1. Overview of Natural Gas Sector
1.1 A brief outline of your jurisdiction’s natural gas sector, including a general description of: natural gas reserves; natural gas production including the extent to which production is associated or non-associated natural gas; import and export of natural gas, including liquefied natural gas (LNG) liquefaction and export facilities, and/or receiving and re-gasification facilities (“LNG facilities”); natural gas pipeline transportation and distribution/transmission network; natural gas storage; and commodity sales and trading.
Nigeria has the world’s ninth largest, and Africa’s largest, natural gas reserve, with a current reserve estimated at over 180 trillion cubic feet (TCF) of associated and non-associated gas. Nigeria’s natural gas reserves are largely unexploited. 2,905.59 billion cubic feet (BCF) of natural gas was produced between the months of August 2016 and August 2017. The Government has also been able to curb gas flaring from 65% to 25%.
The gas sector is made up of the upstream sector, comprising exploration, drilling and production of natural gas, a midstream sector comprising transportation, and refinery of gas, as well as a downstream sector comprising the importation, storage and distribution of gas products.
The main type of gas exported in Nigeria is liquefied natural gas (LNG). The Nigeria Liquefied Natural Gas Limited (NLNG) (Nigeria’s only operating LNG company) has six trains and is building the seventh. NLNG also has four LNG storage tanks, each with a capacity of 84,200 cubic metres, four LPG refrigerated storage tanks, each with a capacity of 65,000 cubic metres (two each for propane and butane).
Other major LNG projects in different stages of development include the $20 billion Brass LNG and the $7 billion OKLNG project which are both facing challenges at the moment.
Apart from the export of LNG, pipeline gas is being exported through the West African Gas Pipeline (WAGP) to countries in West Africa such as Togo, Benin Republic and Ghana.
The Nigerian Gas Company (NGC), a subsidiary of the Nigerian National Petroleum Corporation (NNPC), is responsible for gas transmission in Nigeria through an unintegrated gas pipeline network. Current pipeline infrastructure comprises basically of two unintegrated pipeline networks totalling approximately 1,100 km: the Alakiri-Obigbo-Ikot Abasi Pipeline, (the Eastern Network); the 560 km Escravos-Lagos Pipeline System (ELPS), (the Western Network); dedicated pipeline infrastructure owned by the NLNG; and the NNPC/SPDC/Total Joint Venture. Also, the WAGP which connects from Lagos to Benin and Ghana. There are also local distribution companies such as Gaslink Limited and Shell Nigeria Gas, which distribute natural gas to major industrial areas in the western and eastern parts of Nigeria.
The National Gas Policy (NGP) was passed in June 2017. The NGP focuses on attracting investors into the gas industry and prioritising local gas demand requirements. It prescribes gas infrastructure ownership, operation and trading.
1.2 To what extent are your jurisdiction’s energy requirements met using natural gas (including LNG)?
The types of energy used in Nigeria are oil, natural gas, coal and lignite, tar sands, biomass, hydropower, solar and wind. There are no official public statistics showing the percentage of energy required to meet Nigeria’s needs.
It is estimated that 34% of the country’s energy requirements are met with natural gas mostly for industrial use. Other demands on the use of Nigeria’s gas are for domestic power generation, domestic utilities, fertiliser and petrochemical industries, as well as export.
According to the NNPC, 57.8% of the average daily gas produced was commercialised while 42.17% was for domestic use, such as upstream fuel gas.
1.3 To what extent are your jurisdiction’s natural gas requirements met through domestic natural gas production?
All of Nigeria’s natural gas requirements are met through domestic production. According to the NNPC, 2,905.59 BCF of natural gas amounting to an average of 7,338.35 million standard cubic feet per day (MMSCFD) were produced between the months of August 2016 to August 2017. In March 2017, a total of 101.07 BCF of gas was exported, while 34.38 BCF was supplied to the nation’s power sector, industries and households. The gas market has grown at a rate of 3.1% yearly and just about keeps up with the national population growth of 2.8% according to the World Bank. Therefore, Nigeria does not import natural gas.
1.4 To what extent is your jurisdiction’s natural gas production exported (pipeline or LNG)?
A large fraction of Nigeria’s LNG output is exported. Its major export partners include Spain, Japan, India, France, Portugal, and Brazil, amongst many other countries.
Gas is also exported through the WAGP which supplies gas from the Escravos region in the South-South region of Nigeria to neighbouring West African States. The Trans-Saharan Pipeline is an ongoing project with an estimated length of 4,400 km. The project is expected to span 1,037 km in Nigeria, 853 km in Niger and 2,310 km in Algeria. The project is the brainchild of the Nigerian and Algerian Governments with a view to connecting Nigerian gas supply with the Algerian market, and possibly onwards towards broader Europe.
2. Overview of Oil Sector
2.1 Please provide a brief outline of your jurisdiction’s oil sector.
The Nigerian petroleum industry is the largest in Africa. The oil sector is vested in the Federal Government of Nigeria by virtue of the Constitution. The Nigerian National Petroleum Corporation Act empowers the NNPC to engage in all commercial activities relating to the petroleum sector and to enforce all regulatory measures. Over 94% of the country’s crude oil production is derived from joint ventures between NNPC and multinational companies.
The oil sector consists of: upstream ventures which encompass exploration, oil production, and crude oil marketing; midstream ventures which encompasses refining of crude oil, transportation and importation; and a downstream venture which encompasses retail services, distribution, research and development and investment opportunities.
2.2 To what extent are your jurisdiction’s energy requirements met using oil?
There is no official public record showing the percentage of oil used to meet the country’s energy requirements. According to the NNPC, an estimated 477.41 million litres of various petroleum products was distributed to the Nigerian market in May 2016.
2.3 To what extent are your jurisdiction’s oil requirements met through domestic oil production?
Crude oil is not imported into Nigeria. However, a small percentage of production can only be refined domestically as refining capacity is very low and barely enough to meet local demand. As such, Nigeria relies heavily on refined fuel importation.
2.4 To what extent is your jurisdiction’s oil production exported?
According to the most recent data supplied by the NNPC, the Government’s participatory vehicle in oil and gas activity, Nigeria exported approx. 645,435,248 barrels of crude oil in 2016. Major buyers of Nigeria’s crude oil (as at 2016) include India, the United States, Spain, France, Indonesia and many others.
3. Development of Oil and Natural Gas
3.1 Outline broadly the legal/statutory and organisational framework for the exploration and production (“development”) of oil and natural gas reserves including: principal legislation; in whom the State’s mineral rights to oil and natural gas are vested; Government authority or authorities responsible for the regulation of oil and natural gas development; and current major initiatives or policies of the Government (if any) in relation to oil and natural gas development.
The primary piece of legislation governing the exploration and production of oil and natural gas is the Petroleum Act (Laws of the Federal Republic of Nigeria (LFN)) 2004. The Act governs and regulates the exploration, production and distribution of petroleum and petroleum products in Nigeria. Under the Act, the entire ownership and control of all petroleum in Nigeria, under Nigeria’s territorial waters or in lands that form part of Nigeria’s continental shelf or part of Nigeria’s Exclusive Economic Zones, is vested in the State.
The act also gives the Minister of Petroleum Resources broad powers to:
1. Grant the necessary licences required for oil exploration, oil prospecting and oil mining activities.
2. Grant licences for petroleum refining, importation, storage and sale services.
3. Exercise the right of pre-emption of all petroleum and petroleum products in the event of a state of national emergency or war.
4. Fix the prices at which petroleum products may be sold in Nigeria.
Other extant legislation includes:
1. Deep Offshore and Inland Basin Production Sharing Contracts Act.
2. Nigerian Oil and Gas Industry Content Development Act 2010.
3. Petroleum Profits Tax Act.
4. Associated Gas Re-Injection Act.
The relevant authorities that regulate and govern the sector are:
1. The Federal Ministry of Petroleum Resources.
2. Nigerian National Petroleum Resources (NNPC).
3. Department of Petroleum Resources (DPR).
4. Petroleum Products Pricing Regulatory Agency (PPPRA).
5. Federal Ministry of Environment (FMoE).
6. Nigerian Content Development and Monitoring Board (NCDMB).
The National Gas Policy (NGP) was passed on 28 June 2017 by the Federal Executive Council (FEC). The policy was a response to a number of shortcomings documented in the 2008 Gas Master Plan (GMP). The new policy seeks to address these identified shortcomings and build on its successes in attracting the needed private-sector investment and involvement in building infrastructure and developing a robust and complete gas market.
The NGP articulates the vision, goals and strategies of the Federal Government of Nigeria and spells out an implementation plan for the introduction of an appropriate institutional, legal, regulatory and commercial framework for the gas sector. It is aimed at removing the barriers trifling investment and the development of the sector. The NGP also details the Government’s commitment to abide by the policy’s provisions unless and until reviewed or replaced by a formal restatement of policy.
Recent initiatives also include commitment and effort from the Government in overhauling older oil and gas policies. The Government has recently publicly commented on a current policy, already drafted by the FEC, looking at creating a market-driven oil and gas industry and maximising the production and processing of hydrocarbons. The Federal Executive Council of Nigeria, in July 2017, approved a National Petroleum Policy. This policy ‘articulates a vision for the petroleum (specifically oil) sector and sets policy goals, strategies and implementation plans for the introduction of an appropriate institutional, legal, regulatory and commercial framework to resolve the barriers currently affecting investment in the sector’. There is also the ‘7 Big Wins’ initiative developed by the Ministry of Petroleum Resources and the National Economic Recovery & Growth Plan (ERGP 2017–2020).
3.2 How are the State’s mineral rights to develop oil and natural gas reserves transferred to investors or companies (“participants”) (e.g. licence, concession, service contract, contractual rights under Production Sharing Agreement?) and what is the legal status of those rights or interests under domestic law?
The State’s mineral rights to develop oil and gas reserves are transferred through the statutory instruments of Oil Exploration Licences (OELs), Oil Prospecting Licences (OPLs), and Oil Mining Licences (OMLs) by the Minister of Petroleum Resources through the DPR. Under statutory provisions, OEL holders do not have any exclusive rights over the area of the granted licence. Equally important to note is that the grant of an OEL over a particular area does not preclude the grant of another OEL or an OPL or an OML over the same area.
The aforementioned licences are held by companies under the agreement and operating structure of a Production Sharing Contract (PSCs) with the NNPC. PSCs were introduced in 1993 as a response to the ineffective Joint Venture Agreement (JVA) regime which was fraught with poor funding and the inability of the Nigerian Government party to meet its cash call obligations. The PSCs are governed under the provisions of the Deep Offshore and Basin Production Sharing Contracts Act. Beyond the contracts, the act also spells out provisions for the determination of profits tax, investment tax credits and tax allowances.
3.3 If different authorisations are issued in respect of different stages of development (e.g., exploration appraisal or production arrangements), please specify those authorisations and briefly summarise the most important (standard) terms (such as term/duration, scope of rights, expenditure obligations).
An OEL is usually granted to oil companies to explore for petroleum over a specified area spelt out in the licence. The licence does not confer any exclusive rights over the licensed area and does not preclude the grant of another oil exploration or mining licence over the same area. The licence terminates on 31 December following the date the licence was granted but has the option of renewal for an extra year regardless.
An OPL is equally granted to the holder for a period not exceeding five years. Upon successful prospecting, an OML may be granted to a holder who has satisfied all the conditions imposed on the licence and discovered oil in commercial quantities. The OML is valid for a period not exceeding 20 years but can be renewed upon expiration. However, OPLs and OMLs for exploration and production activities in Deep Offshore Areas and Inland Basins have a duration between five and 10 years.
3.4 To what extent, if any, does the State have an ownership interest, or seek to participate, in the development of oil and natural gas reserves (whether as a matter of law or policy)?
The Petroleum Act vests ownership interests in oil reserves with the Federal Government and it participates in industry-wide activity through the NNPC, a state-owned business entity. The Minister of Petroleum Resources usually grants concession rights via OPLs and OMLs to oil companies who negotiate and enter into PSCs with the NNPC. PSCs are convenient for the Government because they offer a revenue-stream while removing the burden of cash calls. The Government is usually entitled, via contract, to production minus cost and profit quantified in the production to the holder of the OPL and the OML in the form of crude oil with no additional cost to the Government.
3.5 How does the State derive value from oil and natural gas development (e.g. royalty, share of production, taxes)?
The Federal Government derives value from oil and natural gas development through its receipt of taxes, royalties, depot fees and its share (as an exploration and production partner in PSCs) in eventual profits. The Government also earns revenue from penalties charged for gas flaring.
Royalty rates are typically set as a percentage of value of the oil produced and the size of the licensed area of production. Royalty rates for oil production range from 0% in deep offshore areas to 20% in offshore areas. Royalty rates for gas production range from 5% for operations in offshore areas to 7% for operations in onshore areas.
The relevant range of tax rates for exploration and production companies is 65.75% to 85%.
Chargeable rents on the different licences are:
1. $10 per square mile for OPL holders.
2. $20 per square km for OML holders for the first 10 years.
3. $15 per square km after the first 10 years of an OML licence.
Oil and gas companies alike are subject to a development levy set at 3% of their annual budgets. This tax is payable to the Niger-Delta Development Commission.
An Education Tax of 2% is also levied on the assessable profits of oil and gas companies.
3.6 Are there any restrictions on the export of production?
Gas-producing companies in Nigeria are mandated by the Domestic Supply Obligation (DSO) regime, under the National Domestic Gas Supply and Pricing Regulations (2008), to fulfil a domestic supply quota before exporting the remainder of their production output.
There are no known restrictions on the exportation of crude oil. However, exporters require a petroleum products export clearance permit pursuant to certain guidelines and laid down procedures.
3.7 Are there any currency exchange restrictions, or restrictions on the transfer of funds derived from production out of the jurisdiction?
The Pre-Shipment of Inspection of Exports Act and The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act mandates all exporters, including petroleum producers, to open, maintain and operate a foreign currency domiciliary account in Nigeria where export proceeds from sold crude oil will be paid into.
The Nigerian Oil and Gas Industry Content Development Act equally mandates oil exploration and production companies to maintain a domiciliary account in Nigeria where at least 10% of their income from their Nigerian operations will be retained.
A bill seeking to repeal the current Foreign Exchange Act has passed second reading in Nigeria’s House of Representatives. If passed into the law, it will require oil companies to repatriate the proceeds of their exports within a specified period of time and under spelt-out conditions as determined by the Central Bank of Nigeria (CBN).
3.8 What restrictions (if any) apply to the transfer or disposal of oil and natural gas development rights or interests?
Without the prior consent of the Minister of Petroleum Resources, no holder of an OPL or OML can transfer or assign their licence to a new holder.
Also, a licensee cannot transfer OPL or OML to a foreign company, the company has to be incorporated in Nigeria or have Nigerians as majority shareholders and also seek consent of the Minister.
3.9 Are participants obliged to provide any security or guarantees in relation to oil and natural gas development?
Oil companies looking to explore and develop in Nigerian fields are usually required to provide evidence of their financial status and technical competence. They are also required to provide evidence of their ability to market any petroleum produced and details of their annual expenditure which they are prepared to make on the licensed areas.
3.10 Can rights to develop oil and natural gas reserves granted to a participant be pledged for security, or booked for accounting purposes under domestic law?
The pledging of OMLs and OPLs as security for a loan would traditionally fall under the definition of transactions that may require consent from the Minister of Petroleum Resources. There are no accounting or financial reporting restrictions in booking these licences.
3.11 In addition to those rights/authorisations required to explore for and produce oil and natural gas, what other principal Government authorisations are required to develop oil and natural gas reserves (e.g. environmental, occupational health and safety) and from whom are these authorisations to be obtained?
The Nigerian Oil and Gas Industry Content Development Act 2010 (the Local Content Act) require companies bidding for licences to submit a Nigerian Content Plan for their Nigerian operations. This plan is mandated by law to make a number of spelt-out provisions that ensure first consideration will be provided to goods and services provided by Nigerian companies and Nigerian talent will be given first consideration for training and employment by the oil company in question. The plan is usually approved and authorised by the Nigerian Content Development and Monitoring Board (NCDMB).
The Environmental Impact Assessment Act requires companies involved in projects that might impact the environment to draft an Environmental Impact Assessment report that details the project’s potential environmental impact and the company’s plan for prevention and mitigation. These reports are usually sent to and approved by the FMoE.
Oil companies are also required by the Environmental Guidelines and Standards for the Petroleum Industry in Nigeria to produce Environmental Impact Assessment reports for the approval and authorisation of the DPR.
Production and exploration activities also require permits for all point sources (existing and new) of effluent discharges (air, water and solid).
3.12 Is there any legislation or framework relating to the abandonment or decommissioning of physical structures used in oil and natural gas development? If so, what are the principal features/requirements of the legislation?
The Petroleum Act and the Oil Pipelines Act make provisions for the abandonment and decommissioning of existing wells.
The decommissioning of oil and gas facilities and pipelines is regulated by the following:
■ The Petroleum (Drilling & Production) Regulations.
■ The Oil and Gas Pipelines Regulations.
■ Individual PSCs.
Abandonment is regulated by the Petroleum (Drilling & Production) Regulations. The plugging or abandonment of a well may only be done with the written permission of the Director of the DPR. The Director of the DPR may direct that no borehole or well may be plugged, or no work may be executed, except in the presence of an officer of the Minister of Mines, Power and Steel. An abandoned borehole or well may only be re-drilled with the written permission of the Director of the DPR.
The holder of the OPL or OML is primarily responsible for all decommissioning costs. Under PSCs, the PSC contractor is required to provide a letter of credit or bank guarantee as security for pre-estimated decommissioning costs. Alternatively, the PSC contractor may be required to set aside a decommissioning fund in an interest-bearing escrow account.
3.13 Is there any legislation or framework relating to gas storage? If so, what are the principal features/requirements of the legislation?
The Petroleum Act, the Oil Pipelines Act and the Environmental Impact Assessment Act are the key pieces of legislation that govern gas storage activities in Nigeria. The provisions of these laws are administered by the Federal Ministry of Petroleum Resources, the DPR, and the FMoE.
The DPR provides licensing for the construction and operation of natural gas storage facilities. In addition to an application for a storage permit, an Environmental Impact Assessment would have to be carried out and the FMoE has to issue an Environmental Impact Assessment report.
3.14 Are there any laws or regulations that deal specifically with the exploration and production of unconventional oil and gas resources? If so, what are their key features?
The Petroleum (Drilling and Production) Regulations require operators to use approved methods and practices acceptable to the DPR. However, the regulations only make provision for conventional drilling via the oil-well method. As such, there are no laws/regulations bespoke to unconventional methods and resources. In practice, there has been no reported activity in shale oil exploration.
4. Import / Export of Natural Gas (including LNG)
4.1 Outline any regulatory requirements, or specific terms, limitations or rules applying in respect of cross-border sales or deliveries of natural gas (including LNG).
Under the National Gas Supply and Pricing Regulations, gas producers are required to submit a gas production and supply plan to the Department of Gas Resources, a unit under the Federal Ministry of Petroleum Resources. This requirement is covered under their Domestic Gas Supply Obligation tasking them with dedicating a specific volume of gas towards the domestic market (as spelt out by the Domestic Gas Demand Requirement). Gas companies could be stopped from exporting gas in the event of refusal or non-compliance.
Beyond the aforementioned requirements, there are no specific laws for cross-border sales or deliveries of natural gas. As such, buyer-seller transactions are usually governed by contracts just like any other international commercial transaction.
5. Import / Export of Oil
5.1 Outline any regulatory requirements, or specific terms, limitations or rules applying in respect of cross-border sales or deliveries of oil and oil products.
The Oil Terminal Dues Act provides for the levying and payment of terminal dues on ships evacuating crude oil from terminals. It also provides restrictions against the installation and operation of oil terminals without a licence and the express approval of the Minister of Petroleum Resources.
The Oil in Navigable Waters Act is the legislation implementing the International Convention for the Prevention of Pollution of the Sea by Oil in Nigeria’s navigable waters. It provides for prevention and compliance and outlines penalties for non-compliance. Key aspects include equipment in ships to prevent oil pollution, record keeping of matters related to oil and restrictions on the transfer of oil from vessels.
Oil exporters are also required to have an export permit issued by the Federal Ministry of Petroleum Resources, through the DPR and the Federal Ministry of Trade and Investment.
The Pre-Shipment Inspection of Exports Act requires goods to be inspected and a Clean Certificate of Inspection issued to the overseas buyer of the goods before they can be exported.
Oil exporters will also require export permits issued by the NNPC, through the DPR and the Federal Ministry of Trade and Investment.
6.1 Outline broadly the ownership, organisational and regulatory framework in relation to transportation pipelines and associated infrastructure (such as natural gas processing and storage facilities).
The pipelines, infrastructure and gas processing facilities are owned by the NGC, the NNPC and other individuals in the upstream sectors.
The flexible deployment of gas to domestic and export markets is strictly overseen by the Nigerian NGP. The NGP is currently discussing a new National Gas Infrastructure Blueprint proposed to cover the new gas transportation links, alternative gas transportation options and infrastructure. The updated blueprint, when made available to the public, will identify resources, resource clusters, critical infrastructures, prioritise developments and demarcate the layout for transportation by road, rail and barge.
In terms of the regulatory framework on natural gas transportation, the Oil Pipelines Act regulates the construction, operation and maintenance of gas pipelines and associated infrastructure and the Petroleum Act. These laws are implemented by the DPR.
6.2 What governmental authorisations (including any applicable environmental authorisations) are required to construct and operate oil and natural gas transportation pipelines and associated infrastructure?
The Governmental authorisation required for the construction and operation of oil and natural gas transportation is the acquisition of a permit survey issued by the DPR for a proposed gas pipeline and an OPL. This requirement is enshrined in S.3 of the Pipelines Act (2004). The oil pipeline licence gives the holder the right to construct, maintain and operate a gas pipeline. It also entitles the owner the right to construct, maintain, operate and manage installations that are ancillary to the construction, maintenance and operation of said pipeline, i.e. pumping stations, storage tanks and loading terminal.
Further to the above, S.3 of the Petroleum Act stipulates that before any individual or company can operate gas-processing facilities, they must have acquired a licence to construct and operate a refinery from the DPR.
Equally required is the acquisition of an approved Environmental Impact Assessment by the FMoE for the construction and operation of any natural gas transportation and storage facilities.
6.3 In general, how does an entity obtain the necessary land (or other) rights to construct oil and natural gas transportation pipelines or associated infrastructure? Do Government authorities have any powers of compulsory acquisition to facilitate land access?
Under the provisions of S.21 of the Petroleum Act, the right to use land for the purpose of a gas pipeline is included in the grant of an OPL. This licence confers on the holder the right to enter upon the land, take possession of, or use a strip of land of such width as specified in the licence upon the route specified in the licence.
In relation to the Government’s right to acquire land, S.28 of the Land Use Act dictates the utilisation of any identified land for the construction of gas pipelines as an act which overrides public interest for which the Government may compulsorily acquire the same subject to the payment of compensation to the owner or occupier of the land.
6.4 How is access to oil and natural gas transportation pipelines and associated infrastructure organised?
Under the Oil Pipelines Act (2004), access to oil and natural gas transportation pipelines and their associated infrastructure is made by an application to the Minister of Petroleum Resources. The Minister is charged with considering and deliberating with other applicants and interested parties before granting the application. The Minister only grants this application after ascertaining that the pipeline would conveniently transport and convey the substance dictated by the applicant. The interested parties equally reach an agreement as to the obligations of each party in relation to the access to be granted.
6.5 To what degree are oil and natural gas transportation pipelines integrated or interconnected, and how is co-operation between different transportation systems established and regulated?
There is currently no integration or interconnection between the different systems of oil and natural gas transportation in Nigeria. However, it is presumed that after the implementation of the gas infrastructure blueprint, the transportation pipelines will be interconnected. For now, the internal pipelines transportation systems are keenly regulated by the DPR and the Federal Ministry of Industry, Trade and Investment.
6.6 Outline any third-party access regime/rights in respect of oil and natural gas transportation and associated infrastructure. For example, can the regulator or a new customer wishing to transport oil or natural gas compel or require the operator/owner of an oil or natural gas transportation pipeline or associated infrastructure to grant capacity or expand its facilities in order to accommodate the new customer? If so, how are the costs (including costs of interconnection, capacity reservation or facility expansions) allocated?
S.18 of the Oil Pipelines Act provides for the grant of third-party access rights subject to the approval of the Petroleum Minister. The party seeking said access has to make an application to the Minister in respect to the licence granted to another person. The Minister is required to consider the application and consult with the parties before approving the application.
The parties are meant to agree to terms and conditions for the effective usage of the pipelines failing which the Minister would determine same.
6.7 Are parties free to agree the terms upon which oil or natural gas is to be transported or are the terms (including costs/tariffs which may be charged) regulated?
Parties are free to determine the terms upon which natural gas is to be transported. Parties usually enter into a Gas Transportation Agreement (GTA). The GTA may include tariffs, terms, and delivery points. However, the NGC has fixed the tariff for the transportation of gas to boost the power sector and domestic utilisation of gas.
7. Gas Transmission / Distribution
7.1 Outline broadly the ownership, organisational and regulatory framework in relation to the natural gas transmission/distribution network.
The NGC operates and owns the main gas pipelines transmission in Nigeria. This includes the Escraavos-Lagos pipeline system (ELPS) also known as the Western network and the Alikiri-obigbo-Ikot Abasi Pipeline also known as the Eastern Network. The NGC has granted distribution licences to local distribution companies such as Gasoline Nigeria Limited. The NGC also exports natural gas to the West African region through the WAGP.
In 2016, the NGC was split into two for effective participation in the emerging gas market. They are, the Nigerian Gas Processing and Transmission Company (NGPTC), which is responsible for the construction and enlargment in the capacity of the Escravos-Lagos pipeline, the construction of the Obiafu-obrikom-oben (OB3) gas pipeline and the investment decision regarding the Ajaokuta-Kano-Kaduna gas pipeline project. The Nigerian Gas Marketing Company (NGMC) is responsible for marketing gas molecules. The NLNG owns the other transmission pipelines.
The Nigerian Government, on 28 June 2017, approved the National Gas Policy. The NGP is a fundamental review of the policy stance of the Government for over a decade in respect of Nigeria’s gas resources. It particularly addresses the defect of the 2008 GMP in attracting private sector investment for building and developing a mature domestic gas market by the target year of 2015, coupled with the Government’s resolves of achieving its policy goals for the gas sector under the Minister of Petroleum Resources.
7.2 What governmental authorisations (including any applicable environmental authorisations) are required to operate a distribution network?
The Minister of Petroleum Resources acting through the DPR is responsible for determining the policies governing the production, distribution, transmission and supply of natural gas. The Department of Gas (created by the Minister of Petroleum Resources) regulates the supply of gas to the domestic market while the FMoE has environmental responsibility over the production, transmission, distribution and supply of natural gas.
7.3 How is access to the natural gas distribution network organised?
S.18 of the Oil Pipelines Act stipulates how to obtain access to natural gas distribution network by making an application to the Minister of Petroleum Resources for a right to access the distribution network constructed, maintained or owned by another person. The Minister considers both applications before granting an approval.
7.4 Can the regulator require a distributor to grant capacity or expand its system in order to accommodate new customers?
There is no legal or regulatory framework that gives the regulator a right to compel a distributor to grant capacity or expand its system in order to accommodate new customers. The Minister can only grant access according to the terms and conditions determined by the parties.
7.5 What fees are charged for accessing the distribution network, and are these fees regulated?
The fees charged for accessing the distribution network are based on the terms and conditions of the agreement between the parties. The Minister may determine the fees if the parties fail to reach an agreement subject to the overall taxation regulation of the oil and gas sector.
7.6 Are there any restrictions or limitations in relation to acquiring an interest in a gas utility, or the transfer of assets forming part of the distribution network (whether directly or indirectly)?
There are no restrictions or limitations directly or indirectly affecting the acquisition of interest in gas utility or the transfer of assets that form part of a distribution network. The consent of the Minister is only needed where there is a change of ownership or control or the interests relate to acquisition. The approval of the Securities and Exchange Commission (SEC) may be required depending on the value of the transaction.
8. Natural Gas Trading
8.1 Outline broadly the ownership, organisational and regulatory framework in relation to natural gas trading. Please include details of current major initiatives or policies of the Government or regulator (if any) relating to natural gas trading.
The natural gas trading framework is run by the NGC due to its ownership of the transmission infrastructure. It acts as a gas merchant in Nigeria. The NGC formed distribution zones and grants franchises to private companies for the distribution of gas within the local distribution zones.
In accordance with the National Domestic Gas Supply and Pricing Regulation, local supply of gas is coordinated by the Gas Aggregation Company of Nigeria Limited. The Department of Gas allots a domestic gas supply commitment to persons licensed to produce petroleum and directs them to make an explicit volume of gas available to the Nigerian Domestic Market.
A purchaser is required to apply to the strategic appreciator for the purchase of gas. The strategic aggregator is required to conduct due diligence on the purchaser and if satisfied, will issue a Gas Purchase Order (GPO) to the purchaser. The GPO will specify to the supplier the required gas, quantity, price, delivery schedule and revenue due to the gas supplier.
8.2 What range of natural gas commodities can be traded? For example, can only “bundled” products (i.e., the natural gas commodity and the distribution thereof) be traded?
Natural gas commodities are mostly sold to customers as bundled products. However, the NGP has a framework for the unbundling of natural gas trade. The NGP states that regulations will be issued to separate supply, transmission, distribution, pipeline ownership and network operation activities.
9. Liquefied Natural Gas
9.1 Outline broadly the ownership, organisational and regulatory framework in relation to LNG facilities.
The NLNG is the only company that produces LNG in Nigeria. It is owned jointly by the NNPC, Shell Gas, Total Liquefied Natural Gas and Eni International in the following proportions – 49%, 25.6%, 15% and 10.4% respectively.
It owns a dedicated gas transmission system and liquefaction facility and a fleet of LNG vessels through a subsidiary company. Other proposed LNG projects include the Brass LNG and the Olokola LNG projects.
The NLNG’s activities are regulated under the Petroleum Act and its subsidiary regulations, which include petroleum refining regulations. LNG export is regulated by the Nigerian Ports Authority Act, Oil Terminals Act, Foreign Exchange (Monitoring & Miscellaneous Provisions) Act, Customs and Excise Act and Foreign Exchange Manual.
9.2 What governmental authorisations are required to construct and operate LNG facilities?
Environmental Impact Assessment is compulsory for the construction and operation of LNG facilities. This is issued by the FMoE.
The licence to construct and operate an LNG plant is issued by the Minister upon recommendation by the DPR. Approval for plant design specifications, purpose and location is granted by the Minister upon recommendation by the DPR. Equally, a licence to store LNG on site ought to be obtained from the Minister.
The DPR issues a permit/licence to survey gas and construct and operate pipeline routes under the Oil Pipelines Act. However, a licence to establish an oil terminal site is issued by the Minister of Petroleum Resources. Industrial waste discharge/disposal permits are also issued by the DPR.
Upon completion, the applicant shall submit an application and fees for the application to the DPR informing the Minister of Mechanical Completion and requesting an inspection. An inspection of the completed plant will be conducted by a team of DPR officials.
9.3 Is there any regulation of the price or terms of service in the LNG sector?
There is no regulation of price and terms of service in the sector. They are subject to contractual terms and international market forces.
9.4 Outline any third-party access regime/rights in respect of LNG facilities.
S.18 of the Oil Pipelines Act provides that any third party seeking access to an oil and natural gas transportation and other associated infrastructure must make an application to the Minister in respect of the licence granted to another party. The Minister is equally expected to discuss with both parties and if satisfied that the substance which the third party intends to transport can be conveniently transported, the application will then be granted.
10. Downstream Oil
10.1 Outline broadly the regulatory framework in relation to the downstream oil sector.
Petroleum is imported into Nigeria through prescribed ports upon obtaining a waiver from the Director of Customs. Under the provisions of the Petroleum Act and Downstream Petroleum Regulations, an application must be made to the Director of Customs stipulating the quantity and kind of petroleum to be imported before a waiver is granted. Equally, the transportation of petroleum products within Nigeria is regulated by the Petroleum Act and Regulations which prohibit the transportation of bulk petroleum without a licence.
Additionally, the DPR regulates the importation of refined petroleum products through its Guidelines for the Importation of Petroleum Products into Nigeria, which makes it mandatory for anyone wishing to engage in the business of importation of refined petroleum products to obtain an import permit. Further, all facilities for the storage of imported petroleum products must be inspected by the DPR prior to licensing. The facilities must meet the specification for the storage of classes of petroleum products.
The PPPRA is responsible for determining the prices at which petroleum products would be sold. In setting the prices of petroleum products, the PPPRA adopts a products pricing template (daily and monthly) which is a pricing information sheet detailing the components used in deriving the PPPRA daily/monthly guiding products prices. The key components considered by the PPPRA include the import parity principle, landing cost of petroleum products, the margins for the marketers, dealers, and transporters, jetty-depot through-put and other charges and taxes.
10.2 Outline broadly the ownership, organisation and regulatory framework in relation to oil trading.
The JVA or the Profit Sharing Agreement (PSA) entered into by the operators is what determines the oil trading framework. These agreements specify the valuation, lifting, allocation and marketing of crude oil produced from a licensed area. The NNPC crude oil entitlement involves bids for crude oil sale and purchase term contracts by consumers.
11.1 Which governmental authority or authorities are responsible for the regulation of competition aspects, or anti-competitive practices, in the oil and natural gas sector?
There is no specific competition law for the oil and gas industry. Nigeria is yet to have a general law on competition due to monopolisation of certain commercial industries such as electricity, petroleum, etc. by the Government. However, recent privatisation of these industries has prompted the Federal Competition Commission Bill (FCC) which is pending before the Senate.
Presently, the SEC is empowered by the Investment and Securities Act (ISA) to regulate mergers & acquisitions and takeovers to curtail proposed transactions which might prevent or lessen competition in the market.
11.2 To what criteria does the regulator have regard in determining whether conduct is anti-competitive?
Subject to the FCC bill being passed, S.60 and 109 deal with criteria that will amount to anti-competitive conduct. The most applicable to oil and gas sector is that any agreement among undertakings or a decision of an association of undertakings that has the purpose of actual or likely effect of preventing, restricting or distorting competition in any market shall be unlawful.
11.3 What power or authority does the regulator have to preclude or take action in relation to anti-competitive practices?
Subject to the passing of the FCC bill, the Competition and Consumer Protection Commission will be created and will have the power to prohibit the making or carrying out of an agreement and declare any business practice as abuse of a dominant position of market power and prohibits the dominance of market. Any grievance will be resolved at the Competition and Consumer Protection Tribunal.
11.4 Does the regulator (or any other Government authority) have the power to approve/disapprove mergers or other changes in control over businesses in the oil and natural gas sector, or proposed acquisitions of development assets, transportation or associated infrastructure or distribution assets? If so, what criteria and procedures are applied? How long does it typically take to obtain a decision approving or disapproving the transaction?
S.118 of the ISA gives the SEC the responsibility of regulating, reviewing and approving mergers and acquisitions. The SEC has specific guidelines and rules to be followed to ensure that the public and national economy are protected against monopolies. These guidelines apply to every sector including the natural gas sector. However, if the merger is a small merger (defined as N500 million and below) then the SEC does not need prior notification before the merger takes place, but SEC requires notification after the completion of the merger within six months of completion. Mergers larger than a small merger threshold require the approval of the SEC. The SEC is to approve or disprove the merger within 20 working days or can extend the period for consideration of the merger by an extra 40 days.
In addition, the approval of the Minister will be required where any mergers or changes in control result in the direct or indirect assignment of an OPL or OML and such approval may take a period of two weeks to six months.
12. Foreign Investment and International Obligations
12.1 Are there any special requirements or limitations on acquisitions of interests in the natural gas sector (whether development, transportation or associated infrastructure, distribution or other) by foreign companies?
Foreign companies who wish to acquire interests in the natural gas sector must incorporate a subsidiary company in Nigeria. In addition, companies with foreign participation must have a minimum authorised share capital of N10 million Naira and must obtain a Certificate of Capital Importation of $300,000 in cash or money’s worth. The investment must be approved by the Minister of Petroleum Resources if it relates to upstream assets. If the acquisition or investment would be quoted on the Stock Exchange, it must have prior approval by SEC.
12.2 To what extent is regulatory policy in respect of the oil and natural gas sector influenced or affected by international treaties or other multinational arrangements?
Regulatory policies in Nigeria are only influenced or affected by international treaties or multinational arrangements if they are passed and adopted into law in Nigeria by the National Assembly.
13. Dispute Resolution
13.1 Provide a brief overview of compulsory dispute resolution procedures (statutory or otherwise) applying to the oil and natural gas sector (if any), including procedures applying in the context of disputes between the applicable Government authority/regulator and: participants in relation to oil and natural gas development; transportation pipeline and associated infrastructure owners or users in relation to the transportation, processing or storage of natural gas; downstream oil infrastructure owners or users; and distribution network owners or users in relation to the distribution/transmission of natural gas.
According to the Nigerian Constitution and the Public Officers Protection Act (POPA), any claim against a public officer or department can only be instituted within three months of the act or omission complained of; therefore, any suit against the Minister of Petroleum or any related gas and oil Government officer must be instituted within three months.
S.11 of the Petroleum Act stipulates that all disputes or questions that may arise in connection with licences or lease between the Minister and Licensee or lessee including payments of fees, rents or royalty are to be resolved in accordance with the applicable arbitration laws. The applicable arbitration law is the Arbitration and Conciliation Act, therefore all matters are to be resolved using the Arbitration and Conciliation Act except for disputes which are excluded from arbitration.
Disputes arising from a domestic gas sale and purchase transaction are to be referred to the Department of Gas for resolution.
13.2 Is your jurisdiction a signatory to, and has it duly ratified into domestic legislation: the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards; and/or the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID”)?
The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards was ratified by Nigeria on 17 March 1970 and was adopted into the Second Schedule of the Arbitration and Conciliation Act of Nigeria.
Nigeria became a signatory to the ICSID Convention on 13 June 1965 and has adopted the Convention in the International Centre for Settlement of Investment Disputes (Enforcement of Awards) Act 2004.
13.3 Is there any special difficulty (whether as a matter of law or practice) in litigating, or seeking to enforce judgments or awards, against Government authorities or State organs (including any immunity)?
POPA prohibits the institution of any court action against a public officer or department after a period of three months of the act or omission complained of. However, there are some exemptions which include continuance of damage or injury, cases of recovery of land, breaches of contract, claims for works and labour done and where the officer acted outside his statutory powers or duties.
The Nigeria National Petroleum Corporation Act requires a pre-action notice of at least one month before commencing a suit. All suits must be instituted within 12 months of the default, neglect or act complained of. Also, no execution or attachment or judgment can be executed against the property of the corporation but money judgments can be awarded against the corporation.
13.4 Have there been instances in the oil and natural gas sector when foreign corporations have successfully obtained judgments or awards against Government authorities or State organs pursuant to litigation before domestic courts?
In the case of Niger Delta Development Commission (NDDC) v Nigeria Liquefied Natural Gas Limited (NLNG (which 51% is owned by foreign companies)) (2010), the NDDC held that NLNG, as a gas-producing company operating in the Niger Delta Area, is liable to contribute 3% of its annual budget to the NDDC statutory fund. The trial court found that the Niger Delta Development Commission Act and the Nigeria Liquefied Natural Gas Act were in conflict but they are private special acts giving special interests and cannot be enforced against each other. The Court of Appeal also held in favour of NLNG.
In a similar case between the Nigeria Liquefied Natural Gas Limited (NLNG) v Nigerian Maritime Administration and Safety Agency (NIMASA), NIMASA held that NLNG had to pay 3% gross freight for all of their international inbound and outbound cargo goods and other levies related to shipment of goods. However, the Federal High Court held that NLNG was not liable to any of the fees and told NIMASA to refund any payments made by NLNG.
14.1 Please provide, in no more than 300 words, a summary of any new cases, trends and developments in Oil and Gas Regulation Law in your jurisdiction.
The Petroleum Industry Bill (PIB) was introduced to reform the oil and gas industry; however, after several failed attempts over the last decade to pass the PIB due to political interests, the PIB was redrafted and split into several parts; these are:
1. The Petroleum Industry Governance Bill which deals with the governance and institutional framework of the Nigerian petroleum industry. The National Petroleum Regulatory Commission (NPRC) (which replaces the current DPR, the Petroleum Inspectorate and the PPPRA) shall be responsible for regulating the entire industry. Its regulatory functions, which cut across the downstream, midstream and upstream sectors. The Nigerian Petroleum Company (NPC) shall be incorporated as a company limited by shares within six months from the date of passage of the Bill into an Act. The NPC shall be responsible for all assets currently being managed by the NNPC other than those under PSCs and the back-in-right provisions.
2. The Petroleum Fiscal Framework Bill 2018 regulates the imposition and collection and taxes, royalties and rent in the oil and gas industry.
3. The Petroleum Industry Administration Bill 2018 administers the issuance and revocation of licences, permits for exploration, production and operations in the upstream, midstream and downstream oil and gas industry.
4. The Petroleum Host Impacted Communities Bill 2018 aims to establish the rights and opportunities for host communities, in terms of economic benefits, restitution for environmental and social costs of resource extraction activities and to improve peaceful co-existence of host communities and investors in the petroleum production.
The authors would like to thank other people that worked on this contribution: Oluwasimisola Salau; Abia Essien; and Khadija Bala.
Oil & Gas Regulation 2019 | Nigeria | ICLG
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