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THE

ROBERT GORDON
UNIVERSITY
ABERDEEN
FACULTY OF MANAGEMENT
Aberdeen Business School

Title: An evaluation of the adequacy of Nigeria’s gas policies to meet
domestic gas supply and infrastructural development challenges.

Name: OSAI SIMEON NNODIM

Matriculation Number: 1213331

Submission Date: 29TH JANUARY, 2014

Supervisor: DR. LABARAN M. LAWAL

Aim: To shed more light on the impact of recent gas policy changes as
captured in the NGMP and proposed PIB on gas supply and
infrastructure development in Nigeria.

Objectives:

1. To assess whether or not the NGMP and provisions of the proposed PIB have
robust measures to guarantee domestic gas supply to consumers.
2. To assess whether or not the NGMP and PIB concerning gas adequately
provide for gas infrastructure development.

Signed: OSAI NNODIM

Total word count (excluding acknowledgements, diagrams, references,
bibliography and appendices) 21,183

A Dissertation submitted in partial fulfilment of the requirements for the
Postgraduate Certificate/Diploma/MSc Degree in Oil and Gas Accounting.

ABERDEEN BUSINESS SCHOOL

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Name OSAI SIMEON NNODIM
Email/contact tel no.: o.s.nnodim@rgu.ac.uk/07584063217
Course: MSc Oil And Gas Accounting
Module: BSM 581 Dissertation
Dissertation Title:
An evaluation of the adequacy of Nigeria’s gas
policies to meet domestic gas supply and
infrastructural development challenges.
Supervisor/Tutor: DR. LABARAN M. LAWAL

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Signed...........Osai S. Nnodim............................. Date..........29TH January, 2014...........

THE
ROBERT GORDON
UNIVERSITY
ABERDEEN

An evaluation of the adequacy of Nigeria’s gas policies to meet domestic
gas supply and infrastructural development challenges.

OSAI S. NNODIM

The Robert Gordon University, Aberdeen, UK
Aberdeen Business School
MSc Oil and Gas Accounting
Submission Date: 29TH January, 2014

ABSTRACT
This study sought to evaluate the adequacy and performance of the recent policy
changes in the gas sector as captured in Nigeria’s Gas Master Plan and the
proposed petroleum legislation, the Petroleum Industry Bill. The study answered
the question whether Nigeria’s gas policies adequately provide for domestic gas
supply and infrastructural development. Adopting stakeholder theory as the
theoretical framework, a qualitative Multi Criteria Evaluation model was used to
assess policy measures against relevant criteria sourced from literature. The
findings of the study revealed that Nigeria’s gas policies perform better at
guaranteeing domestic gas supply for consumers than providing for gas
infrastructure development. Furthermore the Gas Pricing Policy, Domestic Gas
Supply Obligation, 3rd party pipeline access and licensing policy measures were
the best performers based on the selected criteria and as such are adequate policy
measures. The study also indicated that Nigeria’s gas policies score highest in
transparency, then feasibility and equity with flexibility and stringency having the
least scores.

Keywords: Petroleum Industry Bill; Nigeria Gas Master Plan; Nigeria’s Gas Policies;
Domestic Gas Sector; Gas Infrastructural Development.

i

I express my sincere appreciation to my amiable supervisor. Dr Labaran M. ii . I also give special thanks to my friends whose moral.ACKNOWLEDGEMENTS Profound gratitude to my parents for their unwavering support and enablement to conduct this study and complete my MSc program. spiritual and financial support saw me through the period of my study and writing this dissertation. Lawal for his priceless comments and painstaking guidance towards the accomplishment and success of this dissertation.

............................ 22 2.......1 NORTH AMERICA ............................1 INTRODUCTION .........................................................................5................. 23 2...............................................................................................3 REVIEW OF NIGERIAN GAS POLICIES FROM 1969 TO 2008 .............................. 1 1.................................. v List of Abbreviations and their Meanings .........................................................................................................................3 ASIA-PACIFIC ............. i ACKNOWLEDGEMENTS .................................................................................................................................................................................................................................................................................................................................... 6 2..................................3 MONETIZATION OF GAS .............................7...........................8..................................................................................................................... 28 3.......... 14 2............................. 6 LITERATURE REVIEW .......... ii List of Figures........................ 17 2.............. v List of Tables ...................... 18 2............................................................. 28 AN EXAMINATION OF NIGERIA’S GAS POLICIES .........2 GAS INFRASTRUCTURE DEVELOPMENT ...................................................................................................................................................................1 INTRODUCTION ........................ 28 3.................................................2 NIGERIAN GAS INDUSTRY .............................................................. 8 2....................................................................................................... 27 CHAPTER THREE .....2........................................................................................7 GLOBAL GAS POLICIES TODAY: A REGIONAL OVERVIEW ............................................................................... 4 1.......................................................2 GAS MARKETS ......................................................................2 BACKGROUND OF THE STUDY .................... 25 2...................................................................................................................................................................................... 6 2...........................................................................................................................................1 INTRODUCTION ............................................. 1 1................................. 12 2..............................................................9 SUMMARY ................................................................................... 13 2....................... vi CHAPTER ONE ..................................1 REDUCTION OF GAS FLARING ......2 THEORETICAL BACKGROUND .....5..4 RESEARCH QUESTION ................1 SECURITY OF SUPPLY ..................3 THE BEGINNING OF THE GAS INDUSTRY ......................................................................................... 20 2....................................................................5 JUSTIFICATION OF STUDY ......................................................2 EUROPE .............................................. 6 2...........................2 GLOBAL GAS FLARING REDUCTION PARTNERSHIP ............................................................................Table of Contents ABSTRACT .................................................................................................................................... 20 2.................. 19 2.6 SCOPE AND ORGANIZATION OF STUDY ..................................................................................................................... 9 2.............................................................7.........................................................................................................1 GAS RESOURCES AND RESERVES .........................................................................................................................................................................................2...............5.......................................................................................4 INTRODUCTION OF POLICIES AND REGULATION ........... 28 3.............................................................8............................................................................... 21 2........................................................ 15 2............................................................................................. 4 1................................ 29 3........................................................................................5...............................................................5 FACTORS AFFECTING GAS POLICIES .............3 RESEARCH AIM AND OBJECTIVES ...................................................................................................................................................................................................................................... 30 iii .. 4 1.........6 OBJECTIVES OF GAS POLICIES ......5....................................................................5..... 1 1.......................... 19 2...........3...........................................................................................1 GAS PRICING ...................................3................................................... 5 CHAPTER TWO .8 TRANSPORTATION OF NATURAL GAS........................................................ 24 2.................................1 DOMESTIC GAS MARKET ...............7.................

...................7 DISCUSSION ON PIB .......1 INTRODUCTION ......................................................................................................................2 RESEARCH FINDINGS AND DISCUSSION .................................................4......................................4 DISCUSSION ON NGMP.......... 41 3.........2..................................................................................................6 SUMMARY ....... 67 5...........................4............................................ 51 5.......................5 PETROLEUM INDUSTRY BILL (PIB)......... 34 3.......2 SELECTION AND DESCRIPTION OF EVALUATION CRITERIA ....3 QUANTITATIVE AND QUALITATIVE RESEARCH METHODOLOGIES .....................................................................6 DOMESTIC GAS MARKET REGULATION............................. 38 3...................................................... 33 3................ 46 4.................... 51 5............................4 NIGERIAN GAS MASTER PLAN (NGMP) ................. 39 3............. 60 5..........................................................................................................................................3........................................3 DOMESTIC GAS SUPPLY OBLIGATION (DGSO) ...... 43 3................................................................................................................................................................................. 58 5................................................................. 36 3................................................1..................................................... 51 5............................ 48 4.................................................................................................................................................................................................................................................................................................................................................................................0 INTRODUCTION ...........2.....................2 RESEARCH APPROACH .................................................................................................... 54 5...............4 DATA SOURCES ......................4 SUMMARY ............. 68 BIBLIOGRAPHY ..................5....... 50 CHAPTER FIVE ........................................................................................................1.. 44 CHAPTER FOUR ......................................................................................... 41 3................................................................................................ 35 3.......1 LIMITATIONS OF THE METHODOLOGY ............................................................................. 36 3.............................................................5................................2.....................................2 DOMESTIC GAS SUPPLY OBLIGATION (DGSO) ............ 40 3.............................................................................................................................................................................................3 KEY STAKEHOLDERS ................................3 GAS INFRASTRUCTURE BLUEPRINT (GIB) ................. 66 CHAPTER SIX ........................................................2....................................................................................................................................................................................................................4................. 56 5...................7 SUMMARY . 48 4................................ 45 RESEARCH METHODOLOGY ............... 70 iv ....................1...............................2 RECOMMENDATIONS ....................2 UPSTREAM GAS OPERATIONS ......... 45 4.6................................................................................................................................................... 58 5.............. 51 5...1 CONCLUSIONS .......................................................1 MCE MODEL AND POLICY MEASURES ................................................... 51 DATA ANALYSIS AND DISCUSSION OF RESULTS ............. 67 5............................................................................................................................................................5.......................... 42 3....................................................... 45 4.................5.....................................................................................................................5...........................................1 SUMMARY RESULTS .....1 ENSURING DOMESTIC GAS SUPPLY FOR CONSUMERS ........................ 45 4....................5 DOWNSTREAM GAS OPERATIONS LICENSING .................5 THEORETICAL FRAMEWORK .................................................................................................................. 49 4.....................5................................................................................4 GAS FLARING AND PENALTIES ..........................................................2.....................................................5.................2 DISCUSSION OF RESULTS ..................................................6 METHODOLOGY ............. 54 5............1 GAS PRICING POLICY (GPP) .....4............................................... 67 CONCLUSIONS AND RECOMMENDATIONS ................................................ 47 4................................................................ 56 5............................2 DOMESTIC GAS INFRASTRUCTURE DEVELOPMENT........2..................................................1 PIB 2012 AND THE GAS REGULATORY FRAMEWORK ................. 42 3.........................................................................................1 DATA DESCRIPTION ........................................................................

3 Natural Gas Price Trend Fig 3.5 Pipeline Structure showing Network Configuration List of Tables Table 5.1 Pipeline Infrastructure Capacity (2015 projection) v .5 Nigerian Gas Master Plan Fig 3.3 Policy Measures Ranking Fig.7 PIB 2012 AND THE GAS REGULATORY FRAMEWORK Fig 3.3 Energy Consumption Mix in Nigeria Fig 3.6 Gas Infrastructure Blueprint Fig 3.2 Network of Key Stakeholders Fig 5. 5.1 World Proved Reserves for Natural Gas Fig.1 Structural Model for Evaluative Analysis of NGMP and PIB Fig 5.2 Production and Consumption in Nigeria Fig 3.8 DOWNSTREAM GAS OPERATIONS LICENSING Fig 5.4 Evaluation Criteria Ranking Fig 5.List of Figures Fig 2.4 Gas Value Chain in Nigeria Fig 3. 2.1 Top 20 flaring countries Fig 3.2 Trade Movements in the global gas markets Fig 2.

List of Abbreviations and their Meanings NGMP Nigeria Gas Master Plan PIB proposed Petroleum Industry Bill CSR Corporate Social Responsibility FG Federal Government of Nigeria NERC Nigerian Electricity Regulatory Commission NG Natural Gas LNG Liquefied Natural Gas ToP Take or Pay Contracts LPG Liquefied Petroleum Gas NNPC Nigerian National Petroleum Corporation NLNG Nigerian LNG Limited ECT Energy Charter Treaty DGA Downstream Gas Act NAGFRA Natural Gas Fiscal Reform Act SA Strategic Aggregator NGC National Gas Company GPP Gas Pricing Policy DGSO Domestic Gas Supply Obligation GIB Gas Infrastructure Blueprint GSPA Gas Sales and Purchase Agreement CPF Central Processing/Gathering Facilities IOC International/Independent Oil Company PRG Partial Risk Guarantee MPR Minister of Petroleum Resources PTB Petroleum Technical Bureau UPI Upstream Petroleum Inspectorate DPRA Downstream Petroleum Regulatory Agency MCE Multi Criteria Evaluation vi .

Therefore. a large percentage of the local 1 . countries with natural gas deposits should want to have a policy framework in place that encourages effective and environmentally responsible exploitation. studies show that the enabling infrastructure for effective monetization and domestic utilization of this natural resource is inadequate (Adaramola and Oyewola 2011. Sadly.1 INTRODUCTION An evaluation of the NGMP and PIB is being proposed to assess its adequacy in providing for domestic gas supply and infrastructure development. Furthermore. discovery and utilization of gas resources in Latin America. relatively lower capital costs.8%. Nigeria is blessed with massive reserves of associated and non-associated gas. 1. These factors coupled with the increasing demand suggest that gas as a power source is becoming more attractive especially with increased environmental sensitivity in recent times (Hansen 2000. Natural gas is regarded as the least polluting fossil fuel. From 2012 to 2035. estimated in excess of 180TCF (trillion cubic feet). and environmental stewardship (Hansen 2000). For example. NLNG 2011). driven by various factors like the emergence of shale gas as a preferred energy source in the US. and Europe’s continued efforts to reduce carbon emissions.CHAPTER ONE 1. and there also have been strong suggestions from geologists and earth scientists that there may be undiscovered reserves in quantities almost double the reported amounts (Ukpohor 2009. in 2008. Odumugbo 2010). to mention a few (Balat 2009). increased gas usage plans in the growing economies of India and China. ranking amongst the ten largest in terms of proven natural gas reserves in the world (Ukpohor 2009. Reserves/production is given as a comfortable approximate of 109 years. Odumugbo 2010). Sonibare and Akeredolu 2004). 530 billion cubic feet (bcf) of associated gas was wastefully flared resulting in financial losses of approximately $2. there is an expected growth rate of 1. and has other economically favourable characteristics like improved efficiency.2 BACKGROUND OF THE STUDY The global demand for natural gas is steadily rising. Ukpohor 2009.5 billion/year and all the attendant environmental degradation implications of flaring gas (Ogbe et al 2011).

Iledare (2010) reviewed the fiscal terms of the draft PIB and its effects on offshore deep-water oil and gas ventures and opines that the PIB needs to incorporate fiscal terms that willingly give up appropriate economic rent to investors in order to guarantee sustainable flow of capital investment for resource development. among other things. In another related study. firewood and kerosene) as energy sources. In order to meet domestic and export sector demand for gas. For example.g. including the host communities still do not have access to gas for domestic energy uses (Okorie 2010) and instead rely on crude sources. However. the Nigerian government has initiated several key policy changes from 2008 (Onyeukwu 2010. These policies are expected to. However. this study does not fully examine the entire gas value chain and is limited to fiscal provisions alone. 2 . the approach to its implementation lacks political will because it is premised on a desirable social agenda. This position appears to be largely drawn from the fact that at the time there was no specific regulatory framework for the implementation of the policy and its initiatives. These changes are captured in the Nigeria Gas Master Plan (NGMP) and the current Petroleum Industry Bill (PIB) undergoing ratification by the National Assembly. A survey of relevant literature reveals attempts to provide a critical analysis of the impact of these policy changes on the Nigerian economy and petroleum industry. In a study of energy consumption patterns Oseni (2011) is able to establish that large proportions (over 40%) of Nigerian households do not have access to electricity and still depend largely on traditional forms of energy (e. Onyeukwu (2010) examines the potential of the Nigerian gas market and discusses the possible ways the NGMP might be constrained from positioning the Nigerian gas market on a sustainable growth path. provide a much needed boost in the domestic gas sector by jumpstarting infrastructure development (Onyeukwu 2010). it is expected that the passing of the PIB into law should rectify this shortcoming by providing an appropriate regulatory framework (Fagbohunlu and Ikweazom 2012).populace. The study finds that contrary to the avowed objectives of the NGMP.. not on strategy. and effect a transit from a predominantly oil industry to an integrated oil and gas industry. Akinpelu and Iwayemi 2010).

The recent power sector reform that successfully introduced privatisation and decoupling of the Power Holding Company (PHCN) into separate generation companies (GenCo) and distribution companies (DisCo). They conclude that a simple and flexible model will send the right signals to producers. Chinweze et al 2012. Kurmanov 2012).In an attempt to link industrial development with the oil industry Okoye (2012) adopts a conceptual approach in analysing the PIB. While a 3 . in the power sector the GenCos have had gas supply shortages resulting in less power available for DisCos to distribute amid growing concerns of reducing electricity supply from the local communities (Olusola-Obasa 2013). social. In contrast to the significant amount of proven gas reserves Nigeria can boast of. provides an opportunity for significant investment in transmission infrastructure to effectively utilise otherwise stranded gas for power generation (Okoro and Chikuni 2007). However. finding that corporations can move beyond self-interest models of corporate social responsibility (CSR) by meaningful and fair engagement with facilitative regulatory frameworks. technical and economic considerations (Onyeukwu 2010. however it focuses on CSR behaviour and does not address infrastructural challenges. Her paper is an exploratory discussion in that examines the potential and limitations of linking business to development agendas in an ongoing context. a major shortcoming of this position is that pricing alone may not be the sole factor that affects infrastructural development. addressing the gas infrastructure challenge is a complex matter having political. Regarding investment incentivising. using an optimization model Ogbe. Recently. Akinpelu and Iwayemi (2010) made an attempt to determine an appropriate pricing model for the emerging Nigerian gas market. Furthermore. domestic consumption of this valuable resource appears to be relatively low (Igbatayo 2005). This complexity might be a reason behind infrastructural inadequacy despite over 40 years of gas production (NLNG 2011). Ogbe and Iledare (2011) suggests that the NGMP provides the right gas price incentives to jump start the local gas market and promote domestic gas usage. This same infrastructure can also be used for supplying gas as a feedstock for the petrochemical industries. In line with this aim Nigeria’s gas policies provide for a Gas Infrastructure Blueprint which is expected to address the transmission infrastructure challenges (Oni 2011). However. transporters and end users.

1.3 RESEARCH AIM AND OBJECTIVES Based on proceeding analysis. 4. the PIB. the study will attempt to form an opinion on how robust these policies might be to handle transitional issues during this reform.transitional period is expected with any major reform. and as such are most likely to provide current gas policy information. In that light. Do Nigeria’s gas policies adequately address the local gas supply and infrastructure challenge? 1. this study will focus on looking at the Nigerian gas policies and regulatory framework from 2008 till date from the perspective of gas infrastructure development. The objectives of the study are: 3. To assess whether or not the NGMP and provisions of the proposed PIB have robust measures to guarantee domestic gas supply to consumers.4 RESEARCH QUESTION The above mentioned aim and its objectives will be achieved by answering the following question. adequately address the infrastructural challenge. is this transitional period properly captured and accounted for regarding gas supply in Nigeria’s gas policies? The question that then arises is whether these policy changes as captured in the NGMP and the proposed petroleum industry legislation. The NGMP and PIB were chosen because they are the most recent gas policy changes. It is necessary to reconcile the need for private companies to maximise profitability 4 . Also. 1. To assess whether or not the NGMP and PIB concerning gas adequately provide for gas infrastructure development. This study will attempt to determine if the recent gas policy changes have a positive impact on the decision to invest in gas exploitation in Nigeria. this study aims to shed more light on the impact of recent gas policy changes as captured in the NGMP and proposed PIB on gas supply and infrastructure development in Nigeria.5 JUSTIFICATION OF STUDY Nigeria’s commitment to reforming the gas sector underscores the justification of this study.

and have these reconciliations captured in the terms of the NGMP and PIB. 1. more so because the PIB legislation is currently undergoing ratification by the National Assembly. Chapter five describes the data used for the study. while chapter six draws conclusions based on the result of the study and makes recommendations. and other stakeholders in the Nigerian petroleum industry. Lastly. It also presents the aim and objectives of the study and its justification. academicians and industry practitioners may find this research work useful as it sheds light on the elements that constitute a robust gas policy from a security of supply viewpoint. Therefore the study is significant in exploring the effectiveness of its gas infrastructure policies because it may affect investors facing the decision to commit to the huge capital investment outlay necessary to jump start the Nigerian gas market and accelerate the shift from a mainly oil industry to a fully integrated oil and gas industry.and the FG’s requirements of optimum economic rent. NERC. the findings of this study may be of assistance to the FG. In addition. legislators. Chapter two reviews related and relevant literature on the gas industry highlighting factors that affect it. Additionally. 5 . Chapter four provides a discussion of the research design as well as the sources and description of the data used in the study. environmental responsibility and sustainable industrial development.6 SCOPE AND ORGANIZATION OF STUDY Chapter one provides an overview of the study and a brief background of gas policies in Nigeria. it discusses the research methodology applied in achieving the aim of the study. and also could also raise more issues for further research. It also presents the research findings as well as the detailed discussion of the results obtained using MCE to evaluate the gas policies. Chapter three closely examines Nigeria’s gas industry and key policies that guide it. financial institutions.

It is an energy source often used for cooking. NG can usually be found trapped in rock formations within the earth as conventional or unconventional gas. nitrogen. Associated natural gas.1 INTRODUCTION This aspect of the study is concerned with the theoretical background by reviewing of existing literature on the global gas industry and the policies that drive it.On the other hand. 6 . and hydrogen sulphide (Kamada et al 2013). shale gas. Conventional natural gas is considered as gas sourced from rocks that do not fall into the above unconventional categories (Mohr and Evans 2011). varying amounts of other higher alkanes (ethane. contains in addition to methane. dry gas. propane and n-butane). then undertakes a regional review of policies in the global gas industry. and sometimes a lesser percentage of carbon dioxide.CHAPTER TWO LITERATURE REVIEW 2. also referred to as ‘wet’ gas. to meet the specifications of marketable natural gas (Bakar and Ali 2010). It further reviews the objectives of a gas policy. fuel for vehicles. including water. the concepts of security of supply and gas infrastructure development are reviewed. generation of electricity. to a lesser extent. Finally. It covers the origin of policies and regulation in the gas industries and discusses the factors that affect gas policy formulation and implementation. tight gas. The gas produced is further categorized as associated or non-associated natural gas (Gudmundsson et al 1998. requires processing to remove impurities. heating of homes. non-associated natural gas or ‘dry’ gas basically consists of methane and little else (Berner and Getwick 2003). Kamada et al 2013). Unconventional natural gas includes coal bed methane.2 THEORETICAL BACKGROUND Natural gas (NG) is a naturally occurring mixture of carbon based gases consisting primarily of methane. 2. biogenic gas and methane hydrates. Wet gas and. The chapter concludes with a brief summary. and an important chemical feedstock in the manufacture of commercially important plastics and chemicals (Rogge et al 1993).

In his opinion. the unique characteristics of NG make it a premium fuel/energy source in many applications in the industrial. Dorsett and Ackerman 1992. The production of energy helps to build a better world by providing more comfort for mankind and making the world a better place to live in. in the long run. and financial pipe dream. Nations that are endowed with it are doing everything to ensure its development because markets around the world are developing rapidly for natural gas. Dorset and Ackerman 1992). the massive build out of new infrastructure. NG burns cleaner and. gas storage and refuelling facilities is a logistical.99) succinctly summarise the relationships existing between factors that affect demand and consumption of natural gas with the quote: 7 . The incentive is twofold. In all.The demand for NG is high in the global market place because it is a relatively clean energy source and is well suited for use in the existing industrial and domestic infrastructure (Dmitrievsky 2005. environmental. Barreto et al (2003) takes a different perspective. Dmitrievsky 2005). Hughes (2011) disagrees with this argument. According to the International Energy Agency (IEA). arguing that a complete structural transformation of the global energy system from hydrocarbons to hydrogen as a fuel source will result in accelerated decarbonisation of the energy mix and subsequently a reduced climatic impact. Adding to the demand growth. commercial and domestic sectors. especially that locked up in hydrocarbon fuels. Dorset and Ackerman (1992 p. NG currently has the highest statistical difference from 1973 to 2011 of 10. Berner and Getwick 2003). Barring any future breakthrough in other forms of energy. That’s why energy is sought wherever it might be. it has been argued that gas is the fuel of the 21st century (MIT Energy 2011. Interestingly. including pipelines. geological. A statistical study by Laherrere (2004) forecasting a steady rise in gas production and demand appears to agree with this. although it indicates that the rise is subject to fluctuations in gas prices and economic depression. coal-fired and oil-fuel fired plants are under pressure to convert to cleaner burning NG and newly built power generators are strongly encouraged to use gas as a fuel (Walsh and Fletcher 2004. making it the world’s fastest growing energy source in recent times (IEA 2013). often in the form of LNG (Liquefied Natural Gas) for its relative ease of transport (Small 2005). is cheaper than coal or other liquid fuels because of the environmental savings. However.31Mtoe (million tonnes of oil equivalent).

the ease of access of new entrants to the gas business. Curtis 2002. 2. The forms of contracts employed. and less environmentally friendly. All these factors will have a major impact on whether gas use picks up and if so. the Fredonia Gas Light Company was eventually formed. at what pace”. natural gas produced from coal was used to light houses. Maryland by the Gas Light Company marking the beginning of the gas industry in the United States of America. NG was used almost exclusively as a source of light (Bakar and Ali 2010). Around 1785. the first well specifically intended to obtain NG was dug in Fredonia. Without a pipeline infrastructure. Curtis 2002). Hart dug a 27-foot well to try and obtain a larger flow of gas to the surface. 8 . or into homes to be used for heating or cooking (Darley 2006. when it was used to light the streets of Baltimore. the pricing formulas and the use that both suppliers and consumers can make of gas transmission and distribution systems will all affect the policies under which old and new gas comes to the marketplace. natural gas lights were converted to electric lights and this led producers of NG to look for new uses for their product (Darley 2006. “For both economic and environmental reasons. New York by William Hart (Curtis 2002). with the rise of electricity. Manufactured NG of this type (as opposed to naturally occurring gas) was first brought to the United States in 1816. this manufactured gas was much less efficient. it was difficult to transport the gas very far.3 THE BEGINNING OF THE GAS INDUSTRY Britain was the first country to commercialize the use of natural gas. By the mid-19th century commercial output of NG began in the Caspian basin. particularly around the Absheron peninsula in Baku region (Bahgat 2004). as well as streetlights (Darley 2006). Near the end of the 19th century. as opposed to being transported from a well. Small 2005). In 1821. After noticing gas bubbles rising to the surface of a creek. However. although the United States of America has the longest history of NG use. natural gas is becoming the fuel of choice in many markets. Most of the NG produced in this era was manufactured from coal. Expanding on Hart's work. During most of the 19th century. becoming the first American natural gas company. Hart is regarded by many as the 'father of natural gas' in America. than NG that comes from underground (Darley 2006).

new uses for NG were discovered. The aim was to impose 9 . It wasn't until the 1920s that any significant effort was put into building a pipeline infrastructure. He managed to create a device that mixed NG with air in the right proportions. NG discovered pre- WWII was usually just allowed to vent into the atmosphere. The invention of the Bunsen burner opened up new opportunities for the use of NG in America and indeed throughout the world (Bakar and Ali 2010). and also given the rising importance of NG to all consumers. NG was used to heat boilers used to generate electricity. Also. such as charging unreasonably high prices. Once the transportation of NG became possible. This unwanted NG was a disposal problem in the active oil fields.4 INTRODUCTION OF POLICIES AND REGULATION In 1938. pipe rolling. These included using NG to heat homes and operate appliances such as water heaters and oven ranges. government first regulated the NG industry with the passing of the Natural Gas Act (NGA). Because of the fear of possible abuses. The transportation infrastructure had made NG easy to obtain. and allowed for the construction of thousands of miles of pipeline to transport NG from the wellhead to a processing plant or facility (Younger 2004. If there was not a market for it near the wellhead it was virtually valueless since it had to be piped or transported to the end user (Younger 2004. 2. or burnt when found alongside coal and oil. or simply left in the ground when found alone. and it was becoming an increasingly popular form of energy. This post-war pipeline construction boom lasted well into the ‘60s. creating a flame that burned cleanly and could be safely used for cooking and heating. Industry began to use NG in manufacturing and processing plants. Bakar and Ali 2010). the Natural Gas Act of 1938 was passed. This was because at the time members of the government believed the natural gas industry to be a 'natural monopoly' (DeVane 1946). As a result of this development of distributive capability production increased rapidly (Sanford 1979). the U. Speight 2008).In 1885. and metallurgical advances allowed for the construction of reliable pipelines. in the years prior to the passing of this Act there was rising concern about monopolistic behaviour from the interstate gas transmission companies. But without any way to transport it effectively.S. According to Radetzki (1994). After World War II. renowned scientist Robert Bunsen invented what is now known as the Bunsen burner. welding techniques.

regulations and restrictions on the price of natural gas to protect the end consumers (Bushnell et al 2009). This characteristic means that a single firm could have the lowest costs of production and monopolise the market (DeVane 1946). Since then the natural gas industry has seen various attempts to introduce regulatory frameworks to guide gas policy and strategy with varying outcomes. Price and Weyman-Jones (1996) used non parametric indices to reveal that the rate of productivity growth increased significantly after privatization of the UK natural gas industry. Sanford (1979) takes a related but different stance. These type of industries exhibit some type of scale of economies over a range of output that makes cost per unit of output decline as output increases. was instituted to oversee this function (Ross and Foster 1954. Bell 1964. The development of a vibrant regional gas industry appears to be closely linked to the policies that guide it. price controls could have a boomerang effect of closing the only market in which incentives previously existed for firms to explore for and develop new gas supplies while minimising cost. As such. This finding suggests that there is the possibility for potential gains from yardstick regulation of direct or indirect competition. although differences in technical efficiency within regions still exist. Bushnell et al 2009). have been economically regulated to alleviate public fears that that such firm will use its market power to increase prices artificially and arbitrarily (Jess 1997). if this profit is not regulated and taxed. After a study of the effects of deregulation in the American gas sector he argues that deregulation would not be the answer because of the possibility of massive windfall profit taking by gas companies and. 10 . Many authors have studied these events to better understand the relationships existing between gas policies and industry performance. Hence these industries are treated as natural monopolies and regulated to control factors such as entry. transportation and communications. prices and profits. The Federal Power Commission (FPC). The gas transmission industry is one such natural monopoly according to Radetzki (1994) and Bushnell et al (2009) which might explain why it is usually regulated. will hinder the development of domestic energy resources. firms in some industries especially public utility industries like energy. For most of this century. which eventually became the Federal Energy Regulatory Commission (FERC) in 1977.

Applying this concept in a study of the role of gas regulatory agencies in North America. the study concedes that current regulatory practices might well benefit from further investigation into the uncertainty surrounding empirical efficiency frontiers. In her opinion an energy crisis in the near future because of the roller-coasting prices of oil is not so far-fetched therefore she advocates for cooperation and support amongst agencies with a common regional market.It is common knowledge that businesses generally intend to maximise profit and usually seek to have a competitive edge. an exportable 11 . Cremer. However. good utilization of labour and levels of underutilization of capital sufficient to support the development of competitive markets. The concerns surrounding efficiency also pertain to the export market as well. This study finds that the exportable surplus policy as well as the export tax policy reduces domestic prices while increasing domestic consumption of gas. legal and economic frameworks for pipeline networks in America and finds that freedom of access to pipeline transportation systems and services plays a significant role in favourably altering the position of gas in relation to alternative fuels in the energy sector. Hawdon (2003) studied policy developments affecting efficiency of resource usage in the gas sector by using quantitative methods to benchmark relative performance of the gas industry. In a notable study. Arguably. Gasmi and Laffont (2003) agree with Riordan (1994). increased access to transportation infrastructure improves efficiency of gas supply systems (Thomas and Dawe 2002). The findings of the study support the notion that the reforms introduced in Great Britain and intended in the rest of the EU are associated with high levels of efficiency. Salazar (2007) makes a case for regional harmonization of gas policies to leverage competitive market edge. although this relationship is not always straightforward. Hamilton (1973) examines gas export policies of Canada and compares the exportable surplus policy against an industry policy of free exports and also one of export tax. This may explain Riordan (1994) whose study took a critical look at the institutional. The concept of cooperation also appears to be tied in with the issue of 3rd party access to gas pipelines. further opining that optimal economic indicators for tariffs and charges by pipeline companies are related to distance. While there are obvious economic benefits. implying a challenge in the area of properly measuring efficiency of gas policies.

gas processing costs per unit energy content are usually higher than that of oil (Al-Mahroos and Al-Anaisi 2009). political and economic peculiarities while benefitting from the experience gained from other countries (Bahgat 2010). There are major differences between oil and NG economics. 2001). gas transportation costs to the end-users are higher than for oil due to their respective physical characteristics (Thomas and Dawe 2003). even though their methods of extraction are quite similar. Therefore it is pertinent to examine the factors considered when formulating a gas policy. It is not sufficient to rely on ‘blanket’ policies regulating both oil and gas. Second. Nonetheless. Hence the decision by any country to implement a policy for its upstream and downstream gas industry should take into account its specific regional. First. a critical look at the effects of policies in the gas industry reveals that there is a direct relationship between sector growth and its guiding policies (Hudson and Jorgenson 1974. gas generally requires special marketing arrangements with customers on a long- term basis while oil can be sold freely on the international market including on a short time basis. especially liquefied natural gas (LNG). In all the literature under this theme. Majidpour (2012) confirms this interrelationship between government policies and industry development in the gas sector. 12 . Darley 2006. MacAvoy 1979. Even if more gas is progressively sold on the spot markets. Mulherin 1986). 2. going on to argue that a high level of state involvement is a characteristic of the gas industry in developing countries. scholars seem to have divergent views as shown by the earlier discussion. Third.5 FACTORS AFFECTING GAS POLICIES As NG demand and consumption has experienced growth on a global scale. the development of gas fields and the building of gas processing and transportation is often contingent to the signing of long-term gas purchase agreements (Le Leuch 2011. Recchione 1979.surplus policy is not the most efficient one because of higher costs associated with maintenance of gas inventories. 1984. governments and policy makers have had to create policies that drive their respective NG industries.

reserves are further categorized as proved. for gas discoveries. the key question for a country and an investor is when contingent resources already discovered can be classified as reserves. In conclusion. reserves only exist for gas when the commercial viability of a given gas development project is demonstrated by appropriate technical and economic studies and a decision for their development has been taken or is envisaged shortly. or in Gigajoules or MWh (megawatt hour) under the metric system (Le Leuch 2011). Volumes of available gas are classified either as gas reserves or gas resources depending on the degree of uncertainty of its extraction (Scott 2012). According to Wright and Gallun (2008). Thus. Pierce (1994) and MacAvoy (1984) it is the answers to the following questions that should inform the gas policy making process in any country:  What are the quantities. resources have larger volumes because they also include gas volumes that do not satisfy the conditions for reserves classification. Inkpet (2011) is of the notion that.According to Le Leuch (2011). reserves are those quantities of gas anticipated to be commercially recoverable by application of development projects to known accumulations using existing technology from a given date forward under defined conditions (Scott 2012.1 GAS RESOURCES AND RESERVES Gas reserves and gas resources correspond to quite different concepts in the industry and therefore have to be correctly used. Such a decision requires to have already identified the market 13 . probable or possible reserves in accordance with the level of certainty associated with the estimates. Gas is generally measured in volume and sold on the basis of its gross calorific value or gross heating value (GHV). Lee 2009). types and compositions of NG available in the country or region (Gas resources and reserves)?  Is there a potential market for selling the gas at the highest added value (Gas Markets)?  How can the local gas industry be organized and monetized (Monetization of gas reserves)? 2. often expressed in MMBtu (million British thermal units) under the Anglo- Saxon units system. and in accordance with good petroleum practice.5. because only then can economic benefits begin to accrue. On the other hand.

accompanied by 14 . which is in turn linked to its price (Villar and Joutz 2006). and surface separation and processing of produced gas before transportation also fall under this theme (Scott 2010. Iledare 1995). Fig 2. Bergmann (1994) finds that gas extracted from oil fields (associated gas) usually has a different legal and regulatory framework as compared to gas produced from gas fields (non-associated gas). Le Leuch 2011).1 World Proved Reserves for Natural Gas Source: BP Statistical Review of World Energy 2013 The physical composition of the gas in the reservoir is equally important in shaping policy. Additional issues like gas reinjection for improved recovery. Otherwise the gas should be only classified as resources (Wright and Gallun 2008.for the gas to be developed. thus needing to be considered during policy formulation. the composition of a given volume of gas affects its calorific value. prevention of flaring or venting of stranded gas. Practically all industrialized countries are undergoing profound structural changes brought about by governmental policies aimed at developing the existing gas markets by introducing gas-to-gas competition based on third-party access to gas supply infrastructure and/or by privatizing public gas utilities. Le Leuch 2011). 2. Furthermore. Inkpen and Moffett 2011.2 GAS MARKETS Previously gas markets were regional because of the lack of availability of transportation infrastructure to move the produced gas into viable markets (Garcia and Vredenburg 2000. Al-Mahroos and Al-Anaisi 2009.5.

I.  Gas Transportation Agreements (GTA) which is the legal and fiscal framework covering gas transportation by pipelines. The main types of these contracts are given below:  Gas Sales and Purchase Agreements (GSPA) signed between the producer and buyer. This phenomenon has been referred to as the liberalisation of the gas market by some authors (see Hlatki and Horanszky 2002. meaning the price of NG in the market is largely dependent on supply and demand interactions (Pierce 2004. short term and spot sales based on selected quoted gas prices are developing (Le Leuch 2011. This agrees with the finding of Crocker and Masten (1991) that price adjustment processes 15 . Seliverstovs et al 2005). Due to the high cost of new gas infrastructure.1 GAS PRICING Gas is often sold under negotiated long term contracts (ToP) apparently to ensure security of supply (Thomas and Dawe 2002). Seliverstovs et al 2005. The base price is then periodically adjusted according to a specific revision formula containing a list of agreed indices such as the quoted prices for a set of crude oils (“oil indexation”) and/or for gas competing fuels as well as indices representative of costs. inflation and sometimes currency exchange rates (Villar and Joutz 2006.  Gas Balancing Agreements (GBA) for allocating production and guiding sale procedures between several holders of an upstream contract. MacAvoy 2001). a combination of market and regulated approaches applies over the gas value chain (Creti and Villeneuve 2004). Golombek et al 1995. Long Term Contracts These are long-term agreements usually lasting above 20 years (Thomas and Dawe 2002. Often. With the recent liberalisation of the market. from negotiated prices representative of market prices to regulated market based or cost-of-service based prices. 2. most of the gas is usually sold under long-term contracts providing for an annual volume commitment and a base gas price at a given date.enforcement of new contract mechanisms such as spot markets. Wellhead prices are no longer regulated. as agreed during the negotiations of the contract. There are several possible approaches for determining gas price. Crocker and Masten 1991).5. short-term or non-dedicated contracts (Seliverstovs et al 2005). Seliverstovs et al 2006). Crocker and Lyon 1994). Le Leuch 2011.2.

and Asia-Pacific (Le Leuch 2011). For the time being the gas spot market. quite small outside North America. According to Park. due to the prevalence of the long term gas sales contracts required for investing in costly infrastructure (Le Leuch 2011. remains. the North American. Mjelder and Bessler (2008). Mjelde and Bessler 2008). Spot Trading Under spot sales gas price may be either determined by reference to a selected quoted “spot” gas price (applying a negotiated differential) or a negotiated fixed gas price (Park. and that ToP guarantees are likely to facilitate efficiency in gas trade (Crocker and Lyon 1994. This spot gas market which is largely used in North America is now developing in Europe and Asia. relative to oil sales. Currently. 2. European. Creti and Villeneuve (2004) imply that the main drawback of long term contracting is inflexibility in the face of supply and demand fluctuations of the market. II. recent LNG sales are even made on a spot basis.tend to be more flexible for contracts with a longer duration.2 Trade Movements in the global gas markets Source: BP Statistical Review of World Energy 2013 16 . In this context spot trading ought to complement ToP contracts. although growing. Seliverstovs et al 2006). Mulherin (1986) disagrees. Fig. global gas markets loosely come under three (3) classifications. Also disagreeing. arguing that long term contractual agreements do not facilitate competition but rather are consonant with transaction cost economising to achieve higher return on investment. Crocker and Masten 1985).

17 . there are several daily quoted gas prices in the world representatives of spot gas prices.3 MONETIZATION OF GAS For a gas discovery to be declared commercial requires the availability of sufficient reserves and the identification of viable market(s) and motivated buyers ready to commit for purchasing the NG to be produced in the long run under a specific project (O’Cathain 2012). (1) Identifying and developing viable long term gas markets and (2) Finding ways for building the local processing and transmission infrastructure to support the domestic market as well as export systems to support the export market (Le Leuch 2011).3 NG Price Trend Source: BP Statistical Review of World Energy 2013 2. Fig 2. the North American prices became recently significantly lower than the European and Asian gas prices as a result of the “US gas shale revolution” amplified by the 2008 economic crisis (Beaudoin et al 2010). Globally. The variations in the spot prices between the three regional markets can be significant. Difficulties for reaching the stage of commerciality with gas occur in particular in the countries where no appropriate gas infrastructure and markets already exist. and in such situations policies should give priority to monetization of the discovered gas by.5. The gas to gas competition fostered by the emergence of the spot market may lead to total decoupling of gas and oil prices (Butler 2013).While gas prices under long term contracts are usually confidential.

2. as such it is necessary to ensure an investor friendly policy and regulatory climate. Export trade is carried out via pipeline. Marcelle-De Silva and Jagai (2001) opine that a key monetization activity is a favourable investment climate for development of infrastructure for the petrochemical and gas based local industries. etc. etc.1 REDUCTION OF GAS FLARING Flaring of NG occurs primarily at oil wells where “associated” gas is considered a by-product of crude oil production (Golombok and Teunissen 2003). In addition. cement. with the justification for the latter process being that CO2 has a lower greenhouse effect than methane (Tarmoom 1999). gas- fired plants are more and more preferred over coal and oil-fired plants as gas has the greater advantage of lower carbon emissions. Possible uses for monetizing NG abound in the domestic and export markets.  Industrial sector such as manufacturing. and more recently. LNG powered ships. etc.  As a chemical feedstock in the petrochemical industry. Appert (2000) agrees. compressed natural gas (CNG) and gas to liquids (GTL) technologies (Thomas and Dawe 2002). the associated gas is usually not considered worth capturing or liquefying and is thus typically vented or flared. 18 . Regarding this challenge. it would be useful to promote regional integration of gas markets by facilitating transport/supply of gas via third party countries.5. Additionally. adding that the need to monetize gas resources will increase with the depletion of mature fields and reduce wasteful gas flaring. gas can be used thus:  Power generation is the generally regarded as the main driver for countries starting monetization of gas reserves (Le Leuch 2011). steel.  Commercial sector such as heating for buildings. which is gas that has been discovered but remains unusable for either physical or economic reasons.This is especially important if a nation has a large amount of ‘stranded’ gas.3. These arguments make a strong case for policies providing for an efficient gas transportation system. cooking. Within a country. In fields with volume gas to volume oil ratios below 200.  Transportation sector for use by CNG powered vehicles. LNG.

it is fully justified for the government of a producing country to adopt and implement a gas policy focusing on two key objectives:  Encouraging investments in gas exploration and development by the private sector (Marcelle-De Silva and Jagai 2001. 19 .5. Call. a World Bank-led initiative. national oil companies and major international oil companies. 2. and this is in addition to the climate damage from adding about 400 million tonnes of CO2 in annual emissions.6 OBJECTIVES OF GAS POLICIES Taking into cognizance the argument that the profitability of a gas project is often lower than that of an oil project of similar size if the same tax/fiscal provisions apply (Schulte et al 2012. Adewale and Joshua (2010) concur. Of significance is the publication of a global standard for gas flaring reduction in 2009 that was endorsed by a majority of its partners (World Bank 2004). supporting efforts to utilize currently flared gas. Aliabadi and Shamekhi (2012) examined gas flaring reduction approaches and find that in recent times the preferred gas flaring reduction approach is finding new ways to utilise associated gas as an energy source. among others. Tarmoom (1999) is of the viewpoint that there is substantial potential for gas flaring reduction in the area of gas conservation. adding that economic and energy initiatives need to be strongly integrated with existing policies that promote national development.According to Elvidge et al (2009) and Le Leuch (2011) flaring activities destroy gas monetization value when compared against commercial benefits from selling it. tackling constraints on gas utilization. Carbon and Delgado 2008. and developing ways local communities close to flaring sites can use NG and liquefied petroleum gas (LPG). It aims to reduce flaring by sharing global best practices. The partnership is constituted of representatives from governments of 15 oil-producing countries. was launched at the World Summit on Sustainable Development in Johannesburg in August 2002 (Svensson 2002). These viewpoints possibly informed the launching in 2002 of the Global Gas Flaring Reduction initiative led by World Bank (Svensson 2002). or re-injecting it into the reservoir for improved recovery.2 GLOBAL GAS FLARING REDUCTION PARTNERSHIP In order to limit the amount of gas flared. Appert 2000). the Global Gas Flaring Reduction public- private partnership (GGFR). Thomas and Dawe 2002). 2.3.

Also. Alnakeeb et al 2001). a regional overview is given of the 3 aforementioned global gas markets. In a supply limited country. policy does continue to have an appropriate role to play in a market driven gas industry especially in the areas of encouraging an open and competitive market and curbing the monopsony potential of pipeline companies (Naini and Hillary 1997). either in long-distance pipelines or under an LNG scheme. emphasis is placed on domestic usage. Angevine 1984. the respective allocations of regulatory powers between the federal state and the local states (or provinces) (US Public Utility Commissions (PUCs) and the provincial Energy Utility Boards (EUBs) in Canada). Le Leuch (2011) is of the opinion that priority is given to domestic or export markets depending on if the country is supply limited or market limited. However. 2. only authorizing exports of additional available gas. which is a country with limited reserves and/or high local population. To give a picture of current trend in gas policies.7 GLOBAL GAS POLICIES TODAY: A REGIONAL OVERVIEW From earlier discussion it has been established that attempts to control market forces by regulatory policies often leads to unintended consequences. prioritizes gas exports because of limited country needs. and the regimes of intrastate and interstate pipelines. On the other hand a market limited country. such as the role of a regulator (the US FERC and the Canadian National Energy Board). the economic value and the opportunity costs for the gas produced and consumed locally is often higher than exporting it when dealing with highly populated countries where large domestic gas markets can be developed (Privey 2005. in both countries.  Promoting the domestic usage of gas to develop a local market. Sohall 1991. 2.7. thus increasing economic value of oil exports by reducing domestic oil requirements (Penilla and Paez 1994. which is a country with abundant reserves and/or low local population. Keenan et al 2006). 20 . As a result of the relatively high costs incurred in the entire gas export supply chain. gas exports or imports are subject to obtaining a prior gas export or import licence following an open hearing process (Amanova 2008. Pinkerton 1992).1 NORTH AMERICA Similarities can be found between the US and Canada in their gas regulatory frameworks.

unstable legal system and changing attitude towards private and 21 . the production of unconventional gas from shale plays has increased in this region in recent times sparking debates mainly because of environmental concerns surrounding the hydraulic fracking process (Jenner and Lamadrid 2012). rather increased disclosure may help quell environmental concerns. Jenner and Lamadrid (2012) point out that shale gas can serve as a transition fuel into an age of renewable energy. However. EIA 2013). Bahgat (2010) argues that Russia’s stagnating production from rapidly depleting fields. so far.On the other hand petroleum activities in Mexico have been fully nationalised as such there is no option for 3rd party access to pipelines or other gas infrastructure. exporter and consumer of natural gas in this region (Bahgat 2010. Notably. Jacoby et al (2011) advise that other competing low carbon emission policy programs may be stunted.7. thus it is crucial not to allow the potential of shale gas exploitation erode long term goals of climate change mitigation. Russia is the largest producer. Seliverstovs 2009). shale gas regulation is not much different from regulation of conventional gas. According to Hacisalihoglu (2008) there is a constant need to balance economic benefits of gas consumption and its concurrent environmental impacts. While agreeing that there are likely economic and environmental benefits of the shale gas revolution. The state has reinforced Gazprom’s monopoly over gas production and export with the purpose of preventing greater competition in the gas market in Europe by refusing to provide 3rd party access to its pipelines by outside suppliers (Locatelli and Rossiaud 2011). In spite of this Beaudoin and Serry (2010) find that. Russia’s oil and gas supplies are crucial to maintaining Europe’s economic prosperity and high standard of living while the revenues Russia receives in return provide a major proportion of the nation’s national income (Quast and Locatelli 1997. They add that stringent taxation and price regulation are not likely policy options. it is wholly owned by the state through its NOC (Rodriguez-Padilla 1996).2 EUROPE In Europe the trend towards natural gas consumption is largely being driven by environmental as well as economic concerns (Hacisalihoglu 2008). 2.

Lochner and Dieckhoner (2012) investigated Europe's exposure to gas supply disruptions from African sources. As such the EU’s efforts to establish partnership with energy producers in Africa. to deliver sufficient quantities of gas to the EU in the future.7.foreign investment mean that Europe has more reasons to worry about Russia’s ability. In a bid to foster cooperation and stability of energy supply the Energy Charter Treaty (ECT) was instituted and legalised in 1998. finding that European security of supply could be severely compromised if there is a significant disruption during the winter months. Caspian Sea/Central Asia and the Middle East suggest that Russia’s share in the European oil and gas imports is likely to decrease. establishing a multilateral framework based on complementarities and mutual benefits for member countries (Konoplyanik and Walde 2006). though suitable policies are needed to develop its potential (Aquilera 2013. as increased market share will not occur if investment does not take place in a timely fashion (Majidpour 2012). In addition.3 ASIA-PACIFIC This region has vast natural gas resources. incentives will be necessary for investment in gas and LNG technology. The issue of security of gas supply is a major policy consideration for most European countries wanting stable and uninterruptible energy flows at reasonable prices (Seliverstovs 2009). Majidpour (2012) finds that development of gas industries in the region is closely tied to its national energy policies. it also highlights the necessity of taking the political stability of supply countries into account when assessing security of gas supply. Konoplyanik and Walde (2006) are of the opinion that the ECT is a model for economic liberalisation that reduces external energy dependencies. thus it 22 . but Russia’s reluctance to ratify the ECT casts a pessimistic shadow over its realisation (Seliverstovs 2009. Stanic 2011). although conceding in an earlier survey that the ECT still requires specific rules to achieve a competitive and liberalised market (Walde and Gunst 2002). Currently the EU is striving for a single internal market for gas and electricity. Additionally the low temperature of the European climate especially in the winter months tends to have the effect of increased demand of gas for heating (Thomas and Dawe 2002). rather than willingness. Bin-Dehaish and Otman 2006). For instance. 2. While this position implies that weather and other acts of nature can have an effect on gas supply.

Further. Andrews- Speed (2013) opines that.8 TRANSPORTATION OF NATURAL GAS Management of raw materials and finished products distribution is essential in all industrial and commercial activities in order to meet its market demands (Vasconcelos et al 2013). similar to those interconnectors that already exist in Europe. However. According to Carvalho 23 . could also add to the long‐ term energy security of the region (Crossley 2013. of these three regions it appears that the Asia-Pacific gas market has experienced the highest growth in recent years (IEA 2013). Hovdestad and Chow (1997) disagree with both opinions. a reason for the fragmented nature of gas development in the region may be that Asian nations lack faith in the liberalised international energy markets that Europe and the USA claim to have and prefer a higher level of state involvement in the energy sector. there are a number of benefits that could be achieved through overcoming the regulatory barriers that are currently inhibiting free trade and legal convergence within the region. Worthy of note is the recent spate of policy reforms highlighting increased interest in natural gas as a preferred energy source after the Fukushima nuclear incident in 2011.is important that government intervention not create disincentives for development of the regional gas and LNG industries. physical interconnectors of national transmission and distribution pipeline networks could provide greater levels of stability and support in meeting peak demand. Sovacool 2009). Crossley (2013) argues that the removal of local content clauses and national firm eligibility criteria in domestic subsidies will enable more competition and less cost. These interconnectors and the creation of an Asian Super Grid. With three of the largest economies and energy consumers in the world located in Asia. This might be because of the booming spot market prices there bolstered by Japan’s LNG imports. especially in China and Japan (Shadrina 2013). 2. Proper management of distribution and supply to meet demand also applies to the NG industry mainly because the points of production are usually quite distant from corresponding points of consumption especially in cases of large offshore gas fields (Abada and Massol 2011). Burki (2012) and Ghorbani (2011) take a different stand and call for more separation between the state and the market for increased competition and efficiency. claiming that a less developed infrastructure for gas is the cause.

1 SECURITY OF SUPPLY As described earlier. but Manne. Hovdestad and Egbogah 24 . but also installation of adequate storage infrastructure. ships and tankers. supply disruption can be mitigated (Von Hirschhausen 2007). Conversely. Their paper describes a model based on two key ideas: that insecure gas supply sources provide benefits during normal periods. But like all risks.8. These externalities cannot be avoided. Roland and Stephan (1986) are convinced such risks can be mitigated by prudent diversification policies. and Villada and Olaya (2013). 2. Uninterrupted in this context refers to a reliable and adequate supply to meet demand. and storage facilities for the fast and efficient transportation of gas from its origin to the areas where there is demand. Pulido 2011). The strong relationship between energy and economic growth (Paul and Battacharya 2004. in the long term it means having future provision for stable supply (Pulido 2011). On the other hand. Villada and Olaya (2013) contend that securing gas supply to meet domestic demand peaks and supply disruptions entails not just reducing LNG exports and increasing pipeline capacity. In the short term this would mean avoiding disruption of supply. This approach agrees with the short term security of supply concept of a flexible system with the ability to react swiftly to sudden shifts in the gas supply-demand balance. short- term security focuses on the ability of the gas supply system to react promptly to sudden changes in the supply-demand balance (Thomas and Dawe 2002. a NG transportation system consists of a complex network of pipelines. Long-term gas supply security is mainly linked to timely investments to supply gas in line with economic developments and environmental needs (Thomas and Dawe 2002). Aqeel and Butt 2001) makes a compelling argument for securing a reliable supply of gas at reasonable costs to meet domestic demand even under adverse external conditions like supply disruptions and/or price shocks.et al (2009). and impose costs during supply disruption periods. The need to increase this security of supply – the uninterrupted availability of energy sources at an affordable price – may be an objective underpinning the formulation and implementation of a nation’s gas policies. gas supply security refers to the uninterrupted availability of gas sources at an affordable price (Von Hirschhausen 2007).

Apparently the idea is that a competitive market has a positive effect on the security of supply challenge. however. topological challenges and political issues that must be successfully navigated before long 25 . Hanouti and Ainouche (2005) opine that strategic geographic location is a prime incentive for gas pipeline development. Roland and Stephan 1986). A policy of market competition has been closely linked with ensuring security of supply and increased transmission capacity. A principal requirement of natural gas transportation systems is that it be capable of meeting peak demand under uncertainty in an economically viable way (Manne. the facilities developed by the natural gas transportation industry are a combination of transmission pipelines to bring the gas to the market areas and of underground natural gas storage sites and liquefied natural gas (LNG) facilities located in the market areas (Villada and Olaya 2013). in line with the long term security of supply concept. involves large capital commitments and long lead times. gas infrastructure development plays a crucial role.(1995) argue that development of new gas fields. 2. finds that a market oriented approach to the security of supply issue is cost effective. technological peculiarities. and storage facilities. Von Hirschhausen (2007) in an empirical analysis of case studies of the relationship between the regulatory framework for the US natural gas sector and the development of investment in LNG terminals. interstate pipelines.8. These factors tend to favour a staged development process to ensure that facilities are fully utilised when placed on-stream. Their reason for this stance can be attributed to the huge capital outlay. The benefits of a completed system are often long deferred and hence of limited utility when actual project financing is to be obtained. processing and transmissions facilities. The drawback to this approach is that it can lead to a mismatch between supply and demand depending on the development timing for gas supplies and increases to market demand. To meet this requirement. However because of the nature of the gas transmission industry (natural monopoly) this proposed approach should be accompanied by appropriate regulation.2 GAS INFRASTRUCTURE DEVELOPMENT In the context of security of supply.

According to Cayrade (2004) the fear of decoupling of oil and natural gas prices – leading to lower gas prices that are linked to spot markets – does not provide the right conditions for financing the huge projects for new gas supplies. power generation companies and the transportation sector to realize the opportunities for gas use improvements.distance/multi-regional pipeline structures can be realised. and a reasonable expectation of long term demand from a viable market are driving forces for gas infrastructure development. While there is a large potential for increasing the use of gas. priority should be given to market forces in effecting gas-use gains (Penilla and Paez 1994). On the issue of market integration. Januzzi and Bajay (2008) argue for the fostering of a competitive market policy by non-discriminatory open access. and the deployment of new gas-use technologies. Hovdestad and Chow (1997) agree that increased mobility of financial capital. 26 . The development of gas infrastructure at such a scale is a complex and capital-intensive effort plus the strong growth of the LNG export business has significantly reduced the need to embark on such massive projects (Ellafi et al 2006). Similarly. This position is also consistent with Dieckhoner. In this context financing gas transmission development projects is a challenge. Innovative and bold approaches are required by governments. Santana. long term planning and regional co-operation would materially reduce the costs of large scale infrastructure development. Although it would indeed secure a fair degree of market liquidity and facilitate short-term management. Additionally. political stability. it would not be appropriate for long-term security of supply. in co-operation with industry. Many of the benefits such as energy efficiency and environmental improvement are manifested in ways that require governments to either mobilise the funds or set clear paths and guidelines to promote financing by the private sector (Cayrade 2004). Lochner and Lindenberger (2013) who also find high market integration in Western Europe. in essence agreeing with Hovdestad and Chow’s (1997) position on regional cooperation. focused on information transparency and tariff regulation to help the development of infrastructure and competition within the gas transmission industry. Lochner (2011) identified congestion mark-ups between countries in Europe using an infrastructure model finding that there exists minimal gas supply bottlenecks in regions of high physical market integration and an open access policy.

long term contracts and transportation challenges. The relationship between the industry growth and policies that guide it was established. and based on discussions of literature. 27 . The factors that affect policy making were analysed.2. The literature review has revealed that the natural gas industry. an overview of global gas policies was undertaken.9 SUMMARY This chapter has examined the existing literature concerning natural gas policies. while having similarities with the oil industry because of similar extraction methods. has its unique characteristics. some being its reliance on pre-establishing a market. the researcher established areas of interest relevant to issues concerning security of supply and gas infrastructure development.

and the policies that frame it. and by not fully harnessing its gas resources. (Igbatayo 2005).  Limited numbers of reservoirs suitable for reinjection and high economics of doing so. Nigeria loses an estimated 18. It also details the key features of the Nigerian Gas Master Plan and outlines sections of the 2012 Petroleum Industry Bill relating to gas.S.  Inadequate fiscal and pricing policies to encourage investment. Fig 3.1 Source: Defence Meteorological Satellite Program 2009 28 . dollars daily (EIA Report 2012).  Low industrial and technological base for domestic consumption. Nigeria is reputed to be the one of the largest gas-flaring countries in the world. associated gas encountered during the normal course of oil production has been largely flared because of the.  High costs of pipeline and facilities development.CHAPTER THREE AN EXAMINATION OF NIGERIA’S GAS POLICIES 3.  Limited regional and international markets. Hitherto.2 NIGERIAN GAS INDUSTRY Nigeria is paradoxically known as “a gas province with oil in it” (Oyewumi 2013) as such gas utilisation is becoming a primary goal of Nigeria's petroleum and energy policies (Odumugbo 2010). its growing gas market. 3.1 INTRODUCTION This chapter describes and provides an overview of the Nigerian gas industry.2 million U.

Liver Brothers. In 1978. Fig 3. Aba Textiles Mills. NNPC.2.3 Energy Consumption Mix in Nigeria Source: EIA 2010 29 .3.1 DOMESTIC GAS MARKET The earliest attempt to commercialize natural gas in Nigeria was undertaken by Shell-BP in 1964 when it piped natural gas from Port-Harcourt to the then ECN power station at Afam and then to some industries at Aba (Eastern Nigeria). Delta State (Ndubuisi and Amanetu 2003). Nigerian Breweries. PZ-Industries. natural gas consumption has increased significantly to over 4 billion cubic feet/day due mainly to export of LNG of about 500mmcfd although current domestic demand of about 471mmcfd is low compared to the country’s population and the size of Nigeria’s gas resources (EIA Report 2012). started to supply natural gas to NEPA’s thermal plant at Ogorode. International Equitable Ltd and a few others. through its then Gas Department which 10 years later became Nigerian Gas Company Ltd (NGC). In recent times.2 Production and Consumption in Nigeria Source: OPEC Annual Statistics 2008 Fig 3.

there is a divergence within Nigeria’s significant gas reserves. 1) The Petroleum Act (PA) (1969) is the principal industry legislation. making a strong case for the development of a domestic market for gas utilization. Federal Government has 30 . The Constitution and the Petroleum Act (PA) vest ownership of petroleum in the Federal Government. Oil Prospecting Licence and Oil Mining Lease respectively.4 Gas Value Chain in Nigeria Source: Oyewumi (2013) 3. The Petroleum Profit Tax Act (PPTA) 2004 regulates taxation of the upstream oil and gas production. low production and even lower consumption. Exploration.As these illustrations depict. The Department of Petroleum Resources (DPR) (and more recently the Department of Gas) and Ministry of Environment (MOE) oversee the issuance of permit for pipeline construction (Okorie 2010). the Company Income Tax Act 2009 deals with taxation in the downstream sector.3 REVIEW OF NIGERIAN GAS POLICIES FROM 1969 TO 2008 Nigeria does not have a single body of law for the gas sector (Okorie 2010) although numerous legislations apply to natural gas. The PA defines petroleum to include natural gas and thus applies to the gas sector as well (Petroleum Act 1969). there are other legislations that touch specially on the gas sector. Fig 3. However. issued by the Minister of Petroleum. prospecting and mining of petroleum (including natural gas) may be carried out further to an Oil Exploration Licence. It defines Petroleum to include natural gas.

the Minister may impose such terms and conditions expedient to secure the access rights of the applicant and to regulate the access charge(s). 2) The Petroleum (Drilling and Production) Regulations (1969) made pursuant to the PA regulates oil and gas operations. including LPG storage operations. the imposition of stiffer penalties was not a deterrent. It prohibits with penalties any gas flaring activities beyond January 1. The Federal Government is also to approve the price at which produced gas is to be sold. This Act was criticized for failing to provide for fiscal incentives and its paltry penalty created a willingness in the IOCs to continue flaring because it was cheaper to pay than embarking on gas utilization programmes (Okorie 2010). Applications are made to the Minister for access to pipelines. a right to take gas from licensees and lessees free of charge or at a price without payment of royalty. 4) The Associated Gas Re-injection Act (1979) requires an IOC to prepare a detailed programme for gas re-injection or in the alternative. Worse still. 5) The Associated Gas Re-injection (Amendment) Decree (1983) increased the penalty for gas flaring. where parties fail to reach an agreement. although allowing for continued flaring at the discretion of the Petroleum Minister. However. Consequently. 1985. natural gas could be flared for five years before the IOC submits the proposal. However. However. programme or proposal for the utilisation of associated or non-associated gas not later than five years after the commencement of production. the Act did not prescribe any penalty for flaring or failure to submit such proposal. more so when NNPC shares complicity as a holder of up 31 . The Minister will grant the application if the pipeline can conveniently convey the gas. Terms and conditions of access will be as negotiated and agreed upon between the pipeline owner and applicant. 3) The Oil Pipelines Act (1956) and the Oil Pipelines Regulations (1995) governs the licensing and permitting processes for the construction. present a plan showing viable options for gas utilisation before commencement of operation. there was no provision for ensuring adequate infrastructure to develop and utilize this collected gas (Dikko 2003). A prospecting licensee is to submit feasibility study. operation and maintenance of gas pipelines.

to 60% interest in most of the JVs from where the gas is flared (Okorie 2010. NLNG project and WAGP project were initiated. To much disappointment. subject to some conditions. The 32 . exempted 86 out of 155 oil fields from anti-flaring restrictions. FG issued the National Domestic Gas Supply and Pricing Policy in February 2008 and the National Gas Supply and Pricing Regulations in March 2008 to provide regulatory backing to the domestic gas obligations and the gas pricing framework (Ejiogu 2013). 10) To give effect to the NGMP.All investments necessary to separate oil from gas from reserves into suitable production is considered as part of the oil field development. inclusive of gas infrastructure. These incentives include. 7) The Nigerian Liquefied Natural Gas (Fiscal Incentives. . Kurmanov 2012). Guarantee and Assurances) Decree (1989) was a bold step by the FG to encourage utilization of AG as LNG. guarantees and assurances. It was within this legal framework and Nigeria’s realization of the importance of a viable gas industry some major gas projects such as Mobil Oso condensate project. 8) Associated Gas Framework Agreement (AGFA) (1992) was introduced as a package of fiscal incentive for utilization of natural gas. Flaring of associated gas continued unabated. both the NAGFRA and the Downstream Gas Bill never became law as a result of intense industry lobby and both bills expired in parliament by 2006 (Adesina 2012). 9) The Downstream Gas Act (DGA) and Natural Gas Fiscal Reform Act (NAGFRA) (1995) introduced fiscal flexibility to costs to ensure a fair rate of return for all participants in the gas value chain.Tax holiday for three years . This is in addition to unbundling the NGC into separate gas marketing and gas transporting companies. Escravos GTL project. These initiatives were collectively designed to stimulate investment in upstream gas development as well as providing a clear framework for investors in downstream projects. 6) The Associated Gas Re-Injection (Continued Gas Flaring) Regulations (1985) severely altered its predecessor and. It made provisions for certain fiscal incentives such as tax holidays.

NAGFRA etc). and options for private sector participation in the rehabilitation and development of the gas industry (Onyeukwu 2010). the FG was sufficiently concerned about the inability to meet this demand under the current circumstances that a decision was made to completely revamp and revitalise the gas sector. The NGMP. The outcome of this decision was the birth of the Gas Master Plan initiative (Yar’Adua 2007). it tries to achieve a dynamic balance between satisfying export demands and domestic needs so as to assure long term energy 33 . The demand constrained era (pre-1999) was marked by intense flaring of associated gas. and demand boom era. is a suite of strategic agenda prescribing an appropriate national gas strategy. There is a transformation from a demand constrained industry (low demand) to a supply constrained industry (insufficient supply) facilitating the need for a comprehensive gas policy to address these issues and foster development of a competitive and efficient gas sector (Ibikunle 2006. New export projects were initiated (Escravos GTL) and there was an increase in gas legislation (DGA. viable market structure. approved by the Federal Executive Council. Yar’Adua 2007). and secondly. the demand constrained era. It aims to create a fully liberalised market within five years of its implementation through a dual focus approach. 3. firstly it prescribes innovative ways by which Nigeria would maximise the benefits from its gas from both export and domestic market. Following a forecasted gas demand growth rate exceeding 10% annually from 2005. In the LNG era (1999-2005) NLNG kicked off with a corresponding reduction in flaring activities. The demand boom era (post-2005) has seen a sudden rise in domestic and export sector demand for gas. Yar’Adua (2007) and Ibikunle (2006) there have been 3 phases in the evolution of the Nigerian gas sector. and mandated to create a Domestic Gas Aggregator. LNG era. There existed a focus on LNG exports as the most promising source of demand and also a significant lack of a proper gas legal framework. Department of Gas within the Ministry of Energy was established.4 NIGERIAN GAS MASTER PLAN (NGMP) According to Onyeukwu (2010).

security (Yar’Adua 2007; Okorie 2010). Furthermore, it indicates a design to
establish central gathering and processing units in three locations of the country;
integrate the pipeline networks; adopt a uniform pricing mechanism and specify
standard gas specifications while maintaining reserve growth (Onyeukwu 2010).

The NGMP comprises of 3 main sections.
i. Gas Pricing Policy: This policy provides the framework for establishing
minimum gas prices buyers can be charged.
ii. Domestic Gas Supply Obligation: This policy provides assurance of gas
availability for domestic gas utilization projects.
iii. Gas Infrastructure Blueprint: This policy provides for the establishment of
3 gas gathering and processing facilities and a comprehensive network of
gas transmission pipelines to increase gas supply.
Fig 3.5 Nigerian Gas Master Plan

Source: Oyewunmi (2013)

3.4.1 GAS PRICING POLICY (GPP)
This pricing regime is to be differentiated across different sectors rather than being
fixed. The objective is to create a structured and transparent framework for gas
pricing across different sectors (Adefulu 2009).

For the domestic sector, pricing is based on the lowest cost of supply plus a 15%
internal rate of return (IRR) (Adefulu 2009; Yar’Adua 2007). Since this sector has
a multiplier effect on the economy, the strategic intent is to provide low cost
access to gas supply.

34

For the industrial sector, pricing is based on product netback with a floor price that
must never fall lower than cost of supply (Oyewumi 2013; Adefulu 2009). This
sector mostly uses the gas as a chemical feedstock in the creation of value added
products, hence the intent is to guarantee affordable and predictable gas supply.

Finally, for the commercial sector gas prices are indexed to prices of alternative
fuels (Adefulu 2009) because this sector basically uses gas as a fuel, and is also
able to pay higher prices for its alternatives.

In all, there is a general expectation that there will be an eventual graduation to
a pricing regime led by market forces (Ekwere and Balogun 2011).

3.4.2 DOMESTIC GAS SUPPLY OBLIGATION (DGSO)
In recognition of the need to have sufficient gas supply to meet the needs of the
previously mentioned sectors, the NGMP introduces an obligation for producers to
dedicate a specific amount of gas for domestic use and deliver this volume to a
purchaser. These volumes and their allocation are to be determined by the
Petroleum Minister. Failure to meet these requirements could lead to penalties
involving payment for volumes not supplied, or even prohibition to supply any gas
for export (Adefulu 2009).

The Gas Aggregation Company was established by FG in 2010 as a Strategic
Aggregator (SA) (Okorie 2010). Its duty is to co-ordinate purchase-orders from
buyers and places the demand-orders to the producers. The SA in its duty to
interface between producers and buyers, would set up an escrow account, conduct
due diligence on prospective buyers in order to get the qualified ones to execute
a Gas Sales Agreement (GSA) with the producers. It shall also forecast the
average domestic aggregate price, ensure that the buyer pays the sector price
and the producer receives an aggregate price.

This aggregate domestic price is a forecast based on projected total demand
portfolio using the pricing framework, and all suppliers would be paid this price.
However, Yar’Adua (2007) expressed the opinion that the SA concept will have a
strong impact on the commercial model of the NGC by redistributing the margin
between suppliers and the NGC.

35

3.4.3 GAS INFRASTRUCTURE BLUEPRINT (GIB)
The GIB provides a framework for gas infrastructure development in the future. It
details the provisions for 3 major central processing facilities (CPF), and a network
of transmission pipelines as well.
The CPFs will be at the Warri/Forcados, Obiafu and Calabar/Akwa Ibom areas
(Adefulu 2009). These strategic locations are placed within reserve clusters for
easy accessibility and increased capacity investment focus within each cluster.
According to Yar’Adua (2007) and Adefulu (2009), the overall objectives of the
GIB are given as:
 Ensuring infrastructure access to demand centres.
 Increased connectivity between reserves and demand centres.
 Exploring JV synergies to reduce overall cost of infrastructure development.
 Leveraging existing infrastructure to reduce incremental development cost.
 Facilitating more gas supply flexibility than currently exists.
Fig 3.6 Gas Infrastructure Blueprint

Source: Yar’Adua 2007

3.4.4 DISCUSSION ON NGMP
In a bid to gain further insight into the NGMP it is necessary to touch on some of
the empirical studies relating to it. A notable study is when Onyeukwu (2010)
attempts to establish the extent to which the NGMP might be constrained and

36

Ogbe. The FG is perceived as being without political will because of the reluctance to follow through on previous policy statements (Oni 2011) an example being the constant adjustment of a gas flare-out date (Kurmanov 2012). Kurmanov (2012) compares anti flaring policies adopted in Kazakhstan and Nigeria and finds that economic incentives alone are insufficient in curbing flaring of AG. and they find that gas price has a significant impact on profitability of gas projects. On a related note. Therefore it is not sufficient to introduce a policy. The proposed transitional pricing framework of the GPP came under analysis as well. planned projects like OKLNG project are not profitable at current prices. According to Oni (2011). Harsher penalties and existence of a regulatory body independent of the petroleum industry stimulates implementation of gas utilization projects by IOCs. hence the utilisation of World Bank backed Partial Risk Guarantee (PRG) for securitization under the Gas to Power (GTP) policy of FG. The concept of ‘political will’ appears to be closely linked with policy stability. gas producers are wary of the creditworthiness of FG owned entities. This hypothesis is supported in part by the conclusions of Ayoola’s (2011) study on gas flaring disclosure practices by IOCs in Nigeria. implying investor optimism about increased prices in the near future. He finds that there is no supporting legislative framework specifically for gas flaring disclosure.finds that FG ‘political will’ as well as other factors like supply challenges and absence of a clear legal and regulatory framework act as constraints. Akinpelu and Iwayemi (2010) also carried out a quantitative study to model and determine appropriate wellhead price using a scalar factor to achieve levels of support deemed necessary by the GPP. They argue that the pricing mechanism should not specify a rate of return on gas investments like the cost plus pricing approach is wont to do. A low rate of return could serve to disincentivise prospective investors. there must be dedicated effort to operationalize and enforce it. Additionally. This is probably why Odizuru-Abangwu and Okoronkwo (2011) argue for the use of ToP clauses alongside the PRG to mitigate the securitization issue and give investors required comfort. Ogbe and Iledare (2011) developed a model for optimizing gas utilization strategies under the NGMP using the Niger Delta as a case study. 37 .

Isehunwa and Uzoalor 2011).5 PETROLEUM INDUSTRY BILL (PIB) The PIB is perhaps the most talked about piece of legislation in Nigeria given the far reaching reforms which it proposes to an industry which is the single most significant contributor to the national economy (Onyeukwu 2010. Justice. In 2007. and the Nigeria Extractive Industry Transparency Initiative (NEITI) (Fagbohunlu and Ikwuazom 2012). for more effective policy formulation for the industry. In an attempt to restructure the oil and gas industry. Finance. the prospect of a new fiscal regime which almost certainly would guarantee increased government take elicited strong opposition from IOCs who 38 . would guarantee greater transparency and accountability (Iledare 2008). new regulatory bodies and a new national directorate. the Oil and Gas Sector Reform Implementation Committee (OGIC) was inaugurated on 24 April 2000 under the chairmanship of Dr Rilwanu Lukman (then serving as the Presidential Adviser on Petroleum and Energy)(Iledare 2008. Expectedly. Revenue Mobilisation Allocation and Fiscal Committee (RMAFC). The recommendations of OGIC included a proposal to separate the commercial institutions within the industry from the regulatory institutions (Fagbohunlu and Ikwuazom 2012).3. The OGIC was charged with the task of making recommendations for a far reaching restructuring of Nigeria’s oil and gas industry. Subsequently the Lukman Report of 2008 was presented which recommended a new regulatory and institutional framework that. Federal Inland Revenue Service (FIRS). Onyeukwu 2010). including the emergence of a new NOC. The draft bill of the OGIC that gazetted in the National Assembly Journal of December 2008 was however subjected to further amendments by the Inter Agency team comprised of Ministries of Petroleum Resources. Department of Petroleum Resources (DPR). Originally introduced in December 2008. FG introduced the National Oil and Gas Policy and re-constituted OGIC to make recommendations towards the emergence of a new institutional framework to govern the operations of the oil and gas industry. the bill has undergone numerous revisions and has been the subject of intense debate. This report formed the basis for the first PIB that was submitted in 2008 as an Executive Bill. when implemented.

On 18 July 2012. Policies and Management Model Source: Agbor and Segun 2012 39 . 3. downstream sector deregulation. and Department of Gas) Gas Master Plan. PPPRA. It proposes fundamental reforms of the Nigeria’s oil industry anchored on five major goals viz. Additionally there were concerns raised about the 10% equity oil allocation to host communities (Songi 2011).argued that the Bill would create a harsh environment that would materially change the economics of new and existing investments (Isehunwa and Uzoalor 2011).5. government participation in the industry and transparency in contractual agreements (Onyeukwu 2010). creation of new regulatory institutions. Initial reactions to the Bill prompted intense discussions among stakeholders in the industry and signalled the commencement of a process of multiple revisions of the Bill in an attempt to produce an acceptable draft. new fiscal regime.7 The Minister Petroleum Technical Bureau PTB (formely NNPC Frontier Exploration Service) Upstream Petroleum Downstream Inspectorate UPI Petroleum (formerly DPR) Regulatory Agency DPRA (formerly DPR downstream. transformation of upstream contractual agreements.1 PIB 2012 AND THE GAS REGULATORY FRAMEWORK The regulatory framework for the gas industry under PIB 2012 is illustrated as follows: Fig 3. President Goodluck Jonathan presented a new version of the PIB (PIB 2012) to the seventh session of the National Assembly for consideration and enactment (Fagbohunlu and Ikweazom 2012). However there has been some doubt amongst stakeholders on the ability of the PIB to meet these goals due to the inability of the bill to pass into law after 4 years of its introduction (Oji 2013).

159 delineates the incorporation of Nigerian Gas Company (NGC) effectively transforming it from limited liability status. Under the PIB new commercial entities are created like a National Oil Company. releasing the NNPC from liabilities on transferred assets and getting FG guarantees for debts secured (PIB 2012). Confers proprietary interests in produced petroleum. Sec.  Advise the President on appointment of all chief executives.  Petroleum Prospecting License (PPL) . 120. 148). work. 3. This empowerment is hinged on the obtaining of licenses/leases under the following categories (Agbor and Segun 2012):  Petroleum Exploration License (PEL) . The PTB assists the Minister with policy implementation strategies while UPI and DPRA are the regulatory agencies for the upstream and downstream sectors respectively. production and development of oil or gas or both. win. geological.  Determines gas flaring penalties. and power to take control of plants and premises of licensees/leases and give directions.2 UPSTREAM GAS OPERATIONS Under the PIB licensees/lessees are empowered to enter into any contract for the exploration.  Petroleum Mining Lease (PML) . Sec.right to carry away and dispose won petroleum (and gas). 177 grants extensions of PPL on significant gas discoveries. and National Petroleum Assets Management Corporation (Sec.Relevant Ministerial powers include (Sec.5. carry away and dispose of petroleum (includes natural gas). Where domestic demand provides opportunity for gas sales the licensee can declare a commercial discovery 40 .to search for. to a maximum of 10 years sequel to appropriate appraisal.  Grants and revokes licenses and leases. 123.  Right of pre-emption to all petroleum and its products obtained and marketed in national emergencies. including gas. geophysical & geochemical exploration. 6):  Unhindered access to all acreage and facilities. prospecting. Nigerian Petroleum Assets Management Company Ltd.

Sec.5. 191 proposes that the President can grant Licenses/Leases in special circumstances. a PML is then granted. 183(3) provides for a DGSO imposed by the UPI based on domestic gas needs.(Fagbohunlu and Ikweazom 2012). Awards of PEL/PPL/PML are generally by an open.3 DOMESTIC GAS SUPPLY OBLIGATION (DGSO) Sec. 1985 & the Associated Gas Re- injection (Continued Flaring of Gas) Regulation. Where PPL conditions are met and UPI approves development plans. Basically all lessees are required by UPI to submit gas utilization plans and install flaring measurement equipment. According to Fagbohunlu and Ikweazom (2012) and Agbor and Segun (2012). DGSO default could lead to barring lessees from gas export operations and production suspension (PIB 2012). Fines for defaulters shall not be less than the real value of the flared amount (Fagbohunlu and Ikweazom 2012). and no indication if the process will be subject to NEITI guidelines (Agbor and Segun 2012). A new pragmatic regulatory approach might be necessary. 1984) characterised by continuously postponed deadlines and ineffective penalties. 3.5. There is no clear definition of ‘special circumstances’.4 GAS FLARING AND PENALTIES Sec. Moreover in a bid to assure transparency Section 174 invalidates confidentiality clauses restricting access to information/documents concerning agreements/contracts for upstream operations. 3. 201 and 275-281 lay out modalities concerning gas flaring activities. transparent competitive bidding process and all bids to be processed based on NEITI guidelines (Section 190). Section 201(1) which states that gas flaring penalties and flare out dates are to be determined by the Minister from time to time is akin to the situation created by previous legislation (Associated Gas Re-injection Decrees 1979. However. 41 . The volume of gas to be dedicated by each lessee for DGSO shall be based on an allocation system among lessees as determined by UPI from time to time and the NGC/UPI are to determine when this NGSO can be discontinued by any lessee.

Stakeholder consultations are required in the regulatory process.5. 252). Price regulation by DPRA shall be to curtail monopolies. 252 – 256.6 DOMESTIC GAS MARKET REGULATION The Minister prescribes regulations for the gas market on DPRA’s request with the aim of increasing competition (Onuegbu 2012). develop competition and protect customers (Sec. but is not limited to:  Gas pricing  Licensee tariffs and charges  Consumer protection  Enabling market competition  Monitor market growth  Annual updates of Domestic Gas Demand Requirement (DGDR)  Monitor GSPAs 42 .5 DOWNSTREAM GAS OPERATIONS LICENSING Fig 3. Third party access to transportation and distribution networks shall be on a non-discriminatory basis subject to the pricing principles and methodology in Sec.8 Source: Agbor and Segun 2012 3.5.3. The scope of the DPRA includes. but the term ‘stakeholders’ is undefined (Agbor and Segun 2012).

and all substances contained therein. this is another ambiguous provision. 43 . Therefore the challenge of the PIB becomes to simultaneously increase government take of economic rent and offer sufficient incentives for investment by IOCs.Any export of gas requires a gas export licence issued by DPRA for a certain volume of natural gas for a specified period of time. For the PIB to be perceived as a dynamic and stable fiscal arrangement there should be a willingness to give up an appropriate amount of economic rents to investors to guarantee sustainable capital investment flow for resource development. the fiscal provisions of the PIB were modelled. as exists in their natural state in strata. 362 defines "gas" or "natural gas" as ‘all gaseous hydrocarbons. is quoted as saying “the terms proposed (in the PIB) increase royalties. 273 include LNG? This is because Sec. In this case. and lower allowances or incentives all at the same time”.5. associated or not with crude oil. Isehunwa and Uzoalor (2011) look at the difference between previously fixed royalty rates and the new sliding rates based on production output. According to Agbor and Segun (2012). 3. turning Nigeria into what he described as “one of the world’s harshest fiscal regimes” (Kennedy 2013). and are in a gaseous state upon production from a reservoir and excludes condensates’ (PIB 2012). the argument of the IOCs that FG take will increase may have some merit. Minister of Petroleum Resources (MPR) Diezani Alison-Madueke claims that this objective has been achieved by her quote “The PIB establishes a flexible fiscal regime that will increase government take and yet encourage investment” (Bala-Gbogbo 2013). MD of ExxonMobil Nigeria and spokesperson of Oil Producers Trade Section. as they have expressed their disagreement and discontent with the fiscal terms of the PIB since its 2008 draft (Bala-Gbogbo 2013). He finds that the introduction of sliding royalty and tax rates makes the PIB relatively progressive and efficient although restricted access to gross revenue from upstream operations can be an area of concern to the IOC.7 DISCUSSION ON PIB Mark Ward. increase taxes. In a notable scholarly work by Iledare (2010). and find that sliding royalty rates compare favourably with fixed rates for government take. Does ‘export of gas’ in Sec. This appears to be the overwhelming opinion of IOCs operating in Nigeria. Additionally.

Royalties. put together.Some concern has been raised in the literature about the ‘excessive powers’ granted to the MPR under the PIB (Oji 2013).6 SUMMARY This chapter has reviewed the Nigerian gas industry and touched on policies and legislation specific to it. 3. 44 . while the President would be able to award licenses without competitive bidding (Kennedy 2013). rentals and penalties would be calculated on the basis of output and will be set by the MPR. Given the long history of sub optimal domestic consumption of gas. These provisions seem to encourage arbitrary decisions by these officials and impinge on the much touted transparency the PIB is supposed to usher into the Nigerian petroleum sector. The recent changes in Nigeria’s gas policies encapsulated in the NGMP and PIB reveal an extensive suite of actions that. are expected to effectively utilize the abundant gas reserves the country has. it becomes necessary to evaluate these policies and ascertain their adequacy in resolving this issue. This ties in with the aim of this study. The NGMP was examined in detail and legislation pertaining to the gas sector in the PIB was highlighted. A discussion of relevant literature on the NGMP and PIB was conducted with a view to better understand salient issues surrounding them.

Leich.2 RESEARCH APPROACH Scholars have been involved in a long standing debate on the best approach to use when conducting a research (Lin 1998. an appropriate qualitative approach based on empirical relevance was adopted and implemented. Hill and Harrison 2009. which is to determine if Nigeria’s gas policies adequately address the domestic gas infrastructure problem. Ragin and Zaret 1983). creating their own unique view of the world. description and measurement of phenomena begins with the researcher’s experience of them (Leitch.CHAPTER FOUR RESEARCH METHODOLOGY 4. Interpretivism is an approach based on the interpretation of a socially constructed reality (Murray and Ozanne 1991). facts can be established but these facts are context bound and cannot be used for generalisations (Murray and Ozanne 1991). The thrust of this interpretivist ideology appears not to be to confirm or disconfirm prior theories. interpretivism and positivism (Lin 1998). Positivism on the other hand believes that events are predictable and seeks to identify propositions that can be tested and/or identified in other cases (Lin 1998). as well as the provision of a theoretical framework and method of data analysis. The choice of method is based on the research problem and the aim of the study. not what is hoped for. As such the positivist assumes 45 . This debate is centred on two fundamental concepts. sources of data and its validation.1 INTRODUCTION This chapter describes the research method and approach selected to achieve the aim and objectives of the study. interpretive theories inextricably grounded in the ‘lived-world’ (Leitch. The chapter starts with the research approach and then the choice of research methods. Hill and Harrison 2010). To the interpretivist. It is concerned with what is. but to develop from the bottom up. To this end. 4. A central concept in this ideology is that. Hill and Harrison 2010). ontologically no attempt is made about what is and is not real. Lor 2011. This approach is underpinned by the argument that humans perceive and interpret events subjectively.

A qualitative approach is generally characterised by a greater depth of exploration and description than a quantitative approach. There is a reliance on empirical techniques to produce quantified and generalised results when the results of analysis of sample data is used to make inferences about the population (Di Pofi 2002). On the other hand. However. It concentrates on subjectivity and contextual expressions to define phenomena (Roth and Mehta 2002). The use of secondary data sources and an objective analysis of the findings will help mitigate this shortcoming. usually resulting in sufficient details to fully grasp the idiosyncrasies of the situation being studied (Westbrook 1994). do Nigeria’s gas policies adequately address the local gas supply and infrastructure challenges? This holds true because the study ultimately seeks to form an opinion that is not context bound by the researcher. 4. 46 . quantitative and qualitative methods (Lor 2011). The researcher has therefore found it necessary to adopt a positivist approach in a bid to answering the research question. and is concerned with objectively ascertaining the relationships between them with a view to developing theories that explain their behaviour (Fitzgerald and Howcroft 1998). Independence and objectivity in this context means that other researchers with the same viewpoint will arrive at the same conclusions if they carry out the study under the same conditions (Roth and Mehta 2002). the positivist approach has a major setback in that it is difficult for the researcher to remain independent of the study and this shortcoming may affect objectivity (Roth and Mehta 2002). qualitative methodology is an inquiry process of understanding based on distinct and methodological traditions of inquiry that explore a social or a human problem in natural situations (Srivastava and Thomson 2009). Quantitative research involves the collection of facts and subsequent study of interrelationships between data sets derived from these collected facts (Lin 1998).the independent existence of measurable events.3 QUANTITATIVE AND QUALITATIVE RESEARCH METHODOLOGIES Research methods can generally be classified into two main categories.

complex and functioning phenomenon. it will seek to ascertain whether the gas policy changes as captured in the NGMP and proposed PIB have adequate measures to guarantee domestic gas supply to consumers. Furthermore. measurements.4 DATA SOURCES Data for research purposes may be obtained from primary or secondary sources (Lor 2011). These documents and articles. secondary data can easily be validated by comparison between a number of sources thus increasing credibility. On the other hand. Thomson and Stew (2012) suggests that a positivist qualitative approach is appropriate for evaluative research aiming to better understand what is distinctive about a specific. Petty. Thomson and Stew 2012). secondary data sources for input data are easily accessible which enables faster conduct of the study. For example. For the study. Such secondary data can be both primary and/or secondary data culled from other sources (Hox and Boeije 2005). Furthermore. constitute the secondary data to be used in the study. secondary data is information already available that is adapted for use in the study by the researcher. questionnaires and interviews during the course of the study. This study upholds this view because it evaluates the NGMP and proposed PIB with a view to shedding more light on the impact of these policy changes on gas infrastructure development in Nigeria. the researcher finds it most suitable to adopt an evaluative qualitative approach viewed through positivist lens in a bid to achieve the objectives of the study and answer the research question. a study by Petty. Primary data is data generated by the researcher through observation. As such. Additionally. 4.While it is argued that qualitative research is underpinned by an interpretivist ideology. available largely from reputable academic journals and news magazines. only credible data sources such as Energy Information 47 . an appropriate theoretical framework will be used to evaluate a policy model representative of aspects of the gas policy changes relevant to the scope of this study so as to come up with reasonable conclusions. a positivist epistemology has been successfully described and applied by qualitative researchers (Roth and Mehta 2002. From the foregoing. The researcher acknowledges that primary data is a useful data source for conducting research but it may not be appropriate for this study because majority of the data required for the study already exists in written documents and articles.

A stakeholder approach suggests that government must formulate and implement policies and processes which satisfy all groups who have a stake (Freeman and McVea 2001). these policies affect different groups and organizations as well. just like every other organization. The stakeholder theory largely underpins the design of governmental policies and explains the dynamics involved in aligning the interests of the government and that of the various stakeholders involved. This method is particularly relevant in applied social sciences as it supplies theoretical results that 48 . 4. like the IOCs. communities and other groups in a way that ensures the achievement of strategic goals in the long-term (Jawahar and McLaughlin 2001). The researcher therefore found it appropriate to adopt the stakeholder theory as a framework to underpin the methodology of this study. CIA World Fact book. industrial consumers. When a government creates and implements policies to drive strategy. comprises of various stakeholders with varied vested interests. Freeman and Wicks 2003). 4. each with divergent interests (Donaldson and Preston 1995). local power sector and host communities. NNPC and others will be used. Stakeholder theory is grounded on the premise that adequate attention should be given to the interests and well-being of all parties who can assist or hinder the achievement of the organization’s objectives (Philips. industrial consumers. BP Statistical Review of World Energy. Government.6 METHODOLOGY Multi-criteria evaluation (MCE) is a social research method that aims to simultaneously analyse multiple criteria (Mundaca and Neij 2009). The central task in this process is to manage and integrate the relationships and interests of government.5 THEORETICAL FRAMEWORK Government. acting as management. shareholders. employees.Administration (EIA). This theory assumes various levels of stakeholder groups. suppliers. These complex interrelationships can be explained by the stakeholder theory of strategic management. attempts to achieve its strategic goals by implementing policies that drives its strategy as well as satisfying the various stakeholder interests. World Bank.

Mundaca and Neij (2009). This view agrees with previous discussion in chapter 2. MCE is often based on a lengthy iterative process. it is not an end in itself. the study will develop its MCE model as fit for purpose and specific to the research question. and also Gamboa and Munda (2007). In addition.1 LIMITATIONS OF THE METHODOLOGY The study recognises that while a MCE methodology is ideal for this study it is not without its drawbacks. the use of a prescriptive rather than normative MCE model. Greening and Bernow 2004). there are typically multiple criteria that need to be evaluated. It has been successfully applied in performance evaluation studies involving multiple criteria (Yu and Hu 2010). In the formulation and implementation of policies.6. Blechinger and Shah (2011). the major one being the element of subjectivity involved in the identification of ‘‘important’’ attributes and their ranking of importance (Greening and Bernow 2004). helps mitigate subjectivity on the researcher’s part because the decision making process is not simulated but rather explored and evaluated (Yu and Hu 2010). The model could be considered as offering a starting point from which researchers can build more elaborate and detailed frameworks to study gas policy frameworks and statements. This approach is consistent with the approach adopted by previous researchers such as Greening and Bernow (2004). where policy information exists and the goals of the policy makers are known. Due to reasons of time and resource constraints. 4. 49 . In other words. However.assure axiomatic consistency in social constructs characterized by complexity (Munda 2004). It is therefore found appropriate to adopt a MCE model to evaluate the NGMP and proposed PIB in order to achieve the research objectives and answer the research question. The proposal of the concept of MCE as a possible useful framework for the evaluation of the difficult policy problems of our millennium is a main argument developed by some authors (Munda 2004. where the various interconnecting factors that affect gas policies were reviewed. typically with data aggregation methods for ranking and evaluation.

especially when examined against the themes and concepts earlier discussed in chapter 2.In spite of these limitations. Recchione 1979. there ought to be a positive correlation between domestic gas infrastructure development and gas policy best practices. it remains useful to analyse the NGMP and proposed PIB with the view to evaluating its adequacy in solving the domestic gas infrastructure challenge. A critique of the methodology and indicators was presented and steps to be taken to mitigate their shortcomings were highlighted.7 SUMMARY This research adopts a multi criteria evaluation methodology with stakeholder theory as the underpinning theoretical framework. MacAvoy 1979. 1984. The NGMP and proposed PIB will be evaluated in a bid to answer the research question. Given the correlation between regulatory environment and gas industry growth as earlier discussed (Hudson and Jorgenson 1974. Darley 2006. 50 . 4. 2001).

These policies cover the recent strategic drive of the FG to restructure and reposition the Nigerian petroleum sector and indeed its economy on a viable.1. 5. The data collected is critically examined in relation to the expectations of all identified stakeholders and in line with the research aims and objectives to produce the results which are analysed to determine the adequacy of these gas policies to address domestic gas supply and infrastructure challenges. a simple MCE model based on previous work by Konidari and Mavrakis (2007). These descriptive features describe the relevance and tide of the sample data used in this research and provide the content for analysis.1 MCE MODEL AND POLICY MEASURES For the purpose of the study. Yar’Adua 2007.nnpcgroup. competitive path to long term growth (Onyeukwu 2010). which collates the various terms and instruments of these policies. It analyses the results obtained from the research findings using the factors identified from literature that affect domestic gas supply and infrastructure development. 5. and Blechinger and Shah (2011). Their model will be adopted and modified to the requirements of this study.0 INTRODUCTION This chapter provides discussion on the description of the sample data used in the study. 51 .1 DATA DESCRIPTION This section discusses the features of the sample data used in the study which are descriptive in nature.CHAPTER FIVE DATA ANALYSIS AND DISCUSSION OF RESULTS 5. The data was collected majorly from the NNPC website – www. The sample data used for this study comprise mainly of a combination of documents containing the provisions of the NGMP and proposed PIB as it concerns domestic gas infrastructure development. and other relevant sources. The analysis will be carried out in three steps given as:  Selection of policy measures: Based on a review of the NGMP and PIB as well as relevant literature and documents (Le Leuch 2011. It will also provide further discussions by comparing the results obtained from the study with the research found in the literature.com. will be used.

which are to assess whether or not the NGMP and provisions of the proposed PIB have robust measures to guarantee domestic gas supply to consumers and assess whether or not the NGMP and provisions of the PIB adequately provide for gas infrastructure development. Ige 2008. Instead a 3-point Likert scale ranging from “0” for “non-existent”. Adesina 2012) a list of policy measures aimed at growing the Nigerian economy through domestic gas utilization will be compiled. The policy model is used based on the research objectives of the study.1 Structural Model for Evaluative Analysis of NGMP and PIB Source: Various sources For the purposes of this study a policy measure is defined as those adaptable and customisable tools that can be controlled by the government to achieve its policy objectives (Borras and Edquist 2013). “1” for “poorly defined”. Fig 5. the analytical hierarchy process and multi attribute utility theory used for pairwise comparison to assign relative weights to evaluation criteria will not be applied (Blechinger and Shah 2011. The basis for these policy measure 52 . and “2” for “well defined” will be used to evaluate policy measures against the selected criteria.  Selection of evaluation criteria: Evaluation criteria will be devised based on the recommendations of Blechinger and Shah (2011). Konidari and Mavrakis 2007). These classifications are compiled into a tabular form below.  Evaluation of policy measures: Due to the absence of relevant quantitative data.

LPG processing. as well as LNG exports. Open access to pipelines: This is described as policy measures aimed at ensuring gas pipeline owners offer equal access to other market players (De Vany and Walls 1993). 5. steel. On this basis they are the unit of analysis. 4. 53 . aluminium and fertilizer industries. Privatization: This is described as policy measures that allow for private ownership of important public utilities (Nellis 1994). Licensing: This is described as policy measures that grant lease rights to legally protected property.selections therefore are contingent upon the issues the policy objective seeks to address. The policy measures selected are detailed below. Pricing regime: This is described as policy measures aimed at discouraging vertical integration or industry monopoly in the gas sector through price regulation. 1. 3. 9. Supply obligation: This is described as policy measures that aim to enforce domestic supply from a portion of total gas reserves (Yar’Adua 2007). such that a business or individual can conduct gas related operations (Fosfuri 2004). Examples of gas consumption project options relevant to Nigeria are power generation. 7. Policy measures can be combined to achieve complementary effects (Borras and Edquist 2013). Pipeline capacity increase: This is described as the cross section of existing and proposed domestic gas pipeline infrastructure to create an integrated supply network (Yar’Adua 2007). Purchasing options: This is described as policy measures that set out procedures and options for sale and purchase of gas for domestic utilization (Thomas and Dawe 2002). GTL manufacture. Gas consumption projects: This is described as the cross section of existing and proposed domestic projects utilizing natural gas to support domestic economic growth over a long period of time (World Bank ESMAP 2004). thereby protecting the customers (Seliverstovs et al 2005). cement. Gas flaring reduction: This is described as policy measures aimed at eliminating routine flaring of stranded gas (Debeyssey 2012). 2. They are the building blocks on which government hopes to achieve its policy target (Blechinger and Shah 2011). 6. 8.

1. A higher feasibility value is assumed when there exists an enabling institutional/legal framework supporting a policy.5. or availability of clear information. 3. regarding the operationalization of the measure. A detailed description of each criteria is given for clarification. A higher equity value is assumed when there is evidence of a fair allocation system for the policy measure. the key stakeholders as regards to gas infrastructure development and domestic gas supply are compiled as follows: 54 .2 SELECTION AND DESCRIPTION OF EVALUATION CRITERIA A review of relevant research papers (Konidari and Mavrakis 2007.1. A higher transparency value is assumed when there is clear and detailed information on the policy measure. 2.1. A higher stringency value is assumed when there is evidence of clear rules and influencing mechanisms to ensure compliance to the policy measure. This is because unintentional distribution of costs on non-participating target groups during the implementation of the instrument may result in disproportional burden for them (Konidari and Mavrakis 2007). Feasibility is defined as the aggregate applicability of the policy measure linked to national institutional and legal frameworks. 5.3 KEY STAKEHOLDERS In an attempt to appraise the NGMP and PIB. These criteria are based on key stakeholder preferences and form the theoretical framework underpinning the analysis of Nigeria’s gas policies (Blechinger and Shah 2011). Equity is defined as the fairness of the policy measure in distributing costs and benefits across key stakeholder groups. Stringency is defined as the rigidity of the policy measure towards non- compliance/non-participation. A higher flexibility value is assumed for a lengthier timeframe allowed for implementation of/compliance to a policy measure. 4. Transparency is defined as the openness of implementation. Flexibility is defined as the property of the policy to provide a range of compliance options allowing stakeholder groups a timeframe for adjustment to the policy measure. 5. Blechinger and Shah 2011) suggests the policy evaluation criteria to be used.

For illustrative purposes the stakeholder network is given in figure 5. The policy measures of the NGMP and PIB are critically examined against factors that affect gas supply and infrastructure development to determine if they adequately provide for these factors.2 Network of Key Stakeholders IOC FG CUSTOMERS DOMESTIC INDUSTRIAL COMMERCIAL lines. electricity. responsible for the ministries and agencies involved in the management. i. Since the policy measures are the unit of analysis it logically follows that robust and adequate measures should result in the meeting of policy targets (Konidari and Makravis 2007). advice arrows. the policy measures will be evaluated against selected criteria. administration and regulation of the petroleum industry. regulation. Nigerian Government This comprise the Federal Government of Nigeria (FG) on whom the ownership right and title to all the nation’s petroleum resources vests. products Compiled from Adefulu (2009) and PIB 2012 These stakeholders all have direct influences. iii. the industrial sector.gas. and an ordinal ranking of the results will be carried out and comprehensively discussed. ii. Suppliers (IOC) These are the companies that operate the fields that are expected to supply gas for domestic consumption. or are directly influenced by.2 Fig 5. the gas policy changes of the NGMP and PIB. This will form the basis for determining the adequacy 55 . Consumers This classification comprises the domestic sector.contracts. Hence. and the commercial sector as broken down in the GPP.

of the NGMP and PIB in meeting the domestic gas supply and infrastructure challenges. The results obtained will then be viewed the lens of related findings available in stakeholder theory literature. 5. Fig 5.2 RESEARCH FINDINGS AND DISCUSSION This aspect covers the analysis and findings of the results obtained in the study. The review and analysis will be rounded up with recommendations on possible steps to take in order to improve the robustness of policies meant to guarantee domestic gas supply and infrastructural development. while guaranteeing proper consideration of stakeholder interests in achieving policy targets.3 shows overall performance of the nine policy measures assessed against selected criteria with the MCE model.1 SUMMARY RESULTS Fig 5. It begins with an evaluative analysis of relevant policy measures as captured in the NGMP and PIB.2.3 Policy Measures Ranking 10 9 8 7 6 5 4 3 2 1 0 Source: Author’s calculations 56 . 5. followed by a critical and detailed discussion of the results obtained from the MCE model used.

They scored high under all evaluation criteria apart from flexibility. than gas infrastructure development objective which scored 7.4 illustrating the ranking and performance of evaluation criteria. 1 The averages across a range were computed in line with Konidari and Mavrakis (2007) 57 . A comparison of the key objectives also reveals that the security of gas supply objective performed better with an average score of 8. or not clearly defined. licensing and supply obligation while the lowest ranked are gas consumption projects and gas pipeline capacity increase (see Appendix I). the highest ranked policy measures are pricing regime. even below the total average. flexibility. Feasibility comes second. 5. flexibility and stringency have equal scores of 11 out of a possible 18 and are the lowest ranked. with stringency. The deviation between the top scorers and the bottom scorers was a significant 50% as well. The bottom three criteria combined also have the majority of available scores. Finally.4 Evaluation Criteria Ranking 20 15 10 5 0 Feasibility Transparency Equity Flexibility Stringency Source: Author’s calculations From Fig 5.4% amongst them.Interestingly. The overall best policy measures from the model are also the highest ranked within each policy objective category.6% of evaluation weight while the top two share 48. They account for 51. it is clear that the transparency criteria significantly outranks all others. Fig. The average score across board for all policy measures was 7.3 out of a maximum score of 101. because all timeframes for adjustment as measured for flexibility were less than one year. and equity following. pipeline access.

supply obligation takes maximum scores in all criteria except flexibility. 5. the preceding results of the MCE will be discussed in the context of both key policy objectives as set out in Fig 5.1.5. the MPR has the discretionary power to permit flaring in some cases (Sec. This is because there is no mention of a definite flare-out date. However. the issue of an export-oriented gas sector still persists (Onyeukwu 2010). DGSO is a legal duty imposed on a gas producer to supply a stipulated quantity of gas to the domestic market at a given period (PIB 2012). the supply obligation and flaring reduction measures scored 9 and 7 respectively out of a maximum score of 10.2. the implication is that supply obligation policy measure outperformed the average while flaring reduction underperformed against the evaluation criteria. instead it is left to the MPR to set a date from which zero gas flaring will be enforced. although there are clear provisions for flaring penalties. 277(2)). Considering that the average score is 7.1 ENSURING DOMESTIC GAS SUPPLY FOR CONSUMERS Under the security of supply objective. because there is no clear timeframe given. as well as smaller consumers in the commercial and residential sector (Onyeukwu 2010). On the other hand.2. flexibility and stringency criteria.2. cement.3. Flaring reduction lost scores under equity. there are clear instructions for IOCs to submit gas utilization/reinjection plans for approval in line with reducing wasteful gas flaring. Core 58 .2 DISCUSSION OF RESULTS In order to achieve the objectives of the study. aluminium and steel industries. Inasmuch as the DGSO seeks to ensure availability of gas for domestic utilization. These key objectives are security of supply and gas infrastructure development. 183). It gives rise to the concept of the “domestic‟ and the “non-domestic‟ (export) gas obligations. Additionally. Domestic obligation is linked to an estimated utilization requirement ranged across major consumers like the power sector. LPG sector. These provisions lend credibility to the concerns raised by Oji (2013) and Kennedy (2013) about how the discretionary powers the MPR wields affects the perceived transparency of Nigeria’s gas policies. Sec. rather there is reference to a “period” in which the DGSO is to be implemented (PIB 2012. Without an approved gas utilization/reinjection plan a production license cannot be issued. fertilizer.

5mcf for any gas flared. Igbatayo 2005). Apparently this is to ensure equitable distribution of the supply obligation as a blanket amount may not be fair to the smaller independent companies and operators of marginal and deep-sea fields. It states that failure to comply with the DGSO shall lead to the loss of entitlement to 59 . the FG initially indicated a supply obligation for a minimum of five years and would only allow export after the DGSO is met (Okorie 2010). This is consistent with Yar’Adua (2007). these IOCs preference for the export market creates a potential resistance to the DGSO (Onyeukwu 2010). The NGMP prescribes a DGSO for the IOCs of up to 50% of their gas production in accordance with a Gas Management Model through which the demand forecast would be made and quota allocated (Okorie 2010). 183(1)). The PIB upholds the DGSO by requiring the UPI to impose and enforce compliance of the DGSO (PIB 2012. Castano and Dresda 2005. This appears to be another measure by the FG aiming to change the export bias of IOCs as discussed previously.IOC operators appear to have a strong portfolio interest that is biased towards export LNG (Boni. Yar’Adua (2007) argues that this is because LNG has favourable economics relative to pipeline gas for long distances. The volume of gas to be supplied by each lease holder shall be based on an allocation system to be determined by UPI. 183(4) stipulates that the UPI is mandated to ensure that the weighted average benchmarked unit costs of supply from fields dedicated to a DGSO is never higher than the benchmarked unit costs of supply alternatives in the export market. The implication of this instrument is to provide a financial incentive to the IOC by ensuring that it is economical to adhere to the DGSO as opposed to supplying gas for export. Considering that the Nigerian gas market is controlled by a few major players. who adds that allocated reserves to be supplied will be based on estimated domestic requirement and should help mitigate the current supply shortfall largely driven by focus on export by IOCs. Sec. Sec. 183(5) sets out the penalty for non-compliance to the DGSO.5mcf for non-compliance and an environmental surcharge of $0. To this end. It imposes a penalty of $3. The high rank given to the supply obligation policy measure implies that these intentions have been adequately covered. As such it is the intention of the FG that this policy will mitigate against the rising shortfall in the domestic supply base and force internal portfolio realignment within the IOCs (Yar’Adua 2007). Sec.

and is exhaustively covered from Sec. has the highest potential for growth therefore justifying a transitional pricing regime to avoid supply imbalances between sectors (MacAvoy 1984. The message here is quite clear. Onyeukwu 2010). It does not stipulate any direct financial charges as penalties. enabling it achieve its objectives (Munnel 1992). suggesting that this policy measure performed adequately. domestic power sector. A closer look at these policy instruments put together suggests a complementary structure aimed at discouraging export-orientation by Nigeria’s major gas sector players. Castano and Dresda 2005. the pricing regime is detailed as the GPP in the NGMP. A key feature of a liberalised gas market is the influence of market demand and supply on prices and costs (Garcia and Vredenburg 2000).2. Where the IOC previously only supplied gas to gas export operations. Comparatively Nigeria’s LNG export market is experiencing significant growth. 60 . 5. Yar’Adua (2007) and Oyewumi (2013).supply gas to any gas export operations. As such the GPP appears to contradict the introduction of a competitive gas market because it regulates prices for gas by stipulating minimum prices for different strategic sectors. Pricing regime is ranked highest. According to Adefulu (2009). Therefore gas infrastructure development refers to policy measures that aim to build Nigeria’s gas sector by positioning it on a path of sustainable and steady growth. it shall be directed by the UPI to suspend production. the lowest priced sector. Results of the evaluation show that scores of the selected policy measures range from 9 to 4 out of a maximum of 10. As previously discussed in chapter 3. If this assumption holds. 252-256 of the PIB. the reason behind this price regulation lies in the fact that the different strategic sectors have different pricing structures and the economics of supply are unfavourable for the lower priced sectors because of their inability to pay market prices. then the DGSO could be justified as a rational course of action for a government wishing to develop a vibrant domestic gas market (Ige 2008).2.2 DOMESTIC GAS INFRASTRUCTURE DEVELOPMENT The term infrastructure refers to the framework that supports an organization or system. A breach of the DGSO essentially translates to forfeiture of gas export privileges (Okorie 2010). Boni. arguably at the expense of the domestic gas market (Igbatayo 2005. Interestingly.

Based on the MCE model. It is possible that the intention is to utilize the same measures provided in the pricing regime since there is a significant relationship between the pricing regime and the ability to purchase gas (Garcia and Vredenburg 2000). Total and Eni established in response to the NLNG Decree of 1989 to improve gas utilization and limit gas flaring (Okorie 2010). these policy measures failed to get maximum scores for flexibility and stringency. licensing scores low on flexibility because of the same reason. The study notes that these policy measures are at the core of the GIB. Pipeline access is also top ranked under this policy objective. A breakdown of gas consumption projects are given below: 1. BG 61 . 224 indicates a notification timeframe for any aggrieved party to object to tariffs set by the DPRA.Yar’Adua 2007). Purchasing options and privatization score 8 and 7 respectively. this can be attributed to the lack of clarity in Nigeria’s gas policies concerning a timeframe for gas aggregation price implementation. Shell. In particular. There is no legislative framework backing these policy measures. Similarly. It scores low only on flexibility as well because there is no specific timeframe for implementation/compliance referred to. However. Pipeline access hopes to achieve greater competition for gas supply by increased access to transportation infrastructure for interested parties. For Brass LNG an MOU has already been signed with Suez LNG Trading SA. Sec. and no penalties for implementation or compliance. only scoring under transparency and flexibility criteria. if this is the case. no fair allocation system. The lowest ranked policy measures are gas consumption projects and pipeline capacity increase. LNG projects under construction are Brass River LNG and Olokonla LNG (Igbatayo 2005). For purchasing options. the study finds no evidence in that regard. Nigerian Liquefied Natural Gas Project (NLNG) is a joint venture (JV) involving NNPC. Associated gas is processed at an LNG facility in Bonny Island and transported through six special trains for export. thus a deeper understanding of these measures should shed more light on their adequacy and help answer the research question. However. and a punitive system to ensure compliance. these reasons add up to an explanation of the low scores of these measures.

deliver gas to Lagos and also supply the West African Gas Pipeline (WAGP) project (Igbatayo 2005). From the evidence given it appears that there a number of domestic gas utilization projects. 3. in which domestic gas utilization for Nigeria was given as an average of 8% of total gas production. Togo and Ghana with Chevron Nigeria Ltd as the majority shareholder focuses on transporting natural gas from Nigeria to delivery points in Benin. An overview of the existing 62 . diesel and other GTL products. North and Coastal regions of Nigeria. in conjunction with Mobil Oso condensate. Igbatayo 2007). an optimal reconfiguration of existing pipeline capacity as well as installation of additional capacity will be critical to gas supply availability. In this light the low score is justified. Hence. Togo and Ghana (Igbatayo 2009). Benin. with NNPC and Sasol also having stakes (Okorie 2010. It will be fed associated gas from Shell and Chevron fields and is designed for 4 trains (Okorie 2010. 2. An integrated gas network is crucial to efficient gas supply (Pavlenko and Glukhareva 2010). Escravos Gas to Liquid (EGL) is developed by Chevron Nigeria Ltd. The WAGP established by the governments of Nigeria. This is consistent with OPEC annual statistics 2008. NNPCs Annual Statistical Bulletin (2012)(see Appendix II) suggests that a higher percentage of gas currently utilized are sold to 3rd parties. Group and British Petroleum (BP) and it has a design of 2 trains. projected domestic gas demand growth for base and high growth cases significantly exceeds available pipeline backbone capacity in the West. re-injected. or used as fuel for production activities. Okorie 2010). According to Onyeukwu (2010). The TSGPP will transport Nigerian gas to Europe and North America through Algeria (Igbatayo 2009. used for LNG exports. This project shall. while Olokonla LNG is a JV with BG and Chevron Nigeria having stakes. There are other regional market infrastructure projects under construction ie which have all past the design stages. There is also the Trans-Sahara Gas Pipeline Project (TSGPP) of which the Russian giant Gazprom has acquired some interests. Its design capacity is to convert 300mcfd NG into fuel. While this may indicate a high performance policy measure. Igbatayo 2007). Concerning pipeline capacity increase. the GIB advocates integration.

According to Adesina (2012) and Yar’Adua (2007). the Eastern and Western networks (Yar’Adua 2007). Additionally. making a good case for integration and optimisation of the gas network. Whilst gas reserves are concentrated in the coastal region. there is evidence of sub- optimal pipeline configurations between SPDC’s offshore gas gathering system (OGGS) and the Escravos Lagos offshore pipeline (ELOP). there is limited connectivity to the West where demand growth is highest and North where demand growth is also expected. Existing gas pipeline infrastructure is inadequate in capacity and reach for the current and projected demand growth. Another issue appears to be infrastructure duplications. There are two main pipeline networks in Nigeria. effectively skewing the demand-supply balance across the regions.pipeline infrastructure capacity as compared to forecasted demand scenarios is given below: Table 5. while the ELOP system runs for 340km from Escravos to Lagos through the Bight of 63 . The OGGS pipeline runs for 268km the Banga field through the Bight of Bonny to Bonny terminal. there is a lack of connectivity between the coastal region and western region. there is a clear disparity between pipeline infrastructure capacity and projected demand.1 Pipeline Infrastructure Capacity (2015 projection) Northern Region Base case 400mmscf/d High Case 1200mmscf/d Current Capacity ~300mmscf/d Western Region Base case 5800mmscf/d High Case 12000mmscf/d Current Capacity ~800mmscf/d Coastal region Base case 2500mmscf/d High Case 3000mmscf/d Current Capacity ~1100mmscf/d Source: Ige (2008) and Adesina (2012) As Table 5. This infrastructure situation limits the flexibility of supply (Weisser 2007). and this factor coupled with limited throughput capacity severely constrains supplies (Yar’Adua 2007).1 depicts.

An illustration is provided in Fig 5.Bonny as well. available gas processing/gathering plant capacity is expected to rise alongside demand growth (Yar’Adua 2007). A steady growth in capacity has been recorded from 4091mmscf/d in 2004 to over 14000mmscf/d by 2010 (NNPC 2010). Based on NNPC projections. However. this pace of growth is not as aggressive as forecasted gas demand growth implying that there is scope for increased plant capacity as well (Ayankola 2008).4 Fig 5. there exists sufficient scope to harmonise pipeline configurations. 64 . As illustrated. Onyeukwu 2010. NAOC’s GTS4 and ENL Consortium’s OUL pipelines are also not optimally configured.5 Pipeline Structure showing Network Configuration Source: Yar’Adua 2007 This sub-optimal structure exacerbates the issue of limited domestic gas supply flexibility. Yar’Adua 2007). It is a strong opinion of some authors that poor collaboration across different JVs entered into by IOCs is the driver behind the poor integration of existing infrastructure and the apparent unwillingness to increase existing capacity (Ige 2008. Similarly.

For the three transmission lines. 700 km Western system with 200km offshore extension and 200 km Inter connector system (Ayankola 2008). For the Western area. through an extended gas gathering system. demand should range between 1-4 billion cubic feet by that period while in the South Eastern area. CPF operators could. while the Western line has domestic and the West African Gas pipeline project as its key markets. a forecasted gas demand has been compiled. domestic and the Trans Saharan Gas pipeline. The three systems are to operate independently. the South- North line has as its key markets. 1-7 billion cubic feet (Ayankola 2008). though connected. The second is proposed establishment of three gas transmission lines and compressor stations. This measure may be seen an attempt to incentivise private investment in CPFs. for the Central area. The CPFs are meant to treat wet gas. Central and South-Eastern franchise areas. The strategic aim of establishing an integrated gas infrastructure network is expected to be achieved with the implementation of these plans which feature an optimised configuration connecting the different regions and an increased capacity for gas processing and gathering (Adesina 2012). namely the Western. the third line is the inter-connector line. Within each franchise area. Obiafu (North Port Harcourt) and Akwa Ibom /Calabar area (Ayankola 2008). purchase stranded gas while it can also utilise its acquired gas for its own LNG project.Some key investment categories have been identified and proposed as policy measures to jump start network integration and capacity enhancement. extract Liquefied Petroleum Gas (LPG) and Natural Gas Liquids (NGLs) as well as export lean gas into the integrated transmission system. This appears to be aimed at bridging the forecasted plant capacity gap as earlier discussed. there are to be three franchise areas for infrastructure capacity expansion. demand is expected to be in the range of 3-8 billion cubic feet per day by 2015. According to Yar’Adua (2007). 65 . The first category is the proposed investment plans for three central gas gathering and processing facilities (CPFs) at West Delta (Forcados Area). These are given as the 1200 Kilometre North/South Line.

223(1) of the PIB allows for the construction and operation of independent pipelines. The pipelines and depots. however.4 SUMMARY The sample data and their distinctive features and classifications for the purposes of the study have been discussed. 5. depots and jetties by private organisations for the transportation of petroleum products (PIB 2012). Conclusions based on analysis results were discussed then the chapter was summarised. The results and findings of the study have also been critically discussed with reference to relevant literature within the context of the selected evaluation criteria based on stakeholder preference. Sec. it has come to the notice of the researcher that there is no specific provision within the proposed PIB to guarantee that the policy instruments in the GIB as identified by this study are implemented. In support of this view. will be subject to DPRA regulation. This omission may imply that the FG lacks political will to follow through on its policies (Kurmanov 2012). integrated market which in turn should incentivise private investment in gas infrastructure (Villada and Olaya 2013). On the other hand it also could suggest that the FG is confident that there is sufficient measures in place to introduce a liberalised.However. 66 .

5. 5. Policy measures less adequate and more difficult to implement are situated closer to the right in Fig. FG could set up a specific legal framework with subsidies to support the installation and operationalization of more gas utilization technologies and processes and also subsidies on end products of gas processing brought to market (Konidari and Mavrakis 2007). This study. and also to assess whether or not they adequately provide for gas infrastructure development. supply obligation. This exercise was done in essence to ascertain if these policy documents have adequate measures to guarantee gas supply to domestic consumers. In summary the best measures to achieve these strategic targets are pricing regime. This study carries on with this tradition. This is especially important for developing countries so relevant supporting policies can be implemented (Blechinger and Shah 2011). pipeline access and licensing.3. A focus on stakeholder engagement in policy development should be encouraged (Jawahar and McLaughlin 2001).CHAPTER SIX CONCLUSIONS AND RECOMMENDATIONS 5. An outlook for the possible implementation of the most adequate policy instruments for the gas sector of Nigeria is suggested from the ranking in Fig.1 CONCLUSIONS Many researchers have carried out evaluative studies on public policies. contributes to available literature through the analysis of the NGMP as well as relevant provisions of the proposed PIB. A qualitative MCE methodology was proposed and adopted to form an opinion on the adequacy of these policies in contributing to the attainment of effective and efficient domestic utilization of its significant gas reserves. Critical to success of the gas sector development will be government support for the proactive stance of IOCs that are already 67 . therefore.3. Results suggest that several policy measures hold potential for ensuring domestic gas supply and infrastructure development in Nigeria. Implementation could focus on improvements to low scoring evaluation criteria. To reach these policy targets. but this time with a focus on Nigeria’s recent gas policy changes and their effects on domestic gas supply and infrastructure development. a combination of several policy measures should be used.

2011).  Stakeholder involvement in policy development processes should be encouraged more. passing some along to business and industry to assist itself (Blechinger and Shah. Furthermore. critical and in-depth study and analysis of the NGMP and relevant provisions in the PIB. then feasibility and equity with flexibility and stringency having the least scores. The study also exposes the inadequacy of these policies in ensuring effective monetization of gas reserves. DGSO. These are identified as the compulsory DGSO and the ambiguity surrounding the rights granted to the MPR.involved in gas utilization schemes. the study found the GPP. and also to help shoulder the administrative burden of government. Summarised findings of the study are given below: The study finds that Nigeria’s gas policies perform better at guaranteeing domestic gas supply for consumers than providing for gas infrastructure development. 3rd party pipeline access and licensing policy measures are the best performers based on the selected criteria and as such are adequate policy measures. This is especially relevant for policy instruments that may 68 . Finally. both as a means of building momentum for sector transformation.2 RECOMMENDATIONS Following the detailed. This must be encouraged. possible areas of improvement have been identified. However. although their efficiency in consumption as compared with available gas production can be called into question. Penalties should be significant enough to discourage default and encourage DGSO participation. the study identifies potential areas of conflict amongst key stakeholders in the domestic gas sector. The study finds that Nigeria’s gas policies score highest in transparency. 5. the study recognises that there are major gas monetization projects either underway or in the pipeline. They include:  The clarification of gas flaring penalties giving a clear and concise basis for penalising defaulters based on level of default.

For example non gas- based power plants could be gradually phased out leading to significantly increased utilization capacity in the power sector. Efforts should be made to diversify gas utilization projects. have a direct effect on a particular stakeholder group above the others. a neutral stand should be maintained to discourage favouritism. especially flexibility and stringency.  Policy implementation should focus on improving low ranking evaluation criteria. 69 .  There is significant scope for increased domestic utilization capacity.  The PIB should include relevant provisions for the incentivising of investment in domestic gas utilization and increased pipeline capacity. However.

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APPENDICES Appendix I MULTI CRITERIA EVALUATION MODEL (COLOR CODED FOR CLARITY) Evaluative Policy Measures Criteria Feasibility Transparency Equity Flexibility Stringency Pricing regime 2 2 2 1 2 9 Supply obligation 2 2 2 1 2 9 Pipeline access 2 2 2 1 2 9 Licensing 2 2 2 1 2 9 Purchasing options 2 2 2 1 1 8 Flaring reduction 2 2 1 1 1 7 Privatization 2 2 1 1 1 7 Gas consumption projects 0 2 0 2 0 4 Pipeline capacity increase 0 2 0 2 0 4 14 18 12 11 11 87 .

Appendix II 10 YEAR GAS PRODUCTION AND UTILIZATION STATISTICS Source: NNPC Annual Statistical Bulletin 2012 88 .