Gas Supply and Pricing Regulations

The Minister of State for Petroleum Resources, H.E. Chief Timipre Sylva, declared 2020 as ‘the year of gas for the nation,’ an announcement that set the theme for the year. Consistent with the Federal Government of Nigeria (FGN) drive towards transitioning to gas based economy, this decade has further been declared as “the decade of gas”.

Nigeria is the largest oil producer in Africa and holds the largest natural gas reserves in Africa. According to the Department of Petroleum Resources (DPR), Nigeria’s proven gas reserves has increased by 0.57% from 202tcf recorded in January 2019 to 203.16tcf as at June 2020.

Given the country’s huge gas reserves and the comparative advantage of gas as a cleaner source of energy, Nigeria has witnessed significant increase in domestic consumption. Studies have demonstrated that oil reserves may dry up in the next 40 years. Thus, there is a paradigm shift that Nigeria is now referred to as a gas producer with proven oil reserves rather than the traditional label of an oil producer.

A significant amount of Nigeria’s gross natural gas production is either exported or re-injected while the rest is consumed for domestic use or flared.

The domestic market is categorized into 4 Sectors as follows:

• Power
• Gas Based Industries
• Commercial (Local Distribution Companies)
• Domestic LNG (newest category)

Power sector is currently the largest offtaker of domestic gas in Nigeria.

The table below depicts an overview of performance of the domestic market in 2021 vis-à-vis  

In a bid to create a framework for the optimization of Nigeria’s vast gas reserves, the Nigerian Gas Master Plan (consisting the Domestic Gas Supply Obligation “DGSO”, the Gas Pricing Framework and the Gas Infrastructure Blueprint) was approved by the Federal Government of Nigeria (FGN) in 2008 with a view to pursuing a sustainable growth path and leveraging gas for the economic growth of the country.

Pursuant to the foregoing, Gas Aggregation Company Nigeria Limited (GACN) “Strategic Aggregator” was incorporated in January, 2010 as the vehicle for the implementation of the Nigerian Gas Master Plan (NGMP), further to the National Domestic Gas Supply and Pricing Regulations, 2008 (the Regulations).

Key Achievements in the Last Decade

GACN has `now operated within the domestic market for over a decade and has achieved great success particularly evidenced by the significant change in the domestic market including increased domestic gas utilization through its gas commercialization initiatives, acceleration of gas development/utilization projects and the gradual restructuring of the erstwhile uncoordinated domestic market framework. GACN’s activities have also gained increased visibility and recognition in recent years.

Other milestone achievements included the following:

• Sustained gas supply of about 1.6Bscf/d, which accounts for about 80% of current Domestic Gas supply;
• Recategorization of the textile industry to ensure stable gas supply to textile companies at a regulated price for the sustainability of the textile industry within Nigeria;
• Flexible/short term gas sale arrangements bespoke to offtake and supply capabilities, allowing for third party opportunity for the commercialization of stranded gas while optimizing existing value;
• Stable gas supply to thermal power generation to underpin about 2500MW;
• Execution of the foremost private IPP GSAA for the Aba Cluster;
• Execution of the first Domestic Mini-LNG GSAA in Nigeria with negotiations ongoing for other Mini-LNG projects;
• Acceleration and on schedule maturation of critical GBI projects i.e. Dangote and Indorama Phase II fertilizer plants. GACN is also currently facilitating the MPN JV/NSIA/OCP Fertilizer project which is slated to be the largest fertilizer project in Nigeria, a part of the Presidential Fertilizer Initiative (PFI) between the FGN and the Kingdom of Morocco on balance of Trade;
• Deployment of critical softwares (Price Rule Aggregation Management Software (PARMS) and Infrastructure Due Diligence systems) to ensure a seamless operations and delivery of GACN’s mandate;
• Dispute free disbursement of gas supply revenues through the PARMS;
• Proactive and increased engagement with the power sector to proffer solutions to the liquidity challenge of the sector. The payment Assurance Framework was recently developed by GACN to cushion the liquidity challenge and improve payment credibility in the sector;
• Alternative securitization instrumentse. Bank Guarantee, Letter of Credit, Security deposit, pre-payment into the Escrow Account etc to support gas offtake;
• Foremost licensed Shippers’ Agent under the Network Code;
• Consistent periodic Stakeholders’ engagements aimed at actively interacting with the market and stimulating new gas development projects;
• Use of standardized industry template agreements for the various market segments aimed at reducing bureaucratic approval processes and negotiation timelines;
• Wholistic overview of the domestic market trends and local content.

GACN recognizes the unwavering support from stakeholders across the domestic gas value chain towards the advancement and delivery of its mandate in the past decade and will continue to work with stakeholders to explore opportunities and implement initiatives geared towards maximizing the economic value of Nigeria’s gas reserves while transitioning from an oil industry to an integrated oil and gas industry consistent with the FGN’s declaration of this decade as “the decade of gas”.