By Chika Amanze-Nwachuku
Federal Government has taken a major step to end the perennial shortage of gas for electricity supply as the newly-drafted Petroleum Industry Bill (PIB), if passed by the National Assembly, will empower the Nigerian Petroleum Inspectorate to impose gas supply quantities on oil companies for domestic consumption.
The Inspectorate, successor to the assets and liabilities of the Petroleum Inspectorate of the Nigerian National Petroleum Corporation, (NNPC); the Department of Petroleum Resources of the Ministry of Petroleum Resources and the Petroleum Pricing Products Regulatory Agency (PPPRA) will also be mandated to suspend the operation of any oil and gas company that fails to comply with the domestic gas supply obligations.
A copy of the draft bill obtained by THISDAY provides that lessees who fail to comply with the domestic gas supply obligation as directed by the Inspectorate shall not be entitled to supply gas for exports and shall also be suspended from production.
Specifically, the section of the bill provides that: “The Inspectorate shall determine the needs of the domestic market gas in accordance with the domestic gas supply obligation and shall on such basis impose supply quantities and shall ensure that all lessees comply with such domestic gas supply obligations.
It further provides that “Any lessee does not comply with the domestic gas supply obligation as directed by the Inspectorate shall not be entitled to supply gas to any gas export operations in addition to such other penalties as may apply under this Act and where the lessee is only supplying gas to gas export operations, the lessee shall be directed by the Inspectorate to suspend production.
However, the newly-drafted bill provides that the lessee producing gas will be required to carry out operations as may also be required to increase production in order to dedicate a specific volume of the gas produced towards the requirements of the domestic market.
The volume of gas to be dedicated by each lessee for the domestic gas supply obligation, according to the new bill, shall be based on an allocation system among lessees as determined by the Inspectorate from time to time and would be based on plans submitted by the lessees.
It was also stated that “The Inspectorate shall at all times ensure that the weighted average benchmarked unit costs of supply of the fields dedicated to the domestic gas supply obligation shall not be in excess of the benchmarked unit costs of fields dedicated to: exports or sales of wholesalers in the domestic market. The Inspectorate shall determine the amount of condensates related to sales under the domestic gas supply obligation and allocate such condensates on a barrel of condensate per million cubic feet basis”.
In an effort to address the gas supply challenges, the federal government had in 2008, mandated the international Oil Companies (IOCs) to submit a detailed plan for domestic gas supply before the end of October that year. The IOCs had been directed to in the short term, expedite the processing of about 280 to 350 million square cubic feet of gas for domestic use in a move to prioritise domestic gas supply over any Liquefied Natural Gas project.
Despite federal government’s threat to suspend all LNG projects targeting export of gas being issued with the obligation, no company responded with credible supply or detailed work plans, but continued to focus their effort on exports or other less important gas utilisation agenda.
Worried about the rate of gas flaring by oil companies, President of the Senate, Senator David Mark had challenged the Nigeria Liquefied Natural Gas Company, (LNG) to convert the huge gas deposits in the country for domestic and industrial uses as a panacea for gas flare. He expressed worries that the huge gas deposits were being flared to the detriment of consumers and the Nigerian environment.
The newly-drafted PIB will also mandate oil companies operating in Nigeria to stop flaring gas by the end of this year or risk paying fines. Nigeria is said to be the world’s second biggest burner of gas associated with crude oil production after Russia.
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