Under the theme “The Decade of Gas and the PIA,” a high-level panel of Nigerian oil and gas stakeholders unpacked the new operating environment facing Africa’s oil giant.
With the final enactment of Nigeria’s new Petroleum Industry Act (PIA), the country’s bright future looks closer than ever, driven by renewed investments in its oil sector and massive growth in its gas industry. On Wednesday, Nigerian industry stakeholders came together to explore the opportunities and challenges facing the sector during “The Decade of Gas and PIA” Country Spotlight at African Energy Week 2022 in Cape Town.
Panelists included: Rolake Akinkugbe-Filani, Board Member, African Energy Chamber; Yemi Adetunji, Group Executive Director, Downstream, NNPC Ltd.; Dr. Justice Derefaka, Technical Adviser on Gas Business and Policy Implementation to the Minister of State for Petroleum Resources, Nigeria; Dr. Nosa Omorodion, Director National Companies, West Africa, Schlumberger; and Esueme Dan Kikile, Manager, Corporate Communications, Nigerian Content Development & Monitoring Board (NCDMB). The panel was moderated by Etienne Gabel, Senior Director, Global Power and Renewables at S&P Global.
Signed into law in August 2021, the PIA is one of the most significant legislative reforms shaping Nigeria’s oil and gas investment climate, consolidating several Nigerian petroleum laws into a single, transparent document, aimed at boosting oil and gas output, reducing and streamlining royalties, and enhancing the sector’s attractiveness to international investors. Prior to its implementation, it was estimated that Nigeria’s failure to adopt new oil and gas legislation was incurring $15 billion in lost investments in the country per year.
“In terms of the current state, there has been a retrenchment of capital from the Global North,” commented Rolake Akinkugbe-Filani, Board Member of the African Energy Chamber. “We need to look more inwards. What are we trying to fund? Gas infrastructure requires long-term investment, and depending on the path of the value chain, long-term supply and off-take contracts. Historically, there has been a reliance on DFIs.”
“As a business-friendly regulatory agency, we believe that the PIA brings regulatory stability, clarity and inclusiveness, particularly bringing in all stakeholders, including host communities, to be part of the process of managing oil and gas resources,” stated Esueme Dan Kikile, Manager, Corporate Communications, NCDMB.
Among its provisions, the PIA reforms the state-owned Nigerian National Petroleum Corporationinto a more modern, profit-driven, commercially-inclined national oil company (NOC), in line with the wave of NOC privatizations across the continent. Last August, the NNPC established new terms and conditions for six offshore licenses controlled by International Oil Companies, which are expected to bring substantial volumes of underutilized production to market between now and 2030.
“Previously, the NNPC was mainly focused on operations, but was also involved in some policy and regulation aspects. The PIA has clearly defined roles within the industry,” said Yemi Adetunji, Group Executive Director, Downstream, NNPC Ltd. “There is a role for policy – the Ministry of Petroleum Resources – and for regulation, and the NNPC is now solely focused on operations. As a Limited Liability Company, we also have the responsibility and obligation to ensure we render our accounts. We are a more nimble, more responsible and more responsive organization, declaring profits and dividends to our shareholders with transparency.”
“The plus side of the PIA is that there is now an upstream, midstream and downstream structure of the NNPC,” echoed Dr. Justice Derefaka, Technical Adviser on Gas Business and Policy Implementation to the Minister of State for Petroleum Resources, Nigeria. “That is a game-changer. When investors come to Nigeria, they need a sovereign guarantee. This restructuring allows the NNPC to invest in businesses.”
The PIA also makes provisions for gas monetization through a comprehensive framework for gas tariffs and delivery.Home to over 200 trillion cubic feet of proven, largely untapped gas reserves, Nigeria launched its “Decade of Gas” initiative in March 2021 in a bid to monetize its prolific natural gas reserves and fund its way through the global energy transition. Gas monetization has faced challenges owing to inadequate infrastructure and limited investment across upstream, midstream and downstream sectors.
“The idea behind the national gas policy is to move Nigeria from an oil-dependent country to a gas-based economy. This led to the government declaring the ‘Decade of Gas,’” noted Dr. Derefaka. “For quite some time, we have been dependent on crude oil. The truth is that we have little oil and a lot of gas. If upstream operators focus on gas, then we could become the fourth-largest gas producer globally.”
“There is a huge opportunity for downstream gas, particularly in terms of gas-processing and infrastructure,” reaffirmed Akinkugbe-Filani. “To expand the distribution value chain, those investments are seen as broadly more impactful from a value creation perspective. In the climate in which we are working, it can be difficult to raise funding for upstream oil and gas without demonstrating long-term value.”
“Regarding the ‘Decade of Gas,’ we believe that our mandate is to develop in-country capacities and ensure that more independents and local service companies are involved in exploration and its related services,” said Dan Kikile. “The NCDMB has a huge fund that we have also deployed, particularly in the gas space and have invested over $181 million in different oil and gas sector partnerships.”
To date, Nigeria has invested billions in its recent infrastructure drive, with megaprojects across the country seeing an influx of capital. This month, the NNPC signed four Memoranda of Understanding for the execution of the $25-billion Nigeria-Morocco Gas Pipeline, which could create new energy supplies for West Africa and Europe. Yet in addition to enhanced energy infrastructure, positioning Nigeria as global gas supplier to African and international markets will be contingent on driving the energy transition narrative, panelists stated.
“It is time to find how we can take a seat at the table about the conversation on the energy transition,” said Dr. Nosa Omorodion, Director of National Companies, West Africa, Schlumberger. “The conversation should be such that the technology exists today for decarbonization and to actually make gas efficient and stay around for a long time. It is important that those that own their resources do not take a backseat in the agenda of oil and gas.”
Upstream, Nigeria has placed an emphasis on the development of marginal fields, which represent an estimated 800 million barrels of oil and 4.5 trillion cubic feet of gas. While progress has been made in the development of Nigerian marginal fields to date, financial and technical factors still constrain activities for marginal field operators. Of the 24 fields awarded in the last auction, for example, only 13 are producing and the Federal Government revoked the 11 non-producing licenses. A lack of funding represents one of the primary constraints cited by Nigerian E&P companies, owing in part to the limited participation of the local banking sector.
“When it comes to marginal fields, there was a lot of hope around the rise of indigenous oil companies and independents,” noted Akinkugbe-Filani. “Fast-forward many years later, a significant portion of those marginal fields have been undeveloped… Now, we have a real opportunity – we are reaching a watershed moment – where IOCs globally are rethinking their strategies. There is a huge amount of stranded gas. There is a real opportunity for local players to rise up again.”