WITH the imposition of a penalty of $3.50 per thousand standard cubic feet (SCF) of flared gas on defaulting companies, the Federal Government has taken a major step to encourage domestic utilisation of gas resources.
The measure came barely a week after the Nigerian Bar Association and the Niger Delta Development Commission (NDDC) jointly advocated a review of oil and gas laws, and the land Use Act as they affect ownership and participation on the industry.
In the meantime, there are indications that the management of Nigeria Liquefied Natural Gas (NLNG) may halt the construction of its seventh train while investors evaluate the new gas policy announced last March.
The new policy requires gas producers to allot part of their output to the domestic market, rather than exporting it.
The Director of the Department of Petroleum Resources (DPR), Mr. Tony Chukwueke, made the disclosure at the weekend while speaking on “Investment opportunities in a reformed Nigerian oil and gas Industry” at the just-concluded Offshore Technology Conference (OTC) in Houston, Texas, United States (U.S.).
Chukwueke, represented Nigeria’s Minister of State for Energy (Petroleum) Mr. Odein Ajumogobia.
He said the penalty follows implementation of a shift in policy focus from gas exports to domestic utilisation. According to him, the policy took effect from the April 1, this year.
“It is only this strategy that can develop gas for us at least for now. This way, producers are forced to look for third parties to utilise their flared gas, he stressed.
Asked if the government, through the Nigerian National Petroleum Corporation (NNPC) would not have to pay 60 per cent of such penalty in view of its equity holding in the upstream oil industry joint venture, Chukwueke said this was not the case.
He explained that when the on-going reform process was fully implemented, the NNPC would automatically become a commercially-driven operator devoid of the current government financial involvement.
He also disclosed that the Federal Executive Council had approved implementation of the Gas Master Plan. A consortium led by Centricca/Hydro has begun studies for construction of a national gas grid that would connect different parts of the country, he said.
The director explained that Ajumogobia, had to stay home in the aftermath of recent attacks on oil installations in the Niger Delta and the end of a strike by local workers in Exxon Mobil’s operations in the country.
The weeklong strike, launched April 24, disrupted 800,000 barrels a day of Exxon Mobil’s production.
Nigeria LNG officials said last week that the engineering, procurement and construction work on Train 7 Plus project, which was due to kick off mid-2008, might be delayed, waiting for the new gas policy to be analysed.
The policy, which has yet to be made a law, has raised concerns over the future of LNG projects in the country.
Nigeria holds Africa largest gas reserves and the seventh largest in the world.
Nigeria has a reserve of 184 trillion standard cubic feet of gas and of the two billion standard cubic feet of gas flared yearly, operators have only been able to utilise 40 per cent.
If more gas is channelled into domestic independent power plants, companies believe this could put pressure on export projects, including NLNG’s expansion plans and even more ambitious projects such as the Trans-Saharan gas pipeline, Brass LNG and OK LNG.
NLNG officials said the government would earn about $1 billion yearly in revenue from gas exports when Train 7 came on stream.
The train would have a capacity of about eight million mt/year, making it the largest single LNG train in the world and taking total capacity at the plant to nearly 30 million mt/year.
Construction of the train would generate about 10,000 jobs, they said. Based on the usual time taken for development, four years, it is expected to come on stream in 2012.
Italy’s Eni, the UK ‘s British Gas (BG) and France ‘s Total have already signed agreements to buy almost the entire planned production from the train. The gas will be delivered to the U.S. and Mexico .
International oil companies’ fears heightened by the Nigerian government’s proposal to impose sanctions on any company violating the new gas policy.
Chukwueke said Nigeria aimed to increase the share of energy jobs that go to its people to 70 per cent from 40 per cent in two years, while increasing output to four million barrels of oil per day from 2.8 million barrels.
To that end, the country is aggressively soliciting investment in refining and natural gas production as well as more oil operations onshore and offshore.
“We will try to move away from the errors of the past,” he stated.
In late 1980s and 1990s, a penalty of N100 per a thousand standard cubic feet of gas flared was introduced but it did not achieve the desired result because NNPC, was paying 60 per cent of the amount which largely came from federal coffers in the form of cost of operation since the corporation relied on the government for its financial obligation to the joint venture operations.
The NBA and NDDC had last week canvassed a new direction in the industry.
Another key issue also advanced by the NBA and NDDC was that the ownership and control of both offshore and onshore oil should be vested in communities with a proviso that they pay royalties to determined levels of government.
The views were contained in a joint statement endorsed by the First Vice President (NBA), Mr. Akuro George and Acting Director of Legal Services (NDDC) Mr. George Ero, at the end of a three-day conference on law, peace and Development in Port Harcourt.
The conference whose participants were drawn from the Presidency, National Assembly, federal and state governments, leadership of producing communities and oil and allied companies, recommended that a new mechanism be devised that would enable oil areas to participate in decisions concerning exploration and production as the current regime expropriates the rights of the people.
In the 25-point statement, the Federal Government was urged to embrace federalism and that all natural resources in the country should be treated in the same manner under the law.
It was also resolved that the status of law on ownership before the Land Use Act be reverted to and where that is not immediately feasible, land used for petroleum activities be converted as equity contribution as against paying pittance as compensation.
Concerning the withheld NDDC funds, it was resolved that the Federal Government should not only release the money but that further steps should be taken to amend the NDDC Act to deal with constraints in funding and to specially include all companies involved in all aspects of oil and gas enterprise within the funding arrangement and with appropriate sanctions against defaulting companies.
The conference recommended that government should ensure that oil companies be held responsible for every negative impact of all their operations in the region in accordance with the polluter pays principle.
The government was urged to make adequate laws governing corporate social responsibility.
A proposal was made for the establishment of a Niger Delta Finance Corporation to primarily fund infrastructural and entrepreneurial development in the region. Government was also urged to place more emphasis on human capital development in the region.
The sincerity of the governments of the nine oil-producing states, according to the conference, is crucial to achieving the development aspirations of their people.