National Gas Policy 2017-Highlights and Analysis

摘要

On 28 June 2017, Nigeria's Federal Executive Council approved the National Gas Policy (the Policy) that articulates the current government's vision, sets goals and devises strategies for a wholescale reconfiguration of the legal, institutional, fiscal and commercial framework of the gas sector. The overriding objective of the policy is to remove barriers to gas capital inflows and create an investment-friendly environment. The Policy proposes the appointment of an independent regulator with economic and technical oversight (and in whom all regulatory and pseudo-regulatory functions would be consolidated). A regime of legal unbundling is contemplated that prevents industry participants from owning interests in other segments of the relevant market. Although unbundling has been used by advanced economies seeking to achieve greater market efficiency, it is not necessarily suitable for a developing economy facing various infrastructure challenges (where the primary concern should be on strengthening the economics of grid investment). The DGSO gas regime will proceed with a pricing formula, which will be released subsequently, but policy also needs to address potential DGSO volume risk because of insufficient demand. To incentivise domestic gas supply, wholesale gas is essentially "carved out" of DGSO gas with its pricing indexed to the Export Parity Netback Gas Price (EPP) applicable in the liquefied natural gas (LNG) trade. However, it remains to be seen whether this measure will provide sufficient motivation for reducing export volumes in preference for local supply. The "opportunity cost" for domestic supply would include not only the unrecovered cost of LNG facilities but also the forgoing of a return on each segment of the LNG value chain. The Policy contains several proposals designed to encourage wholesale market competition and predicates the declaration of the existence of a competitive wholesale market on the occurrence of specified events. The events, however, would suggest that a somewhat clearer perspective on the requirements for market deregulation is required. The Policy currently adopts a "wait and see" approach as to whether GACN would continue when, in the author's opinion, it would be preferable if it did not given the inconsistency between the current scope of its remit and the promotion of downstream choice, an essential factor in the evolution of market competition. The Policy seeks to stimulate stand-alone gas investments by removing current tax incentives that promote associated gas projects. Under the Policy, tax instruments for gas projects will include corporate income tax and a hydrocarbon tax. Unlike corporate income tax that charges accounting profits to tax, hydrocarbon tax is a tax on rent that is collected only after resource investments are recouped, together with a minimum rate of return. The Policy contemplates a Gas Resource Management Plan that identifies locations with gas reserves, infrastructure requirements and markets. Perhaps, for the first time, state policy will extend to PSC gas with the introduction of a model Gas Development Agreement that addresses the contractual and fiscal issues in deep-water operations. Key policy concerns for the government would be the nature of fiscal incentives necessary to attract gas investments and enhancing investment economics by encouraging FLNG in deep-water installations. The immediate outlook for Nigeria's LNG is somewhat challenging. To boost the nation's LNG trade, the initial focus should be on setting medium- to long-term goals, e.g. consolidating Nigeria's position as a hub for natural gas supply in West Africa, as well as promoting domestic LNG consumption. The Policy predicts a more significant role for CNG and LPG in domestic gas utilisation, which will require the state to provide incentives for CNG use and to reinforce LPG's positive qualities over kerosene (its closest substitute). State policy also recognises the need for a Competency Development Framework that creates opportunities for the acquisition of local expertise under a system that promotes supervised practical experience for graduates and apprentices in the industry. The goal of reducing flare gas would depend on the size of the penalty for flaring gas and the viability of any investment in flare-gas commercialisation.