NIGERIA GAS ISSUES Mike Onyekonwu PTDF Gas Research Group University of PortHarcourt, Nigeria OUTLINE Brief History Gas Related Laws and Problems Gas Projects Issues Conclusion 1
BRIEF HISTORY OF NIGERIAN OIL INDUSTRY 1908 Entry of first oil and gas exploration company (Nigerian Bitumen Co. (German). Its activities were terminated by 1 st world war) 1914 First legislation governing oil and gas activities was enacted (Mineral Oil Act of 1914) 1937 Entry of L D ARCY D (British Company) Activities were terminated as a result of the 2 nd World war) 1946 Re entry of L as L BP 1946 Mineral Act of 1914 was amended to include Section 3 (1) of Mineral Act 1946. It vested all mineral oils found under or upon any land, under rivers, streams and water courses on the crown (The( British Government) BRIEF HISTORY CONTINUED 1948 Mineral Act of 1914 was amended to include Section 6(1)(a) Cap 135 of 1948 Laws of Nigeria. It granted the territory of Nigeria as acreage to BP 1950 Section 3 (1) of Mineral Act 1946 was amended to include submarine areas of Nigeria s territorial waters 1951 First well was drilled by BP 1956 First oil field was discovered (Oloibiri( field) 1958 First exportation of crude (5000bopd) 2
ASSOCIATED GAS RESERVES NAOC 9% OTHERS 4% ELF 3% MPN 21% SPDC 56% SPDC CNL MPN NAOC ELF OTHERS CNL 7% NONASSOCIATED GAS RESERVES ELF 6% OTHERS 7% NAOC 10% MPN 7% SPDC CNL MPN NAOC ELF OTHERS CNL 6% SPDC 64% 3
OWNERSHIP OF NATURAL GAS SECTION 40(1) AND (3) OF THE CONSTITUTION OF THE FEDERAL REPUBLIC OF NIGERIA, 1979 AND PETROLEUM ACT CAP 350 PROVIDE THAT ENTIRE OWNERSHIP AND CONTROL OF ALL PETROLEUM (gas, oil and condensate) RESOURCES AND RESERVES IN THE FEDERAL REPUBLIC OF NIGERIA IS VESTED IN THE FEDERAL GOVERNMENT OF NIGERIA GAS RELATED LAWS I. PETROLEUM (DRILLING AND PRODUCTION) REGULATION DECREE NO. 51 OF 1969 PROVIDES THAT LICENCEE OR LESSEE MUST SUBMIT FEASIBILITY STUDY, PROGRAMME OR PROPOSAL FOR GAS UTILIZATION NOT LATER THAN 5 YEARS AFTER THE CMENCEMENT OF PRODUCTION. REGULATION DOES NOT CARRY ANY PENALTY CLAUSE. PRODUCERS MAY FLARE GAS FOR 5 YEARS BEFORE FEASIBILITY STUDY PLAN. 4
GAS RELATED LAWS CONTD PETROLEUM AMENDMENT DECREE 16 OF 1973 FG CAN TAKE PRODUCED GAS AT FLARE WITHOUT PAYMENT OF ROYALTY DECREE NOT EFFECTIVE DUE TO LACK OF INFRASTRUCTURE IN THE PART OF FG TO TAKE THE NATURAL GAS. GAS RELATED LAWS CONTD III ASSOCIATED GAS REINJECTION DECREE 99 OF 1979 MANDATES PRODUCING CPANIES TO SUBMIT PROPOSAL FOR UTILIZATION OF NATURAL GAS PRODUCERS ARE EXPECTED TO STOP FLARING FR 1/1/84 EMPOWERS MINISTER OF PETROLEUM RESOURCES TO GRANT PERMISSION TO FLARE CONSEQUENCE FOR VIOLATION IS FORFEITURE OF THE ACREAGE CONCERNED. 5
PROBLEMS WITH THE DECREE ACCORDING TO? The decree could not be enforced for: TOTALLY UNREALISTIC IN TERMS OF TIME FRAME FOR IMPLEMENTATION GATHERING AND TREATMENT OF AG IS CAPITAL INTENSIVE LACK OF SUITABLE DEPLETED RESERVOIRS FOR IMPLEMENTATION GAS RELATED LAWS CONTD IV ASSOCIATED GAS REINJECTION AMENDMENT DECREE 7 OF 1985 INTRODUCED A PENALTY CHARGE OF 2K/1000SCF OF GAS FLARED AT THE FIELDS WHERE AUTHORITY TO FLARE AG WAS NOT GRANTED IN 1990, PENALTY WAS INCREASED TO 50K (About 0.5c)/1000SCF PENALTY WAS FURTHER RAISED TO =N=10 (about 10c)/1000SCF IN 1998 6
EFFECT OF THE LAWS ON GAS FLARING 2000.00 1800.00 GAS PRODUCTION (TSCF) 1600.00 1400.00 1200.00 1000.00 800.00 600.00 400.00 200.00 0.00 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 YEARS GAS PRODUCTION GAS UTILISATION GAS FLARED Gas Flaring Trend on Norwegian CS Gas flaring (Sm 3 ) per Sm 3 sold o.e. 40 35 30 25 20 15 CO 2 tax introduced 10 5 0 1975 1979 1983 1987 1991 1995 1999 2003 7
NIGERIAN FLARED GAS FACT 17.2 billion m3 of natural gas /year 16% of world s total associated gas One quarter of the power consumption of Africa (Global Gas Flaring Reduction Initiative (GGFR) 2002) SubSaharan Africa loses $3 billion annually due to gas flaring ( GGCF and World Bank Report 2001) Wasted energy resource via flaring in Nigeria is about 45% of the energy requirements of France, the world s 4th largest economy ( Ashton et al 1999) ANOTHER GAS RELATED LAW V. ASSOCIATED GAS FRAMEWORK AGREEMENT (AGFA) (1991/1992) INTRODUCED IN 1991/92 AS A FISCAL INCENTIVES FOR NATURAL GAS UTILIZATION VI. DPR MAINTAINS A POLICY OF NOT ALLOWING THE DEVELOPMENT OF NON ASSOCIATED GAS WHERE ASSOCIATED GAS UTILIZATION IS FEASIBLE, EXCEPT FOR USE AS BACKUP 8
ANOTHER GAS RELATED LAW o THE FISCAL INCENTIVES, GUARANTEES AND ASSURANCE DECREE No. 39 OF 1990 PROVIDES THE NECESSARY INCENTIVES TO THE NLNG HAVING REALIZED THE IMPACT IT WOULD MAKE IN THE GAS INDUSTRY. GOVERNMENT REALIZED THAT LNG, GTL, NGL/LPG MUST BE TARGETED IN ORDER TO MONETISE NIGERIA S ABUNDANT GAS RESOURCE. INCENTIVES FOR NATURAL GAS UTILIZATION ASSOCIATED GAS FRAMEWORK AGREEMENT (AGFA) GRANTED THE FOLLOWING INCENTIVES TO THE GAS INDUSTRY: FISCAL INCENTIVES FOR GAS PRODUCTION I TAX RATE: 40%, SAME AS CPANY INCE TAX ACT (CITA) II CAPITAL ALLOWANCE: 20% / ANNUM I to 4 YEARS 19% 5 YEAR 1% IN THE BOOKS III INVESTMENT TAX CREDIT (ITC) 5% AT CURRENT PPT IV ROYALTY: 7% ONSHORE 5% OFFSHORE 9
INCENTIVES FOR NATURAL GAS UTILIZATION CONTD INCENTIVES TO INCREASE GAS PRODUCTION AND ITS UTILISATION TAX FREE PERIOD OF 3 YEARS RENEWABLE FOR ADDITIONAL PERIOD OF 2 YEARS ACCELERATED CAPITAL ALLOWANCES IMPORT DUTY EXEMPTION ON PLANT MACHINERY AND EQUIPMENT INCENTIVES FOR NATURAL GAS UTILIZATION CONTD B. FISCAL INCENTIVES FOR GAS TRANSMISSION AND DISTRIBUTION I CAPITAL ALLOWANCE 20% / ANNUM IN THE 1 ST FOUR YRS 19% IN THE FIFTH YEAR AND THE REMAINING 1% IN THE BOOKS II TAX RATE 40% SAME AS CPANY INCE TAX X ACT (CITA) III TAX HOLIDAY UNDER PIONEER STATUS OF 7 YEARS AND MAY BE GRANTED TO NEW CPANIES ENGAGED IN TRANSMISSION AND DISTRIBUTION ACTIVITIES 10
INCENTIVES FOR GAS UTILIZATION IN DOWNSTREAM SECTOR SUBJECT TO PROVISIONS OF CPANY INCE TAX ACT (CITA) INITIAL TAXFREE PERIOD OF 3 YEARS RENEWABLE FOR ADDITIONAL 2 YEARS ACCELERATED CAPITAL ALLOWANCE AFTER TAXFREE PERIOD AS FOLLOWS: ANNUAL ALLOWANCE OF 90% WITH 10% RETENTION IN THE BOOKS, FOR INVESTMENT IN PLANT AND MACHINERY ADDITIONAL INVESTMENT ALLOWANCE OF 15% WHICH SHALL NOT REDUCE THE VALUE OF ASSETS PLANT, MACHINERY AND EQUIPMENT PURCHASED FOR UTILIZATION OF GAS IN DOWNSTREAM ARE EXEMPTED FR VAT AND IMPORT DUTY PAYMENTS. Result of Incentive 2500.0 Gas (Billions SCF) 2000.0 1500.0 1000.0 500.0 Production (BSCF) Utilization (BSCF) Flared (BSCF) 0.0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Year Fig 1. Total Gas Produced, Utilized and Flared in Nigeria (19802003) 11
0 5 1 0 1 5 2 0 2 5 LNG PROJECTS: EXISTING AND PLANNED PROJECT NLNG (T1/T2) NLNG (T3) NLNG (T4/T5) NLNG (T6) Brass LNG (2 Trains) OK LNG (4 Trains) SouthEast LNG (1 Train) STARTUP DATE 1999 2002 2005 2007 2009+ 2009+ 2010 CAP. M t/y 5.90 2.95 8.2 4.10 10 20 4.8 SHARE HOLDERS NNPC 49%, Total 15%, Agip 10.4% Shell Gas BV 25.6% NNPC 49%, Total 15%, Agip 10.4% Shell Gas BV 25.6% NNPC 49%, Total 15%, Agip 10.4% Shell Gas BV 25.6% NNPC 49%, Total 15%, Agip 10.4% Shell Gas BV 25.6% ConocoPhillips 17%, Agip 17%, NNPC 49%, Chevron 17% Chevron, NNPC, BG,Shell ExxonMobil, NNPC LNG Plants Strategic Role of Gas Supply Indonesia Algeria Malaysia Indonesia NIGERIA Australia Qatar Brunei Oman Algeria Abu Dhabi Qatar Trinidad US (Alaska) Libya Norway Egypt Venezuela FE Russia BADAK ARZEW BINTULU ARUN NLNG NW F QATARGAS LUMUT QALHAT SKD/CAMEL DAS ISLAND RAS LAFFAN ATLANTIC KENAI MARSA E.B. SNOHVIT DAMIETTA SUCRE SAKHALIN 0 Current Capacity Debottlen./Revamping Under Construction Projected 0 5 10 15 20 Mtpa 25 12
LOCAL UTILIZATION: EXISTING GAS SUPPLY SYSTEMS S/N 1. 2. 3. Gas Supply System Aladja Gas Pipeline System Obenajaokuta Gas Pipeline Sapele System Gas Consumers Delta Steel Plant, Aladja Ajaokuta Steel Plant NEPA Power Station, Sapele Pipeline length (km) 130 198 44 Line diameter (inches) 6, 8, 14 & 18 24 10 & 18 Design capacity (mmscf/d) 70 200 200 4. 5. Obigbo North Afam Imo River Aba NEPA, Afam Igi, Pz, Abatex Aba, Equitable 19 28 14 12 135 35 6. 7. 8. Alakiri Onne Escravos Lagos Pipeline (Elp( Elp) ) And The Spur Lines Alakiri Obigbo North, Ikot Abasi Nafcon, Onne Nepa Egbin Spur, Nepa Delta Iv Spur, Ughelli, Warri Refinery, Wapco Ewekoro Wapco Shagamu, Ikeja City Gate/Otta Otta/ Agbara, Pz Industries Ikorodu Edjeba & Ogunnu Housing Estate Aluminium Smelting Company (Alscon) 17 16 4 1 27 15 15 13.5 13 117 14 30 12 8 14 18 14 4 6 14, 16 & 24 90 600 172 40 45 94 50 4.26 26 450 S/N PIPELINE SYSTEM GAS CONSUMERS PIPELINE LENGTH (KM) LINE DIAM. (INCHES) DESIGN CAPACITY (MMSCF/D) 1. AJAOKUTA GEREGU/ABUJA / KADUNA NEPA AND INDUSTRIAL CONSUMERS 460 14 20 /36 /36 1000 2. IKORODU SPUR SPINTEX, ITAL TILE & OTHER INDUSTRIES 13.5 4 10.00 3. EYAN SPUR INDUSTRIES IN BENIN 3 4 3.00 4. OTTAAGBARA AGBARA ECOWAS OTTA, AGBARA & ECOWAS 50 20 /24 /24 300 5. IWOPIN SPUR NIGERIAN NEWSPRINT MANUF. CO., (NNPMC) 30 8 15.00 6. ATHENA INVEST. LAPELEKE BRICK INDUSTRY 2.0 4 5.00 7. PRESCO INDUSTRIES AGRIC INDUSTRY 2.0 4 3.00 8. OSUBI AIRPORT SPDC 1.0 4 2.50 13
LOCAL SUPPLY/DEMAND GROWTH PROSPECTS MMscf/d 1400 1200 1000 800 600 Gas Capacity and market increase with investment stimulated by commercial gas pricing Capacity decline in absence of Commercial Gas Pricing and Further Investment Additional NAG Required Additional AG 400 200 0 2000 2005 AG Capacity NAG Capacity Industry Sales Power Sales GAS UTILISATION PROJECTS AND CONSUMPTION 14
ISSUES TO BE ADDRESSED Do we have the gas to support projects Export/Local demand Gas pricing Funding Stranded Gas Poor Infrastructure/Disconnect Tariff Local Content Community Issues 15
COTONOU OP309 YINKA ABEOKU TA OP301 EBUTE METTA LAG OS OP302 GULF OF GUINEA OP312 DEVINE OP310 JAMES PET OP311 SUNLINK BIGHT OF BENIN OP313 OP303 OP304 OP305 IBADAN LEKKI OP306 LAGOON OP315 INT OI OPL 214 OP307 CAVE NDIS H OP MLM OP454 453 CHE VRO N OBEK L PA 95 OP 241 CHE VRO N 95 O P L 2 4 0 CHE VRO N 91 CHE VRO N L AGIP OP316 89 ALLIE D OP 210 AGIP OP211 DUBRI96 PACL AN OP 204 PAN OCE AN L 98 CHE VRO N 49 SH STATOI L/BPX OP213 43 OPL 242 OP308 OPL 239 75 FAM FA OPL 216 CONSOL IDATED OP113 CHE VRO N 90 EXPRES S PETR 108 ATL AS OPL ATLA S OP 75 CONSO LIDATE DOP 458 79 40 NORE AST OP 215 SUNLI NK OPL47 4 BENIN CITY 1 SAPELE A GI NP P SH D O C M O ML 62 32 64 SH SHE L 35 46 SH CH E EL F O M 59 TEX ACO L 87 NP DC OPL 110 ULTR AMAR OP 227 SH 41 43 45 TEX ACO L 88 TEXA CO 84 MON CRIE F OP 471 TEX PEAK ACO OP460 L 85 STATO IL/BPX OP 217 SUM MIT INT. OP 205 SHE L L 34 CHEV RON 49 WARR I 42 44 38 SHE L 77 TEX ACO L 83 STATOI L/BPX OP 218 AGIP 63 SOL GAS OPL 226 IPECOP202 4 TEXA CO 86 OP201 SUPR A OP 203 SUM MIT INT. OP 206 NPDC65 SHE CHE L VRO N AGIP 63 28 54 29 NDPC 66 23 CHEV RON 55 ELFOP 447 7 OPL 243 OPL 244 OPL 245 OPL 246 OPL 247 30 A GI P O M 63 AGI PE N OP 472 SU NLI NK OPL 238 SHE L OP 219 31 33 SH 5 39 ELF56 38 SH 22 26 ASHL AND OP 225 DU PO NT OPL 220 OP901 QUEE NS PETRO. NIG. OP135 LTD. ONITSH A MO NIP UL O OP OP228 CHE VRO N 53 21 ELF58 ASHLA ND OP 118 SHE 20 L 16 SHE L L 15 CHEV RON 54 SHE L L 19 230 17 PORT HARCOURT OP314 EXX ON OP 209 24 SHE L 18 72 25 74 74 IPECOP229 ASH LAN D OPEN OP 90 MO BI OPL 221 NAOC61 BR ASS OPL 208 CRE SCE NT OP 234 CHEV RON 55 OP467 SEA WOL F OP 907 OP902 LAM ONT OP 207 11 CHE VRO N L 51 ELF99 NPDCOP91 EL F OP 223 ELFOP 222 QIT SHE L 13 OP905 SH 73 CHEV MOBI70 SH RON 52 AMNI OP237 SH 72 71 ASA RIS OPL 235 OP903 MOBIOP94 ELF100 OP906 ASA RIS OP 236 MOBI69 MAR EENA OPL 231 ELF102 OP904 CALABAR AMAL GAM OP 452 14 ASHL AND OP 98 ELF101 MOBI68 MOBI67 MOBI67 (EQU ATOR IAL ORIE GUIN NT EA) OP MOBI70 224 SANTA ISABEL UMIC TIKO KATSINA RIER GAMANA RIVER NK ON GS AM BA KRIBI SANAGA RIVER NIGERIAN SEDIMENTARY BASINS Sokoto Embayment Chad Basin Bida Basin TGO BENI Niger Delta Benin Basin BENIN RIVER SH 81 FORCADOS RIVER VRO N L 50 36 PE T PR OD OP 233 NIGER RIVER SH 27 Anambra Basin CROSS RIVER Benue Trough CAMEROUN NIGERIA Oil & Gas Generation Source rocks contain the organic manner that transforms into hydrocarbons Factors that determine the generation of oil or gas are: Type of organic matter composition Depth of burial Pressure Heat flow Temperature Age Time 0 Organic Matter Biogenic CH 4 CO 2 Immature Zone Oil Window Dry Gas Wet Gas Temperature Depth 1 2 3 4 km Geochemical Fossils Early Gas Gas 27 16
Export and local demands must be balanced to ATTRACT LOCAL AND FOREIGN CAPITAL TO THE GAS INDUSTRY ENCOURAGE OPTIMAL DEVELOPMENT AND UTILISATION OF GAS AS FUEL, FEEDSTOCK,etc MAXIMIZATION OF LOCAL CONTENT (EQUIPMENT, SERVICES AND LABOUR) Gas Pricing and Problems Customer Approximate Gas Price (US$/Mscf) NEPA 0.12 Government Parastatals (e.g. NAFCON, ASL, ALSCON,etc) 0.35 0.52 NLNG 0.31 GTL, LPG, EGTL? State IPPs 0.45 Private Domestic Industries 2.06 Impact of Gas Price Sub economic price as it is not sufficient to cover cost of production and transmission. NEPA is the dominant player in the domestic market Price may be just adequate to cover cost but the companies gas current demand makes it sub economic Value of upstream gas artificially suppressed and inadequate to encourage third party gas supply to the plant. More benefits accrues to the plant owners. Non transparent transfer price regime which serves as a disincentive to 3rd party gas suppliers. Different upstream gas fiscal regimes aimed at achieving minimum gas supply price Adequate price to recover cost and generate generous returns to gas supplier Negotiated market price which provides maximum value to the upstream gas suppliers 17
Gas Project EGP 1 & 2 Obite Gas Project Soku Gas Supply Project NLNG Base Project (T1&T2) Afam Power Project NLNG Train 3 Purpose Gather AG and extract LPG Gather Gas for LNG Supply gas to LNG LNG Rehabilitation of Power Station LNG Cost $630 m $324 m $369 m $3.6 b (Base train + 4 LNG Vessels) $515 m $2 b (T3 & LPG facility & 3 vessels Poor Pipeline Network 18
Component Methane Ethane Propane ibutane nbutane ipentane npentane Hexane Heptanes plus Total Typical Natural Gas Composition Symbol C 1 C 2 C 3 ic 4 nc 4 ic 5 nc 5 C 6 C 7 + Associated Gas 27.52 16.34 29.18 5.37 17.18 2.18 1.72 0.47 0.04 100 Composition, Mole Percent Wet Gas 59.52 5.36 4.71 2.03 2.39 1.80 1.61 2.60 19.98 100 Dry Gas 97.17 1.89 0.29 0.13 0.12 0.07 0.05 0.04 0.24 100 S/N SYMBOL NAME CMENTS 1. C1 METHANE LIGHTEST & HIGHEST PERCENTAGE CPONENT. MOSTLY USED AS FUING CPONENT 2. C2 ETHANE MOSTLY USED AS FEEDSTOCK FOR PETROCHEMICAL PLANTS 3. C3 C4 PROPANE BUTANE CPONENTS OF LPG 4. C5 C6 C7 PENTANE HEXANE HEPTANE C5 + NATURAL GASOLINE 5. 6. N 2 CO 2 NITROGEN CARBONDIOXIDE HYDROGEN SULPHIDE IMPURITY CO AND H 2 2S ARE IMPURITIES WHICH ARE ALSO CLASSIFIED AS ACID GAS DUE TO THEIR CORROSIVENESS 7. H 2 O WATER THIS CAN BE AVAILABLE EITHER AS FREE WATER OR MOISTURE. IT IS A DANGEROUS IMPURITY THAT CAN FORM ICE IN THE SYSTEM. IT IS ALSO A CORROSIVE CONSTITUENT. 8. O 2 OXYGEN THIS IS AN IMPURITY THAT COULD BE FOUND IN THE GAS AS A CORROSIVE AGENT 19
Address the issues and flare out 3 2.5 Gas, Trillion SCF 2 1.5 1 0.5 0 Flared Utilized Produced 2 0 0 8 2 0 0 7 2 0 0 6 2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 1 2 0 0 0 1 9 9 9 FAVOURABLE FACTORS TO NIGERIAN GAS BUSINESS Expanding economies of China and Asia Dwindling reserves of Europe and USA America s s search for alternative sources of oil and gas outside the Middle East Future increase of LNG receiving terminals in the East coast of the US Prudent management of existing oil and gas resources Opening up of new oil and gas assets to exploration and exploitation Aggressive pursuit of natural gas development 20
FAVOURABLE FACTORS CONTD New gas fiscal terms currently under discussion The Gulf of Guinea, one of the most prolific hydrocarbon provinces in the world and Nigeria s s resource potential and geographic location has positioned it with respect to the markets of the EU and the Americas Gas is the energy of the future as such consumption will increase. CONCLUDING REMARKS NIGERIA HAS ABUNDANT GAS RESOURCES CURRENT FISCAL TERMS ARE VERY GENEROUS TO ENCOURAGE INVESTMENT IN THE SECTOR NIGERIA S S LOCATION VIS A VIS THE MARKET PROVIDES OPPORTUNITY FOR THE MONETISATION OF HER ABUNDANT GAS RESOURCES DESTIC CONSUMPTION OF GAS WILL INCREASE, PARTICULARLY IN THE ELECTRICITY GENERATION SECTOR, AND MORE WHEN THE TRANS ALGERIAN PIPELINE IS PUT IN PLACE GOVERNMENT AND OPERATORS ARE MAKING EFFORTS TO DRASTICALLY REDUCE INCIDENCES OF CMUNITY DISTURBANCES AND VANDALISATION OF FACILITIES GAS IS THE ENERGY OF THE FUTURE AND NIGERIA WILL PLAY A LEADING ROLE IN ITS SUPPLY 21
We acknowledge the Department of Petroleum Resources and NNPC as the primary source of information in this presentation THANK YOU 22