A REPORT ON THE NIGERIAN GAS INDUSTRY AND INVESTMENT PROJECTIONS FOR 2024 AND BEYOND
As we stride into the new year, it is important to look back on the opportunities, challenges, and transformations witnessed so far within the oil & gas industry. This retrospective analysis serves as a compass to guide us in shaping insightful industry projections for the new year. Amidst global shifts in energy paradigms and local aspirations for sustainable development, the Nigerian oil and gas sector holds significant potential, with opportunities arising from policy reforms and technological advancements. Each transformative shift not only influences the nation's economic trajectory but also impacts its global standing. This Report focuses on Nigeria's energy transition eorts as it relates to the oil and gas industry with particular emphasis on the nation's gas development and utilisation journey. We examine historical gas policies, and the promised delivery of significant gas projects by the announcement of the Decade of Gas; projects which are meant to transform the economic landscape and energy security eorts of not only Nigeria but other African countries. We also examine international events such as the influence of the BakuTbilisi-Ceyhan (BTC) Pipeline on energy security in Europe, and the potential eects of the Nigeria-Morocco pipeline on both energy security and economic integration and collaboration within the African region.
Activities in the oil and gas industry have been reported to be one of the main culprits of the adverse eects of climate change experienced globally. In its report1, the International Energy Agency (IEA) stated that the energy sector is presently the source of around three-quarters of greenhouse gas (GHG) emissions and holds the key to averting the worst eects of climate change. For this reason, leaders around the globe converged in Paris in 2015 to sign an International Energy Treaty, the Paris Agreement grounded in the 1992 United Nations Framework Convention on Climate Change (UNFCCC). Here, the United Nations adopted 17 Sustainable Development Goals (SDGs) to address important issues aecting the world, ranging from ending poverty, and hunger, and safeguarding the environment to ensuring prosperity for everyone.
Global leaders pledged to limit the global rise in temperature to below 2 degrees Celsius above pre-industrial levels to avoid the more serious eects of climate change like floods, drought, sea-level rises etc, with a specific goal of reducing greenhouse gas (GHG) emissions to 1.5˚C by 2030. The 7th goal of the SDGs agreed upon by the UN as part of its Agenda for 2030, was 'aordable and clean energy for all'. This marked a significant step forward in the progressive realisation of a cleaner environment for all. The global pathway to net-zero emissions by 2030 or by 2050 as envisaged by the UNFCCC and the IEA respectively, requires all governments to significantly strengthen and then successfully implement their energy and climate policies. One of the proposals made by the Paris Agreement as one of the action plans for net-zero emissions is that countries stop investing in fossil fuels as they transition to the use of Renewable Energy (RE), which is regarded as a cleaner and preferable source of energy.
Although there has been a global push for transitioning from fossil fuels to RE sources, the International Energy Agency (IEA) outlined a roadmap for this shift. The IEA's global pathway2 for energy transition indicates that specific fossil fuels, such as natural gas, could serve as a transitional bridge for economies facing challenges in readily adopting renewable sources. At COP26, Nigeria made a commitment to carbon neutrality by 2060. Nigeria's Energy Transition Plan (ETP)3 was unveiled shortly after– highlighting the scale of eorts required to achieve the 2060 net zero target whilst also meeting the nation's energy needs. The Nigeria ETP sets out a timeline and framework for the attainment of emissions reduction across 5 key sectors: Power, Cooking, Oil and Gas, Transport and Industry. Playing a leadership role in Africa by promoting a fair, inclusive and equitable energy transition in Africa, Nigeria chose gas as its transitionary fuel, and this is at the core of Nigeria's ETP. Gas is set to play a critical role as a transition fuel in Nigeria's net-zero pathway particularly in the power and cooking sectors.
To pave the way for Nigeria's gas future, it is crucial to understand our trajectory so far.
Nigeria is largely a natural gas province with a considerable amount of crude oil. Nigeria's natural gas resources are about three times its crude oil resources. This is why Nigeria has been described as a country with tiny drops of oil and a lot of gas. Nigeria boasts an extensive reserve of over 209 trillion cubic feet (tcf) standing in 9th position globally in terms of proven reserves; and holds the 6th spot among the top global natural gas exporting nations as of 2023.4
Since the discovery of oil in commercial volumes at Oloibiri, Delta State in 1956, the associated gas produced alongside crude oil has been consistently flared, posing significant environmental hazards. Notably, Nigeria, once ranked as the world's second-highest gas-flaring nation, has since shifted to fifth place and currently holds the seventh position. Despite Nigeria's notable standing in the global crude oil industry, the exploration and production of natural gas in the country have experienced limited development. Throughout its historical trajectory, all gas discoveries in Nigeria have originated from activities related to oil exploration and production (E&P). The sluggish growth of the Nigerian gas sector can be attributed to several factors, including the absence of comprehensive laws and policies governing the sector. Additionally, the lack of a viable domestic market has not encouraged substantial capital investments required for the exploration, production, and development of gas. We examine below, the progression of Nigeria's gas laws and policies, investigating their implications for both the Nigerian petroleum industry and the overarching goal of energy security.
The Evolution Of Nigeria's Domestic Gas Industry: The Demandconstrained Era (1969-1999)
The inception of the Petroleum Act in 1969 marked the establishment of a comprehensive legal framework governing Nigeria's petroleum industry. However, this legislation primarily focused on regulating crude oil exploitation, lacking explicit recognition of gas as an independent commodity during that period. To provide flexibility, the Minister of Petroleum was granted authority under this Act to make adjustments concerning licenses, leases, and pollution prevention.
As a responsive measure, the Petroleum Act (Drilling and Production) Regulations of 1969 was introduced, mandating licensees and lessees to submit feasibility studies for gas utilization within five years of operation. However, these regulations lacked precise sanctions for non-compliance, creating loopholes that oil and gas companies exploited. Moreover, there were no legal obligations for gas flare reduction before or after the submission of feasibility studies for gas utilization.
Subsequently, the Petroleum Amendment of 1973 allowed the Federal Government of Nigeria (FGN) to take and use associated gas without royalty payments. Despite this amendment, the lack of essential infrastructure for utilizing associated gas hindered eective control of gas flaring.5
Recognizing the immense potential held within its gas reserves, the Nigerian Government initially enacted the Associated Gas Reinjection Act in 1979. Subsequently, in 1984, the legislation saw the introduction of the Associated Gas Re-injection (Continued Flaring of Gas) Regulations and the Associated Gas Re-injection (Amendment) Act. The primary aim behind these statutes was to compel oil companies to conserve the country's substantial gas reserves and develop strategies for gas processing suitable for industrial use.
This legislative action stemmed from the fact that oil companies found it more cost-eective to flare gas rather than invest in costly gas reinjection schemes. The amended Associated Gas Re-injection Act of 1979 mandated all oil companies to present plans and projects for utilizing and reinjecting associated gas by October 1, 1980. Furthermore, the law prohibited gas flaring after 1984 and imposed penalties, including the forfeiture of concessions granted for specific fields.
THE EVOLUTION OF NIGERIA'S GAS UTILIZATION POLICIES
However, the Associated Gas Re-injection Act (1979) faltered due to the absence of infrastructure for gas utilization and the government's inability to contribute its agreed share to fund gas re-injection facilities based on existing joint venture agreements with oil-producing companies. In 1991, the Associated Gas Framework Agreement (AGFA) was introduced with the specific goal of incentivizing the advancement of gas utilization projects among oil and gas operators. AGFA aimed to provide fiscal benefits to encourage such initiatives, allowing International Oil Companies (IOCs) to oset their gas project capital costs using revenues from oil operations.
Despite multiple reviews and increases in fines for gas flaring between 1990 and 1998, the penalties remained notably low in comparison to alternative costs. This period, preceding 1999, was aptly labelled the 'demandconstrained era' in the evolution of Nigeria's domestic gas industry. This classification arose due to rampant gas flaring, stemming partly from an unfavourable investment climate and the absence of a customized, well-articulated legal framework tailored to facilitate comprehensive gas development.
Curbing Gas Flaring and Advancing Industrial Gas Utilization: The National Energy Policy and the Nigerian Gas Master Plan.
The National Energy Policy (NEP) was introduced in 2003 due to the evident failure of previous legislations on gas flaring. The main objectives of this Policy included; eliminating gas flaring by 2008, expanding the utilization of natural gas as an industrial feedstock for petrochemical, pharmaceutical and fertilizer plants, etc, using gas to diversify the foreign exchange earnings base of the nation, and accelerating the process of technology acquisition and diusion in the gas industry, as well as encouraging indigenous entrepreneurial capacity in the gas industry including the development of end-user devices. Like the previous policies, the NEP recognized that the continued flaring of natural gas had resulted in a substantial waste of energy resources, in addition to atmospheric pollution, therefore, it became imperative to take eective measures to curtail gas flaring, so that the ending of gas flaring does not exceed the deadline of 2008.
The strategies adopted under the NEP included imposing appropriate and eective penalties to discourage gas flaring, encouraging the establishment of the necessary infrastructure for the eective gathering, transmission and distribution of gas nationwide, expanding and promoting gas-related research and development establishments in the country, and ensuring that the price of natural gas was cost-reflective while giving due attention to the eect on local consumption, amongst others. While some strategies enunciated in the Policy were partially achieved within the period leading to 2008, the deadline set for the prevention of gas flaring was not achieved. The Nigerian Government introduced the Nigeria Gas-to-Power policy which was essentially contained in the Nigerian Gas Master Plan (NGMP) 2008, and it signalled the government's intention to deploy adequate gas resources to achieve a multiple-fold increase in power generation in the shortest possible time.
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Footnotes
1. International Energy Agency. (2021, May). Net Zero by 2050: A Roadmap for the Global Energy Sector. IEA, Paris. https://www.iea.org/reports/net-zero-by-2050 accessed 14th December 2023.
2 International Energy Agency. (2021, May 18). Pathway to Critical and Formidable goal of net-zero Emissions by 2050 is Narrow but Brings Huge Benefits According to IEA Special Report. https://www.iea.org/news/pathway-to-critical-and-formidable-goal-of-net-zero-emissions-by-2050-is-narrow-but-brings-huge-benefits accessed 14th December 2023.
3. https://energytransition.gov.ng/ accessed 14th December 2023.
4. https://businessday.ng/energy/oilandgas/article/what-nigeria-can-learn-from-russias-gas-strategy/ accessed 12 January 2024.
5. Orji, Uchenna, Jerome (2014). Moving From Gas Flaring to Gas Conservation and Utilization in Nigeria: A Review of the Legal and Policy Regime. OPEC Energy Review, 38 (2), 149-183.
Originally Published February 2024
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