industrial processes.
– The nation shall engage intensively in gas exploration and development with a view to increasing the reserve base to the highest p g glevel possible.
– The nation shall put in place necessary infrastructure and incentives to encourage indigenous and foreign companies to invest in the industryencourage indigenous and foreign companies to invest in the industry.
– The nation shall put in place necessary infrastructure and incentives to ensure adequate geographical coverage of the gas transmission and distribution network.
Odujinrin & Adefuluestd. 197221/09/2009 5
National Energy Policy (contd.)National Energy Policy (contd.)
• Objectives– To eliminate the flaring of associated gas by 2008.
– To expand the utilization of natural gas as industrial and domestic fuel, as well as for power generation.
– To increase the use of natural gas as industrial feedstock forTo increase the use of natural gas as industrial feedstock for petrochemical, pharmaceutical and fertilizer plants, etc.
– To use gas to diversify the foreign exchange earning base of the nation.
– To accelerate the process of technology acquisition and diffusion in the gas industry.
– To encourage indigenous entrepreneurial capability in the gas industryTo encourage indigenous entrepreneurial capability in the gas industry including the development of end‐use devices.
– To determine the level of gas reserves available to the nation.
Odujinrin & Adefuluestd. 197221/09/2009 6
National Energy Policy (contd.)National Energy Policy (contd.)
• Strategies– Encouraging the oil‐producing companies to gather and utilize
d d l fl bassociated gas in order to eliminate flaring by 2008.
– imposing appropriate and effective penalties to discourage gas flaring.
– Encouraging the establishment of the necessary infrastructure for theEncouraging the establishment of the necessary infrastructure for the effective gathering, transmission and distribution of gas nationwide.
– Formulating suitable urban and regional planning regulations needed f h ff i di ib i f l d i ili i bfor the effective distribution of natural gas to, and its utilization by, domestic and industrial consumers.
– Providing necessary incentives to indigenous and foreign g y g gentrepreneurs to facilitate their participation in the gas industry.
Odujinrin & Adefuluestd. 197221/09/2009 7
National Energy Policy (contd.)National Energy Policy (contd.)
d d l d d– Providing incentives to encourage industrial and domestic consumers to use gas or to convert to gas.
– Providing incentives to encourage the introduction and use of LPG g gappliances in areas not accessible to natural gas so as to encourage the consumer preference for gas.
Establishing suitable infrastructure for the export of natural gas– Establishing suitable infrastructure for the export of natural gas.
– Expanding and promoting gas related R & D outfits in the country.
– Ensuring that the price of natural gas is cost‐effective, while giving due g p g , g gattention to the effect on local consumption.
– Embarking on deliberate exploration for as deposits in all parts of the countrycountry.
Odujinrin & Adefuluestd. 197221/09/2009 8
Nigerian Gas MasterplanNigerian Gas Masterplan
• Approved by the Federal Executive Council
• Hinged on 3 critical elementsHinged on 3 critical elements– Gas pricing policy
D i l bli i– Domestic gas supply obligation
– Gas infrastructure blueprint
Odujinrin & Adefuluestd. 197221/09/2009 9
Elements of the Nigerian gas masterplanElements of the Nigerian gas masterplan
Gas Infrastructure Bl i t
Gas Pricing Regime Domestic Gas SupplyObli tiBlueprint Obligation
Envisages the development of:•3 Central processingFacilities;
Pricing regime to bedifferentiated across sectors:St t i D ti S t
Regulation to impose:•Mandatory reserves allocationf d tiFacilities;
•A network of gas transmissionpipelines;•LPG storage & supplyFacilities.
•Strategic Domestic Sector(cost of supply basis)•Strategic Industrial Sector(product netback basis)St t i i l t
for domestic use;•Compliance to be acondition of export
Facilities. •Strategic commercial sector(alternative fuels basis)
Odujinrin & Adefuluestd. 197221/09/2009 10
Gas Pricing PolicyGas Pricing Policy
• The objective is to create a structured and
Demand Sectors
transparent framework for gas pricing Strategic domestic
Sector (Power)• It establishes 3 broad categories of domestic
Sector (Power)
Strategic Industrialbuyers of gas:
Strategic IndustrialSector (methanol,
GTL, fertiliser)
Commercial SectorsCement, Steel, CNG,
Other domestic industries
Odujinrin & Adefuluestd. 1972
Other domestic industries
21/09/2009 11
Demand SectorsDemand Sectors
• Strategic Domestic Sector – this refers to sectors that have a significant direct multiplier effect on the economy. The strategic intent is to facilitate low cost gas accessstrategic intent is to facilitate low cost gas access
• Strategic Industrial Sector – use gas as feedstock in the production of value added products typically destined forproduction of value added products typically destined for export. The strategic intent is to ensure that feedgas price is affordable and predictableaffordable and predictable
• Commercial Sectors – use gas as fuel and are able to bear high priceshigh prices
Odujinrin & Adefuluestd. 197221/09/2009 12
Differentiated Pricing StructureDifferentiated Pricing Structure
• The pricing policy does not fix gas prices but provides a framework for establishing the p gminimum gas price that can be charged to any category of buyercategory of buyer.– Strategic Domestic sector – lowest cost of supply + 15% IRR
Strategic Industrial sector product netback but gas floor– Strategic Industrial sector – product netback but gas floor price must not be lower than cost of supply of gas
– Commercial sector – indexed to price of alternative fuelsCommercial sector indexed to price of alternative fuels
Odujinrin & Adefuluestd. 197221/09/2009 13
Aggregate gas price and the domestic gas aggregator
• Aggregate domestic price is the forecast average domestic price based on projected g p p jtotal demand portfolio and using the pricing frameworkframework
• All suppliers would be paid the aggregate domestic price
• The gas aggregator manages theThe gas aggregator manages the implementation of the DGSO & aggregate price
Odujinrin & Adefuluestd. 1972
price21/09/2009 14
Domestic gas supply obligationDomestic gas supply obligation
• In recognition of the need to have sufficient gas to meet the need of the demand sectors, gthe government has introduced a DGSO by regulationregulation
• It is an obligation to dedicate a specific l fvolume of gas towards domestic gas and to
deliver the gas to a purchaser– Volumes are to be set by minister
– Allocation to be based on principles of “equity” to be determined by i i t
Odujinrin & Adefuluestd. 1972
minister
21/09/2009 15
Domestic gas supply obligation (contd.)Domestic gas supply obligation (contd.)
• Failure to meet obligations would lead to:– Penalties (obligation to pay for the volumes not ( g p ysupplied)
– Prohibition not to supply gas to any export projectProhibition not to supply gas to any export project
Odujinrin & Adefuluestd. 197221/09/2009 16
Gas infrastructure blueprintGas infrastructure blueprint
• Current state of gas infrastructure is poor!• The Escravos to Lagos Pipeline System (ELPS), g p y ( ),completed in the nineties is the main transmission pipeline system dedicated to p p ydomestic consumption in the country
– ELPS also serves as the source of gas supply for the West African Gas Pipeline System
– repeated sabotage of the pipeline and feeder systems has led to frequent supply disruptionsto frequent supply disruptions
Odujinrin & Adefuluestd. 197221/09/2009 17
• The other major downstream pipeline systems are dedicated to single projects leading to sub optimal pipeline configurations
– These pipelines are mainly to export oriented projects and cover areas already served by other single project pipelinescover areas already served by other single project pipelines.
Odujinrin & Adefuluestd. 197221/09/2009 18
Gas infrastructure blueprintGas infrastructure blueprint
• Blueprint provides a framework for future gas infrastructure developments in Nigeriap g
• Provides for 3 gas gathering and processing facilities and a network of gas transmissionfacilities and a network of gas transmission lines
Odujinrin & Adefuluestd. 197221/09/2009 19
Gas gathering facilitiesGas gathering facilities
• Indicative locations– Warri/Forcados
– Obiafu area
– Calabar/Akwa Ibom
• Each CPF to cover a designated exclusive franchise areafranchise area– A network of gas gathering pipelines and compressor stations to be developed in each areastations to be developed in each area
– Each franchise area to serve as regional hubs
Odujinrin & Adefuluestd. 197221/09/2009 20
Gas transmission linesGas transmission lines
• The blueprint proposes 3 backbone gas transmission systems:y– South to North transmission backbone
Western transmission system– Western transmission system
– The Interconnector system
Odujinrin & Adefuluestd. 197221/09/2009 21
Gas infrastructure blueprintGas infrastructure blueprint
Odujinrin & Adefuluestd. 197221/09/2009 22
Contractual frameworkContractual framework
Odujinrin & Adefuluestd. 197221/09/2009 23
Downstream gasDownstream gas
• Petroleum industry bill incorporates some of the terms of the moribund Downstream Gas Act
• The bill lays the foundation for the• The bill lays the foundation for the establishment of a wholesale gas market
• Appears to conflict with NGMP– No recognition of the pricing policyNo recognition of the pricing policy
• Authority required to monitor anti‐i i i i i
Odujinrin & Adefuluestd. 1972
competition activities21/09/2009 24
Gas flaringGas flaring
Odujinrin & Adefuluestd. 197221/09/2009 25
Gas produced, utilised, flaredGas produced, utilised, flared
Gas Produced: Utilised and Flared 2,500 80%
1,500
2,000
BS
cf
60%
70%
s Fl
ared
1,000
1,500
50%
60%
% G
as
-
500
30%
40%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005GAS FLARED INJECT./LIFT FUEL NGLGAS SOLD LNG % FLARED
Odujinrin & Adefuluestd. 197221/09/2009 26
• The percentage of gas flaring has reduced significantly from 98% in the 70sg y
• Several gas flare out dates have been setL t t i D b 2008– Latest is December 2008
– Has routine gas flaring ended?
Odujinrin & Adefuluestd. 197221/09/2009 27
Gas flaring policiesGas flaring policies
• Associated gas reinjection act 1979 and– Set deadlines for ending gas flaringg g g
• Flaring was meant to end January 1, 1984
• Flaring is illegal without the permission of the MinisterFlaring is illegal without the permission of the Minister
• Penalty for flaring was forfeiture of all concessions
Odujinrin & Adefuluestd. 197221/09/2009 28
Gas flaring policies (contd.)Gas flaring policies (contd.)
• Associated gas reinjection (continued flaring of gas) regulationsg ) g– Flaring could continue:
• More than 75% is effectively utilised or conserved;More than 75% is effectively utilised or conserved;
• Produced gas contains 75% impurities;
• Ongoing utilisation programme is interrupted by equipment failure;
• If the volume of gas produced is small in relation to the distance to a possible utilisation point and it is not technically advisable to p p yreinject
• Where the minister, as hemay deem fit orders the production of oil from a field that does not satisfy the above conditions
Odujinrin & Adefuluestd. 1972
oil from a field that does not satisfy the above conditions
21/09/2009 29
Gas flaring policies (contd.)Gas flaring policies (contd.)
• Associated Gas Re‐injection (Amendment) Act 1985– More circumstances for exemption
Minister may issue exemptions when he is– Minister may issue exemptions when he is satisfied that utilisation or reinjection of produced gas is not appropriate or feasiblegas is not appropriate or feasible
What does history say about our gas flaring policy?
Odujinrin & Adefuluestd. 197221/09/2009 30
Gas flaring policies (contd)Gas flaring policies (contd)
• Routine flaring continues
• Coys happy to pay penaltiesCoys happy to pay penalties
• Mechanisms available to government not fully ili dutilised
– Ministerial permission
– Legislation
– NNPC’s position in JVs– NNPC s position in JVs
Odujinrin & Adefuluestd. 197221/09/2009 31