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Petroleum Industry Bill (PIB): Analyzing the Challenges and Opportunities on the Gas Value Chain and Solution for Successful Implementation in Nigeria By GEORGE OSAHON DEPARTMENT OF PETROLEUM RESOURCES 9 JULY 2013 Presentation Outline § Introduction § Sector Status § Oil and Gas Reform Philosophy § Reform Objectives § Impact of PIB on the Gas Value Chain § The Gas Value Chain: Opportunities and Challenges § Reform Implementation Progress § Next Steps § Conclusion DEPARTMENT OF PETROLEUM RESOURCES Introduction § Nigeria is blessed with major hydrocarbon resources endowment § Despite the massive endowment, Nigeria is yet to fully benefit from its hydrocarbon resources. § The Oil and Gas Sector, as it currently operates, does not meet standards expected of a 21st century oil and gas industry. § the Federal Government embarked on a journey of a comprehensive reform aimed at re-positioning Nigeria's oil and gas industry § The reform agenda is enormous. It puts gas to power at the core while looking forward to an aggressive gas based industrial growth. § There is robust portfolio of investment opportunities in both the power and gas based industrial sectors § Investment opportunities have been identified for potential investors in the Gas Value Chain DEPARTMENT OF PETROLEUM RESOURCES Nigeria’s Natural Gas Facts • Nigeria Gas reserve ranks 7th in the world and No. 1 in Africa • All natural gas discoveries are incidental to exploration for crude oil • Nigeria’s gas reserves endowment may be up to 600Tcf. The country is often described as a gas province with little oil • High proportion of Natural Gas accumulation is concentrated in the Niger Delta; and substantial discoveries have been made in the deep offshore area • Exploration efforts in the Benue Trough, Chad Basin and Anambra Basin show that the in-land basins have potential to add to national gas resource volumes DEPARTMENT OF PETROLEUM RESOURCES 4 Nigeria’s Natural Gas Aspiration • Create as much revenues from gas (as in oil) • Address environmental issues and end flaring • Develop domestic market • Create new industries out of the Petroleum industry Similar to Oil, the sector aspires to grow the gas resource base aggressively to catalyze growth of the wider national economy. DEPARTMENT OF PETROLEUM RESOURCES 5 Sector Status: Oil and Gas Reserves Reserves @ 1/1/2013 Oil + Condensate 36.2 Blnbbl JV PSc Ind O Gas 182.8 Tscf -AG 92.6 -NAG 90.2 MFO Nigeria is a major oil and gas province. Petroleum accounts for 40% GDP, 80% of Government revenue and 95% Foreign Exchange earnings DEPARTMENT OF PETROLEUM RESOURCES 6 Sector Status: Oil and Gas Reserves For the first time in many years, Nigeria’s oil and gas reserves are on the decline Nigeria’s Oil & Gas Reserves 1956 to 2011 35,000 200,000 28,000 160,000 21,000 120,000 Oil, Condensate (MMstb) 14,000 Gas (Bscf) 80,000 7,000 40,000 0 0 Oil Condensate DEPARTMENT OF PETROLEUM RESOURCES Gas 7 Sector Status: Oil & Gas Production • Oil production 2.5 Mbopd • Gas production 8.0 Bcfd AG 5.20 Bcfd NAG 2.80 Bcfd • Gas utilization 6.6 Bcfd • Gas flared 1.4 Bcfd (Daily loss of US$4,900,000.00 at $3.50/1000scf) DEPARTMENT OF PETROLEUM RESOURCES 8 Oil & Gas Reform Philosophy § Re-position Nigeria's oil and gas industry to – foster a long-term sustainability of the sector – ensure greater efficiency and effectiveness § Formulate policies that promote competition § Review/update the legal/regulatory frameworks § Create strong & independent regulatory commission for the sector while making the Ministry of Petroleum Resources focus on policy formulation DEPARTMENT OF PETROLEUM RESOURCES Sector Reform Objectives - Oil § Sector reform priorities include: – Increase exploration activities and expand reserves – Formulation of a new National Oil and Gas Policy – Liberalisation of downstream petroleum sectors – Refocus and strengthen sector regulation – Establishment of an independent regulatory authority to oversee activities, limit FGN involvement in the sector to policy formulation and fiscal matters. – Increase Government take in line with international standard • However, industry will enjoy very competitive terms compared to other parts of the world. DEPARTMENT OF PETROLEUM RESOURCES Sector Reform Objectives - Gas § Monetize natural gas reserves and eliminate flaring § Greater private sector investment in gas production, transportation and distribution infrastructure § Increased direct utilization of gas in domestic industrial processes and power generation § Development of a new gas pricing methodology § Development of a fair and transparent fiscal regime § Creation of an independent National Gas Transportation Company by unbundling NGC § Creation of a new role for Network Operator DEPARTMENT OF PETROLEUM RESOURCES Gas Components and Value Chains Values Components Typical Products or Customers Methane (70-90%) Natural Gas Gas Exploration NGL = Natural Gas Liquids Ethane Propane Butane Gas Production & Processed LPG NGLs (0-20%) Pentanes and heavier fractions: C5+ Non Hydrocarbons - e.g. nitrogen, H2S, water, carbon dioxide, rare gases etc. Liquefaction I n f r a s t r u c t u r e Transmission Distribution Shipping Re -gasification DEPARTMENT OF PETROLEUM RESOURCES Chemical Conversion Gas to liquids Power Generation •Fertilizers •Petrochemicals •NGL Derivatives •Methanol •Ammonia & Urea •Aluminum •Steel •Cement •Middle distillates •Waxes •Households •LPG •CNG •SNG •Restaurants/Hotels •Light Industry •Heavy Industry 1 2 12 IMPACT OF PIB ON THE GAS VALUE CHAIN Gas Value Chain Gas Exploration and Production Gas Gathering and Processing Gas Transportation Gas Distribution and Marketing Pre 1990 Present Pre PIB Gas finds incidental to oil exploration Awakening interest on dedicated gas exploration Company focus on mature basin Encouraging Deep Drilling Inadequate Gas Gathering and Processing Infrastructure Years Pipelines owned and controlled by NGC Vibrant Gas Exploration and Production Industry Exploration for Gas in new frontier e.g Anambra , Benue Development of Central Processing Facilities Regional Gas Processing Hubs Development of LPG storage and supply infrastructure Wet gas will be treated for LPG/NGLs extraction Vibrant LPG sector Infrastructure Blueprint Development Suppliers/ Buyers Contractual Agreement Establishment of Strategic Gas Aggregator Limited Pipeline with Government as major owner Introduction of a National pipeline Network NEPA as major customer Future Post PIB Distribution limited to industries in the South DEPARTMENT OF PETROLEUM RESOURCES Market attains Full Liquidity– Gas from any source to any market Vibrant Gas Distribution Network Introduction of third Party Access Implementation of network code GAS VALUE CHAIN: OPPORTUNITIES AND CHALLENGES GAS VALUE CHAIN OPPORTUNITIES CHALLENGES Exploration and Production Increase in Exploration and Production activities will bring • Less attractive fiscal terms for investors in onshore and shallow water areas • Insufficient gas terms in existing PSC agreements • Gas prices too low to encourage investment in gas development § More Employment and Business Opportunities § More Revenue for Govt. Gathering and Processing Gas Infrastructure Blueprint Development § Investment Opportunities § Employment Opportunities § 3 Central Processing Facilities § LPG Storage/Supply Infrastructure • Inadequate Gathering and Processing infrastructure • Difficult terrain of the Niger Delta • Funding DEPARTMENT OF PETROLEUM RESOURCES 14 GAS VALUE CHAIN: OPPORTUNITIES AND CHALLENGES GAS VALUE CHAIN OPPORTUNITIES CHALLENGES Transmission Gas Infrastructure Blueprint Development § Investment Opportunities § 3 backbone pipelines - South to North pipeline - Western pipeline system - Interconnector pipeline § Other pipeline systems covering more than 2000 km § Compression facilities § Employment Opportunities • Funding • Difficult terrain of N. Delta • Poor collaboration among IOCs leading to suboptimal pipeline configuration Distribution and Marketing Gas based Industries and Power Plants Rehabilitation and Development § More than 20 IPPs § 3 Petrochemical Plants § 6 Fertilizer Plants • Underdeveloped Domestic Market • Inadequate pipeline infrastructure DEPARTMENT OF PETROLEUM RESOURCES 15 Downstream Gas Investment Opportunities Pipeline CNG LNG Natural Gas Gas to Liquids LPG Industries & Environment DEPARTMENT OF PETROLEUM RESOURCES Reform Implementation Progress § The gas sector reform is anchored on the Nigerian Gas Master Plan which is currently being implemented • Increased Gas Flare Penalty from 10 Naira to $3.50 per 1000scf • Introduced Domestic Gas Supply Obligation Regulation • Introduced Transitional Gas Pricing Regulation • Developed and Approved Gas Infrastructure Blueprint • Established Strategic Gas Aggregator • Developed a Gas Transmission Network Code • Initiated Gas Revolution to provide platform for industrialization • Undertook Investor Road Show to sensitize investors of available opportunities in the Gas Sector • Identified and allocated gas flare points to third party investors • Addressed commercial issues e.g. Revenue Securitization, Bankable Agreements, etc. to make the domestic gas market more attractive for investors DEPARTMENT OF PETROLEUM RESOURCES 17 Next Steps • Implementation of major gas grid infrastructure to enable delivery of gas to Power and other end users. Northern Option Pipeline construction in progress • Implementing the Commercial Framework for Gas • Put in place a transitional framework to facilitate gas access in the short to medium term, particularly for the power sector • Facilitate the passage of the Petroleum Industry Bill • Initiate Aggressive Gas Exploration to discover more gas reserves DEPARTMENT OF PETROLEUM RESOURCES 18 Conclusion The implementation of these reforms will strongly open up the Nigerian Oil and Gas Sector to new local and international investors for competitive growth and sustainable development in line with international best practices. In particular, when the PIB is passed into law, it will help in: § The creation of a modern petroleum legal framework § Alignment of the Nigerian Gas Sector to international best practice § Enhancement of transparency and an open framework § Establishing good governance practices and processes § Reinforcing linkages between the gas industry and other sectors of the Nigerian economy DEPARTMENT OF PETROLEUM RESOURCES Thank you DEPARTMENT OF PETROLEUM RESOURCES 20