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Natural Gas

Posted by on 12/23/2003 3:57:23 PM |

Natural Gas


Gas utilisation is a primary goal of Nigeria's petroleum and energy policies. This is because, with a proven reserve of 260 trillion cubic feet of natural gas, Nigeria's gas reserve is triple the nation's crude oil resources. Hitherto, associated gas encountered during the normal course of oil production has been largely flared. Nigeria is reput ed to be the largest gas-flaring country in the world. By not fully harnessing its gas resources, Nigeria loses an estimated 18.2 million U.S. dollars daily.

On its part, the Nigerian Ministry of Petroleum Resources, in addition to imposing penalties which were intended to end gas flaring by 1994, has offered incentives to potential investors who are interested in gas exploration. Since the 1980s, there has been increasing util isation of gas in Nigeria, for power generation, industrial heating, fertiliser and petrochemical man ufacturing and as feedstock for direct steel reduc tion. But the largest gas users will be the Liquefied Natural Gas (LNG) Project and the Aluminium Smelting Industry. Nigeria's LNG project had been on the drawing board since the 1960s.

It was not until 1990 that the NNPC concluded financial arrangements for the project. Established in 1992, the Nigerian Liquefied Natural Gas Company com menced execution of the project in 1993. The ship ment of gas from the Bonny Plant to overseas buy ers in Europe commenced late in 1999. The Nigerian Gas Company, the gas marketing sub sidiary of the NNPC, has signed a 10 billion Naira gas sale agreement with Shell, involving the later marketing gas from its Utorogu gas plant. To aug ment Government's aas commercialisation efforts. Chevron has embarked upon the Escravos Gas Utilisation project in which it will process about 160 billion standard cubic feet (MSCF) of gas daily from the company's Mefa and Okan fields. The project entails the installation of gas gathering and extrac tion facilities at the Escravos terminal. About 130 MSCF of dry residue gas will also be available daily from this project to the Nigerian Gas Company for commercial and domestic use.

Liquefied Petroleum Gas is currently produced from the four local refineries, the current total refin ery capacity being about 200,000 tonnes yearly. Transportation is, however, a major handicap in LPG marketing. As part of gas conversion, the Nigerian Agip Oil Company has constructed two gas recycling plants at the Obiafu/Obrikorn and Kwale/Opai oil fields. At Obiafu/Obrikarn, there are gas re-injection wells capable of injecting 200MMSCF per day, while Kwale/Okpai can handle 73MMSCF daily.

Apart from the above projects aimed at ending the flarina of associated aas in the Ntaer Delta, the Federal Government has offered incentives to investors in natural gas development under the Associated Gas Framework Agreement. The establishment of the Oil and Gas Export Free Zone at Onne will also enhance operations in the indus try.

Petroleum Legislation: Nigeria's petroleum legislation evolved piecemeal through what can be classified as the colonial, post-colonial, and post boom phases. Prominent among the colonial leg islations were the Mineral Oils Act No. 17 of 1914; the Mineral Oils Act No. 17 of 1925; the Mineral Oils Act (Amendment) Ordinance 1959; and the Petroleum Profits Tax Ordinance 1959. Not only did these laws cede Nigeria's mineral rights to the British crown; they also reserved exploration and production rights to only British companies which for the mere payment of token rental due and roy alties, acquired proprietary rights over all mineral deposits in the country.

Upon attaining sovereignty in 1960, ten petrole um-related laws were enacted within the first decade of independence. The most significant of these laws was the Petroleum Decree of 1969 (Decree No. 51). Although grossly deficient in many ways, this was the nation's first comprehen sive petroleum legislation, which covered among other things the definition of petroleum, land sur face rights and rents, and compensation.

Apart from reducing the duration of an oil mining lease from the previous 30-40 years to 20 years, the 1969 decree was still, to a large extent, a bonanza to for eign operators. But after entering into membership of OPEC in 1971 and having established its own national petroleum corporation (the Nigerian National Oil Corporation) in 1972, Nigeria began to establish joint venture participation, production sharing and risk service interests with the oil com panies. Between 1973 and 1974, the NNOC, which was later changed to the NNPC in 1977, negotiated participation in all the major companies, thus acquiring large percentages in the operations of these companies.

The crash of oil prices in the world market in 1986, to below 10 dollars per barrel, rendered fur ther exploration totally unprofitable to the foreign operators. The need, therefore, arose to offer them a new package of generous fiscal incentives to maintain the momentum in this strategic sector of the economy. This package is the Memorandum of Understanding which guarantees to the oil compa nies a notional margin of 2.3 to 2.50 U.S dollars per barrel and a royalty of 2 U.S. dollars per barrel. Oil companies operating under the various agree ments include Shell, Exxon Mobil, Chevron, Elf, Nigeria Agip, Texaco Overseas, Express Petroleum/Conoco, Addax, Atlas, Amni International, Consolidated Oil, Pan-Ocean, Nigeria Petroleum Development Company, and Dubri Oil.