ENERGY & NATURAL RESOURCES GROUP

GAS UTILIZATION IN NIGERIA

NIGERIAN GAS MASTER PLAN (NGMP)
Renowned for its crude oil production and with approximately 187 tcf (Trillion Cubic Feet) of proven gas reserves and 300,600 tcf of unproven gas reserves, Nigeria can at best be described as a gas province with oil. Though blessed with abundant gas resources, not much of it has been harnessed, with the nations primary focus being on crude oil production, a product that accounts for over 90% of its national income. There has however, since the advent of democracy in 1999, been a paradigm shift with increased focus on the harnessing of Nigerias abundant gas reserves. Central to the governments economic policy for national growth is the reformation of the Nigerian gas sector. To facilitate the reform of the sector, the government has introduced the Nigerian Gas Master Plan (NGMP), a plan which provides a holistic framework for the development of gas in Nigeria. Below are some of the salient provisions of the Nigerian Gas Master Plan (NGMP): Gas Infrastructure Blueprint The Gas Infrastructure Blueprint has the following elements: It provides a blueprint for gas infrastructure development in Nigeria. All investment in gas infrastructure will be guided by this blueprint. This is designed to ensure that synergies are maximized and gas infrastructure developments are aligned to deliver the economic aspirations of Nigeria. It stipulates the immediate infrastructure required, which comprises of the creation of 3 domestic central processing
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Renowned for its Crude Oil production and with approximately 187 tcf of proven gas and 300,600 tcf of unproven gas reserves, Nigeria can at best be described as a gas province with oil.

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facilities at the Warri/Forcados area, Akwa Ibom/Calabar area and Obiafu area (north of Port Harcourt). Concessions for these franchise areas are to be awarded to investors upon bids. These central processing facilities will be the major gas hubs where wet gas from gas fields will be treated and processed. LPG and condensate will be extracted at these facilities and the dry gas fed into a network of gas transmission lines. T h e b l u e p r i n t a l s o s t i p u l a te s t h a t t h e development of 3 major domestic gas transmission systems in Nigeria are required as follows: The Western System comprising the existing Escravos Lagos Pipeline System (ELPS) and a new offshore extension to Lagos with provisions for a spur extension to the OK LNG plant. The first South-North gas transmission line. This will transport dry gas from the Akwa Ibom/Calabar processing facility to Ajaokuta, Abuja, Kano and Katsina. The line will serve the Eastern States of Anambra, Abia, Ebonyi, Enugu and Imo and also convey gas for the proposed Trans-Sahara gas project. An inter-connector that links the Eastern gas reserves centre with the 2 transmission systems above.

Gas Pricing Policy The policy seeks to create a structured and transparent framework for the pricing of gas driven by market prices. The policy formally groups the Nigerian domestic market into 3 categories: The strategic domestic sector this being the sector with the greatest multiplier effect on the economy namely Power (to residential and light commercial users). The strategic industrial sectors this being the sector that takes gas as feedstock in the creation of new products e.g. fertilizer, methanol, petrochemical plants and LNG The commercial sector this being the sector that uses gas as industrial fuel e.g. manufacturing industries.

This categorization of the domestic market will form the basis for the pricing framework which will determine the floor price for the different sectors. The pricing policy also stipulates the establishment of a Strategic Gas Aggregator (SGA), which will manage the demand and supply of gas in the domestic market and align the reserves obligation accordingly. This SGA company has now been formed and is operational. Gas Supply Obligation Given the level of foreign direct investment interests being shown by gas based industries such as fertiliser manufacturers, power producers and methanol producers, the Federal Government has introduced the Domestic Gas Supply Obligation Regulations to ensure the availability of gas for domestic gas utilisation projects. This is Nigerias first major attempt to refocus the gas resource for domestic use.

The delineated 3 franchise areas around the central processing facilities will be licensed to pre-qualified investors who will be allowed to develop, own and operate the hub infrastructure on a regulated open access basis. This will prevent proliferation of gas facilities with attendant cost impacts.

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The regulation has the following key elements and seeks amongst other things to do the following: Mandate all oil and gas operators in the country to set aside a pre-determined amount of gas reserves and production for the domestic market. Empower the Minister of Petroleum Resources to stipulate the requisite amount of gas to be set aside periodically by the International Oil Companies (IOCs) for a period of between 5 7 years. Mandate oil and gas producers to comply with their obligations or face penalty for gas under supplied and or restrict export of gas produced by erring producers or both. Establish a Department of Gas within the Ministry of Petroleum Resources that will

oversee the execution of this regulation in concert with the Department of Petroleum Resources (DPR). INVESTMENT OPPORTUNITIES Having provided an insight into the Gas Master Plan, it is important to highlight the abundant investment opportunities created as a result. Whilst the introduction of the Gas Master Plan has created new investment opportunities in the Nigerian gas sector, significant progress has indeed been made within the sector in the past few years. Nigerias liquified natural gas (LNG) capacity is growing rapidly and should soon account approximately 30% of the total Atlantic LNG. Additional LNG projects such as OK LNG and Brass LNG will further enhance Nigerias LNG capacity. In addition to the export oriented LNG projects, gas in accordance with the Federal Government domestic utilisation policy, is being leveraged as the fuel to

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power Nigerias economic growth. There are presently under construction, 15 gas power plants to meet domestic electricity needs. Regionally, there are three key gas projects, the West African Gas Pipeline (WAGP) project which will supply gas to neighbouring West African countries, the trans-sahara pipeline project which seeks to transport gas to Europe via Algeria and the proposed gas network for the supply of gas to Equatorial Guinea. The Federal Government has recently invited interested global energy companies to bid as potential core investors in the Nigerian Gas Master Plan Infrastructure Blueprint. Over 50 energy companies expressed their interest of which 15 were short-listed as core investors, thereby underlining the level of interest created as a result of the Nigerian gas master plan.

Key Contacts Lagos Nigeria

Ola Alokolaro Telephone: 234-1- 4531004, 2714042, 4751313 +234 8056500577 Fax: +234 1 2714044 Email: ola.alokolaro@advocaat-law.com

Freetown Sierra Leone

Farid Alghali Telephone: +232 337 10338 Email: farid.alghali@advocaat-law.com

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