SALLY UDOMAUDO UDOMA & BELO OSAGIE

PRESENTED AT THE IBA CONFERENCE LAGOS, 6 – 8 NOVEMBER, 2013

The legal and regulatory framework for investing in gas projects in

Nigeria: challenges and opportunities

Introduction

Nigeria stands in 9th place in the world in terms of gas reserves (approx. 181 tcf), but with the estimated capacity to move up to the ranks of the top 3 (600 tcf)

Quantities of gas flared reduced by 30% over the last 5 years; currently flare approx. 15% of gas production; Government targeting a reduction to 2% by 2014!

50%

16%

24%

10%

Natural gas production in Nigeria, 2012

MARKETED

PRODUCTION

(42,571MSCM)

FLARED

(13,182MSCM)

REINJ ECTED GAS

(20,520MSCM)

SHRINKAGE

(8,573MSCM)

5,118

Source of figures: OPEC Annual Statistical Bulletin, 2013

GROSS PRODUCTION: 84,845MSCM

Source of figures: OPEC Annual Statistical Bulletin, 2013

Gas Value Chain

Fed. Govt., through Dept. of Pet. Res., regulates the entire value chain.

Fed. Govt., through NNPC and its subsidiaries, participates in the entire value chain. Upstream – NPDC; Midstream – NGC; Downstream – NNPC & NLNG

EXPLORATION&

PRODUCTION

PROCESSING – CPFs, LIQUEFACTION PLANTS, ETC

TRANSPORTATION-DOMESTIC & TRANSBOUNDARY PIPELINES; LNG

MARKETING & SUPPLY -DOMESTIC (POWER GENERATION, CEMENT & FERTILIZER PRODUCTION)& EXPORT MARKETS (LNG, ETC)

Upstream Midstream Downstream

MINISTER

Regulates the entire value

chain & industry

participants

Govt. participation is through the NNPC – NPDC (and NAPIMS) in the upstream; NGC in midstream gas transmission; mostly NLNG in the downstream

DPR

PRIVATELY-OWNED COMPANIES – IOCS, INDEPENDENTS, INDIGENOUS COMPANIES, PARTICIPATE IN VARIOUS ACTIVITIES ACROSS THE VALUE CHAIN

Current legal & regulatory framework

Petroleum Act, 1969 & NNPC model PSC terms

Associated Gas Re-injection Act

Set out the rights & obligations of license or lease holders & PSC Contractors respectively

All producers to submit plans for implementation of gas reinjection and cease gas flaring subject to payment of fees for permitted flaring, or forfeiture of concession for breach of the Act

Current legal & regulatory framework

National Domestic Gas Supply & Pricing Policy and Regulations

Oil Pipelines Act & Regulations

Institute a Domestic Gas Supply Obligation for producers and establish a transitional pricing framework

Provides the licensing regime for, and regulates construction, operation and maintenance of oil & gas pipelines and associated infrastructure

Current legal & regulatory framework

Petroleum Profits Tax Act, Companies Income Tax Act, and Finance Miscellaneous Taxation Provisions Acts 18 & 19 of 1998 and Act 30 of 1999

Nigerian Oil & Gas Industry Content Development Act, 2010

Regulate the taxation of profits from upstream (PPTA) and midstream or downstream (CITA) activities, and provide various incentives for companies engaged in gas utilization projects

Requires preferential or exclusive consideration to be given to Nigerian companies

Current legal & regulatory framework

DPR Environmental Guidelines & Standards for the Petroleum Industry in Nigeria (EGASPIN); Environmental Impact Assessment Act; National Environmental Standards and Regulations Enforcement Agency Act; state environmental legislation may apply.

EGASPIN provide the primary regulations governing environmental standards and their enforcement in the oil industry.

Challenges

Uncertainty over the regulatory framework

Commercial Viability

Gas Transmission Infrastructure

Insecurity

Community Issues

Financing/ Funding Constraints

“The biggest problem we have in Nigeria is that the government is still the dominant player in the upstream …where the money required to gather the gas, compress it and use it has to come from ….I believe that if you get government out of the investment area, you will see a rapid change …” Chima Ibeneche, Chairman, Nigerian Gas Association

YEARS 2000 2004 2007 2008 2009 2010 2011 2012

Draft National Oil and Gas Policy

Approval of National Oil and Gas Policy

OGIC Report completed; submission of PIB to the 6th session of the National Assembly

Submission of new PIB to the 7th session of the National Assembly

Inauguration of OGIC Re-

inauguration of OGIC

Inauguration of IAT

Inauguration of Task Force and Tech Committee

Opportunities

Power Sector Reform

The “Gas Revolution” – turning Nigeria into a regional hub for gas-based industries

Accelerated Gas Development and Utilization Programme

Infrastructure Development

Transportation

Export - Regional and International

LPG Storaage and distribution

SIGNIFICANT INVESTMENT OPPORTUNITIES INCLUDE…

PARTICIPATION IN UPSTREAM GAS DEVELOPMENT

CONSTRUCTION & OPERATION OF GAS TRANSMISSION PIPELINES; REMOTE PIPELINE MONITORING

DEVELOPMENT OF GAS PROCESSING FACILITIES, LNG & LPG PLANTS, ETC; GAS METERING & MONITORING DEVICES

INVESTMENT IN PIPE MILING & FABRICATION YARDS, MAINTENANCE SERVICES

GAS TO POWER, DOMESTIC AND INDUSTRIAL USE

EXPORT – REGIONAL AND INTERNATIONAL

LNG & LPG STORAGE, ETC

PIB 2012 – key provisions

Separates upstream and downstream regulatory bodies: Upstream Petroleum Inspectorate and Downstream Regulatory Agency.

Restructures NNPC: new incorporated National Petroleum Assets Management Company Ltd, National Oil Company and Nigerian Gas Company

Provides detailed gas transportation licensing regime; guidelines for a network code governing the downstream gas network; open access to gas transportation and distribution networks; gas pricing principles; prohibits anti-competition practices.

Incorporates the DGSO; prohibits flaring except in limited, defined circumstances with Minister’s consent.

Revised fiscal provisions for upstream operators – new Hydrocarbon Tax to replace PPT, and CIT now applicable.

Conclusion

The PIB 2012 still has gaps in its attempt to effectively address the current challenges for investment, BUT

The Federal Government is focused on getting the PIB passed this year, and is working with the IOCs to establish an effective and robust commercial and fiscal framework.

Nigeria’s gas potential is huge. Opportunities for domestic gas utilization are waiting to be seized. With the right infrastructure, regulatory and fiscal frameworks, economic stability and insecurity issues addressed, Nigeria’s growth and development is assured.

THANK YOU

SALLY UDOMAUDO UDOMA & BELO OSAGIE