Page 5 - AfrOil Week 32 2021

AfrOil COMMENTARY AfrOil
Nigeria did chalk up a few notable successes, such as the announcement of a final investment decision (FID) on NLNG’s Train 7 project in January 2020, but other projects encountered challenges and delays because of the pandemic.
Nevertheless, Buhari remained convinced of the need for Nigeria to concentrate more on gas than on oil, and in late March of this year, he unveiled an even more ambitious plan. During the pre-summit conference of the Nigeria Inter- national Petroleum Summit (NIPS) in Abuja, he announced that the 2021-2030 period would be known as “The Decade of Gas” and said that thegovernmentwouldusethistimetomakegas available across the country.
The programme envisions full gasification of the Nigerian economy, the president said at the pre-summit conference and in a subsequent series of Twitter posts. He explained that he wanted to see Nigeria extract much more gas and make it available to customers all over the country–tobusinessesandresidencesforheat- ing, to power plants for electricity generation and to manufacturers for industrial operations. Furthermore, he talked about transforming Nigeria into a gas-powered country and urged all stakeholders in the industry to work together for this purpose.
PIB will support domestic gasification
The Buhari administration’s support for “The Decade of Gas” has not waned since late March. Officials in Abuja are still talking up the plan and stressing its potential to help the Nigerian econ- omy grow and diversify.
Nevertheless, the initiative has drawn fewer headlines than the PIB. Many local and foreign news agencies have paid closer attention to ques- tions about how the new oil and gas law will affect IOCs (especially those working in the res- tive Niger River Delta) than to questions about how to achieve full domestic gasification during “TheDecadeofGas.”
But the two issues can’t be separated. The PIB wasn’t drawn up solely for the purpose of pla- cating IOCs; it will also affect domestic fuel and energy markets. Moreover, the new law will pro- vide some support for the “Decade of Gas” initi- ative, according to Obo Idornigie, vice president for sub-Saharan Africa research at Welligence Energy Analytics. “We think the PIB offers sup- port to the ‘Decade of Gas’ initiative,” Idornigie told NewsBase. “For the first time, Nigeria has introduced terms for developing gas under pro- duction-sharing contracts [PSCs]. This has been a sticking point for gas fields under PSCs.”
He also pointed out that Nigeria’s new petro- leum law established special tax breaks for gas development. “The PIB is also prioritising gas supply to the domestic market, and incentives to support this initiative have been included in the document,” he noted. “For example, royalty [rates] for gas produced and consumed in-coun- try [are] 2.5%, versus 5% for export. Operators who are developing gas projects solely to supply the domestic market can also consolidate the midstream capital investment with upstream
operations for the purposes of tax.”
However, Ian Simm, principal advisor at the
IGM Energy consultancy, believes that Nige- ria may already be getting ahead of itself with Minister of State for Petroleum Resources. He pointed to Minister of State for Petroleum Resources Timipre Sylva’s recent suggestion that plans for extending the AKK pipeline across the Sahara to begin piping gas to Europe might be revived. (Sylva told the press in late June: “The plan is if we can get it to Kano, then it can con- tinue all the way to Algeria at the Trans-Saharan gas pipeline and then link up with the Algerian pipelineandthenwemoveittoEurope.”)
Simm expressed scepticism, saying: “While exports to Europe will be appealing, given the patchiness of domestic gas and electricity con- nectivity, Abuja should seek marginal gains locally rather than becoming distracted with a pipeline for which it has no way of guaranteeing security, particularly when doing this domesti- callyhasalreadyprovenchallenging.”
No guarantee of success
Idornigie stressed, though, that the PIB would not remove all obstacles to domestic gasification in Nigeria.
The bill will not, for example, eliminate the deficiencies in Nigeria’s domestic gas infra- structure, he said. “The lack of gas infrastruc- ture will be a big issue for developing offshore gas reserves for the domestic market, particu- larly non-associated deepwater gas fields,” he told NewsBase. “The proposed midstream infrastructure commission is expected to help facilitate investment in gas infrastructure, but it is still early days, and it is unclear how this new commission will work.”
(He was referring to provisions of the bill that called for establishing the Nigerian Mid- stream and Downstream Petroleum Regula- tory Authority (NMDPRA), an agency that will govern commercial, operational and technical operations in the downstream sector and the midstream sector of the oil and gas industry.)
Additionally, he pointed out that the pas- sage of the PIB had not assuaged all the doubts of the IOCs, which are in a better position than Nigerian firms to fund and operate the projects that will provide the additional volumes of gas needed to achieve Buhari’s goals. “[We] think material gas production is expected to come from the joint venture contracts between the IOCs and NNPC [Nigerian National Petroleum Corp.] ... [and] the IOCs are not likely to com- mit to new joint venture projects until they get clarity on how NNPC will work as a commercial entity, plus how their outstanding liabilities will be paid.”
In short, the PIB is likely to prove an impor- tant source of support for the president’s “Dec- ade of Gas,” and it aims to create incentives for gas development projects that will serve the domestic market. At the same time, though, the bill will not guarantee the initiative’s success. Instead, its impact will only become clear with time. ™
Nigeria’s new petroleum law establishes special tax breaks for gas development
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