Page 6 - AfrElec Week 42

AfrElec COMMENTARY AfrElec

Nigeria’s PIB envisions changes

in domestic gas sector

The proposed legislation, which is still under discussion in the National Assembly,
aims to make domestic gas sales a more lucrative proposition

NIGERIA EVEN as the month of October nears its end, base prices over time. It calls for increasing rates
Nigeria’s government has remained optimis- by $0.05 per mmBtu per year until the year 2037,
WHAT: tic about its chances of securing approval from at which point the price floor will be fixed at $4
The PIB raises the both houses of the National Assembly for the per mmBtu.
domestic base price Petroleum Industry Bill (PIB) before the end of The legislation assigns responsibility for gas
for gas from current the year. pricing to the Nigerian Midstream and Down-
levels, but it also offers This optimism does not appear to be mis- stream Petroleum Regulatory Authority (NMD-
discounts to certain placed, as the proposed oil and gas law has not PRA), one of the new state agencies that is being
customers lost momentum. The bill passed during its sec- established to replace Nigerian National Petro-
ond reading in the Senate on October 20, and leum Corp. (NNPC). It states that NMDPRA
WHY: members of the House of Representatives began “may, by regulations, change the domestic base
Officials in Abuja the second reading on the same day. price and the yearly increase) to reflect changed
hope the new pricing Meanwhile, as the legislative process con- market conditions and supply frameworks.”
regime will attract tinues, more information about the PIB has
new investment to gas emerged. This essay will examine some of the Higher returns from domestic sales
projects details related to the gas sector that have come to The new gas pricing regime is designed to
light in recent days. encourage domestic gas consumption, in line
WHAT NEXT: with the government’s previously stated goals. It
The proposed changes New pricing regime aims to achieve this goal by making the domestic
require Nigeria’s Nigeria’s government has proclaimed 2020 the market profitable enough to attract more direct
government to pull off a “Year of Gas” in a bid to promote the use of the investment.
complicated balancing country’s abundant natural and associated gas Timipre Sylva, Nigeria’s Minister of State for
act resources. As such, it is hardly surprising that the Petroleum Resources, hinted at the outlines of
legislation now under discussion contains mul- this strategy during a meeting with members of
tiple provisions designed to promote domestic the Nigerian Association of Petroleum Explora-
gas consumption. tionists (NAPE) in August. He stated that the PIB
According to Africa Oil + Gas Report, these – which had not, at that point, been submitted to
provisions will not benefit all users equally. the National Assembly – would “establish a gas
Instead, they will offer advantages to gas-fired base price that is higher than current levels.” He
thermal power plants (TPPs) and gas-based did not give a specific figure but indicated that
industrial consumers – namely, companies that the higher price was anticipated to make gas
use gas as feedstock for the production of petro- projects more lucrative and less vulnerable to
chemicals, fertiliser, methanol and the like. fluctuations in world oil markets.
This advantage is evident in the domestic “This price level should be sufficiently attrac-
base price for gas sales, which is being raised tive to increase gas production significantly,
from the current rate of $2.5 per million Btu to since this gas price will be comparable with gas
$3.2 per mmBtu as of January 1, 2021, Africa Oil prices in other emerging economies with consid-
+ Gas Report noted. It explained that this price erable gas production,” he said. “The price will be
floor would be applicable to TPPs, even as most independent of all gas prices for LNG export and
other consumers will have to pay at least $3.7 is therefore a stable basis for enhanced domestic
per mmBtu, with the final cost of purchase to be gas development, regardless of international oil
negotiated with suppliers. or energy development.”
Additionally, it said, gas-based industrial Sylva’s statements seem logical, especially
consumers will be able to pay less than the floor in light of the fact that a significant portion of
price. Nigerian authorities will calculate rates for Nigeria’s gas reserves take the form of associated
these users in accordance with a special formula gas that cannot be used unless it is first separated
that may bring prices down to as little as $1.5 per from oil production streams.
mmBtu, it stated. Many oil operators working at Nigerian fields
The PIB also provides for raising domestic have made a practice of treating associated gas

P6 www. NEWSBASE .com Week 42 22•October•2020