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A Practical Cross-Border insight into Gas Regulation Work 

by AELEX

Published: February, 2011

Submission: February, 2011

 



A overview of natural  Gas Sector and a brief outline of Nigeria’s natural gas sector, including a general description of: natural gas reserves; natural gas production including the extent to which production is associated or non-associated natural gas; import and export of natural gas, including liquefied natural gas (LNG) liquefaction and export facilities, and/or receiving and re-gasification facilities (“LNG facilities”); natural gas pipeline transportation and distribution/transmission network; natural gas storage; and commodity sales and trading.


Nigeria has abundant gas resources. As the worlds seventh largest, and Africas largest, deposit of natural gas, with a current reserve of over 185TCF, Nigeria is described as a gas province with some oil in it. Nigerias natural gas reserves are largely unexploited. However, large quantities of associated gas are flared in the process of oil production. The Federal Government of Nigeria is currently implementing policies to reduce gas flaring by stimulating domestic gas utilisation.


 


The major export gas in Nigeria is LNG. The Nigerian Liquefied Natural Gas Company Limited (NLNG) (Nigerias only operating LNG company), has six trains and is building the seventh. Other major LNG projects in different stages of development include the US$ 3.5 billion Brass LNG and the US$ 7 billion OKLNG project. Recently, a number of floating LNG projects have been proposed. Apart from the export of LNG, pipeline gas is being exported through the West African Gas Pipeline (WAGP) to countries in West Africa such as Togo, Benin Republic and Ghana.


 


The Nigerian Gas Company (NGC), a subsidiary of the Nigerian National Petroleum Corporation (NNPC), is responsible for gas transmission in Nigeria through an un-integrated gas pipeline network. Current pipeline infrastructure comprises basically of two un-integrated pipeline networks totaling approximately 1,100 kilometres: the Alakiri ObigboIkot Abasi Pipeline, (the Eastern Network), and the EscravosLagos Pipeline System (ELPS), (the Western Network), and dedicated pipeline infrastructure owned by the NLNG and the NNPC/SPDC/Total joint venture. There are also local distribution companies such as Gaslink Limited and Shell Nigeria Gas, which distribute natural gas to major industrial areas in the western and eastern parts of Nigeria.


 


The government has recently developed and is promoting the Nigerian Gas Master Plan (NGMP), which is expected to underpin the development of gas infrastructure, including central processing facilities and transmission pipelines in Nigeria.


 


1.2  To what extent are Nigeria’s energy requirements met using natural gas (including LNG)?


 


A mix of energy sources is used to meet Nigerian energy needs. They include firewood (used predominantly as cooking fuel in the rural areas), hydro-energy, refined petroleum products and natural gas. Nigerias energy requirements are met through oil (64%), natural gas (27%) and hydro-electricity (8%). It is estimated that about 80% of natural gas utilized in Nigeria is used for power generation. The remaining 20% is utilized as industrial fuel in the cement, fertilizer, rubber, manufacturing, aluminum and steel industries. LNG is not used in Nigeria.


 


 


1.3  To what extent are Nigeria’s natural gas requirements met through domestic natural gas production?


 


Nigerias natural gas requirements are met entirely by local production. Previously, LPG was imported from Cotonou, Benin Republic. However, due to the fact that all the volumes of LPG consumed in the country are largely from the NLNG facility and Nigeria’s six off-takers supply 90% of LPG in Nigeria today, there has been no cause to import any significant volumes.


 


 


1.4  To what extent is Nigeria’s natural gas production exported (pipeline or LNG)?


 


Nigeria currently exports 22 million tonnes of LNG to Italy, Spain, Belgium Portugal, the US and Mexico. Natural gas is currently being supplied through the WAGP to Ghana at a steady rate of approximately 30 million standard cubic feet per day. It is expected that by the end of 2010, export of natural gas through the WAGP to Ghana will increase to 170 million standard cubic feet.


 


 


  1. DEVELOPMENT OF NATURAL GAS

 


2.1 Outline broadly the legal/statutory and organizational framework for the exploration and production (“development”) of natural gas reserves including: principal legislation; in whom the State’s mineral rights to natural gas are vested; Government authority or authorities responsible for the regulation of natural gas development; and current major initiatives or policies of the Government (if any) in relation to natural gas development.


 


 


The Constitution of the Federal Republic of Nigeria 1999 vests the Federal Government with title over all petroleum, which includes gas, under or upon any land in Nigeria, its territorial waters and its exclusive economic zone. The principal legislation regulating the exploration, production and distribution of natural gas in Nigeria is the Petroleum Act. The Petroleum Act vests in the Federal Government, the ownership of petroleum resources in Nigeria. Petroleum is defined in the Act to include natural gas. Under the


Act, prospecting, exploration, production and distribution of petroleum (including natural gas) may only be done with the consent of the Minister in charge of petroleum (Minister). The Act gives the Minister power to issue necessary regulations necessary for the discharge of its duties under the Act. The Petroleum Drilling and Production Regulations is a subsidiary legislation made pursuant to the Petroleum Act and it regulates in detail natural gas exploration and production activities. The Oil Pipelines Act and the Oil Pipelines Regulations govern the licensing and permitting processes for the construction, operation and maintenance of gas pipelines. The Petroleum Profits Tax Act and the Companies Income Tax Act regulate the taxation of profits made from the production and distribution of natural gas respectively. The National Environmental Standards and Regulations Enforcement Agency Act (NESREA), the Environmental Impact Assessment Act (EIA) and the Environmental Guidelines and Standards for the Petroleum Industry in Nigeria (EGASPIN) prescribe environmental and emission standards applicable to natural gas activities in Nigeria. The government recently approved the Nigerian Gas Master Plan (NGMP), which is comprised of three main sections. The first is the


Gas Pricing Policy, which provides a framework for establishing the minimum gas price that any category of gas buyer can be charged. The second is the Domestic Gas Supply Obligation, which assures gas availability for critical domestic gas utilization projects that will advance the economic growth in Nigeria. The third, the Gas Infrastructure Blueprint, provides for the establishment of three gas gathering and processing facilities, a network of gas transmission lines, which will result in a reduced cost of gas supply from Nigeria. Pursuant to the NGMP, the Minister has issued the National Gas Supply and Pricing Regulations to regulate the supply of gas to the domestic sector. The Department of Petroleum Resources (DPR) regulates gas activities in Nigeria. The Department of Gas, established under the National Gas Supply and Pricing Regulations, is expected to ensure the availability of gas supply to the domestic market.




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