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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
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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
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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
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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
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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
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