TABLE OF CONTENT
- The Development of Gas
- The Laws and Regulators
- Dispute Resolution
“Natural gas is an important part of delivering energy, whether you’re producing power or other solutions for customers.”
Lynn Good, CEO:Duke Energy
Nigeria joined the league of oil and gas-producing countries in 1956 after oil was discovered in commercial quantity in the present-day Oloibiri in Bayelsa State, Nigeria.
As of today, Nigeria is the twelfth biggest producer of natural gas in the world and second in Africa with 3,009,650,245 million standard cubic feet (“MMscf”) yearly. This an aberration from our proven gas reserve of about 209.5 trillion cubic feet. Nigeria’s natural gas reserves are underutilised.
Nigeria’s Natural Gas is low in Hydrogen Sulphide (H2S) and Carbon Dioxide (CO2) impurities. Despite this advantage, gas flaring is estimated at nearly $2million/day.
Nigeria has greater associated gas reserves than non-associated gas, yet the latter makes up more than half of the country’s annual gas production. Nigeria has a lot of natural gas reserves, but it is not harnessed to its full potential. In 2021, 7,177.53 million standard cubic feet (“MMscf”) of natural gas were produced on average per day, the majority of which was exported as liquefied natural gas (“LNG”). Nigeria generated 22 million tonnes (tpy) of LNG yearly as of 2020.
THE DEVELOPMENT OF GAS RESOURCES
The commercial exploration of petroleum enjoyed a long term of unregulated wastage of natural gas resources, most gas were flared. Around 1963-1968 gas was first used non-commercially in Nigeria by Shell, with supply to ECN Afam, Delta PPs and Aba industries.
Nigeria’s gas history cannot be complete without the Nigerian Liquified Natural Gas Limited (“NLNG”). NLNG was established in May 17, 1989 as a Limited Liability Company, to harness Nigeria’s vast natural gas resources and produce Liquefied Natural Gas (LNG) and Natural Gas Liquids (NGLs) for export. NLNG Limited is a Joint Venture Company to develop the project with the following shareholding:
- Nigerian National Petroleum Corporation Limited (NNPCL): 49%;
- Shell Gas BV (Shell): 25.6%;
- TotalEnergies: 15%; and
- Eni SPA:10.4%.
NLNG is backed by the Nigeria LNG Fiscal Incentives, Guaranties and Assurances Act. Chapter N87, Laws of Federation of Nigeria 2004 which, amongst other things, provides for the guarantees and assurances by the Federal Government of Nigeria to the Company and its Shareholders.
Presently, NLNG project consists of six (6) liquefaction trains, four (4) LNG storage tanks, three (3) condensate storage tanks, four (4) Liquefied Petroleum Gas (LPG) refrigerated storage tanks each with a capacity of 65,000 cubic metres (two each for propane and butane), Ten (10) gas turbine generators with a combined output of 320 MW. 23 LNG vessels visit the 2 export jetties at the facility, which handles over 400 loadings per year, 23 LNG ships dedicated to the service of NLNG, A materials offloading jetty, a passenger jetty. The NLNG is in the process of building seven (7) liquefaction train; the ongoing train seven (7) LNG project is anticipated to enhance the total production capacity to over 30 million metric tonnes (MMTPA) of Liquefied Natural Gas.
Gas Pipelines are the main natural transportation infrastructure in Nigeria. Gas transportation is the bedrock of gas utilisation and The Nigerian Gas Processing and Transportation Company (“NGPTC”), a subsidiary of the Nigerian National Petroleum Company Limited (“NNPCL”) owns all major pipelines. Independent gas producers have also developed some upstream natural gas pipelines, gas-processing facilities, and other related infrastructure for their operations. The following are the major gas pipeline: Alakiri-Obigbo-Ikot Abasi Pipeline (the Eastern Network); the Escravos-Lagos Pipeline System (the Western Network); and the 614 km long $2.8 billion gas pipeline project, the biggest in the country’s history, it will run from Ajaokuta to Kaduna to Kano (AKK).
Currently, Nigeria has a proven gas reserve of about 209.5 trillion cubic feet, with various independent gas industry players.
THE LAWS AND REGULATORS
The key laws regulating Nigeria’s oil and gas industry are:
- The Constitution of the Federal Republic of Nigeria 1999 (as amended).
- The Land Use Act, 1978.
- The Petroleum Industry Act, 2021 (the Act or “PIA”).
- Companies Income Tax Act, 2011.
- Federal Competition and Consumer Protection Act, 2018.
- Companies and Allied Matters Act, 2020 (“CAMA”).
Ownership of petroleum, mineral oils & natural gas reserves in Nigeria is vested in the Federal Government of Nigeria by virtue of the Constitution and the Land Use Act. The PIA also vests ownership of petroleum within Nigeria & its territorial shelves in the Federal Government of Nigeria.
The PIA is currently the principal Act for the oil and gas industry in Nigeria, it repealed previous laws regulating the sector such as the Petroleum Act 2004, Nigerian National Corporation Act 1977, Petroleum Profit Tax Act 2004.
The Act provided for 2 regulatory agencies to be responsible for the technical and commercial regulation of petroleum operations: the Nigerian Upstream Petroleum Regulatory Commission (“NUPRC”) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority. In addition to these agencies, the PIA sets a new course for the Nigerian National Petroleum Corporation (NNPC) by providing for its incorporation as NNPC Ltd (NNPCL), intended to be a commercial and profit focused entity. The NNPCL will be governed by the Companies & Allied Matters Act 2020, in addition to the PIA.
The PIA aims to promote openness and accountability in the sector by strengthening governing institutions and encouraging international investment through changes to the industry’s governance, administrative, regulatory, and fiscal framework. The aim is to address urgent revenue needs while securing long-term industry investment.
The key government ministries and agencies charged with the regulation of the oil and gas industry in Nigeria are:
1. The Ministry of Petroleum Resources: The Ministry is responsible for policy formulation and supervising their implementation. It is also charged with the responsibility of issuing applicable upstream licences such as the Petroleum Prospecting Licence & the Petroleum Mining Leases which may be used to grant investors or companies the rights to develop oil and gas reserves in Nigeria. It also performs a supervisory function over the other primary regulators, operators and stakeholders in the oil and gas industry in order to ensure compliance with all applicable laws and regulations.
2. The Nigeria Upstream Petroleum Regulatory Commission (“Upstream Commission” or “NUPRC”): the NUPRC is in charge of regulating upstream sector activity. The upstream activities include the exploration for petroleum, petroleum development and production. The PIA empowers the NUPRC to grant Petroleum Exploration Licence, and recommend to the Minister of Petroleum a qualified applicant for Petroleum Prospecting Licence, and Petroleum Mining Lease.
NUPRC permits and licences are usually necessary for the execution of petroleum agreements involving the exploration and production of petroleum.
3. The Nigerian Midstream and Downstream Petroleum Regulatory Authority (“NMDPRA”): they are responsible for regulating activities of the midstream & downstream sector. The midstream sector involves operation of transportation pipelines, import or export of oil, while the downstream sector includes crude oil refining, marketing, retailing and sale of petroleum products. Sections 125- 173 of PIA primarily provides for the administration of midstream and downstream gas operation by NMDPRA.
4. The Federal Ministry of Environment: The Ministry ensures environmental compliance of participants in the oil and gas industry. The Ministry administers the Environmental Impact Assessment Act. The law requires an environmental impact assessment (EIA) for development projects that are likely to have significant adverse effects on the environment. It also monitors waste management. The Ministry also issues permits for operations in the oil and gas industry.
5. Nigerian Content Development & Monitoring Board (“NCDMB”): The Board assesses & approves content plans developed by operators in the industry.
6. The Federal Inland Revenue Service (“FIRS”): FIRS is responsible for the collection of natural gas tax by the virtue of Sections 302 (7) and (8) of the PIA which provides that natural gas tax be administered in accordance with the provision of the Company Income Tax Act.
Section 251 (1) (n) of the Nigerian 1999 Constitution (as amended) grants the Federal High Court (“FHC”) jurisdiction over natural gas matters. The PIA expressly provides for the FHC, and the Tax Appeal Tribunal (“TAT”) as the venues to settle disputes in the oil and gas industry. Furthermore, Section 217(8) of the PIA vests the FHC with exclusive jurisdiction over: disputes between licensees, lessees or permit holders and the Upstream Commission or NMDPRA. Also, Section 294 (1) of the PIA provides that hydrocarbon tax may be sued and recovered in a court of competent jurisdiction at the place where payment should be made by the FIRS.
In commencing a suit against the Upstream Commission or NMDPRA, a written notice of intention to commence suit must be served on the Upstream Commission or the Authority before any suit can be commenced against the Upstream Commission and NMDPRA. The PIA also provides a time limitation of three months of the acts and omissions complained for any suit to be instituted against the Upstream Commission or the NMDPRA or officers or employees of the Upstream Commission or Authority.
However, arbitration is the preferred method of dispute resolution in the gas industry. The Arbitration and Conciliation Act Of Nigeria is the principal law for arbitration proceedings in Nigeria. Moreover, Nigeria on 17 March, 1970 ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (10 June 1958 and came into force 7 June, 1959) and adopted it into the Second Schedule of the Arbitration and Conciliation Act of Nigeria. Also, Nigeria is a signatory to the International Centre for Settlement of Investment Disputes (“ICSID”) Convention (October 14, 1966) and has adopted the Convention into an Act as the International Centre for Settlement of Investment Disputes (Enforcement of Awards) Act, 2004 which provide that the “award of I.C.S.I. disputes to have effect as award in final judgement of Supreme Court”.
One of the main goals of enacting the PIA was to make doing business easier in the oil and gas sector, and to attract investors to the sector. The first provision of the Act targeted towards achieving this goal, was the restructuring of the NNPC into the NNPCL. This restructuring was confirmed by the Nigerian government in July 2022.
The result is that the NNPCL, although a state-owned entity, is now expected to operate as a commercial, profit oriented entity. This makes the NNPCL comparable to other organisations such as Saudi Arabia’s ARAMCO. It is anticipated that the NNPCL would at some point invite members of the public to purchase shares in the company and raise equity capital through an initial public offering (IPO). To raise foreign equity capital, the NNPCL will trade its shares on global stock exchange markets in a similar fashion to ARAMCO. This restructuring addresses investor concerns related to undue government influence, unnecessary bureaucratic delays in doing business with NNPC now NNPCL.
The NLNG is the model for gas investment in Nigeria. With our vast gas resources, investors are presented with a lot of opportunities to engage in the sector. The law is in place, the environment is set, Nigeria welcomes you to invest and profit from her vast gas resources.
Gas Series Associates: Ayakpo Marlon and Oghenero Ewherido
Ayakpo Marlon is an Associate with Marcus-Okoko & Co., and he specializes in Oil & Gas Law, Corporate Finance Law, and Regulatory Compliance.
Nero Ewherido is an Associate with Marcus-Okoko & Co., and she specializes in Business Law, Corporate Finance Law, and Regulatory Compliance