Nigeria National Gas Policy

2.1 — Statement of the Gas Policy ...................................................................... 17

2.1. Statement of the Gas Policy ...................................................................... 17

2.2 — Definition of Gas for the Policy ................................................................... 17

2.2. Definition of Gas for the Policy ................................................................... 17

2.3 — Background ................................................................................................ 18

2.3. Background ................................................................................................ 18

2.3.1 — Nigeria - A Gas Play and not an Oil Play ........................................... 18

2.3.1. Nigeria - A Gas Play and not an Oil Play ........................................... 18

2.3.2

2.3.2. Objectives of Government ····················································7t.. ······· 20

2.3.3 — Results from the Previous Policy········································~ ··\ ······· 21

2.3.3. Results from the Previous Policy········································~ ··\ ······· 21

2.3.4

2.3.4. International Perspectives ··············································r ~ '·········· 22

2.3.5 — LNG Trade Flows ....................................................... "r"\,.'1J ············· 23

2.3.5. LNG Trade Flows ....................................................... "r"\,.'1J ············· 23

2.4 — Challenges Facing Nigeria Presently ···························· o...1\J" ················· 30

2.4. Challenges Facing Nigeria Presently ···························· o...1\J" ················· 30

2.5 — The Need for a New Gas Policy ................................ n V····················· 31

2.5. The Need for a New Gas Policy ................................ n V····················· 31 3. VISION AND OBJECTIVES ......................................., ·:·••V.••······················· 32

3.1. Vision··································································~ ······························· 32 ~I ~;::i~;~-i:i"~~ct1~;~·~1lh~G~~-p,;j ~;;::z~<-v::::: ::::::::::::::::::::::::::::::::: ~~

3.4 — Strategic Elements of the Gas Policy .... , ............................................... 34

3.4. Strategic Elements of the Gas Policy .... , ............................................... 34 4• :.~v:i~~:i%ci~;ct1~;~·~1ih;··i:;g;~ g~i;i;;;;·F;;;;;;;;;;;k::::::::::::::::::: ~~

4.2 — Institutional Framework ....... ········V ··············· ......................................... 35

4.2. Institutional Framework ....... ········V ··············· ......................................... 35

4.2.1 — Background ................. ~ ............................................................... 35

4.2.1. Background ................. ~ ............................................................... 35

4.2.2 — Institutional Capaci~ St~ thening ................................................... 36

4.2.2. Institutional Capaci~ St~ thening ................................................... 36

4.2.3 — Scope of Regulatio .. ..................................................................... 36

4.2.3. Scope of Regulatio .. ..................................................................... 36

4.2.4 — Single lndeperidt\it troleum Regulatory Authority .......................... 36

4.2.4. Single lndeperidt\it troleum Regulatory Authority .......................... 36

4.2.5 — Petroleum Saf~ ompliance ............................................................ 37

4.2.5. Petroleum Saf~ ompliance ............................................................ 37

4.2.6 — Technical ~ ards ........................................................................... 38

4.2.6. Technical ~ ards ........................................................................... 38

4.2.7 — Meter~· a~ easurement ................................................................ 38

4.2.7. Meter~· a~ easurement ................................................................ 38

4.2.8 — Cost • ring and Control ............................................................... 38

4.2.8. Cost • ring and Control ............................................................... 38 4.2.9. a u r Protection .......................................................................... 39 4.2.10. onal Petroleum Policy Directorate ................................................ 39 4.2. ~ tra egic Planning and Policy Research Centre ................................. 40 4~2 .1'Xlnvestment Promotion Office .............................................................. 40 4 . . National Gas Focal Point.. .................................................................. 41 4. .14. Dedicated Project Desks .................................................................... 41 4.2.15.Joint Stakeholder Forum ..................................................................... 41

4.2.16 — Donor Agencies .................................................................................. 42

4.2.16. Donor Agencies .................................................................................. 42 4.2.17.Civil Society, Consumer Groups and Associations ............................. 42

4.3 — Commercial Framework ............................................................................. 42

4.3. Commercial Framework ............................................................................. 42

4.3.1 — Background ......................................................................................... 42

4.3.1. Background ......................................................................................... 42

4.3.2 — Access to Gas Networks ..................................................................... 42

4.3.2. Access to Gas Networks ..................................................................... 42

4.3.3 — Network Code ..................................................................................... 43

4.3.3. Network Code ..................................................................................... 43

4.3.4 — Gas Swaps .......................................................................................... 43

4.3.4. Gas Swaps .......................................................................................... 43

4.3.5 — Gas Pricing ......................................................................................... 44

4.3.5. Gas Pricing ......................................................................................... 44

4.3.6 — Wholesale Gas Price Regulation ........................................................ 44

4.3.6. Wholesale Gas Price Regulation ........................................................ 44

4.3.7 — LNG Export Tolling Price .................................................................... 44

4.3.7. LNG Export Tolling Price .................................................................... 44 Ministry of Petroleum Resources 3 Nigeria National Gas Policy

4.3.8 — Cost Benchmarking for Infrastructure Facilities .................................. 45

4.3.8. Cost Benchmarking for Infrastructure Facilities .................................. 45

4.3.9 — Price Publication and Monitoring ........................................................ 45

4.3.9. Price Publication and Monitoring ........................................................ 45

4.3.10 — Triggers for Wholesale Market Regime .............................................. 45

4.3.10. Triggers for Wholesale Market Regime .............................................. 45 4.3.11 . Infrastructure Tariffs ............................................................................ 46 4.3.12.Power Sector ...................................................................................... 46

4.4 — Fiscal Framework ....................................................................................... 46

4.4. Fiscal Framework ....................................................................................... 46

4.4.1 — Government Fiscal Philosophy ........................................................... 46

4.4.1. Government Fiscal Philosophy ........................................................... 46

4.4.2 — Current Fiscal Structure ...................................................................... 47

4.4.2. Current Fiscal Structure ...................................................................... 47

4.4.3 — Fiscal Rules of General Application .................................................... 47

4.4.3. Fiscal Rules of General Application .................................................... 47

4.4.4 — Principles of the Fiscal Framework ..................................................... 48

4.4.4. Principles of the Fiscal Framework ..................................................... 48 5. INDUSTRY STRUCTURE ................................................................................. 50

5.1

5.1. Background ··················································································-A········· 50

5.2

5.2. Strategic Objectives ····································:······························k ·· \ ······· 50

5.2.1 — Roles of Government-Owned Corporat1ons ................... r~.~::' ·········· 51

5.2.1. Roles of Government-Owned Corporat1ons ................... r~.~::' ·········· 51

5.2.2

5.2.2. Strategic Partnerships ···············································'("'t\.V ············· 52

5.2.3 — Export Gas Ownership and Tolling ························ -O...'->- ················· 52

5.2.3. Export Gas Ownership and Tolling ························ -O...'->- ················· 52

5.2.4 — Wholesale Domestic Market ······························ n:-:V ····················· 52

5.2.4. Wholesale Domestic Market ······························ n:-:V ····················· 52

5.2.5 — Separation of Transport and Trading ·····················V ························· 53

5.2.5. Separation of Transport and Trading ·····················V ························· 53

5.2.6 — Domestic Gas Supply Obligations ···············C , ······························· 53

5.2.6. Domestic Gas Supply Obligations ···············C , ······························· 53

5.2.7 — Review the Gas Aggregation Policy····/ ~ ········································ 53

5.2.7. Review the Gas Aggregation Policy····/ ~ ········································ 53

5.3 — Gas Market Structure .................. ·················~ ····· ................................. 54

5.3. Gas Market Structure .................. ·················~ ····· ................................. 54 5.3.1 . Philosophy of the Regulatory Stru~ .............................................. 54 6. DEVELOPING GAS RESOURCES ······~··1······················································· 57

6.1 — Diversification of Supply Source~ ~ ············ ........................................ 57

6.1. Diversification of Supply Source~ ~ ············ ........................................ 57

6.1.1 — Niger Delta Gas Resources. . ........................................................ 57

6.1.1. Niger Delta Gas Resources. . ........................................................ 57

6.1.2 — Benue Trough and Se~ ta Basins of Nigeria ............................. 58

6.1.2. Benue Trough and Se~ ta Basins of Nigeria ............................. 58

6.2 — Identifying Low Cost G~ ~e~ ces ......................................................... 58

6.2. Identifying Low Cost G~ ~e~ ces ......................................................... 58

6.3 — Clarifying Gas Terms i s .................................................................. 59

6.3. Clarifying Gas Terms i s .................................................................. 59

6.4 — Gas Flaring .............. .. \ .............................................................................. 60

6.4. Gas Flaring .............. .. \ .............................................................................. 60 6.4.1 . Background ... ~.............................................................................. 60

6.4.2 — History of ~ "ian Gas Flaring Legislation ........................................ 60

6.4.2. History of ~ "ian Gas Flaring Legislation ........................................ 60 ~::I ~i1fc~ ~l~~~:o~t.th~~~gh·G~~·ut·iii;~ti~·~··p~~j~~t~·::::::::::::::::::: ~~ 6.4.5. ~ -Fl&e Capture Technologies ....................................................... 62 6.4.6. -Out Targets ................................................................................ 63 6.4.~ as laring Penalties ......................................................................... 63 6.4.8. ew Field Developments .................................................................... 63 ~ xisting Fields ..................................................................................... 63 6.~ .10. Uneconomic Fields ............................................................................. 64

6.5 — Gas Field Development Plans ................................................................... 64

6.5. Gas Field Development Plans ................................................................... 64

6.6 — Gas Resource Management Plan .............................................................. 64

6.6. Gas Resource Management Plan .............................................................. 64 7. INFRASTRUCTURE ......................................................................................... 65

7.1 — National Gas Infrastructure Blueprint.. ....................................................... 65

7.1. National Gas Infrastructure Blueprint.. ....................................................... 65

7.2 — Need to Improve the Whole Supply Chain ................................................. 67

7.2. Need to Improve the Whole Supply Chain ................................................. 67 8. BUILDING GAS MARKETS ............................................................................. 68

8.1 — Introduction ................................................................................................ 68

8.1. Introduction ................................................................................................ 68

8.2 — Export Projects ........................................................................................... 68

8.2. Export Projects ........................................................................................... 68 8.2.1 . Liquefied Natural Gas (LNG) .............................................................. 68

8.2.2 — Regional and International Pipeline Projects ...................................... 69

8.2.2. Regional and International Pipeline Projects ...................................... 69 Ministry of Petroleum Resources ,1 ======================================~ Nigeria National Gas Policy

8.3 — Growing Domestic Gas Markets ................................................................ 71

8.3. Growing Domestic Gas Markets ................................................................ 71

8.3.1 — Encouraging Gas Projects - Project Based Approach ....................... 71

8.3.1. Encouraging Gas Projects - Project Based Approach ....................... 71

8.3.2 — Gas-Based Industrialisation ................................................................ 71

8.3.2. Gas-Based Industrialisation ................................................................ 71

8.3.3 — Market Growth from Anchor Customers ............................................. 71

8.3.3. Market Growth from Anchor Customers ............................................. 71

8.3.4 — Identifying and Developing Clusters ................................................... 72

8.3.4. Identifying and Developing Clusters ................................................... 72

8.3.5 — Alternative Markets/ Uses for Gas ..................................................... 72

8.3.5. Alternative Markets/ Uses for Gas ..................................................... 72

8.3.6 — Natural Gas Vehicles (NGV) ............................................................... 72

8.3.6. Natural Gas Vehicles (NGV) ............................................................... 72

8.3.7 — Gas for Rail Electrification .................................................................. 73

8.3.7. Gas for Rail Electrification .................................................................. 73

8.3.8 — CNG Transportation ............................................................................ 73

8.3.8. CNG Transportation ............................................................................ 73

8.3.9 — LNG Trucks ......................................................................................... 73

8.3.9. LNG Trucks ......................................................................................... 73

8.4 — Policy for Liquefied Petroleum Gas (LPG) ................................................. 74

8.4. Policy for Liquefied Petroleum Gas (LPG) ................................................. 74

8.4.1 — LPG Production and Consumption ..................................................... 74

8.4.1. LPG Production and Consumption ..................................................... 74

8.4.2 — LPG Infrastructure .................................................................1.\. ........ 75

8.4.2. LPG Infrastructure .................................................................1.\. ........ 75

8.4.3 — The Scope of the LPG Policy .............................................. ~ \....... 75

8.4.3. The Scope of the LPG Policy .............................................. ~ \....... 75

8.4.4

8.4.4. Domestic Applications ····················································~ ·············· 76

8.4.5 — Industrial Applications ................................................ s:3- ................. 77

8.4.5. Industrial Applications ................................................ s:3- ................. 77

8.4.6 — Electric Power Applications······························· ~ ~····················· 78

8.4.6. Electric Power Applications······························· ~ ~····················· 78

8.4.7 — Improve Access by the Poorest and Reduce Dese~ ation .............. 78

8.4.7. Improve Access by the Poorest and Reduce Dese~ ation .............. 78

8.4.9 — Goals & Objectives of the LPG Policy ·······••r ••._································ 78

8.4.9. Goals & Objectives of the LPG Policy ·······••r ••._································ 78

8.4.9 — Development Model for Domestic LPG~ r~ ................................ 79

8.4.9. Development Model for Domestic LPG~ r~ ................................ 79

8.4.10 — LPG Regulation .............................................................................. 81

8.4.10. LPG Regulation .............................................................................. 81

8.4.11 — Governance Structure ....................✓~ ····

8.4.11. Governance Structure ....................✓~ ···· ........................................ 81 8.4.12 . National LPG Council ....................., ............................................... 81 : 1~ ~: ~~f!:t;i:ti~i~t;;;~t"P~i;~~~~~;~~~·:::: ::::::::::::::::::::::::::::::::: :~

8.5

8.5. Gaining Regional African MarketV - ························································ 82

8.6 — Financing Gas Projects...... ..... ............................................................... 82

8.6. Financing Gas Projects...... ..... ............................................................... 82 9. DEVELOPING NATIONAL ~ JJIA RESOURCES ......................................... 83

9.1 — Current Nigerian B~c g~ .................................................................... 83

9.1. Current Nigerian B~c g~ .................................................................... 83

9.1.1 — Some Unique ures Affecting Nigerian Local Content .................. 83

9.1.1. Some Unique ures Affecting Nigerian Local Content .................. 83

9.1.2 — Local Cont~ ·n a epressed Economy ............................................ 83

9.1.2. Local Cont~ ·n a epressed Economy ............................................ 83

9.2 — Introduction ... . ... .................................................................................... 83

9.2. Introduction ... . ... .................................................................................... 83 9.3. lmplemen~ rian Content Policy ....................................................... 83 9.3.1 . Sum~ f Provisions of the Nigerian Content Act.. ......................... 83

9.3.2 — P4)e to Implementation ..................................................................... 84

9.3.2. P4)e to Implementation ..................................................................... 84

9.4 — B~ lin~ dustry Competency ................................................................... 84

9.4. B~ lin~ dustry Competency ................................................................... 84 9.4. ompetent Worker .............................................................................. 84 kills Development ............................................................................. 85 International Education ....................................................................... 85 National Education .............................................................................. 85 9.4.5. Technical & Vocational and Educational & Training TVET ................. 86

9.4.6 — Supervised Experience ....................................................................... 86

9.4.6. Supervised Experience ....................................................................... 86

9.4.7 — Gas Industry Expected to Develop Competency Schemes ................ 87

9.4.7. Gas Industry Expected to Develop Competency Schemes ................ 87

9.5 — Institutional Capacity Building .................................................................... 87

9.5. Institutional Capacity Building .................................................................... 87

9.6 — Introducing a Maintenance and a Safety Culture ....................................... 87

9.6. Introducing a Maintenance and a Safety Culture ....................................... 87 10. COMMUNICATIONS ......................................................................................... 89

10.1 — Introduction ......................................................................................... 89

10.1. Introduction ......................................................................................... 89

10.2 — Internal Communications .................................................................... 89

10.2. Internal Communications .................................................................... 89

10.2.1 — Ministry ................................................................................................ 89

10.2.1. Ministry ................................................................................................ 89 10.2.2.Other Government Entities ................................................................. 90 Ministry of Petroleum Resources 5 Nigeria National Gas Policy

10.3 — External Communications ................................................................... 90

10.3. External Communications ................................................................... 90

10.3.1 — Communication to Stakeholders ......................................................... 90

10.3.1. Communication to Stakeholders ......................................................... 90

10.3.2 — Gas Industry Involvement and Consultations ..................................... 90

10.3.2. Gas Industry Involvement and Consultations ..................................... 90 11. ROADMAP AND ACTION PLAN ..................................................................... 91

11.1 — Summary of Philosophy and Key Actions ........................................... 91

11.1. Summary of Philosophy and Key Actions ........................................... 91

11.2 — Critical Policy Milestones .................................................................... 91

11.2. Critical Policy Milestones .................................................................... 91

11.3 — Short-Term Activities (Months)- Institutional Level ........................... 92

11.3. Short-Term Activities (Months)- Institutional Level ........................... 92

11.4 — Medium-Term Activities (One to Two Years)- Regulatory ................ 94

11.4. Medium-Term Activities (One to Two Years)- Regulatory ................ 94

11.5 — Long-Term Activities (Over Two Years)- Industry ............................. 97

11.5. Long-Term Activities (Over Two Years)- Industry ............................. 97

11.6 — Timeline .............................................................................................. 98

11.6. Timeline .............................................................................................. 98 Ministry of Petroleum Resources 6 Nigeria National Gas Policy LIST OF FIGURES Figure 1: World Proved Gas Reserves Ranking (2015) ........................................... 18 Figure 2: Major Global LNG and Pipeline Gas Flows, 2015 ..................................... 24 Figure 3: Nigerian LNG Trade Flows, 2015 .............................................................. 24 Figure 4: A Mountain of New Supplies over the Next 5 years .................................. 25 Figure 5: LNG and Gas Flows to Asia, 2015 ............................................................ 26 Figure 6: LNG and Gas Flows to South America, 2015 ........................................... 27 Figure 7: LNG and Gas Flows to Europe, 2015 ....................................................... 28 Figure 8: National Petroleum Policy Directorate ...................................................... 40 Figure 9: Commercial Structure for Gas Sector ....................................................... 55 Figure 10: Petroleum Basins in Nigeria .................................................................... 58 Figure 11: World's Top 5 Natural Gas Flaring Countries, 2014 ················· A ········· 60 F~gure 12: Gas Flari~g ~rend in. Nigeria, 2006-2015 ................................ K ·· \ ······· 61 Figure 13: Map of Nigeria showing Gas Demand and Infrastructure ···r~·" ·········· 66 F~gure 14: West African Gas Pip~lin~, Route .................................. "-.'-J' ············· 70 Figure 15. Trans-Saharan Gas P1pehne, Route ·························· 0,;..'-J- ················· 70 Figure 16: Nigerian Household Energy Mix ............................. n : V····················· 77 Figure 17: Timeline of Gas Policy Roadmap ............................... V ························· 98 <v(j ~« <:::><Q ~<v ~o q_q_ ~ Ministry of Petroleum Resources 7 =================================' Nigeria National Gas Policy LIST OF TABLES Table 1: Nigerian Gas Production and Utilisation (2006-2015) ................................ 19 Table 2: Monthly Gas Price Movements at Major Pricing Points (2015-2016) ......... 22 Table 3: Nigerian Associated and Non-Associated Gas Production (2006-2015) .... 57 Table 4: Proved Reserves and Resources in Place across Ownership Types ........ 59 Table 5: Energy Equivalence of LPG ....................................................................... 77 Table 6: Roadmap, Short Term (Months), Institutional ............................................ 92 Table 7: Roadmap, Medium Term (One to Two Years), Regulatory ........................ 94 Table 8: Roadmap, Long-Term (Over Two Years), Industry .................................... 97 Ministry of Petroleum Resources B Nigeria National Gas Policy ABBREVIATIONS AfDB African Development Bank AG Associated Gas AGFA Associated Gas Framework Agreement Bol Bank of Industry (Nigeria) BPE Bureau for Public Entreprise Btoe Billion tons oil equivalent CBN Central Bank of Nigeria CO2 Carbon Dioxide CCGT Combined Cycle Gas Turbine ~ COM Clean Development Mechanism r~" CNG Compressed Natural Gas <"..'-J CPF Central Processing Facility ~'-J CSR Corporate Social Responsibility n\ DG Distributed Generation r .V DISCO / Disco Electricity distribution co~ n~ igeria DPK Dual Purpose Kerose~ v DPR Department of P~tr I Resources DSO /DGSO Domestic Gas S ly O ligation ECN Energy Com" ° 'n f Nigeria EIA Environm~ ~ act Assessment EITI Extra~ e~ stries Transparency Initiative ELPS :s'\a~ agos Pipeline System EPP ~ rt Parity Price, a netback gas price from export price ESIA " nvironmental and Social Impact Assessment ESMAP '-'nergy Sector Management Assistance Program EU ~ European Union EUD ~ European Union Delegation FGN ~ , Federal Government of Nigeria LFN , Laws of the Federation of Nigeria L~ Liquefied Petroleum Gas NA! PGAM Nigerian Association of Liquefied Petroleum Gas Marketers FMEnv Federal Ministry of Environment FID Final Investment Decision FMITI Federal Ministry of Industry Trade and Investment FMP Federal Ministry of Power (F)MPR Federal Ministry of Petroleum Resources FEED Front End Engineering and Design FRGA Fiscal Rules of General Application Ministry of Petroleum Resources 9 Nigeria National Gas Policy GACN Gas Aggregation Company of Nigeria Genco Generation company GGFR Global Gas Flaring Reduction GMP Gas Master Plan GSA Gas Sales Agreement GSAA Gas Sales and Aggregation Agreement GT Gas Turbine GTA Gas Transport Agreement GTLs Gas to Liquids GTS Gas Transmission System HSE Health, Safety and Environment ~ IEA International Energy Agency, Paris r~" IFC International Finance Corporation <".'-J IFI International Financial Institution O...'-J IMF International Monetary Fund n -U IPP Independent Power Producerr . V ISO °2!n~ n International Standards Independent System ~ 9V' JV Joint Venture LNG Liquefied Natural ~ s LPG Liquefied Petr~ ~as LRMC Long Run~ r~ Cost MDA Ministry, ment and/or Agency MOU Mem<tfa,idu of Understanding MW / MWh ~e\ a~ s / Mega Watt hours MT ~ Tonnes MYTO Q ulti-Year Tariff Order NAG ~ Non-Associated Gas NAPIMS ~ "--- National Petroleum Investment Management Services NBET , Nigerian Bulk Electricity Trading Pie NBP <) National Balancing Point N~~ Nigeria Content Development Management Board Ncl-C Nigerian Electricity Regulatory Commission NG Natural Gas NGMC Nigerian Gas Marketing Company NGPTC Nigerian Gas Processing and Transportation Company NGCC Nigerian Gas Cylinder Manufacturing Company NNPC Nigerian National Petroleum Corporation NGL Natural Gas Liquid NGMC Nigeria Gas Management Company NGO Non-Government Organisation NGV Natural Gas Vehicles Ministry of Petroleum Resources 1Q ================================= Nigeria National Gas Policy NIS Nigeria Industrial Standards NLNG Nigeria Liquefied Natural Gas NLPGA Nigeria Liquefied Petroleum Gas Association NNPC Nigerian National Petroleum Company NOC National Oil and Gas Company NPC Nigerian Planning Commission NPDC Nigerian Petroleum Development Company Limited NPMC Nigeria Petroleum Marketing Company (formerly PPMC) OB3 Obiafu-Obrikom-Oben gas pipeline OCGT Open Cycle Gas Turbine A OGGS Offshore Gas Gathering System ~ \ OK LNG Olakola Liquefied Natural Gas Project _\C\' OPEC Organisation of Petroleum Exporting C~ PIB Petroleum Industry Bill ~ PPA Purchase Power Agreement <-p PPMC Petroleum Products Marketin~ pany (now NPMC) PPP Public Private Partnershi" '_; PPPRA Petroleum Products ~ - in~ gulatory Authority PRG Partial Risk Gua: ; PSC Production Shar' on ract PTDF Petroleum Te~ ogy Development Fund PTFP Presiden~ Morce on Power PTI Petro~ .i~ ~ ning Institute RE Rene~ Energy SCADA S.V~ matic Control And Data Acquisition scf ~ ~ ard cubic feet SON ~ andards Organisation of Nigeria SPDC ~ Shell Petroleum Development Company TCN ~ "--- Transmission Company of Nigeria TVEa ' Technical & Vocational and Educational & Training US/ , United States of America V~ Value Added Tax W~ P West African Gas Pipeline WAGPA West African Gas Pipeline Authority WB World Bank WLPGA World Liquefied Gas Association Ministry of Petroleum Resources 11 Nigeria National Gas Policy Units B / Bn billion bet I bet/d I bet/a billion cubic feet/ billion cubic feet per day / bet per year bcm billion cubic metres bcma billion cubic metres per year bbl barrel GW Giga Watts kg kilogram m million M thousand MW/ MW/h Mega Watts / Mega Watts hours A MM million "\ MMbtu million British thermal units Sc) MMscf million standard cubic feet S::5 MMscf/d million standard cubic feet per dayn '6 Mscf thousand standard cubic feet r .V mt million metric tonnes '-J mtpa million metric tonnes per ~ 11!r set standard cubic feet ✓i ~ t metric tonne ~, Currencies N/NGN Naira A<?) £ Poun~ S~ g € Euro $/US$ / USD Un~ d ates Dollar ¥ d~ q_~ ~q_ Ministry of Petroleum Resources 12 ================================= Nigeria National Gas Policy 1. EXECUTIVE SUMMARY Statement of Gas Policy This policy document builds on the policy goals of the Federal Government for the gas sector as presented in the 7 Big Wins initiative (www.7Bigwins.com) developed by the Ministry of Petroleum Resources and the National Economic Recovery & Growth Plan (ERGP 2017 - 2020). The Policy articulates the vision of the Federal Government of Nigeria, sets goals, strategies and an implementation plan for the introduction of an appropriate institutional, legal, regulatory and commercial framework for the gas 3 t:or. It is intended to remove the barriers affecting investment and development in~ sector. The policy will be reviewed and updated periodically to ensure ,w~ s ncy in Government policy objectives at all times. ~ Government shall abide by the provisions of this policy unles~ ~til reviewed or replaced by a formal restatement of policy duly gazetted by t~ pP~ernment. Background - A Much More Constrained lnterna~ ar iness Environment For approximately ten years until around 2014, ~~r~s exposed to a very benign international environment, with high gas p~ic s, ~ ong global demand for gas and LNG, and large flows of investment looking opportunities in emerging markets for gas based industrialisation (such as petr~ 1 als, methanol, fertilisers). Those benign times have now pass~ the international business environment is now much tougher. International ~ , i Ms have fallen, huge new volumes of gas and LNG supplies are coming on st globally, against reduced forecasts of market demand growth. Meanwhil~--~\;ba investment flows are leaving emerging markets. Even within Africa, Nig~ ~mpeting for investment with Southern and Eastern Africa. V Background - Ga3'11R1Wter Plan This gas ,.P~ ~ based on a fundamental review of the policy positions of the Governm~ ver the last ten years in respect of Nigeria's gas resources. The pr~ policy positions emanated from the Gas Master Plan (GMP), which was design~<l-t~- ensure the development of a full blown domestic market by 2015. However, the Plan has not delivered on all its set targets. For example, Nigeria still lacks critical gas infrastructure and continues to fall short of Domestic Gas Supply Obligations. Nigeria is experiencing a full-blown energy crisis in spite of its abundant gas resources. A new gas policy that is more effective and adjusted for the much harsher international business environment for gas is required to drive the reforms necessary to attract investment into the sector. Ministry of Petroleum Resources 13 ================================= Nigeria National Gas Policy Vision: "To be an attractive gas-based industrial nation, g,vmg primary attention to meeting local gas demand requirements, and developing a significant presence in international markets". Mission: "To move Nigeria from a crude oil export-based economy to an attractive oil and gas-based industrial economy". The gas policy intends to move Nigeria from an oil-based to an oil and gas-based industrial economy. This gas-based industrialisation will be driven by some CORE PRINCIPLES: • Separate the respective roles and responsibilities of government an~ he private sector; • Establish a single independent petroleum regulatory authority; 1 ' • Implement full legal separation of the upstream from the ~ m·d tGa.,; • Implement full legal separation of gas infrastructure owne • ~ operations from gas trading; ~ • Realise more of the LNG international downstream val • Pursue a project-based, rather than a centrally-plalrieQ omestic gas development approach; ~ 'v • Make a strong maintenance and safety cultur ~ ·ority; • Implement international best practice for ~ vjron ental protection; • Establish strong linkages with electric~ w~ agriculture, transport and industrial sectors; • Establish payment discipline throu~ t e energy chain; • Honour stability of contract te~ ~ • Ensure security of assets; _V • Ensure compliance with t~ erian Content Act. The main aspects of the ga~ cy now cover: 1. Governance ~ e • tion and Regulation): a. Singl endent petroleum regulatory authority; b. E ! :a • on petroleum safety compliance; c. egal separation of the upstream from the midstream; ul gal separation of gas infrastructure ownership and operations rom gas trading; ~ ntroduction of a relevant gas network code; ~ f. Pricing: i. Upstream gas price set by netback from export parity price during transitional period; ii. Market-led wholesale gas pricing after the transitional period; iii. Triggers for announcement of competitive wholesale market; iv. LNG export tolling price; v. Cost benchmarking for infrastructure facilities; g. Fiscal framework which recognises gas as a stand-alone commodity and industry separate from oil. Ministry of Petroleum Resources 14 ================================= Nigeria National Gas Policy 2. Industry Structure: a. Mixed public-private participation, with a clear separation of roles between government and the private sector; b. Restructuring of NGC into separate transport and gas marketing companies; c. Strategic partnerships to support operations, in particular, for NGPTC; d. Greater involvement in marketing Government-owned equity gas in international markets; e. Move towards wholesale market competition; f. Implementation of Domestic Gas Supply Obligations; g. A review of gas aggregation policy and the future role of the Gas Aggregation Company of Nigeria. 3. Developing Gas Resources: "-."'\ a. Enable an environment that encourages exploratio ~ s r Clific~y targeting gas; ~ b. Encourage exploration and development of new~ ly sources from the inland and offshore basins; c. Develop portfolio management methodolog~ ti> oritise low-cost gas development; '-J d. Clarify gas terms for PSCs; / ~ e. Achieve gas flare-out through gas ~ is~ projects utilising mature flare reduction technologies; f. Produce a Gas Resource Man* e t Plan. 4. Infrastructure: O'\ a. Identify and proceed w~ Yevelopment of key gas infrastructure; b. Liberalise access ~Jf~~ and onshore gas transmission infrastructure and y Vocessing. 5. Building Gas Marke~ a. Continue ~ ports consistent with domestic gas market devel~ ~ b. ldenf promote domestic gas market development projects; c. G~ - m e value from international downstream LNG markets; d. P ue a project-based and market-opportunity approach, rather than D en ally-planned national model; e~ dentify and develop clusters for gas resource, infrastructure and gas- ~ based industrialisation; ~ f. Develop and implement a gas-for-development programme, encouraging gas for smaller-scale projects; g. Take steps to ensure rapid growth of the LPG market, including reviewing effectiveness of NPMC as a market leader/maker; h. Investigate, develop and gain access to regional African gas markets; i. Set a suitable environment for financing of gas projects. 6. Developing National Human Resources: a. Develop Nigerian content and implement Nigerian Content Act; b. Build institutional capacity; c. Introduce a maintenance and safety culture. Ministry of Petroleum Resources 15 ================================= Nigeria National Gas Policy 7. Communications: Internal and external communications strategy; 8. Roadmap and Action Plan: a. Action plan for short term (months); b. Implementation Plan for medium term (1-2 years); c. Implementation Plan for long term (over two years). Ministry of Petroleum Resources 16 ================================= Nigeria National Gas Policy 2. INTRODUCTION

2.1 — Statement of the Gas Policy

2.1. Statement of the Gas Policy This policy document builds on the policy goals of the Federal Government for the gas sector as presented in the 7 Big Wins initiative (www.7Bigwins.com) developed by the Ministry of Petroleum Resources and the National Economic Recovery & Growth Plan (ERGP 2017 - 2020). The Policy articulates the vision of the Federal Government of Nigeria, sets goals, strategies and proposes an implementation plan for the introduction of an appropriate institutional, legal, regulatory and commercial framework for the gas~ tor. It is intended to remove the barriers affecting investment and development • sector. The policy will be reviewed and updated periodically to ensure r ~ ·s ncy in Government policy objectives at all times. ~ '(J Government shall abide by the provisions of this policy unles~ until reviewed or replaced by a formal restatement of policy duly gazetted by th'=i ~vernment.

2.2 — Definition of Gas for the Policy ~; CJ

2.2. Definition of Gas for the Policy ~; CJ Although the definitions set out in this policy are tf<jc¥e, the policy is clear that the upstream, midstream and downstream seg_'!1\ nt~ ill be clearly separated. Detailed definitions of gas and the parts of the v~ chain will be set out in legislation. distinguish «;) Petroleum is defined to cover all r Qum related products, including crude oil, petroleum products and other dtf~~ of crude oil, natural gas, and various gas liquids and condensates. J"h~ omplementary petroleum policy document concentrates on oil and oil p~ ts while gas is covered by this Gas Policy document. The parts of the gas va1€),ain, for the purposes of the Gas Policy, are defined as follows: <).._, Upstream: Ac~ ~lated to: • Exp !i at~ for, development and production of gas; • Dri and operation of gas producing wells; • ~ ction and operation of gas gathering pipelines; • ~ s-separation and treatment facilities and operations; • Transportation of personnel and equipment to and from upstream gas locations and facilities. Midstream: Activities related to: • Construction and operation of gas transportation pipelines, in general after the flow station; • Gas processing facilities; • Natural gas liquefaction plants; • Gas bulk storage facilities; • Shipping of gas and related products; Ministry of Petroleum Resources 17 ================================= Nigeria National Gas Policy • Other bulk transport methods, such as rail, barge and trucks for transporting gas and related products on a wholesale basis. Downstream: Activities related to: • Construction and operation of facilities for distributing gas to customers; • Retail stations for CNG; • City gate reception terminals for gas; • Distribution of gas; • Wholesale marketing of gas and gas products; • Marketing, retailing and sale of gas. The reasons for the clear separation of the segments of the gas value ch~ are: • For fiscal reasons (dealt with in the complementary Petrole~, :~ ~ ~ olicy); • To enable market entry and access for new entrants and ins::5"'. A clear separation and distinction between the upstream midstream will ~ provide a level playing field between incumbents and ne~~~~~ ensure clarity in midstream regulation, and will provide a basis for ending ~ ractice of consolidation of midstream costs against upstream tax liabilities. ~

2.3 — Background ~

2.3. Background ~

2.3.1 — Nigeria - A Gas Play ot an Oil Play

2.3.1. Nigeria - A Gas Play ot an Oil Play The most dominant natural resour~ · • eria is natural gas. With proven gas reserves of 188 trillion cubic fee~ tc of as and the 9th largest gas reserves in the world, Nigeria has more gas res st n oil. Figure 1: Worl ro d Gas Reserves Ranking (2015) '- World Proved Gas Reserves Ranking, (Trillion cubic feet), 2015 1400.0 1201.4 1200.0 1139.6 .;:::- _~ 1000.0 V, Q) 866.2 > .... Q) 800.0 V, Q) 0::: V, 617.3 ('ti 600.0 (!) "§ ::, ..... 368.7 11111 1 400.0 ('ti z 2 94 200.0 2 15 1 19 8 18 05 15 9 1 .o ••••: ~ • .4 • 1 35.7 1 30.5 1 22.6 100.3 ■ Countries Ministry of Petroleum Resources 18 ================================= Nigeria National Gas Policy Source: BP Statistical Review of World Energy, 2016 Though Nigeria can be regarded as a gas province with some oil in it, little effort has been made to undertake exploration for gas. As a result, a significant proportion of Nigeria's gas was discovered incidentally during exploration for oil. In 2015, gas production was just 29% of oil production and reserves production ratios were 46 years for oil against 102 years for gas (reserves production ratio is a measure of how strenuously reserves are being exploited). Table 1: Nigerian Gas Production and Utilisation (2006-2015) Year Domestic Sales Total Gas Total Gas Gas to Others Gas Production Utilisation Sales NLNG (bscf) Flared (bscf) (bscf) (bscf) (bscf) (bscf) 2006 2,290 326 558 585 1,469 820 2007 2,607 280 844 667 1,790 817 2008 2,580 232 969 709 1,910 671 2009 2,228 237 641 815 1,692 536 2010 2,820 286 992 997 2,275 545 2011 2,967 345 1,115 1,003 2,463 504 2012 2,996 372 1,131 1,028 2,531 465 2013 2,812 391 965 1,027 2,384 428 2014 3,049 425 1,124 1,107 2,669 379 2015 3,003 445 1,161 1,066 2,672 331 Source: DPR, Annual Oil & Gd\TeQPrl 2014; Analysis: MPR Gas Policy Team 2016 Others: Fuel, Gas lift, R~ tlw,"NGLs; Note: Gas Production is total production Prior to 2014 and barri~ 09, Nigeria was exposed to a very benign international environment, with high ~ rices, strong global demand for gas and LNG, and large flows of investme~ ing for opportunities in emerging markets for gas-based industrialisatio~ u~ as petrochemicals, methanol, fertilisers). Those beni")t~ s have now passed and the international business environment is now much ~ gher. International gas prices have fallen, and huge new volumes of gas and L~ plies are coming on-stream globally against reduced forecasts of market demandlJrowth. Nigeria will struggle to compete with the large gas supply volumes about to enter the East Asian markets. North America is closed as a gas importer. European gas demand is depressed and may remain so in the future as the continent increasingly turns to renewable energy. South American gas markets are growing but are relatively small and LNG supplies are currently dominated by Trinidad & Tobago. Meanwhile, global investment flows have moved away from emerging markets and back to developed economies. Even within Africa, Nigeria is competing for investment with Southern and Eastern Africa. Ministry of Petroleum Resources 19 ================================= Nigeria National Gas Policy Nigeria now needs to work hard to survive in the constrained economic environment the country now finds itself in. From 2008 to 2015 the policy of the Government was to harness Nigeria's vast gas resources based on the GMP, which outlined the objectives and aspirations of the Nation with respect to its gas resources. However, with minimal investments made in the gas sector over the period, the Plan has not delivered on all its set targets. For example, Nigeria still lacks critical gas infrastructure and continues to fall short of domestic gas supply obligations.

2.3.2 — Objectives of Government

2.3.2. Objectives of Government The Federal Government has historically invested more in and deri-.41 greater revenue from oil rather than gas. It is however recognised that the naturAli~ ages of the gas sector to the electricity, industrial, agricultural and tran~ ~i~ sectors present the single most important opportunity for rapidly accele~ he nation's industrial development and economic recovery. ~ Government will leverage its large gas portfoli,rt<?':Uure that gas development is undertaken in acco~ :':~ th Nigeria's national socio-economic development pri~ . Gas Legislation ~ The existing petroleum legislation (Petrol~ ! of 1969, Cap P.10 LFN 2004) was enacted more for oil with inadequa~e rav.>ns for gas as a hydrocarbon and an industry in its own right. It also did ov1de for the development of a midstream and downstream gas industry. ~~ . A Downstream Gas Bill was_d~ tt'Mo 2005 and was subsequently incorporated into the Petroleum Industry Bill (~ The main thrust of the Downstream Gas Bill and the gas provisions of the Pl ~ s to develop a regulatory and commercial framework to support the growth _1i ~ stream domestic gas market. Gas Master P~ ' In 2008 th~ d~ I Government of Nigeria approved the implementation of the GMP. The GMP a~ owledged that there was a strategic window of opportunity for Nigeria to esta~ tself as a major LNG exporting nation and for gas-based industrialisation. The GM~ emphasised the following: I. The Infrastructure Blueprint The Infrastructure Blueprint was the heart of the GMP. It mapped out the planned infrastructure needed, including connecting the gas networks in the western and eastern parts of the country, building new transport pipelines from the south to Ajaokuta Steel, on to Abuja and then to the northernmost reaches of the country. The first part of the infrastructure required the construction of Central Processing Facilities (CPFs) in the Niger Delta region to process wet gas for supply to onshore gas transportation networks and industrial plants. Ministry of Petroleum Resources ?0 ==================================e=-- Nigeria National Gas Policy Almost 590km of pipelines have been completed and commissioned further to the GMP. These pipelines include: • Oben-Geregu (196km) • Expansion of Escravos-Warri-Oben (110km) • Emuren-ltoki (50km) • ltoki-Olorunshogo (31 km) • Imo River-Alaoji (24km) • Ukanafun-Calabar (128km) • NOPL (50km) With these projects now in place, all available power plants in the i ~try today are connected to permanent gas supply pipelines. In addition, t ~ ~ ~~ ngoing construction of the strategic East-West OB3 pipeline (127.,,...,..1•- heduled for completion by the end of 2017 and the expansion of the....,... c,1_l'..d_ll _:7'~-Lagos Gas Pipeline System scheduled for completion by Q1~,_.,...:,n . The technical evaluation for the Trans Nigeria Gas Pipeline (14 has also been completed. C., II. Domestic Gas Supply Obligation (DSO) / ~ A Domestic Gas Supply Obligation (~.9Nas introduced to address challenges in gas supply into the do ~ ti~ arket and provide a pricing path for wholesale gas supply to downstr offtakers. The DSO was to be broken down to an annual delivery ob~ (i.e., delivery to the nearest gas transmission infrastructure) on~ ~ oducers, with the sum of all obligations equalling the planned domest~ uirement for gas. Ill. Commercial Framew i!ki r· ing Policy) The National Domes ·c as upply & Pricing Regulations was issued in 2008, proposing differen~ ic for different consumer groups. All suppliers were to be paid an Agg g e Domestic Gas Price. A Strategic Aggregator (Gas Aggregation~ } of Nigeria, GACN) was then established to manage the implementau~ "'•the DSO and the aggregate price. 2.7 ' ~ Results from the Previous Policy While t! ~ arket has grown over the last ten years, it has been very slow, at 3.1 % a year, just keeping up with national population growth (2.8% according to the World B k). In other words, gas supply per head has barely changed over the last ten years and has not met economic growth needs. Nigeria is now experiencing a full-blown energy crisis in spite of its abundant gas resources. A new gas policy that is more effective and adjusted for the much harsher international business environment for gas is now required to drive the institutional reforms and regulatory changes necessary to attract investment into the sector. Ministry of Petroleum Resources 21 Nigeria National Gas Policy

2.3.4 — International Perspectives

2.3.4. International Perspectives Oil and Gas Price Movements There are two key messages: i. The Period of High Prices Now Over Global Oil and Gas prices for the ten years preceding 2016 have been the highest they have ever been since the 1860s when the modern petroleum industry first started. Price levels have now fallen substantially from those levels and there is a possibility that they may not reach those levels again. As oil supply reduces, there may be a window of oil prices of around ~~I in the period 2020-2030. Prices are forecast to fall again after that windo MJ~ hen stay low. At the same time, while oil supply increases dramatically as e oil comes back onstream, demand growth will markedly soften, except w...rn1::n etrochemicals sector which is likely to be the main market for oil. These movements will affect gas prices as well. C., The clear message for Nigeria is that it nwo,~ roaden the economy beyond oil. ~ ii. Recent Extreme Price Volatility ~ There has also been extreme volati""- 5 <:;}and gas prices since around 2005, at levels not seen since the 1860s. V Meanwhile, Japanese price~ e~ cted by two factors: 1) the linkage to oil prices led gas prices to rise as oil ·c rose; and 2) the closure of Japanese nuclear plants following Fukushima ledM_cr sed Japanese demand for gas. But as oil prices fe$ e¥ osite effect happened. Japanese gas prices came close to parity with Euro as prices (UK National Balancing Point, NBP and German import prices) ~ a 2015, and on a couple of occasions, actually fell below the European~ l~ rice differentials between Japanese and European gas prices have now reve~L~ O their traditional approximately one third premium. Tabl • onthly Gas Price Movements at Major Pricing Points (2015-2016) (January 2015- September 2016) Dates Henry Hub Japan Europe German Natural Gas LNG CIF Gas Import Natural Spot Price Price Border Gas Spot ($IMMbtu) ($IMMbtu) Price Price ($IMMbtu) ($IMMbtu) Jan-2015 2.97 15.12 9.25 9.5 Feb-2015 2.85 13.37 8.27 9.29 Mar-2015 2.80 14.28 8.27 9.29 Apr-2015 2.58 10.22 7.42 7.39 May-2015 2.84 8.72 7.27 7.37 Ministry of Petroleum Resources ?2 =================================e=-- Nigeria National Gas Policy Dates Henry Hub Japan Europe German Natural Gas LNG CIF Gas Import Natural Spot Price Price Border Gas Spot ($IMMbtu) ($IMMbtu) Price Price ($/MMbtu) ($/MMbtu) Jun-2015 2.77 8.59 7.29 7.3 Jul-2015 2.83 8.87 6.93 6.68 AuQ-2015 2.76 9.18 6.95 6.66 Sep-2015 2.65 9.64 6.71 6.49 Oct-2015 2.32 9.44 6.43 6.01 Nov-2015 2.08 8.89 6.24 5.87 Dec-2015 1.92 8.50 6.10 5.8 1. Jan-2016 2.27 7.85 5.35 5.,.09 \ Feb-2016 1.96 8.01 4.90 ,-4!~ ~ Mar-2016 1.70 7.23 4.26 Apr-2016 1.90 6.38 4.13 "-.~ , ,'-.._)4.02 9 May-2016 1.92 5.86 4.04 n- ~ 3.99 Jun-2016 2.57 5.99 4.13 ~ L~ Jul-2016 2.79 6.32 4\.51 ' Aug-2016 2.79 6.60 / ...4 ..ff"' Sep-2016 2.97 6.60 ... X 41.21 Source: US EIA 2016; IMF 2016; World Bank Comm. Markets Review Report 2016; Analysis: MPR Gas Policy Team 2016 ~, Price Risk of China Shale Gas ~ A major threat and perhaps the bigg. Qice risk to LNG and international gas prices over the long run could be if shal~ -s~ eveloped in China. Beyond the potential for shale gas production from ; ·n~ rim basin, the possibility of China ceasing to become a gas importer at e ame time as massive new supplies of LNG in the Pacific basin come on liN wi n the next five to ten years) would probably lead to dramatic falls in LNG pr~ cross the world, with prices staying low for a very long time. 2.3.5. ~ L G Trade Flows This chart ~ s global LNG and pipeline gas flows. ~ Ministry of Petroleum Resources ?3 =================================E- Nigeria National Gas Policy Figure 2: Major Global LNG and Pipeline Gas Flows, 2015 Major trade movements 2015 TrailO !lows \•..Olldw1dCI (bilbon cubic M()l!ClSI ~ 29.9 6.4 • us ■ Canada Mexico S, & Cent. Ame,ica .. ■ Europe & Eurasia ■ Middle Eas t _ . Pipotino g::is ■ Africa Asia Pacific ~ LNr. Sourco: lncludos cala from FGE MENA.gas sorYicO, GIIGNL, IHSW::ito1oomo, PIRA Eoorgy Group, Wood Mackanzic. Source: BP Statistical Review of World Energy, 2016 ~~ 'V' The following chart shows Nigerian LNG tra~ ~ o~ . Figure 3: Nigerian ~ de Flows, 2015 r·MftbiM o ~b Source: Data: BP Statistical Review of World Energy 2016; Analysis: MPR Gas Policy Team 2016 Atlantic and Pacific Basins In LNG terms, the world is basically in two basins, Atlantic and Pacific, with Africa dividing the two. The two basins operate differently, with different suppliers and markets, and different contractual terms. Due to LNG boil off over time as well as freight and insurance costs, LNG from one basin is generally uncompetitive in the other. Ministry of Petroleum Resources ?4 ==================================,=,- Nigeria National Gas Policy Figure 4: A Mountain of New Supplies over the Next 5 years1 Asia Pacific was the major market for Nigeria LNG in 2015. But with two major exporters (Qatar and Australia) and the huge new volumes about to supply the same region, Nigerian LNG will probably struggle for market penetration in the future. Nigeria is naturally an Atlantic basin supplier. There certainly have been and will continue to be Nigerian LNG deliveries to Pacific basin markets but they are unlikely to be major markets for Nigeria, as there are actual and potential major LNG producers geographically closer to East Asian markets (including Qatar, Abu Dhabi, Tanzania, Mozambique, Indonesia, Malaysia, Australia and so on). 250 Pacific Basin t'0 ~ • USA· Golden Pass Sca,ndw;,vc,ol ■ USA · Co<1MChri1U USUIGP'OJ«ll yo11or,xhfl0 USA· L.iktClla~ currently is 200 USA· Jordon(ovc, the sec --a"""---e·st exporter of I USA · DomlnlonCovtA>lnl ■ USA · Cameron I.NG LNG an I pected to overtake 150 USA · frttp0rt Qat£ as the world's largest USA•5ablne Pall o~ when seven LNG ~ ■ Mllo •Yamall li ■ AuW. IIH!hy, ts totalling 57.6 mtpa, 100 ■ Ausvalla ·Gor,>n Tl ~ are currently under ■ Auslfa lla •WhraUIDnt ~ construction are commissioned ■Ausvalla•Go""' Tl ■ AuslfallH1faPadficUlG (CPI between 2016 and 2017. They 50 are expected to enter the Asia ■ Ausva Ua , Glad<IOne 5anto1 ■ Auslralla • ~nd(Uflfl pacific market, which currently ■ Papua Ntwwfnea•Hlde\ takes all of Australia's LNG l1ll ◄ l1l15 2016 2017 l1l1S 2019 l1l20 l0l1 exports These volumes of LNG are ~ ~ twice the total volume of Nigeria's LNG export or liquefaction capacity. r'\ Mozambique: Moz~ itjh{has emerged as the second largest gas reserves holder in Africa follo3in io e discoveries made since 2009. It is aggressively developing plans to com alis its gas resource. Development of four LNG trains is ongoing with future jl-\ns r up to ten trains. Tanza~·: ~ zania has also made some considerable offshore gas discoveries, with conting esources estimated at 29 tcf and possible resources up to 50 tcf. In the medium erm, BG and Statoil are developing two LNG trains, with plans to increase to four trains in the long term. 1 Source: Howard Rogers, 2015 Ministry of Petroleum Resources ?5 ==================================e=-- Nigeria National Gas Policy Mozambique and Tanzania are both developing the same Rovuma basin which crosses the border between the two countries. Mozambique and Tanzania each pose considerable competition for Nigerian LNG for Asian markets (East Asia, South Asia and the Middle East), even more so when both schemes are considered together. Papua New Guinea: Papua New Guinea joined the league of LNG exporting countries by bringing in LNG supply from Yemen (another LNG exporting nation). The Papua New Guinea LNG project has been exporting LNG to Southeast Asia since 2014, producing 6.9 mtpa from 2015, with an estimated production of more than 9 tcf of gas over the project lifetime. Indonesia: Indonesia is cutting down on its gas export obligations as a result of attempts to meet domestic energy demand. SKK Migas, the country's u4tream oil and gas regulator, has said that domestic commitments and consumptiorhull\ontinue to grow, which means an increasing gas allocation for domestic u5':.n~ reducing volumes of gas available for export. ~ - Malaysia: While Indonesia is cutting down on LNG ex ~ ~ Malaysia is still aggressively committed to increasing its LNG supplies fof"'0; ~ markets (coastal 1 regions and islands) and exports. Malaysia is the fo~ ~ ~ t natural gas reserves holder in the Asia-Pacific region, and accounts for 1- vtotal world LNG exports. Japan Methane Hydrates: The Japanese gove~ ent has succeeded in extracting samples of a next-generation resource, metb~, ~- ~ rate, from the bottom of the Sea of Japan. It is estimated that there is enou~ ~ane hydrate beneath coastal waters to meet the nation's natural gas needs f~ 0 years. This is a long-term prospect, however, as the technology to extra~ hane hydrate is far from commercialisation. There are also concerns about ~ ~~ ental damage linked to extraction, partially because methane is a powerful yV ,ouse gas. Figu and Gas Flows to Asia, 2015 Rmrvei Uquefodion Country Capacity (Tcf) (Bcf) Australia Ill 1,405 Nigeria t80 971 Mala,ila 94 1,164,150 Mozamblqu 4 NIA \~ Middle East 2,940 4,515,30 -._ '- m lndonella 100 ' ' India 52 NIA

12.3 — N/A

12.3 N/A Tonzonio _ ,....... - LNG ·- Al,,..._M ■ -c:.11:lllllll{la) Russia 59 1,139 512 Source: Data: BP Statistical Review of World Energy 2016; Analysis: MPR Gas Policy Team 2016 With such huge streams of LNG and pipeline gas coming into the market over the next few years to the Asian region, the oversupply will continue to bring pressures on LNG Ministry of Petroleum Resources ?6 ==================================,=,- Nigeria National Gas Policy and gas prices, and suppliers will have to settle for buyers' conditions in changing contract agreements (with probably a continuing move towards ever shorter contract terms). In addition, a buyers' cartel may build up among Asian LNG buyers, further complicated by the emergence of Singapore as an LNG hub. Because of its distance from the market, Nigerian LNG will struggle to be competitive in Asian LNG markets in the future. Atlantic Basin Nigerian LNG markets realistically lie in the Atlantic basin, to North America, South America and Europe. All of these however present challenges to Nigeria. North America: Since the shale gas revolution, North America is no lorbe ~ market for LNG, as it has become self-sufficient in gas, and has become an ~ ~ porter. South America: South America has growing gas markets a~ ~ e a market for Nigerian LNG, particularly to Brazil and Argentina. Supplie o Nigeria are at a similar distance from Atlantic Coast and South American rp-k~ t as are supplies from Trinidad & Tobago which currently provides most of t~he L~ pply to South America. Nigeria would have to play catch-up to be able to ac those markets. While South American LNG markets are growing, they are s~ pr ly not large enough to be able to accommodate significant LNG su~ pplies m both Nigeria and Trinidad & Tobago. Trinidad & Tobago has a declinin ou e base however and is finding it harder to fulfil its supply obligations. «;) Figure 6: LNG and G F ws to South America, 2015 Uquefadion Resel'lleJ Country Capacity (Td) (Bd) Trinidad and 11 600 Tobago Nigeria 180 971 "'· . ~ ~ "~. Argentina ~ IS N/A ' mm! - rralne 0 Trlnlclacl and Toliogo e Argaidlna • Nigeria e Bnull e Ccn1beC111 (7 / Brazil 12 N/A - G 0 Bolula .Uv.t.llM ■ -Clllllilc ..... \lCII) Source: Data: BP Statistical Review of World Energy 2016; Analysis: MPR Gas Policy Team 2016 Europe Gas demand in Europe remains lower than forecast when NLNG Trains 1-6 were commissioned. There are several factors supporting the view that European gas demand may stay low for the foreseeable future. Ministry of Petroleum Resources ?7 ==================================,=,- Nigeria National Gas Policy One is the state of the Eurozone economies. Eight years after the financial crisis, southern European economic growth remains low (while northern European economies are growing strongly). Europe (southern Europe at least) may be entering a period similar to what was called "the lost decade" in Japan, where despite many government fiscal stimuli, the economy remained stagnant. The short and possibly medium term uncertainty surrounding Brexit will only exacerbate European economic growth concerns. Northern European economies, which are growing well, have abundant gas supplies. Even though the UK has turned from being a net gas exporter to now being a (small) net gas importer, there are abundant gas supplies in Norway, with pipeline supplies across the North Sea, and indeed Norwegian LNG exports (in particular~ e Sn0vit field LNG liquefaction offshore northern Norway); and nearby in R ia (with Shtockman LNG in the Barents Sea off northern Russia). orr ., ..- -~... There are other LNG markets in the periphery of Europe, such as , which has received some Nigerian LNG supplies, or Egypt, which has al~~lil!lrretl from being a gas exporter to a gas importer. Gas markets in the Eastern e I ranean are likely to be small , however, as gas resources are also being deo in the region. Figure 7: LNG and Gas Flows to r pe, 2015 ReseMs Liquefadion Country (Tcf) Capacity Trinidad and 11 600 Tobago Nigeria 180 971 ,_, Algeria 1S9 S72 \-,, Qatar 871 3,789,576 ~ f'l!lm!m!I ' Norway 92 2.04,578 Azerbejlan 0 / Russia 40 1,139 NIA 512 .........- CiM: .... (lm) Source: Oat~ Sta istical Review of World Energy 2016; Analysis: MPR Gas Policy Team 2016 Power ration in Europe Another threat potentially reducing LNG demand in Europe is the drive towards renewable energy. Europe has turned a corner where renewable energy has now become mainstream across Europe. Europe is reducing its reliance on thermal energy of all sorts. The growth in electricity generated from renewable sources during the period 2003 to 2013 largely reflects an expansion of wind turbines, solar power and biomass, although hydropower remained the single largest source for renewable electricity generated in the EU-28. Ministry of Petroleum Resources ?8 ==================================e=-- Nigeria National Gas Policy Other Factors Supporting Gas in Europe Two general trends across Western Europe are the decommissioning of ageing coal plants and the move away from nuclear power. Germany has taken a policy to move away completely from nuclear power. The UK and France are committed to continuing nuclear power generation but both countries are encountering technical and financial problems. The result is that there is likely to be a continuing role for gas for power generation in Europe, to replace coal generation and to take up the slack that new nuclear power will not be able to meet. Commoditisation of LNG Costs of LNG liquefaction, shipping and regasification in particular hav~'l, falling steadily over the years. LNG used to be differentiated as a h~1gh- 8(1 l,roduct in Europe; however, LNG is now rapidly becoming a commodity wh be sold all year round into European markets (provided the price is low t\"'C but it may be losing its winter pricing premium. • V Another important trend is that the long term contrfca o~ ty, thirty or even forty years is giving way to shorter contract periods of fi ars or less. The commodity nature of LNG will be plain to see if LNG spot tra~ 15 me common. Potential African Gas Markets ~ Perhaps Nigeria could help develop and~ supply African gas markets with LNG and pipeline gas. The West African ~ ipeline (WAGP) could be extended further west to neighbouring countries; ~ ~ne connections could perhaps be made to Cameroon (although Cameroon "ts own domestic gas reserves which are right next to the main industrial m.ar~ ts , or Nigerian LNG could be taken to other markets along the west African coas~ ile these developments are all possible, the window of opportunity is limited A use: 1. Gas export ~)-fake considerable time to develop; 2. Countriej jit~ otential markets such as Cote d'lviore are beginning to contract ~ G form other supply sources; 3. Afri~ay decide to skip the fossil fuel stage as Africa develops, and go ~~ ·to mass renewable power generation along the lines of Europe. lnvestml nt Flows Global Investment Flows From 2008, the developed economies suffered and investments into western markets fell dramatically. After a small initial fall, from 2009, investment flows to emerging markets increased strongly, until around 2013. As developed economies recover, investment flows to emerging markets are now flat or slightly declining, while the major investment flows are returning to developed western economies. The growth period for investments into emerging markets has now ended. Ministry of Petroleum Resources ?9 ==================================e=-- Nigeria National Gas Policy Of emerging markets, most of the investment flows went to Asia and only a small proportion to Africa. Within Africa, investment is now moving away from Nigeria to more attractive opportunities in East Africa (Mozambique, Tanzania and Kenya) and South Africa. Investment Flows to Nigeria Investment flows into Nigeria are declining and some existing investments are leaving the country for more favourable investment destinations, such as Mozambique, Tanzania, Kenya, and South Africa. Nigeria's appeal has faded as the price of oil, the source of up to 80% of export earnings, has declined. Growth fell to 2.8% last year, the slowest since '149, and is forecast to slow again, to 2%, in 2016 (source: Morgan Stanley). In US & 11\.'. terms, the economy in 2019 will still be 17% smaller than its 2014 peak of$~ ~- In Conclusion: Nigeria has a Challenging Future f()<:;;j In conclusion, Nigeria faces some significant market ch.;ten~ n the future for its x LNG exports. It is likely that Nigerian LNG supplies~ ·11 ~ le to find markets, but price discounting will likely become the norm. Nig ill also have to work much harder in the future to market its LNG.

2.4 — Challenges Facing Nigeria Pres ly

2.4. Challenges Facing Nigeria Pres ly Nigeria is currently facing significant cha~ s. The easy days of past years, when the country enjoyed a very benign ~ at1onal environment with high prices and growing markets, have passed. ~ V These challenges include: ~ • International Envir~ nt: o Low and vo~ · e)el price; o Low dema NG; o lncrea~ co petition of supplies into the global market; o Comma isation of LNG; o poQ shi ing from producer to buyer; o ~ ' g point reached for renewable energy. • Doml stic Environment: o Security of supply risks: ✓ Gas supply restrictions for domestic gas projects; ✓ Challenges in funding of NNPC's cash call obligations in upstream projects; ✓ Growing gas payment arrears in the power sector; ✓ Militancy and insurgency. o Absence of enabling environment to attract foreign direct investment (FDI): ✓ Slow progress with Nigerian gas export projects; ✓ Slow pace of domestic gas projects; ✓ Inadequate gas supply for the domestic market; Ministry of Petroleum Resources ~O ==================================::!J Nigeria National Gas Policy ✓ Financing challenges from local financial institutions; ✓ Re-direction of FDI focus from Nigeria to other regions; ✓ Slow implementation of key infrastructure projects envisaged in the GMP. o Governance: ✓ There is a vast gulf of understanding between the private and public sectors (especially between government and the IOCs); ✓ Need for increased transparency and adherence to due process in business transactions; ✓ Conflicts of interest in Government as policy maker, legislator, regulator and commercial participant; ✓ NNPC in transmission and wholesale gas transactions. ~ o Legislation: r~" ✓ Petroleum law designed for crude oil not for gas· ~ ✓ Gas not recognised as a commodity in its ow ..,.·_ ,_ ✓ Lack of coverage of downstream gas in legi ✓ Laws scattered, sometimes overlappingv o que. o Regulation: /~ ✓ Several regulatory agencies wi~ v~ ping roles, while other roles are unregulated; , ✓ Functionally weak agencie. s.;__ \ ✓ Long and tortuous regul~ ~ocesses; ✓ High transaction costs fo~ estors. o Sector structure: ✓ Natural monop ~ <:) e ments combined with potentially competitive elements; . \ • ✓ Potential f~ petition constrained by existing sector structure; ✓ Confli' C interest at various points. o Weaknesse~ wider supply chain and with skills development: ✓ ~ -~~ - ; people who are sufficiently qualified and skilled ; ✓ n inefficient supply value chain driving up costs and inhibiting ~ 1 vestment projects.

2.5 — Nll~eed for a New Gas Policy

2.5. Nll~eed for a New Gas Policy Nigeria needs a new gas policy that fits the severely constrained circumstances in which the nation now finds itself. The gas policy must work for Nigerians and must be faithfully implemented to meet the vision outlined in this document. Government will leverage its large gas portfolio to ensure that gas development is undertaken in accordance with Nigeria's national socio-economic development priorities. Ministry of Petroleum Resources 31 Nigeria National Gas Policy 3. VISION AND OBJECTIVES

3.1 — Vision

3.1. Vision "To be an attractive gas-based industrial nation, giving primary attention to meeting local gas demand requirements, and developing a significant presence in international markets". This Vision for Nigerian gas contains key aspirations: 1. Move the economy from oil to gas; 2. Diversify the gas supply options within Nigeria, to ensure se~curity ~ pply; 3. Extend gas penetration in the domestic market in order to faci • e e growth of the electric power, agricultural, industrial and transportati ors; 4. Gain a presence for Nigerian gas in international mark~ 5. Operate a gas industry with a clear division of roles~ ~ ~ private and public sectors: V o Public sector policy making; implemen~ ign and regulation; o Private sector investment and oper~~r ¥ 6. End gas flaring and address environ~ \ ta~ sues; 7. Provide an enabling environment ~ ased private sector participation in the gas sector; V 8. Clarify the rules guiding in.7;Q in the gas sector.

3.2 — Mission ~'</

3.2. Mission ~'</ "To move Nigeqtrf(om a crude oil export-based economy to an attractive oil an~ -based industrial economy'' Realisation of ~~ objectives will depend on the successful implementation of the following: ~ 1. Set Qir gas policies; 2. ~ lish a clear legal and regulatory framework; 3. C~ mmunicate the vision to government agencies, local and international stakeholders; 4. Ensure security of gas supply through: o developing new gas supply resources; o installing an optimal infrastructure network; 5. Provide an attractive climate for investment; 6. Seek value addition in downstream high value international and national markets; 7. Direct low-cost gas for domestic markets; 8. Realign the public sector to provide policy, legal and regulatory support to the industry; 9. Introduce international best practice in operations and in governance; Ministry of Petroleum Resources ~2 ==================================::!J Nigeria National Gas Policy 10. Ensure that operations are conducted in an environmentally clean manner.

3.3 — Strategic Objectives of the Gas Policy

3.3. Strategic Objectives of the Gas Policy In order to meet the Vision and Mission, strategic objectives of the gas policy have been defined as follows: 1. Communicate the vision and the gas policy internally and externally; 2. Identify new gas resources, grow reserves and diversify gas supplies, from : o Niger Delta; o Offshore; o Inland basins; 3. Gas flare out; t(\ Sc) 4. Establish a clear policy, institutional, legal and regulatoj l \ ~ork: o Gas policy; ~ V o Gas legislation; r. o Regulatory authority; '-J o Secondary legislation (regulation); ~ 5. Enable a conducive environment for i~ v. s4 and for market growth: o Clear, consistent and investor • ;~~ egal and regulatory framework; o Investment promotion; ~ o Support for the develop;5 1t~ upporting infrastructure; o Fiscal environment tha u orts investment and domestic growth; o Willing investors prt ,~ ith accelerated access to gas resources; 6. Discourage wasteful \ro~ whilst encouraging optimisation amongst resource owners~, r~ ple, through joint development of gas discoveries and infrast~uctur. a ng several licensees if such developments would yield an economI~ , 7. Seek vai")aliii&mthrough: o~ Li~ ges to the power, industrial, agriculture, transportation and other trategic sectors; o as based industrialisation; ~ Downstream high value export markets; 8. Develop Nigerian human resources in the petroleum sector: o International training; o Improved national petroleum education; o Development of competency through education and practical experience, such as apprenticeship schemes; o Graduate training; o Technical, Vocational, Educational Training (TVET); 9. Implement international best practice in operations, particularly in maintenance, health and safety; Ministry of Petroleum Resources 33 Nigeria National Gas Policy 1O. Implement good governance throughout the industry: 11. Cluster development of gas infrastructure.

3.4 — Strategic Elements of the Gas Policy

3.4. Strategic Elements of the Gas Policy These objectives as described above are now described in detail through the rest of this gas policy document. The objectives are addressed under each of several policy areas or themes: 1. Governance; 2. Industry Structure; 3. Developing Gas Resources; 4. Infrastructure; 5. Building Gas Markets; t(\ 6. Developing National Human Resources; ~Co ~ 7. Communications; 8. Roadmap and Action Plan. In order to achieve the successful achievement of~ ~ gic objectives and the elements, the Ministry of Petroleum Resources will with the National Assembly, States, other Federal MDAs such as the Ministr~ .io wer, Environment, Finance, 1 Budget & National planning, Agricultur " dustry, Trade & Investment, Transportation, and Justice and the CBN. : - \ <:::><Q ~~ ~o q_q_ ~ Ministry of Petroleum Resources ~4 ==================================::!J Nigeria National Gas Policy 4. GOVERNANCE

4.1 — Strategic Objectives of the Legal and Regulatory Framework

4.1. Strategic Objectives of the Legal and Regulatory Framework The main Petroleum Industry legislation in Nigeria, the Petroleum Act, Cap P.10 LFN 2004, did not legislate for gas as a hydrocarbon and industry in its own right, nor for a midstream and downstream gas industry. This has posed a challenge to the development of the gas sector and the attainment of national aspirations for gas- based industrialisation. The government will pass new legislation to address gas issues, remove the anomalies and distinguish the up, mid ~ d downstream. ~\ The main aspects to be addressed under a new legislation on gas ~fii),nect: • Emphasis on gas as a fuel in its own right, rather than ~ oauct of oil production; ~ V- • Separation of upstream from the midstream; r • • Greater focus on the development of the mids~ ~d downstream segments; • Separation of gas infrastructure ownershi~ qJld erations from gas trading; °" • Pricing; _ \ ·, • Competition regulation; ~ • Fiscal regime; • Licensing of different aclivilie"<::,.¥as chain: o Exploration; / ~ o Production; . \ ~ o Wholesale ga~ ly; o Gas proce~ ; o Gas Stora~ o Gas tAli_ortation; o ~ p~ ork operation; o tlistribution; ~ e ·1trading of gas. 4.2. • utional Framework

4.2.1 — Background

4.2.1. Background The thrust of the policy is to introduce institutional reforms capable of translating aspirations into results. Currently, the existing policy and regulatory institutions overseeing the oil and gas industry in Nigeria are: • Ministry of Petroleum Resources; • Department of Petroleum Resources; • Nigeria Content Development and Monitoring Board • Petroleum Products Pricing Regulatory Agency; • Petroleum Equalisation Fund. Ministry of Petroleum Resources ~5 ==================================::!J Nigeria National Gas Policy

4.2.2 — Institutional Capacity Strengthening

4.2.2. Institutional Capacity Strengthening The Federal Government is determined to strengthen the capacity of the Ministry of Petroleum Resources as a policy making institution. Towards these objectives, the policy making and surveillance capability of the Ministry of Petroleum Resources will be strengthened, new technical resources will be introduced, existing departments will be restructured, and additional mandates would be assigned.

4.2.3 — Scope of Regulation

4.2.3. Scope of Regulation A simplified licensing regime will be introduced for every activity, incllhi,. ~ but not limited to constructing and operating gas processing plants, lique!1,.~ ~ ants, gas storage facilities, transportation pipelines, transportation n~ operation, distribution networks; wholesale gas supply; and retail trading( \~ ·

4.2.4 — Single Independent Petroleum Re ala.I(Authority

4.2.4. Single Independent Petroleum Re ala.I(Authority The government is desirous of reducing the ci✓rfl/nt regulatory overlaps and consolidating the existing regulatory authoritiese J ~ingle petroleum regulatory authority. , The Federal Government is det~ e that there should be a new single independent regulatoK,tltlqjlrity for the petroleum sector in Nigeria, which will replace tv isting regulatory agencies. The new regulatory authori=y i~ ·~ r the whole petroleum sector, incorporate the activities of the existing pe ol ~~ ulatory authorities and also cover some new regulatory activities not~ re covered. It will essentially be responsible for the economic and technic r ulation of the gas sector and shall have licensing, investigative, moni~ dispute mediation powers. The following ~ i~ --:-Departments or functions are envisaged to form parts of the new petrol~ ~ ulatory authority, among others: ~ tream oil and gas regulation; dstream and downstream gas regulation; 3. Midstream and downstream oil regulation; 4. Health, safety and environment compliance; 5. Consumer protection; 6. Compliance monitoring. The government is aware that while there are many benefits in consolidating into a single petroleum regulatory authority (and reducing the current number of disparate and sometime overlapping regulatory agencies), there are also some challenges. The main challenge is likely to be in transitioning the current agencies into a cohesive new regulatory institution. This will require building institutional capacity and a strong and effective corporate culture within the new institutions, to ensure effectiveness of the institutional framework and sustainability of the policy. Ministry of Petroleum Resources ~6 ==================================::!J Nigeria National Gas Policy

4.2.5 — Petroleum Safety Compliance

4.2.5. Petroleum Safety Compliance The current system in Nigeria regarding maintenance, health, safety and environment in the Petroleum Sector needs to be brought to a higher standard. Major safety incidents go without proper investigation and without responsible parties being held sufficiently accountable. This policy places emphasis on prevention and conclusive investigation as well as appropriate sanctions. • Lessons should be learned, changes made and similar incidents avoided in the future; ~ • If individuals are culpable, they should face criminal prose~ ~ setting a deterrent to people. ~ The safety record for gas and LPG in Nigeria is unlikely to signf<\:i ~ improve without establishing and empowering the regulator to carry out fcyen~ic~ vestigations and to lay criminal prosecutions where necessary. '-J A strong robust safety regulator will be~ a • hed, with powers of inspection and investigation, and wo g with law enforcement agencies as necessary for entry j rlo p emises without owner's permission, removal of evidenCc,JSl..~tioning under caution and detention, in accordance with th~ . The policy is for safety ~ ~ ms to include robust penalties for breaches of regula~io s afety standards. There also needs to be criminal prosec i fo instances of gross negligence or wilful misconduct tha~ ea a serious breach of health and safety standards or se o incidents that lead to loss of life. They should carry a pot~ • sentence for Directors of offending companies. A key safety re~ ~ fu nction therefore is the monitoring and inspections regime. lns~ ions: Preventive monitoring and inspections to ensure licensees are ~ ~ithin regulation (before-the-incident prevention, ex-ante); • ~rlf~ tigations: Major incident investigations, where forensic investigations of incidents take place (after-the-incident investigations, ex-post), gathering evidence so that: o lessons can be learned for the future; and o criminal prosecutions can be made, if necessary in instances of gross negligence or wilful misconduct. The petroleum safety division of the new regulator will be dedicated to the safety regulation of all operations in the petroleum sector. However, it is recognised that such an organisation needs to be properly financed and needs to have specialist staff with the skills and the tools to carry out their work effectively. Ministry of Petroleum Resources "7 ==================================::!J" Nigeria National Gas Policy

4.2.6 — Technical Standards

4.2.6. Technical Standards Around the world, technical standards are usually developed by the industry in consultation. Standards are produced by technical standards committees of the Industry association which are made up of representatives of the industry. Nigeria will adopt appropriate international standards selected, whichever is more stringent, from ISO, ASME, El, API, ASTM, ANSI, for example. Pipeline design standards can be from, for example: ISO, ASME, El, API, IGEM. The new petroleum regulatory authority will be responsible for technical standards in Nigeria. The Standards Division of the Petroleum Regulatory Authori responsible for developing and maintaining technical standa with industry. S::5

4.2.7 — Metering and Measurement <"V'

4.2.7. Metering and Measurement <"V' The state of metering and measurement~ ~ ocarbons is not satisfactory. As part of arrangements for a tra rently run industry, the policy is that shortcomings in metering, r ;s ment and fiscalisation of hydrocarbons throughout the value c il'lf(..wi/1 be addressed.

4.2.8 — Cost Monitoring an n ol

4.2.8. Cost Monitoring an n ol The costs of running the overall petr~ industry in Nigeria have risen dramatically to an unacceptable level. Nigeria)8J ~ me one of the highest cost provinces in the world. ~ The intention of the icy is to avoid duplication of and unnecessary costs, and to avlfcl\.edundant and underutilised assets. It is the policy of the Governx ~t robust cost estimation and cost control must be adopted as , ,dard operating practice in the sector. The petroleum~ ulator in implementing the intention of the policy will approve a duplicatio~ ~~ structure assets only if an economic case can be put forward. Measu~ reduce costs in the Nigerian gas industry should include (among other measur~ ): • Cost estimates prepared for any project must be benchmarked across the industry and with peer projects globally. • An evaluation of the technical and economic feasibility of any engineering project must be undertaken before proceeding with such project • Approved cost data for all projects should be recorded in the National Cost Database developed under the leadership of the Commission. • Cost optimisation and efficiency of operations through joint developments, consolidation of contracts where necessary and better asset management; • Performance-based incentives that reward lower cost producers and penalise higher cost producers; Ministry of Petroleum Resources ~8 ==================================::!J Nigeria National Gas Policy • A general move away from higher cost gas; • Sharing of services and facilities; • Contract thresholds for projects. The government is also very aware of the measures it needs to take to help to produce a lower cost environment, including among others: • Resolving the Niger Delta militancy issues; • Reducing the general costs of doing business in Nigeria; • Introducing efficiencies into local content contractor procurement; • Optimising contracting cycles.

4.2.9 — Consumer Protection t'0

4.2.9. Consumer Protection t'0 A consumer representation and protection body will be established~ e mandate of representing mainly residential and small business consin_ ~ ~ ainst more powerful corporate or government interests. ~ The regulator shall prescribe and communrata a consumer protection standard for the gas sector. ~~ ~ 4.2 .10. National Petroleum Policy • e¥ .ate For sustainability and effective mo-1 ..ing and implementation of policy, specialist centres shall b<lwJ ~ lished within the MPR, in addition to the existing techni l.dl,,lrtments. To ensure a more effective role, ~ tio al Petroleum Policy Directorate, which will act as a technical back o~~'I _y e Minister in his policy making role, will be established within the MPR ~ with the following specialist centres: 1. Oil Policy Divisi n ith departments for the Upstream, Midstream and Downstream· 2. Gas Poi ic • 1 on with departments for the Upstream, Midstream and Downst ; 3. Stra ic lanning and Policy Research Centre; 4. The estment Promotion Office. Ministry of Petroleum Resources ~9 ==================================::!J Nigeria National Gas Policy Figure 8: National Petroleum Policy Directorate [ National Petroleum Policy Directora!!_] Strategic Planning & Oil Policy Division Policy Research Gas Policy Division Division Upstream Oil Strategy Upstream Gas Forum: Public / Prtvate Forum Midstream Gas Strategy Midstream . Implementation Technical issues Downstream National Issues Downstream . Technical standards Coordination issues Project management Investment Promotion Office Investors Source: MPR Petroleum Policy Team 201 ~ -

4.2.11 — Strategic Planning and P Research Centre

4.2.11. Strategic Planning and P Research Centre The Strategic Planning and Po ~ esearch Centre shall keep regular track of local and inte nal developments and keep Ministry, Regulator and oth nment institutions updated as necessary. The Strategic Planning and .Pil!,!i~ search Centre will be a small research centre responsible for tracking dev~ ents such as: • Strategic planninQ natural resource management issues; • Petroleum i~ market developments; • Oil and ~ p~ m ovements and forecasts; • Policy in_~ ives; • Re~ ory initiatives; • ~ ' °ments in international energy organisations; • ternational contacts with whom leaders within the MPR need to keep in C ct. 4.2 .12. Investment Promotion Office It will be useful and helpful to investors to have a single point of first contact where they can find out about Nigeria and about the investment opportunities in the petroleum sector. Any potential investor should be given as much information as possible, in as investor friendly a manner as possible, about all the opportunities. While it is not possible to give confidential information about competitors or other companies, the Ministry should be able to produce authoritative estimates of reserves, of markets, of opportunities for investment, of legal and fiscal conditions, and any other information that can be provided. Ministry of Petroleum Resources 40 ================================= Nigeria National Gas Policy The Investment Promotion Office will provide: • Technical support in promoting a project; • A centre of expertise on upstream and downstream petroleum opportunities within Nigeria that will work with the Nigeria Investment Promotion Council (NIPC); • A database of projects and investment opportunities; • An informative website; • Support with promotions and roadshows; • Dedicated personnel to help potential investors, so that investors h~ a single point of contact who will remain with them and guide them ~ ~gh the government process. Sc) The Investment Promotion Office should have a website with as'-\csinformation as possible on it. In addition, rather than just waiting for potenti.11\iVo'rs to approach it, the Investment Promotion Office could also actively Pf"'lp tM he opportunities in Nigeria and prospective projects to potential devel~ presentations and road shows. «; through promotions, 4.2 .13. National Gas Focal Point ~ The National Gas Focal Point shall be oversight on the practical implementation a~~ person in the Ministry charged with gas policy, overcoming any obstacles and ensuring consensus and a coor~ d evelopment among all the participants.

4.2.14 — Dedicated ~ t Desks

4.2.14. Dedicated ~ t Desks To facilitate institutionalis~ plementation of the programmes and projects emanating from the poli~ dedicated "Project Desks" within the Oil and Gas Policy Divisions will serv~ " ' - lerface between project developers and Government Agencies. "-- The Project deD wm not duplicate the activities of other departments or agencies of the Gover!lli)~1'r the regulator. Instead, their role essentially will be to lobby and push proje~ or programmes provided for or relevant to the Gas Policy through Govern~ . Their job will be to engage and fully involve other parts of Government and the ~ ivate sector to ensure that projects or programmes are implemented.

4.2.15 — Joint Stakeholder Forum

4.2.15. Joint Stakeholder Forum In addition to the specialist centres to be established within MPR for the monitoring and implementation of policy, a Joint Stakeholder Forum shall be established. The joint stakeholder forum shall consist of representatives of the main stakeholder groups meeting on a regular basis to address cross-cutting issues on the implementation of the gas policy and/or specific project(s). a. The membership of the joint stakeholder forum shall be drawn from active stakeholder groups in the country. Ministry of Petroleum Resources 41 ================================= Nigeria National Gas Policy b. The forum will relate with the National Gas Focal Point on matters relating to the implementation of the gas policy. c. Health and safety will be a major component. Experience from other countries indicates that if consumers gain an impression that gas is dangerous, then market growth will be much slower. Ensuring a safe market development will be vital. 4.2 .16. Donor Agencies The government will work with the donor community to identify aspects of the policy where donor agency support can be secured.

4.2.17 — Civil Society, Consumer Groups and Associatio ~

4.2.17. Civil Society, Consumer Groups and Associatio ~ The government will work with civil society governmental organisations, consumer and associations so as to ensure transparency, ac sustainability in developing the gas sector. C.,

4.3 — Commercial Framework ~

4.3. Commercial Framework ~

4.3.1 — Background ~

4.3.1. Background ~ The [commercial framework?] ~ arket development will be policy driven and project~ wffl>lthe objective of achieving an integrated national gas ne ___ 'V The commercial framework cons~ f two key aspects: • Rules for access ~ ~es and gas networks; • Pricing principles n regulations.

4.3.2 — ""'~ ss to Gas Networks

4.3.2. ""'~ ss to Gas Networks An ~· o nt principle of the gas policy is that there will be a full leg eparation of gas infrastructure ownership and operations, d ding, such that separate companies will carry out the ent activities. These companies may be affiliated as long as y are operated under consistent FIRS rules for transfer pricing and are subject to regulatory supervision. Gas transportation companies will not be allowed to engage directly in the purchase and/or sale of gas, and vice versa for trading companies, except through separate corporate vehicles. For purposes of clarity, asset owners in one segment of the value chain may own and operate assets in different segments of the value chain if they wish, albeit under different legal entities. For example, a holding company may have different companies operating in the upstream, midstream and downstream. Ministry of Petroleum Resources 42 ================================= Nigeria National Gas Policy Distribution exclusivity: Where a project developer has developed or wishes to develop a distribution area, they may be granted a period of exclusivity for a limited period of time for sales to customers within the distribution area through an affiliate gas trading company. This will be such that the project developer can recover their costs of building up the market in the distribution area plus a reasonable rate of return. Avoidance of duplication: As well as encouraging new entrants into the Nigerian gas industry, the intention of the policy is to avoid duplication of and unnecessary costs, and to avoid redundant and underutilised assets. The petroleum regulator in implementing the intention of the policy will approve a duplication of infrastructure assets only if an economic case can be put forward.

4.3.3 — Network Code ~

4.3.3. Network Code ~ Access to all midstream facilities will be on an open access basis an~ ~ ork code to manage access will be developed by the industry with oversi~'H,le petroleum regulatory authority. ~ There will be open access to all pipelines f"C:I ~ er essential midstream infrastructure, whether located~ sl'tiQJ;I or onshore and the petroleum industry and government I consider the type of network code that is required. 6 The intention is for the Network Code to be sim &le,~ sily implementable and designed in a modular fashion so that additional ele~ n be added as the market develops. Gas pipeline pressures, gas spe~ ions, metering and other technical and commercial details relating to in~ ;fr~ re access will be dealt with in the Network Code. V Pending the co~ le of the Network Code, effective point-to- point gas trans tion agreements, with flexibility for third-party access, sh~ e 1 thrust of the policy. Governn i ~ the gas industry will continue to update and imp/em~ - the network code through constant stakeholder en ment to enhance market development. Gas Swaps There are various commercial arrangements which market players may use to develop their market position, as they see fit commercially. Swaps is one example of these commercial arrangements. They can be useful in their place and the gas policy does not have a position for or against swap arrangements. Market players will be permitted to engage in gas swaps if they wish to do so. The only caveat is that they will only be allowed after the parties have met their DSO obligations. The gas policy does not intend to enable parties to use measures in an attempt to avoid their DSO obligations, Ministry of Petroleum Resources 43 ================================= Nigeria National Gas Policy

4.3.5 — Gas Pricing

4.3.5. Gas Pricing The existing gas pricing framework assumes that Nigerian gas compositions are typically rich in natural gas liquids, and that many producers can produce low-cost gas at a gas transfer price of less than $1 /MMbtu when adjusted for the natural gas liquids. Thus, the benefits of the natural gas liquids can be used to reduce the price of dry gas sold into the domestic market. The gas pricing framework will be clarified by a revised National Domestic Gas Supply & Pricing Regulation.

4.3.6 — Wholesale Gas Price Regulation

4.3.6. Wholesale Gas Price Regulation Gradual increases in wholesale gas prices over the years have helpech;> " \ u mulate the supply of gas. However, the current regulated pricing regime ~ l ansitional measure and, with the market now demonstrating a growing ~ Vtor bilateral negotiations of wholesale gas supply transactions, the ba~ vc,1 tre transition to market-led pricing is already in place. • V The transitional pricing framework will be l'~< i,'1.Jalbeit for a short period, until sufficient gas supply volu e are built up and a sufficient gas market has been establis ~ . e policy objective is that wholesale gas pricing will ulti~~l.e! e market-led, without gas price regulation, except for monop~ n structure. During the transition period, the wholes° " "as price for the domestic market will remain subject to the Export Parity A~ Gas Price (EPP). The average export market price less the costs of reg~_§~~ n, shipping and liquefaction will be taken as the production price to be appliev e domestic market. Under this approach, produ~ hould be price indifferent as to whether they deliver gas for the LNG export~ ket or the domestic Nigerian market. Combined with a modest DSO (dis~ ~rther below), producers will have sufficient market incentives to produ, the domestic market. For the sake o~ rity, the domestic gas price will be based on the EPP during the transition A>d, regardless of what the EPP may be. Once wholesale market conditions ~ ly, then the domestic price will be set by the market, which may be set at price~ ng hub points. During the transitional period, parties may engage in transactions on a willing buyer - willing seller basis once they have met their DSO obligations.

4.3.7 — LNG Export Tolling Price

4.3.7. LNG Export Tolling Price In order to realise more of the value of the gas product from downstream international LNG export markets, the policy for LNG liquefaction facilities is that infrastructure owners will be paid a tolling fee by Government for liquefying, shipping and re- gasification of Government's equity gas. Ministry of Petroleum Resources 44 ================================= Nigeria National Gas Policy The price and methodology are to be developed in conjunction with the industry but are likely to be based as much as possible on: • Liquefaction: Cost-of-service approach using average cost benchmarks that recognises Nigerian circumstances whilst assuring a rate of return on actual costs; • Regasification: Published or contract regasification prices at the export market facility; • Shipping: Published prices, industry standard freight and insurance costs, or contract prices.

4.3.8 — Cost Benchmarking for Infrastructure Facilities t'0

4.3.8. Cost Benchmarking for Infrastructure Facilities t'0 Cost benchmarking is crucial to sector economics and regulatory ~ -making. A cost-of-service approach will be adopted using a~ standard or benchmark costs that recognises Nigerian c~u~~~~es whilst assuring a rate of return on actual costs. V

4.3.9 — Price Publication and Monitor

4.3.9. Price Publication and Monitor While prices are intended to ~ ~ egulated following the transitional period, there will nev less be a policy of rigorous price monitoring. End user pric ·1 be required to be published and prices will be monitore2"'S._ ure there is no pricing abuse, particularly during the tra~ nal period before the wholesale market is fully establish~

4.3.10 — Trigge Wholesale Market Regime

4.3.10. Trigge Wholesale Market Regime The Minister of et leum Resources will declare that a wholesale gas marketJ!fl!!..._operation when he determines that one or more of the triggers ~ ~ fined below have been met. Regulated pricing will then ~ (except for monopoly infrastructure facilities) and wh°i"{a1'9as contracts will apply based on a willing-seller, willing- bu~ asis. A whol~ market exists where there are 1) pricing reference point(s); 2) large volumes; 3) many buyers; and 4) many sellers. Trigger points indicating a wholesale gas market in operation in Nigeria include: 1. When sufficient parts of the planned national infrastructure are completed, in particular the OB3 pipeline which will act as a connection system between the eastern and western parts of the nation; 2. Sufficient gas volumes passing through the completed OB3, which is a potential physical point gas hub (where gas from the East can be wheeled to the Western or Northern parts of Nigeria). Sufficient volumes are considered to be 2 bcf/d (which is the capacity of the OB3 pipeline); Ministry of Petroleum Resources 45 ================================= Nigeria National Gas Policy 3. When Oben develops as a physical point gas hub with sufficient volumes and hub pricing can replace regulated pricing; 4. When domestic gas volumes exceed export gas volumes (export volumes are currently approximately 3.6 bcfd); 5. When there are sufficient numbers of wholesale traders (sellers) and consumers (buyers).

4.3.11 — Infrastructure Tariffs

4.3.11. Infrastructure Tariffs Regulated tariffs will be introduced for those monopoly infrastructure within the gas industry, including LNG liquefaction, gas processing, gas storage, transportation and distribution.A a manner that will provide investors the opportunity to recover ~I h.e eligible costs plus an adequate and reasonable r6'n on fu~~~t ~ A tariff methodology and model will be developed by th~ leum regulatory authority with input from industry. /,, CJ 4.3 .12. Power Sector ~ The policy drive for gas is to ensure ga pply to the power sector as the country's number one prior~ Significant incremental demand for gas ~ rive from the power sector, which has been used to low and cross-subsidi5 A ~ces for a long time. The intention is to move to a wholesale market wh97 J~generators will take the market negotiated wholesale price. V As the power sector is the m~ emand sector for natural gas in Nigeria, there will be a strong and a better c~ ation between the gas and power sectors than there is now. '-I There are how.2"'.i~ iling risks in the power sector that require the urgent attention of the Govern~r~ L. These include: • ~ er sector liquidity and payment assurances to the gas sector; ~ wer transmission infrastructure limitations; • ~ Adequate capitalisation and funding of the bulk electricity trader. The Government shall imminently address prevailing power sector risks to enable bankable gas supply arrangements to the power sector.

4.4 — Fiscal Framework

4.4. Fiscal Framework

4.4.1 — Government Fiscal Philosophy

4.4.1. Government Fiscal Philosophy A new fiscal policy and framework is proposed for the Nigerian petroleum sector. This is embedded in a separate and Ministry of Petroleum Resources 46 ================================= Nigeria National Gas Policy complementary National Petroleum Fiscal Policy document issued by the Government. The philosophy for the fiscal framework of the gas policy is to set fiscal rules that are clear, transparent, globally competitive and designed to incentivise all participants. The role of the government is seen as not to create economic distortions that confer an advantage on or favour any particular party. The purpose of the fiscal framework is to make gas standalone, separate from oil. Hence, gas projects will be developed based on their economics and not dependent on or consolidated against oil taxation.

4.4.2 — Current Fiscal Structure t'0

4.4.2. Current Fiscal Structure t'0 Currently, under the Associated Gas Framework Agreement ' ~ (codified in ~ection 11, Petroleum Profits Tax Act), AG and NAG costs ca" ~~ered from oil income. • V This has led to a number of distortions: C., 1. It discriminates against investors without oil ta~ " ~city (that is, it discriminates against companies who do not have oil opff~ ~ and therefore are unable to expense their gas costs against oil OPfr~ ns in the manner that upstream investors in gas projects can); ~ 2. It incentivises oil companies to 4gas infrastructure (in some cases unnecessarily oversized gas i~ Xre) for fiscal reasons (to include in their cost oil base for offset ag~ t ~ profit oil, which ultimately is paid for by the Nigerian government); V 3. It has meant that thA...n~ v gas infrastructure not built for fiscal purposes has been built by the ~ ~government, via NGC; 4. When the o~ ~ow (as is the situation now), tax capacity (the ability to collect tax o~ t oil) declines. 4.4.3. ~ Fiscal Rules of General Application Fiscal RulR of General Application (FRGA) is the framework through which the interes~ he state and that of the investor are codified. Seven main thematic areas that nee! to be addressed in the fiscal system for Nigeria are: 1. Governance - the key governing institutions of the oil and gas industry and their role as prescribed by the separation principle, i.e., of policy, regulation and commercial operations; 2. Funding of the institutions and funding of government participation in commercial operations; 3. Fiscal incentives for investments - the balance of risk and reward in a fiscal designed framework; 4. Enabling gas exploitation in Nigeria through policy regulatory and fiscal interventions; Ministry of Petroleum Resources 47 ================================= Nigeria National Gas Policy 5. The role of the regulator - the principles, powers and economics of regulation; 6. The role of the state in natural resource management - the shareholder responsibilities versus the requirement to meet social needs; 7. Mitigating social consequences of natural resource exploitation - best practice community participation. An optimum fiscal regime is often a composite of trade-offs across different objectives: • Early revenues vs investment efficiency; • Progressivity • Competitiveness; • Early fiscal revenues vs tax incentives that drive a critical mass of ~ stments. Progressive and transparent fiscal regimes are generally considere9.L~ ~re stable and credible and, depending on the fiscal design, they do ~ promise on efficiency. ~ FRGA are based on clarity and transparency which requio ':P • Rules are established by law and contracts a✓rat1hlished; • Laws are consistent with the nation's juris~ d~ ; • Laws and contracts minimise discret~·on· , • Government revenue streams shoul ur during all production periods but also should increase with a larger ~ revenues as profitability increases; • Progressive fiscal systems th~ 'Mm FRGAs should be based on: o Royalty (Early Rev~~¥ o Regular Corp~~a~ ~ e Tax (GITA); o Tax on Rent (~ carbon Tax). Stable and credible fisr'i\.rms must also demonstrate robustness in the face of volatilities of cost a~~Robustness means that the fiscal system for gas is not subsidised by oil a e-versa. This can best be achieved through the right pricing of gas and low~ ya ies and resource tax. Additionally, FRGAs must deter transfer pricing (co~ e~ marking) and review international treaties. ~~ Principles of the Fiscal Framework 1. Pricing should not be fixed by the state - market based pricing will prevail; 2. Fiscal policies must enhance investment, be cost efficient and sustainable in the long run; 3. Non-consolidation / non-recovery of gas costs from oil income. The fiscal framework intends to remove the distortions in AGFA from the effective cross- subsidy of oil to the gas sector. The gas policy will therefore ensure that gas project costs are attributed to gas projects, and gas projects are standalone; 4. At the same time, the government intends to have separate fiscal treatment for exploration, production and midstream gas activities, to relax royalty and tax rates for gas, and incentivise entry into the midstream. These are all designed Ministry of Petroleum Resources 48 ================================= Nigeria National Gas Policy to stimulate investment and ensure that gas projects can be economically viable from a fiscal viewpoint; 5. Upstream incentives to invest in gas-for-development (for example, to promote increased E&P activity in the onshore frontier areas by providing globally competitive incentives) can include the introduction of more favourable upstream terms for gas activities: a. Reduced royalty rates for gas; b. Under production sharing contracts (PSCs), introduction of more favourable production allowances and hydrocarbon tax in the event of gas production; 6. Fiscal policy incentives to attract investment into the midstream. ~ ~" fo<:;j c.,CV «.~ <S' ~<::) ~ ~o q_q_ ~ Ministry of Petroleum Resources 49 ================================= Nigeria National Gas Policy 5. INDUSTRY STRUCTURE

5.1 — Background

5.1. Background Solutions to the development of the petroleum sector in Nigeria (as in any market around the world) are in three areas: • Areas where Government can have a direct effect: Government sets the policy, law and the regulatory framework, which directly sets the tone for the whole market. • Areas where Government sets the environment: Government ~ support the development of the market, such as pushing the implementati'j(l a the Gas policy, and by attracting investors to the country. GovernmF.l_~P ements policy frameworks and regulations effectively and provid~ ~ket support (such as financial incentives or tax support). ~" • Areas where the market acts directly and there is no r for Government: «,, Government can set the scene but ultimately the Gvate sector builds the gas market. 'V

5.2 — Strategic Objectives ~

5.2. Strategic Objectives ~ The gas policy envisions an induf i : .unded on partnership between the public and private sectors, albei a clear separation of roles between the government and the priv s or. The respective roles of the parti~ isaged by the Gas Policy are: • Government: ~ o Policy sett~ o Legislation'-J o Regu~ o ~ P n~ place mechanisms to encourage the development of ets; ~ n uraging payment discipline; o~ ncouraging the development of fair and competitive gas markets. • ~ orate sector: o Creating markets; o Conducting safe, healthy and environmentally friendly operations; o Serving their shareholders, as well as consumers, government and other stakeholders. This policy recognises that state-owned corporations and private sector companies will have the same responsibilities and opportunities in accordance with extant laws. It is the policy, for example, that nobody will be forced to sell gas to a party only because that party is Government- owned. Ministry of Petroleum Resources !)Q ===================================-' Nigeria National Gas Policy

5.2.1 — Roles of Government-Owned Corporations

5.2.1. Roles of Government-Owned Corporations They are a number of government-owned corporations operating in the Nigerian gas sector. These include: i. Nigerian National Petroleum Corporation (NNPC) Nigerian National Petroleum Corporation (NNPC) is the agency of the government responsible for representing the commercial interests of the government in petroleum exploitation and distribution. It is involved in natural gas production on a joint-venture (JV) basis with international oil companies (IOCs) and with international and national independent operators, which act either as the operator of joint venture concessions held under Oil Mining Leases or as contractors under Production Sharin.t'tontracts (PSCs). ~\ NNPC subsidiaries relevant to the gas sector are: s::)X) ii. Nigerian Petroleum Development Company Limite ( r. NPDC is a fully-owned subsidiary of NNPC. NPDC is engaged in oil and gas exploration and production activities in the hydrocarbon-rich regions of coastal Nigeria (the Niger Delta), both onshore and offshore, and more recently around Equatorial Guinea. NPDC operates JVs with international a~ ational operators. iii. Nigerian Petroleum Investment ment Services Limited (NAPIMS) NNPC's representatives in the Oper~ ommittees of the various joint ventures are seconded from Nigerian Petro ~ 1m~ vestment Management Services Limited (NAPIMS) which is a subsidiary any of NNPC, established to manage NNPC's interests in the various oil conc\ss1 s. In addition, all project proposals, joint venture budgets and key operatic ~ ons in gas projects are subject to NAPIMS approval. iv. Nigerian G~ rd sing & Transportation Company (NGPTC) Will own and o" ~ government - owned gas transmission network a d process plants. , v. Nige n Gas Marketing Company (NGMC) Will ow~ the supply contracts and will operate NNPC's gas supply business. The NGPTC and NGMC were created after the unbundling of the Nigerian Gas Company (NGC), the former NNPC gas transportation and marketing subsidiary which had operated both as a transporter, wholesale supplier of gas and franchisor of gas distribution franchises. That previous role restricted the development of a competitive and growing gas market; hence unbundling is a structural solution that should allow the national oil company to operate more efficiently in the gas business whilst allowing for a more efficient development of the market. Ministry of Petroleum Resources 51 Nigeria National Gas Policy The policy is that every entity in the gas industry will be required to unbundle various activities in the gas sector, in particular gas transportation will be separated from wholesale gas supply. 5.2 .2. Strategic Partnerships The government intends to seek strategic partnerships to support operations in parts of the Nigerian gas industry, in particular for NGPTC. Strategic partners with demonstrable ability to support NGPTC with modern management and technology, and so increase the effectiveness and value of the company, may be offered a sizeable shareholding in the company. ~

5.2.3 — Export Gas Ownership and Tolling ~'\

5.2.3. Export Gas Ownership and Tolling ~'\. It is the intention of the gas policy for Nigeria to U&0fllfe more involved in marketing gas in international markets.ci; This will initially be through sales to wholesalers at the re,Ci+l--ation terminal but over time, Nigeria will become involved in sales to ~~~am customers within international countries. This will apply particul~ r i~ rope where there is more downstream gas market liberalisation. This en es that the national oil and gas company will retain ownership of its equity Qa! wh h is destined for export markets, until sale to suppliers or the final consum~ rnalional markets. The gas policy envisages st of service tolling structure for future participation of../'~ " ional oil company in new LNG projects. ~ 5.2.4. omestic Market The gas p~.~[!: ds a change in market structure conduct and performan~ a move towards wholesale markets. Producers, theQ as marketing affiliates, or independent wholesale traders will be licensed a~ ~~ ppliers to make gas available for wholesale delivery within Nigeria. Wholesale ~ sumers (industries and power plants) will buy from suppliers. ~ Wholesale Producers Suppliers Consumer Ministry of Petroleum Resources ""2 ===================================-';J Nigeria National Gas Policy

5.2.5 — Separation of Transport and Trading

5.2.5. Separation of Transport and Trading For wholesale markets to work, the common practice now across most of the world is for a clear separation of the activities of gas transportation and gas trading. Transporters will not be allowed to trade and traders will not be allowed to transport gas except through separately incorporated and managed entities. This is why NGC or any other entity will be separated into legally separate transport and trading companies. 5.2 .6. Domestic Gas Supply Obligations The Government understands why operators would rather deliver gas to international markets than to the domestic gas market: ~ • Higher prices can be commanded in export markets; ~" • Payment discipline is virtually guaranteed in export mark~ • The infrastructure exists so it is much easier to put gasj\!IE(;~ et. Nevertheless, it is the desire of the Nigerian governrrwrr'ft . aM people to build a domestic gas market in order to ensure national eco~ i~ elopment. The policy imperative is for gas develon~ r priority supply to power generation. The thrust of t'::J;:~ olicy is also that gas will be supplied to enable gas based i trialisation. Domestic gas supply obligations have b~ e a standard regulatory tool amongst producer nations around the world t~ re gas is available for domestic markets. The government co~ s·~ :.... reasonable for there to be a domestic gas supply obligati ~7 sed on producers which is sufficient to kick-start domes ·c rket development but not so high that producers see i as nerous. The government ~ that producers will see the obligations as part of their contributions t~ ti~ ldevelopment and doing business in Nigeria. All produc~ ust make gas available for the domestic market up to the limit of the obligati~ , Al ; matter of policy, the issuance and renewal of upstream licences will be subject to strict compliance by the applicant with its domestic gas supply obligation.

5.2.7 — Review the Gas Aggregation Policy

5.2.7. Review the Gas Aggregation Policy The development of a competitive market for gas supply inevitably means that Nigeria will ultimately move away from the concept of gas aggregation. The Gas Aggregation Company of Nigeria (GACN) was initially licenced as a vehicle for the industry to operate the aggregation process for a transitional period offive years only. In the years since this model was established, GACN has been largely unsuccessful in meeting its objective of growing the domestic gas industry to maturity. Ministry of Petroleum Resources !)3 ===================================-' Nigeria National Gas Policy The government will review the licence of GACN and will determine what role it can usefully play in the new industry structure as laid out in this gas policy.

5.3 — Gas Market Structure

5.3. Gas Market Structure

5.3.1 — Philosophy of the Regulatory Structure

5.3.1. Philosophy of the Regulatory Structure There will be a strong independent regulator that will be responsible for the technical and economic regulation of the gas sector. The role includes minimising and, where possible, eliminating market distortions, and implementing licensing, ~ onitoring, investigations, and dispute mediation powers. ~\ The licensing regime will cover every activity including, but not li 1mi1~ licences for exploration, production, constructing and operating gas processi ~ liquefaction plants, constructing and operating gas storage facilities, t'r.\.~ ation pipelines, distribution networks, undertaking the supply of natural gas incl v g gas trading, and acting as a "supplier of last resort". C., All regulatory and pseudo-regulatory activities will bL ~ oved from corporate entities and taken over by the regulator. This includes, l~ ~~ e, distribution licensing and franchising arrangements by any party. In add" io a network code will be introduced to provide conditions for non-discriminatory ~ s or third parties to all infrastructure along the supply chain. O'\ Supply segment: The wholesale g~ pM segment will be open under a Supply Licence to any gas producer o~ ~--~ hant who meets the regulator's qualifying criteria as an Eligible Supplier. Ii i6Ie Supplier shall be entitled to purchase gas from a producer or any othe~ i Supplier for on-sale to any off-taker. The policy seeks to p~ te more efficient utilisation of capital by encouraging producers to focus their ~ tments and activities more on exploration, development and production of~ whilst specialised midstream investors can process and transport gas.~ i ~ uiator's role is to calibrate the supply segment such that it becomes ope as many players as possible in order to foster competition for the market arll"')Jst icensed entities. This competitive pressure ultimately compels innovation_ ~ efficiency in gas development because the profit motive provides an incenti~ control costs. Gas prices should come down as a long-run effect of increase1 supply and competition. Midstream segment: The policy objective for the midstream is to attract as much investment as possible into gas processing, transportation and storage in order to bridge Nigeria's gas abundance with growing demand. Ministry of Petroleum Resources ""4 ===================================-';J Nigeria National Gas Policy Figure 9: Commercial Structure for the Gas Sector PROPOSED COMMERCIAL STRUCTURE FOR GAS SECTOR PRODUCERS "'II "'II "'II "'II .. • , • • • • • • • • I ' NPDC ln::~ee:~:~ts NNPC ~:.:tream PSC Assets . ' ama il Nigerian Gas Licensed -- Marketing Wholesale Company Supplier-5 ~ ----c~-----,• -- P~ o cesss Plants ■IMM ~...'-C ' Storage Facilities ,, .. - - - - -·+ - - - - - - - - -· ,, • '" GAS - BASED INDUSTRIES COMMERCIAL POWER SECTOR ~ ~ ~ ~ Physical Flow Local Petrochemical Fertilizer Methanol Large/Wholesale Power Distribution Commercial Plants Plants Plants LPG Suppliers Producers Companies Flow I iW Smaller Industries Source: MPR Gas Policy Team 2016 The gas po ! i ~ isages a cost of service tolling structure in the midstream such that producers focus on exploration and production activities while midstream investo~ ialise in processing, transportation and storage of gas, or in marketing of gas, "{ crµstream producers. Given the network-bound and monopoly features of the midstream, the regulatory objective should be utility regulation. The relevant regulatory tools in this regard are: • Competition regulation; • Open access rules; • A Gas Network Code; • Tariff regulation on a cost of service rate of return basis. Ministry of Petroleum Resources ""5 ===================================-';J Nigeria National Gas Policy Downstream segment: The downstream segment will be open for wholesale gas supply by Eligible Suppliers to any Eligible Offtaker who may commercially bypass distribution licensees consistent with the open access rules. Ministry of Petroleum Resources !)6 ===================================-' Nigeria National Gas Policy 6. DEVELOPING GAS RESOURCES

6.1 — Diversification of Supply Sources

6.1. Diversification of Supply Sources Nigeria needs to diversify its gas supply sources from a national and energy security perspective. In order to improve security of gas supply, the gas policy intends to encourage an environment that ensures deliberate gas exploration and production in other regions of Nigeria. The policy shall promote exploration activities for additional gas resources in other geologically prospective terrains, especially the offshore and inland basin~ ncluding the review of the commercial terms upon which titles in these basis are ~d\ Significant gas reserves have been discovered in some of the# 1 . : : sis. These reserves have a potential to contribute significantly to the devel of distributed CJ power generation assets in Nigeria, and thereby enhance thE('\~ ity of gas supply to the power and industrial sectors. V

6.1.1 — Niger Delta Gas Resources &

6.1.1. Niger Delta Gas Resources & .. Gas developments to date have been undertak~ Ja~ , almost exclusively, in the Niger Delta. Most of the gas discoveries~ er b~ cident, with a company typically exploring for oil and discovering gas. Most gas production in the Niger Delta is produced in association with oil productio re are also some dry gas fields, whose output is mostly dedicated to LNG ex s. Table 3: Nigerian Associated -Associated Gas Production (2006-2015) Year A Non- Total (AG), Associated Production, scf Gas (NAG), bscf bscf 748 2,290 1,599 1,008 2,607 1,594 987 2,580 1,582 646 2,228 1,865 955 2,820 011 1,839 1,127 2,967 012 1,872 1,123 2,996 2013 1,787 1,025 2,812 2014 1,880 1,168 3,049 2015 1,740 1,262 3,003 Source: DPR Annual Report, 2015 Note: Total AG and NAG production There are security of supply risks with the current situation, emanating from the Niger Delta militancy, and consequent disruptive effects on gas production, the environment and wider economy. Ministry of Petroleum Resources ""7 ===================================-';J Nigeria National Gas Policy The government realises that steps must be taken to reduce the disruptions to production from the Niger Delta insecurity and is taking measures to restore long term stability to the region. In the meantime, operators are expected to ensure that they take sufficient measures to protect their assets and make them secure. Ultimately, ensuring a reduction in militancy and ensuring the security of facilities will be a collaborative effort among government, industry and Niger Delta communities.

6.1.2 — Benue Trough and Sedimentary Basins of Nigeria

6.1.2. Benue Trough and Sedimentary Basins of Nigeria As well as the offshore and Niger Delta, many other sedimentary basins have been identified (but not yet developed) in Nigeria, including the Benue Trough, the Anambra Basin, Kerri Basin, Yola Basin, Gongola Basin, Bida Basin, Lullemeden ~ sin (with Niger) and the Chad Basin (with Chad). A key sedimentary basin is ~Xnambra Basin, which has been barely explored but is considered to be mos~ ly extensive and rich in dry natural gas. ~~ Figure 10: Petroleum Basins in Niger· ~ NIGERIA SEDIMENTARY BASINS AND LEASES ... t ... CHAD • - Terti11ry Cretaceou!I mJ Ter11a,y Volcan cs .•. :.:.:.:.:. ~ Pr t mbrl B g 1\1 ... . '' .. '. ·.·.·.·.·.·... ... . :~:i:i\:==:~=:=·:·~:~:\\\~:\:i;!I/l~li?~:-=•: : -:-:-:.:-:-:-:-. , :-: Source: NNPC, 2016

6.2 — Identifying Low Cost Gas Resources

6.2. Identifying Low Cost Gas Resources Except for gas which is held by Government through NNPC in joint venture with third parties or on a sole risk basis by independents, the Nigerian government has ownership rights over virtually all the gas resources in the country. Within this overall portfolio are several low cost wet gas resources, where the inherent value of the natural gas liquids could be leveraged to yield an affordable gas price for the domestic market. Ministry of Petroleum Resources ~8 ===================================-' Nigeria National Gas Policy To achieve gas based industrialisation low-cost gas resources will be identified and dedicated to the Nigerian domestic market. Portfolio management methodologies will be utilised to prioritise the development of low cost gas to be identified, with the subsequent intention to have a proportion of that dedicated to domestic markets. Table 4: Proved Reserves and Resources in Place across Ownership Types 2P GAS RESERVES/ RESOURCES IN PLACE AS AT 1 JANUARY 2016 Gas Reserves (TCF) AG NAG TOTAL Ownership Proved Resources Proved Resources Proved Resources S/N Type of Gas (2P) in Place (2P) in Place (2P) in Place 1 NPDC 0.33 1.13 1.64 2.60 l ~ -• .... . 3.73 2 NPDCJV 8.12 22.82 5.67 10.ao.C ~~ -BO 33.62 3 NNPCJV 74.44 187.87 60.43 100.41) ;-1'34.87 288.29 4 PSC 13.01 43.71 17.03 30.04 e a.. 58.32 Sole Risk/ 5 Independents 1.41 3.88 9.89 V i 8.46 11.30 12.34 TOTAL 97.31 259.41 94.~ y 136.87 191.99 396.30 Source: DPR 2016

6.3 — Clarifying Gas Terms for PS

6.3. Clarifying Gas Terms for PS Nigerian PSCs are structured m~ore 9 ,ude oil exploration and development. The PSCs have incorporated gas uf ion clauses but they do not contain commercial terms between NNPC and th_e \ On tor for development of gas discovered within the concession. The PSC mer~ ovides that in the event of the discovery of a viable quantity of natural gas,,tt,\ contractor shall investigate the discovery and submit proposals to NNPC for t~ velopment of the gas, and a separate agreement is then negotiated betwee~ C and the contractor for a gas development. The absence ~ clarity regarding terms for gas commercialisation means that significant ji'!f.~red gas resources remain undeveloped in Nigeria's PSC blocks, especially r~ ffshore basins. Urgent attention to this issue is now required. The go rnment will develop a model Gas Development Agreement containing its terms for the development of gas resources in PSC concessions. The policy is that PSC terms will be defined to ensure development of gas resources, for the benefit of the nation. The government will present the industry with a model Gas Development Agreement containing its terms for the development of gas resources in PSC concessions. Ministry of Petroleum Resources ~9 ===================================-' Nigeria National Gas Policy This agreement will address the contractual and fiscal issues relevant to upstream gas production in PSCs while providing some flexibility for adjustment as may be required.

6.4 — Gas Flaring

6.4. Gas Flaring

6.4.1 — Background

6.4.1. Background Gas flaring has a direct ongoing environmental cost and addressing it is a COP22 commitment. In addressing this, the MPR will work in collaboration with the Federal Ministry of Environment. The flaring of natural gas that is produced in association with oil is on\.~ he most egregious environmental and energy waste practices in the Nig1 ·~ \tro1eum industry. While gas flaring levels have declined in recent years, it~· a prevailing practice in the petroleum industry. Billions of cubic meters oi n a s are flared annually at oil production locations resulting in atmospheric pol erely affecting host communities. Gas flaring affects the environment and H health, produces economic loss, deprives the government of tax revenues ~ Jra e opportunities, and deprives consumers of a clean and cheaper energ~ 1 ~ ffective action on gas flaring would address a long held grievance for the 'V elta region.

6.4.2 — History of Nigerian Gas 14 g Legislation

6.4.2. History of Nigerian Gas 14 g Legislation Although Nigeria still flares a significant~ o of its gross natural gas production (19% of AG, 331sbcf in 2015), the a ~ u~ gas flared has significantly reduced in recent years. Its ranking has droppe ro the 2nd to the 5th lar~est natural gas flaring l' country in the world (according ~Ce • az and OPEC) or i (according to GGFR 2016). ~ V "- Figure 11: World's Top 5 ---- Natural Gas Flaring Countries, 2014 Source: US EIA, based on Cedigaz and OPEC Annual Statistical Bulletin, 2015 To ensure that flared gas is utilised in markets, the government will take measures to ensure that flare capture and utilisation projects are developed and will work collaboratively with industry, Ministry of Petroleum Resources 60 =================================~ Nigeria National Gas Policy development partners, providers of flare-capture technologies and third-party investors to this end, without prejudice to the enforcement of applicable sanctions. Figure 12: Gas Flaring Trend in Nigeria, 2006-2015 Gas Production and Gas Flared (bscf) 3500 80% 3000 70% 60% 2500 50% 2000 I I - 40% 1500 ' -.. -- ~. 1000 500 - --- -- - - 30% 20% 10% - 0 0% 200 200 200 200 200 200 200 200 200 201 201 201 201 201 201 123456789012 345 - NAG(bscf) 392 411 516 525 509 748 1008 987 646 955 11271123 1025 11681263 - AG(bscf) 155213411387158416261542159915941582186518391872178718801741 - Gas Flared (bscf) 1,001 921 801 852 806 820 817 671 536 545 504 465 428 379 331 - - Flared as% of AG 64% 69% 58% 54% 50% 53% 51% 42% 34% 29% 27% 25% 24% 20% 19% - AG (bscf) - NAG (bscf) - Gas Flared (bscf) - - Flared as% of AG Source: DPR 2015; Analysis: MP~nt ,~ lill Team 2016 Note: NAG and AG are total gas ~ eY •

6.4.3 — Ga Injection

6.4.3. Ga Injection Nigeria is an exam~ n oil exporting country where the associated gas was mostly flared or re-inj~ j & ~ fields during the last decades, in the absence of commercial uses for gas. rically, there have been no restrictions in Nigeria on any company to re-inject& e ra gas. However, the new position is that the government prefers the utilisati~ of flared gas into markets, utilised by different downstream sectors, rather t~ ared or re-injected with no valid technical reason. It is the policy that gas utilisation will be a priority consideration over other considerations for handling of associated gas. In the absence of compelling technical reasons or a viable outlet for the gas, the Government intends to restrict undue re-injection of associated gas. Ministry of Petroleum Resources 61 Nigeria National Gas Policy

6.4.4 — Gas Flare-Out through Gas Utilisation Projects

6.4.4. Gas Flare-Out through Gas Utilisation Projects Under the gas policy, the government intends to maximise utilisation of associated gas to be treated for supply to power generation or industry. Routine gas flaring reduction projects are not to be seen as isolated elements of oil and gas sector operations. Flared gas utilisation is part of the wider gas policy to develop Nigeria's gas resources and release much more of the value from national gas resources. The best prospects for reducing remaining gas flare sites are throu~ projects developed by investors and companies with experience in innovation in est size projects in challenging environments and with strong local engagements~ . Some examples could be: Sc) • Plans for metered electricity to host communities imm~ ~jacent to flare sites; • V • Projects which could be of significance to lo~ ; '~ ' electricity distribution companies as embedded power projects; ~ Critical levers for rural economic developmen\ i~ e Niger Delta, which can provide islands of stable metered electricity or ga:A....., ~ ts, such as LPG. These can give the cluster area around a site a significant e~~ ,ic advantage for hosting businesses.

6.4.5 — New Flare o/.ta e echnologies

6.4.5. New Flare o/.ta e echnologies Gas flaring reduction techn~I y~ he potential to be one of the great energy and environmental success sto • Unlike long-term greenhouse gas solutions such as carbon sequestration or~ r ployment of nuclear power, gas flaring can be dealt with today through a va~ f existing high-performance technologies. New technol~~ ~ ns for the capture and utilisation of associated gas are encouraged, ~·~ · could include, for example: 1. Po\AO generation projects designed to utilise flared gas; 2. ~ ~ng diesel fuel with gas for power generation with small gas engines; 3. ~ m~ining new processing systems with efficient fuel flexible gas turbines; 4. Small-scale GTL or mini-LNG plants; 5. Gas infrastructure (processing and transportation) solutions; 6. Identifying and designing the full value chain for gas supply, including gas gathering pipelines, to connect different small- and large-size flaring fields. The commercialisation of flared gas for supply into the domestic market is a high priority strategy for the Government in achieving the national mandate for flare-out by 2020. To ensure that flared gas is put to use in markets, the government will take measures to ensure that flare capture and utilisation Ministry of Petroleum Resources 62 ================================~ Nigeria National Gas Policy projects are developed, and will work collaboratively with industry, development partners, providers of flare-capture technologies and third party investors to this end.

6.4.6 — Flare-Out Targets

6.4.6. Flare-Out Targets The Government plans to open an industry consultation mechanism, as an important measure in ensuring flaring targets are feasible and regulations are realistic.

6.4.7 — Gas Flaring Penalties

6.4.7. Gas Flaring Penalties The current gas flare penalty of N10/Mscf (equivalent US $0.03) of ass& ted gas flared is too low, having been eroded in value over time, and is not actin~ ~ ended, as a disincentive. Consequently, the low penalty has made gas flari!Ji.n ~ cheaper option for operators compared to the alternatives of marketing or r~ ion. The intention of Government is to increase the ga~ ~g penalty to an appropriate level sufficient to de-incent;,ts: IZ;ractice of gas flaring whilst introducing other measu"7~ ~ourage efficient gas utilisation. ~ It will also be an offence for false data reg~~t ~~ as flaring to be provided, with a steep tier of fines for providing false data to ~ ~ agency relating to flares.

6.4.8 — New Field Deve~

6.4.8. New Field Deve~ The government intends to deve~ ~ ations which will prohibit any greenfield oil and/or gas project from mo~in d until there is a proper integrated plan for the development of the hydrocarb s ereby ensuring that no gas flaring occurs during production of hydrocarbon , xcept in very special circumstances such as emergencies for operatie easons. 6.4.9. • ting Fields For existing AQ elds, brown field sites, the government will also consider other options to ~ re significant gas flare reductions. 1. ~ ~ rs of existing AG fields need to produce integrated gas flare reduction P'fnS; they will then be expected to implement those plans; 2. The government will consider a new sliding scale penalty to be introduced for existing brown field sites, especially for JV and Service contracts which contribute 88% of the total associated gas flared in the country; 3. Existing AG fields need to start planning and investing in the utilisation of the associated gas to be supplied into the market, and to come up with economic plans for their development; 4. The government will consider regulations to allow for open access to gas gathering pipelines, to ensure that flared gas has access to gas gathering systems and gas processing facilities; Ministry of Petroleum Resources 63 =================================~ Nigeria National Gas Policy 5. If the proposed regulations do not prove enough, the government will consider further measures to ensure effective and significant gas flare reductions.

6.4.10 — Uneconomic Fields

6.4.10. Uneconomic Fields For those few fields where it is clearly shown to be uneconomic to develop and implement a gas flare reduction plan, the government will consider other options. These could include orders to shut in production at those fields.

6.5 — Gas Field Development Plans

6.5. Gas Field Development Plans Government considers that the best time to intervene to ensure an op~i ised gas development plan is at the approval stage. AG fields are unlikely to be al ed to be developed unless there is a gas field development plan (FOP) in place. ~ without acceptable plans for AG development should be deferred in favour o~ r projects. All upstream development proposals (oil or gas) should conta~ 'o<;j 1. A study of the economic efficiency of the FOP; r :V 2. A practical gas utilisation plan for field life; '-J 3. An assessment of the reliability and robustne~ • the marketing plan; 4. A study _of the use of shared infrastructurer j ~ y for gathering and processing; , 5. Clear HSE plans with targets. ~ Clear performance criteria should be~ for the retention, withdrawal and relinquishment of exploration licence~

6.6 — Gas Resource Mana e e t Plan

6.6. Gas Resource Mana e e t Plan Gas development must ~ n rtaken in accordance with Nigeria's national socio- economic development rio "ties. Accordingly, the government through the MPR and with support from N~ ~ industry will produce a Gas Resource Management Plan. This will: ' • ide! r ~ resources in different geological areas; • ide i current and potential gas markets; • ~ i infrastructure needs; • ~ a, se how best to access low cost gas for delivery to domestic gas markets. The Gas Resource Management Plan will classify gas resources according to the following categories: • Low-cost assets dedicated to domestic gas supply (National Preferential Assets); • Assets dedicated to export; • National Strategic Gas Reserve (reserved for future development); • Optional assets (sole risk assets). Ministry of Petroleum Resources 64 ================================~ Nigeria National Gas Policy 7. INFRASTRUCTURE

7.1 — National Gas Infrastructure Blueprint

7.1. National Gas Infrastructure Blueprint The key gas infrastructure needs will be identified and appropriate recommendations for upgrading the design of the existing National Gas Infrastructure Blueprint will be made to Government. The gas infrastructure required will be identified under these categories: 1. Existing gas infrastructure: Review of the existing gas transmission infrastructure in place. 2. Gas Master Plan Infrastructure Blueprint: o What was planned in the Gas Master Plan? t(\ o What has been achieved? ~X) o What parts are still valid now? 3. New gas transportation links. V <'V' x 4. Upgrading NGPTC network: Upgrades neeald,to the existing NGPTC network. 5. Alternative gas transportation optio • V o CNG by road, rail or barge; ~ o LNG by road, rail or barge; _~ o other virtual pipeline o~ ttiat may be identified. 6. Key anchor customer k ::.~tructure: The investments required at key anchor customer site~ °Umple at Ajaokuta Steel. 7. Distribution infrll'\ucture: Local distribution companies licensed by the petroleum regula~ uthority. 8. Securit~ ~ upply investment: The additional infrastructure needed to improve robustness of the Gas Infrastructure Blueprint and ensure gas sup~ e rity. 9. i.O ~ ce clusters: Identification of gas resources and clusters. 1O. Identification of critical gas infrastructure: Critical gas infrastructure includes the following: • Aba-Owerri-Nnewi-Onitsha Pipeline Project; • Calabar-Ajaokuta Pipeline (CAP) Project; • Ajaokuta-Kaduna-Kano (AKK) Pipeline Project; • ELP-lbadan-Jebba Pipeline Project; • Obiafu-Obrikom-Oben (OB3) Pipeline Project; • Expansion of ELP Phase 2 Project; • Oso Platform to QIT Pipeline Project; • Erha / Bosi Pipeline Project; Ministry of Petroleum Resources 65 ================================~ Nigeria National Gas Policy • Trans-Sahara Gas Pipeline Project. Entry into the midstream will be liberalised and incentivised to allow private sector investors to develop infrastructure to process, transport and store natural gas. Figure 13: Map of Nigeria showing Gas Demand and Infrastructure b· Oben Linb (127 pacity East•West lnterc lystem from Ob/OB I - ~-J -Demand - - - Planned Esravos•Lagos•Offshore Pipelin - Offshore Oas Gathering System New Gas SourCles - Existing Pipelines • • • • • • Planned Calabar-Ajaobuta Pipeline • • • • • • Planned ELPS 2 Pipeline Planned Ajaobuta-Kaduna•Kano Pipeline • • • • • • Planned ELPs-lbadan-Jebba Pipeline • • • • • • Planned Oso Platform-Oil Pipeline ••••••••••••• Planned Offshore Pipeline -----· Potential Future Systems 0 Planned LNG Plant Source: as Policy Team, 2016 The Infrastructure Blueprint of the Gas Master will be upgraded and amended within the context of the Gas Resource Management Plan. The amended and updated Infrastructure Blueprint will identify resources and resource clusters, identify critical infrastructure and prioritise developments. Working in collaboration with the industry and NGPTC, the MPR will take the lead in ensuring the Infrastructure Blueprint is updated. The final version of the Infrastructure Blueprint will be made public as an aid to development. This means that if a developer wishes to pursue a project which is not in the blueprint, they will be permitted to do so, provided that they obtain the relevant Ministry of Petroleum Resources 66 =================================~ Nigeria National Gas Policy licence which will be granted based upon an evaluation of the economic benefits of the project.

7.2 — Need to Improve the Whole Supply Chain

7.2. Need to Improve the Whole Supply Chain The Nigerian government is aware that there are currently challenges across the whole supply chain but the government is determined to improve the following: • Physical infrastructure, including gas infrastructure, roads, telecommunications and others; • Business environment; • Cost optimisation in gas projects; A • Increasing transparency and minimising inefficiencies. "\ ~X) <'V' <v(j ~« <:::><o ~<v ~o q_q_ ~ Ministry of Petroleum Resources 67 ================================~ Nigeria National Gas Policy 8. BUILDING GAS MARKETS

8.1 — Introduction

8.1. Introduction A key aspect of the vision of the gas policy is for gas-based industrialisation of Nigeria. The intention of the Government is that natural gas exports will continue, albeit consistent with Nigeria's aspirations for domestic gas market development. Renewal of licences and leases will be subject to a commitme ~ y the licensee or lessee to the development of the discover~ ~ s resources within the licence or lease area for domestic pc_~ rt 'C) projects, as applicable, and within a specific timeframe.s::) Strategic Objective ("\~ The vision of the gas policy is for gas-based industrie tiYn of Nigeria Means of growing the domestic gas market which hJ ~ 0 en identified under this gas policy include: ~V o Identifying and developing clu~ \ ~ ana industrial parks; o Market growth from anchor ~ ers; o Gas based industrialis~ti ; V o Gas for Development g mme; o Alternative markets~ s for Gas: - CNG· - NGV~; - \ - LPG· ~ - LN~ icles; - ! E~; ~griculture and agro-allied industries o Finan • ethods; o l~ ve ents to the supply chain.

8.2 — Ex Projects

8.2. Ex Projects The Po~ cus is to gain more of the value from downstream export markets. 8.2 .1. Liquefied Natural Gas (LNG) Through the Nigerian LNG Company, Nigeria is one of the world's leading LNG exporter nations. Although Nigerian LNG is sold to Far Eastern markets in the Pacific basin (and were indeed the main set of markets for Nigerian LNG in 2015), Atlantic basin markets historically have been and in the future will be the main markets for Nigerian LNG. This is because of their geographic proximity to Nigeria and the consequent lower transportation costs of LNG. North America is no longer a market for gas exports within the Atlantic Basin, leaving Europe and South America as the main destinations for Nigerian LNG. Both of these Ministry of Petroleum Resources 68 =================================~ Nigeria National Gas Policy markets however have challenges for a country like Nigeria that wishes to maximise LNG exports. European economic growth remains below expectations and a European policy drive towards energy savings measures throughout the EU leads to restrained demand for LNG in Europe. Despite lowered expectations, Europe remains a large gas market and will continue to need considerable amounts of imported LNG and pipeline gas. South America is seeing fast growing markets for LNG but a large proportion of supplies for those markets is currently sourced from Trinidad & Tobago. While Nigeria certainly could sell to South American markets the gas policy realises that some ground has to be made up to become established there. The gas policy foresees Nigerian gas exports being largely directed tcAuropean markets and South America, although there will be some opportunities ~\ports to Far Eastern markets. Sc) 1. Retaining Ownership of LNG fQ<:;;j Nigeria will continue to seek opportunities in the global LN,@"nl_~ t either through the expansion of the capacity of the Nigerian LNG com~a y ~ ough the development of the OK and Brass LNG or other LNG projects a y be considered appropriate and commercially feasible. The intention, howev~ is Nigeria to retain ownership of its natural gas up to the point of delivery~m o rkets. The government therefore intends to move to a tolling arrangement it res ect to exports of Government's equity LNG from new projects, whereby t~ liquefaction facility is paid a fee for liquefying the government share of gas p ed from its assets, and LNG shippers are paid a transportation fee for trans~ g 1 . Ownership and title to the gas therefore remains with the government en~ _i~~ he point where it is regasified at the export market regasification terminal anV 1 to shippers. 2. Improve LNG Marke As Nigerian gover~ nO ities become more experienced in gas marketing, it is expected that th rnment entity will be able to retain ownership further downstream, ~ in access to transport networks and selling directly to large consumers. , As an !a~ : e of the concept, Russian Gazprom has an equity shareholding in the UK-Bel Gas lnterconnector. Gazprom subsequently applied for a UK shipper's licence d now operates a gas marketing operation in the UK, selling Russian gas directly to consumers in the UK.

8.2.2 — Regional and International Pipeline Projects

8.2.2. Regional and International Pipeline Projects West African Gas Pipeline (WAGP) The WAGP is the gas export pipeline originating at Lagos as an extension from the ELPS and delivering to consumers in Benin, Togo and Ghana. There have been numerous problems with this export pipeline project, including: Ministry of Petroleum Resources 69 =================================~ Nigeria National Gas Policy Figure 14: West African Gas Pipeline, Route • Vastly over-costed infrastructure; • Shortage of supplies from the Nigerian side; • Payment defaults by some NIGERIA WAGP customers; • Pipeline vandalism in Nigeria. GHANA t(\ ~X) Source: ERERA Forum, 2012 C.,<'V' The government is aware of the proble& ..:ith the WAGP project and shall take appropriate co,l~ ;Ysteps to ensure sustained gas supply into the Wes:_1fr~ region. For the Country to maintain its position a~ er in the transportation of Gas in the West African sub region, governmen ':J~ cilitate the business and regulatory environment for the developmen o the backbone gas infrastructure and extensions for the Trans-Sah~ a Pipeline. Trans-Saharan Gas Pipeli Figure 15: Trans-Saha 1J Initial feasibility studies have been carried out -:-<-a::::~ ~ and MOUs have been signed amongst the governments of Nigeria, Niger and Algeria. As a first step towards implementation of the project, the backbone infrastructure of a gas corridor from the south east to the northern most parts of Nigeria will be built, which will allow for subsequent extensions to major population load centres throughout Nigeria. - Tr,n,nt,• Medl t e,rlllU!ftn - Othan; Source: NNPC, 2015 Ministry of Petroleum Resources 70 =================================' Nigeria National Gas Policy

8.3 — Growing Domestic Gas Markets

8.3. Growing Domestic Gas Markets

8.3.1 — Encouraging Gas Projects - Project Based Approach

8.3.1. Encouraging Gas Projects - Project Based Approach Supply to the domestic gas market has not grown as expected or forecast. New measures are therefore required to support the growth of domestic gas markets. Gas development was previously based around export gas projects with some local market development as a secondary objective, which did not deliver. Gas developments will henceforth be on a project-by-project basis but backed by a clear DSO, which means delivery of domestic gas projects will be the primary not secondary objective of project developers. Within this regulatory push (of a 9f0), gas development will be essentially market-led rather than centrally planned. : \ Rather than trying to continue with a centrally planne ~ nal market development, the gas policy proposes a projeiJi~ VGIC•etl and market opportunity-led approach as a more effecti)U:!11,..,.117 to grow gas markets. Appropriate frameworks will be developed to port gas-based projects, including gas transport pipeline7 ;;d associated anchor customers or demand clusters. &-~ Projects will largely be developedJJlr p~ ect developers from the private sector. The governme~ set the environment and support investors in gas-based iifffJIStrial projects with appropriate interventions to bring their o cts to fruition. 8.3.2. The vision of the is for gas-based industrialisation of Nigeria. This means that gas- • e er plants will continue to be targeted but the government will also promote t lopment of gas for industrial purposes. The I term vision for Nigeria is a diverse industrial base that is y natural gas. Market Growth from Anchor Customers Project-based gas industrialisation will mean that gas market development projects will grow around anchor customers. Anchor customers are large consumption centres where the demand is large enough and which are profitable enough, to enable the infrastructure to be built (including gas gathering and processing; gas transportation pipelines; and consumption site facilities). There are essentially four types of anchor customer that a natural gas project-based approach will support: • Gas fired power generation; • Large industrial customers, such as Ajaokuta Steel; Ministry of Petroleum Resources 71 =================================' Nigeria National Gas Policy • Distribution companies; • Industrial parks.

8.3.4 — Identifying and Developing Clusters

8.3.4. Identifying and Developing Clusters A cluster in the Nigerian energy context, is a geographical part of the country where there is a demand centre (large enough and with economically viable consumers), a short transportation system and a source of energy supply. Because there currently remain some problems with Transmission Company of Nigeria (TCN) in terms of the ability to consistently transfer large volumes of stable electricity around the country on a national grid, alternative ways of getting energy to consumers is under consideration by many parties. Gas and LPG can be parts of the solution. As part of the gas policy, studies will be undertaken t ify where there are clusters which could form anchor loam aa:, as project. The government will facilitate the developmer1noN 'DB as projects to clusters but the private sector is expepptll elop the projects. V The gas policy also encourages further gaj 'tje~ pment for other projects, including: ~ • Petrochemical plants; ~\ (ce • Fertiliser plants; ~ • Village power plants; V • Embedded power plants; ~ • CNG plants; <vV • LPG plants; • CNG: . \ o Natural Ga~ icles (NGV); o CNG tr~ ort by barge, rail and/or road; • LNG for ~ e~ downstream applications, such as: o L icles; oi opower; o NG to industry; ~ t.: G to Agriculture ~ 'f4. projects. l .3.5. Alternative Markets/ Uses for Gas Other markets for and uses of gas are also possible and the intention of the gas policy is to support project developers and investors seeking to develop alternative gas markets in realising their projects.

8.3.6 — Natural Gas Vehicles (NGV)

8.3.6. Natural Gas Vehicles (NGV) Vehicles using CNG may be appropriate for some large Nigerian cities under a single regulatory authority, such as Lagos, Port Harcourt, Abuja, Kano and Kaduna for example or where there are large vehicle fleets such as large corporate fleets or buses and/or taxis in large urban areas. Ministry of Petroleum Resources 72 =================================' Nigeria National Gas Policy NGVs really take off when there is a determined government push behind the initiative. When there is a push which generates a demand, then the markets starts to provide NGV filling stations. NGVs started to take off in London (UK) for example when the Mayor announced that taxis that were not converted to at least dual fuel would not have their licences renewed. NGVs also have a wide use in the West African region outside Nigeria, specifically in Ghana. The government intends to support CNG penetration, to set the environment, help to develop fleet markets in some large cities and to ensure adequate gas supply but the government does not intend to directly invest or become operationally involved. Having set the framework, the government wishes to encourage private s.t&or investment and operations. ~~

8.3.7 — Gas for Rail Electrification s::)X)

8.3.7. Gas for Rail Electrification s::)X) Another important gas market is the provision of gas to po ? Q3 the provision of electricity for rail electrification across Nigeria. This can in,t'l'd; eJrt:rification of some of the existing and proposed new railway lines. / i '-J

8.3.8 — CNG Transportation ~~

8.3.8. CNG Transportation ~~ This does not refer to using CNG as the vebi~ f~ I, instead it refers to the different ways in which compressed natural gas c~ ~ansported around the country. This can provide an alternative to pipeline gas 1¥port for inland destinations. CNG by Road: As an alternative ~ Q ng a gas pipeline, CNG can be transported to markets by truck on roads. T antages are that gas markets can be reached that would otherwise be uneco~ m1 o reach (the average cost is lower), thus opening up new gas markets. The m~ sadvantage is that this puts further pressure on sub- standard Nigerian road5'rn\ on the limited number of and poor quality of trucks (high marginal cost). The ~ ·: ~ cidents and explosions in populated areas is also higher using CNG by roa • could be a viable option for some inland industrial centres, such as Nnewi~ a ra) for example. CNG by ~ ~ is option has the same benefits as CNG by road. The risks of accide~ ~ ess though, giving further advantages. As the rail network improves this could b\ ,e a viable option. CNG by Barge: Another alternative to using pipelines could be the transportation of CNG by boat up the river Niger or along the coast.

8.3.9 — LNG Trucks

8.3.9. LNG Trucks Vehicles carrying liquefied gas are a new technology and may have advantages over CNG by road because substantially larger volumes of gas can be transported as LNG (LNG carries 600 times the energy content of gaseous gas). Ministry of Petroleum Resources 73 =================================' Nigeria National Gas Policy Under the gas policy, the Nigerian government encourages the private sector to take forward proposals and invest in this alternative transportation method.

8.4 — Policy for Liquefied Petroleum Gas (LPG)

8.4. Policy for Liquefied Petroleum Gas (LPG)

8.4.1 — LPG Production and Consumption

8.4.1. LPG Production and Consumption Liquefied Petroleum Gas (LPG) is a mixture of propane and butane (generally approximately 50% each) and is produced as a by-product from refining crude oil or processing natural gas. LPG presents a window of opportunity to bring about improved quality o,lke for the populace. A vibrant LPG market in Nigeria will no doubt induce a positivEhiP~e effect that will translate into more jobs for the millions of unemployed Nigeria 'M~ business opportunities. For instance, local manufacturing of gas cylinders and power generation services would be encouraged as a result of increa,Ptll~~nd. Fiscal and environmental benefits in the form of increased tax revenue arbon credits for government are very crucial even as Nigeria joins the res,m 1h global community to benefit from the use of clean fuels like LPG. '-J Production of LPG in Nigeria is currenfly approxi~j!~ I per annum of LPG, largely for exports. This is mostly produced from n= t ra~ as processing and some smaller production from the NNPC refineries at rri and Port Harcourt and Kaduna. Presently, the major source of LPG in the~ t is from the gas processing facilities, especially the Nigerian LNG (NLNG)~~- Nigeria Petroleum Marketing jt>_;nM (NPMC, formerly Petroleum Products Marketing Company or PPM ~ t~ ision of NNPC which acts as its marketing arm within Nigeria, is the main tor in the LPG market and is of a sufficient size and power to affect the pert~ nc of the whole LPG industry in Nigeria. It owns and operates nine LPG stor e epots around the country. NPMC buys its LPG from the NNPC refineries a~ ? des storage for importers. NPMC sells LPG to export markets, to market~ ulk and is also allowed to retail directly to end users. If Nigerian~ ~ duction increases to 100 mtoe a year, LPG production could also increase to proximately 10 million tonnes a year. As well as consequences for the domes~ a ral gas market in Nigeria, there are also consequences and opportu ies for domestic LPG markets in Nigeria and the region. LPG is therefore an importan gas product in its own right and an important part of a gas policy for Nigeria given its potential to increase natural gas usage. However, as with natural gas, this resource is largely unused. Most of the production is exported and LPG consumption within Nigeria is recorded at a much lower figure, at around 400,000 tonnes a year as of 2015. The potential demand is much higher, at probably 1-3 mpta. Nigerian LPG consumption per head is very low relative to other or neighbouring African countries. As with natural gas, insufficient LPG product is being made available for the domestic market. NLNG is offering 250,000 mtpa to the domestic market but it is not being taken Ministry of Petroleum Resources 74 =================================' Nigeria National Gas Policy up, largely because of infrastructure restrictions, namely in passing through the import jetties. In many emerging markets around the world, LPG has an unofficial, undeclared market that operates outside the official attention of the national regulatory authorities. It is suspected that Nigeria has a similar situation, with undeclared imports coming over the border from Niger or Benin, as well as some undeclared domestic production and diversion of supplies. Development of LPG market in Nigeria is urgently required in the areas of domestic, power generation, autogas and industrial purposes.

8.4.2 — LPG Infrastructure t'0

8.4.2. LPG Infrastructure t'0 The domestic Nigerian LPG market suffers from an inefficient dis~ chain and prices that are higher than they would be in an efficient functioni~ ~Yet. Jetties: The only functioning import jetties currently are r uapa, Lagos. LPG supplies are restricted to the jetties at Apapa which are € o~~rai'ed by Hyson, a JV of NNPC and VITOL, which brings in VITOL LPG as2 !p~ rd party LPG. Two new terminals are under construction at Calabar and Po, L~ ourt. Depot Storage: There is limited depot stor~ ,~ 500 tonnes of private and 4,000 tonnes PPMC storage, at Apapa (Lagos) Calabar. Some other limited depot storage facilities around the country own~ MC are non-functioning. Road Transport: There is limited ro~ sport to take LPG from Apapa and Calabar to distribution terminals aroun~ ~-e~ ~ntry. There are around 900 functioning (although old) trucks nationwid\ ~ total transport capacity of around 2,000 tonnes. Distribution Terminals~ ~re 200 distribution terminals (bottling plants) around the country with around eio tonnes capacity in total. Cylinders: The mo~ al infrastructure problem, alongside that of the import jetties, is the state of c~~ i~the country. There are around 1.8m cylinders, of which some 10% could~ c'~ red as safe. Unsafe cylinders, owned by the consumers and which are cross-,~ , are major safety hazards. ~ 3. The Scope of the LPG Policy The scope of the policy for LPG in Nigeria covers its uses in the following areas: 1. Domestic: Broader penetration of LPG into homes- low income, rural etc.; 2. Power Generation: Encouraging the wider use of LPG in off grid and on grid power generation; 3. Autogas: Encouraging the wider use of LPG of autogas in Nigeria; 4. Industrial: Expansion of LPG use in industrial applications to include: Ministry of Petroleum Resources 75 =================================' Nigeria National Gas Policy a. Agriculture: Dairy production; poultry farming; CO2 generation for greenhouses etc.; b. Industry - Steam and direct heat applications, glass production, clean food applications; c. Commercial - hotels, laundries etc.

8.4.4 — Domestic Applications

8.4.4. Domestic Applications Cooking energy has evolved from the use of fire wood and other biomass sources, to even more inefficient high polluting and health endangering fuels, such as dirty hydrocarbon related energy sources as traditional fuels for domestic coo~ /heating activities. ~ \ Approximately 30 million households and more than 100 million Ni depend on wood as a source of energy for cooking but this has come wi ~ ~~ral damage to human health, environment and economy of the country. Ac I to WHO, smoke from open fire is Nigeria's third biggest killer with over 95,,eo._d ths annually behind Malaria and HIV/AIDS. Moreover, traditional cooking~ t~ are expensive, burning up to 90% more wood than is necessary and costin or families money that could be put to better use on education, health and ~ ri . The use of firewood also contributes to massive deforestation especia~lly in.~ rthern Nigeria while compounding the challenges of climate change. Similarly, use of kerosene as a cooking energy source also shares most of the challenge~ 1 wood. LPG brings manifold benefits to human health, environment as well as ~ omy of Nigeria. As a domestic cooking fuel LPG therefore presents valuabl~ rtunities to simultaneously combat climate change, reverse deforestation a'?~ ~ e community health and rural economy and livelihood. ~ LPG has relatively low em~ s when compared to other cooking fuels such as firewood and kerosene. ~ rding to the World Liquefied Petroleum Gas Association (WLPGA), LPG de~ ~ igher calorific value/heat content per unit compared to kerosene or firewo, In Nigeria, NLPO research in 2015 shows that the end user pays an average amount of N 130 fo~ t~ f kerosene. The average cost of 1kg of LPG is N240, which means 0.37kg of L~ equates to W89. It goes to show that even against subsidised kerosene a cons~ f kerosene will spend N 130 per litre for fuel compared with N89 the same consuml will spend on unsubsidized LPG. Furthermore, with increased demand will come greater economies of scale, which will further reduce the price of LPG. This has been one of the main reasons the market has attracted hundreds of millions of dollars of private funding and has grown by over 400% since 2007. It is expected that the current price of LPG will further reduce by the time LPG is accepted as the predominant domestic fuel across the breadth and length of the country. Despite the huge reserves of natural gas in the country and all the interventions by the FGN, the transformation towards making LPG the primary cooking fuel for Nigerians has not been very successful. Many Nigerians do not have access to cooking gas (LPG) while for those that already use LPG suffer periodic scarcities of LPG. Ministry of Petroleum Resources 76 =================================' Nigeria National Gas Policy Domestic LPG production accounts for approximately 5% of household energy mix in Nigeria as shown below: Figure 16: Nigerian Household Energy Mix Nigerian Household Energy Mix Firewood 56% II Kerosene 2 7% iii Charcoa l 6% II LPG 5% iii El ectric 4% lil 5awdust2 % Source: Development Association for Reny ] nergy

8.4.5 — Industrial Application~ ~

8.4.5. Industrial Application~ ~ Industrial applications of LPG are extrem~ usceptible to the cost of switching for the industrial consumer. for exampl~ ny industries e.g. textile industries in the north, which currently run on~ ~esel are presently dis-incentivized from switching to LPG due to high ta nd duties on new LPG equipment required for the conversion, as well as YA\ o PG as a fuel. yet, once the switch is achieved, LPG is actually a cheaper ~ leaner fuel for those industries. This highlights just one of the issues facing o strial applications of LPG. In agriculture, se~ uses of LPG that would stimulate this sector include: pasteurization ~~ p roducts; drying of grain and crop; meat, poultry and fish product sanitiz~ n; chick hatching etc. ~ Table 5: Energy Equivalence of LPG ~ Energy Equivalence 1kg of LPG Electricity 10.8 kWh Firewood 6.5- 10.8 kg Charcoal 10.2- 29.7 kg Petrol 1.25 litres Diesel 1.30 litres Natural Gas 40-50 cu ft Source: NLPGA Ministry of Petroleum Resources 77 =================================' Nigeria National Gas Policy

8.4.6 — Electric Power Applications

8.4.6. Electric Power Applications The NLPGA estimates that between 1.5 and 2 million tonnes per annum of LPG is currently not recovered from flared gas, which is equivalent to over 1,000 MW of power generation, or a similar amount of imported liquid fuels (petrol, diesel and/or kerosene) displaced if utilized in autogas. Nigeria flares annually 1.5 and 2 million tonnes of LPG in its flared gas volumes. This is more than enough to: • Generate about 1,000 MW daily of electricity; • Displace 5.5 to 7 .5 million litres of diesel daily; • Substitute 200-250 MMscfd of natural gas equivalent in indus~ ~ uch as those in Kaduna, Kano etc.; or _'" • Preserve upwards of 6 - 8 million tonnes of wood annu ~ II forests. Despite the potential of LPG as a fuel source, there a few tions of LPG-to- Power in Nigeria. In order to drive this sector, the preserf"l'1-a of equipment such as LPG generators, bulk storage tanks, vaporisers~ c. "W),eed to be addressed, requiring a review of the electric power tariff ord include LPG use and the introduction of appropriate fiscal and other in~ tiv to encourage investors to choose LPG over other forms of fuel for their RO" 'plants.

8.4.7 — Improve Access by rest and Reduce Desertification

8.4.7. Improve Access by rest and Reduce Desertification The government intends to kick-start~ arket for LPG among the poorest who are currently using kerosene and fire~ d~ ich are dangerous to health and destructive on the environment, contributing tl sertification. This will be through pilot schemes combined with behaviour chan e p grammes. The governmel'i1tvends to introduce pilot programmes (at least two, one~·n e\wlth and one in the south) of free handouts of small LP • ers, cookers and basic supply, with consumers expect h eafter to pay for further supplies of LPG fuel. These will be ombined with behaviour change programmes among Goals & Objectives of the LPG Policy The government policy for LPG in Nigeria is to ensure the development of a strong and rapidly growing LPG market in Nigeria. This will include action to ensure that: 1. infrastructure challenges are addressed; 2. market at import jetties are opened up to enable third party access; 3. port clearance is improved; 4. entry cost for consumers is minimised; Ministry of Petroleum Resources 78 =================================' Nigeria National Gas Policy 5. the entry of more players into the market is encouraged; 6. the effectiveness and operations of PPMC is reviewed and PPMC restructured; 7. free unregulated pricing are maintained, whilst ensuring ensure price publication and price monitoring; 8. the regulatory environment is improved, particularly regarding enforcement of safety regulations and discouraging the practice of shortselling; 9. the fiscal environment is improved to provide at least equality of treatment for domestic producers; 10. customer education I awareness programmes are launched; 11. access by the poorest is improved. The overall goal of the policy on LPG is to promote its wider A use in Domestic, Power generation, Autogas and industrial" \ applications towards the attainment of Five Milli (5,000,000) MT utilisation in 5 years. S::S It is estimated that about $10.38 bn could be generated for thA <§,my if 50% of the current kerosene and firewood users switch over to LPG ttr2~ ¥.creating along with it, over one million skilled jobs in various segments o ~ e~ supply value chain. In the same vein, the utilisation of LPG can also genera r eaching positive outcomes for our public health and environment as well as so ng st for government at all tiers.

8.4.9 — Development Model f o~ stic LPG Market

8.4.9. Development Model f o~ stic LPG Market With a view to successfully ensuring the ~ ormation of the LPG sector, a number of strategies, listed below, und~ r thematic groups namely Availability, Affordability, Accessibility and A~ !M.y, are considered appropriate. These are: Availability ~ As a Medium term strat~ blend of 40% import content of cylinders and 60% local manufacturing con~ ~~~ ected by the 3rd to 4th year of the policy while a target of 100% manufacturi~ ~ cal cylinders is expected to be achieved within 5 years. To su rt the goal of improving the development of LPG in~ tructure such as cylinder manufacturing plants, mini - g~ plants/skid plants, gas plants and trucks, an LPG ilability Gas Intervention Fund of Sixty Billion Naira 60,000,000,000) will be established by the Government. With respect to autogas penetration: The government intends to support LPG penetration, to set the environment, help to develop fleet markets in some large cities and to ensure adequate gas supply but the government does not intend to directly invest or become operationally involved. In order to improve availability, the Government will stimulate the demand side to make LPG accessible. This will Ministry of Petroleum Resources 79 =================================' Nigeria National Gas Policy require fiscal incentives such as reduction in tariffs and duties on LPG equipment. Accessibility The accessibility of LPG will require leveraging on existing distribution chains of other industries (such as bottling and beverage industry). It will also involve ensuring adequate permitting from town planners and the regulator to certify (without undue delay) identified retail sites. Acceptability The key target group for the acceptability of LPG as a fuel of choice are dt income and medium income earners. The penetration strategy for this ;{_~ \ equires identifying and engaging with key influencers amongst communities. ~ ~ es of key influencers are: S:S • Traditional Rulers / Community Leaders; n'6 • Religious Leaders; r .. V • Women and Market Associations; /,; '-J • Labour Union Leaders. ~ The government intends to kick-st~ ~ arket for LPG among the poorest who are currently using k ene and firewood, which are dangerous to health and ct c ive on the environment, contributing to desertificati""- Affordablllty ~V The major reason for the lo~ sumption of LPG in Nigeria is affordability. Firstly, there are a numit;\f financial disincentives in the current LPG system. For example, VAT is le~ ~mestic production of LPG and LPG cylinders but not on imported cylinders were once two domestic cylinder manufacturers but these have both sinc~ e up due to the financial challenges). No other petroleum product in Nigeria ~i u~ ct to VAT. In addition, LPG is the only fuel that is not only fully deregulate t is also taxed (VAT is applied to domestic LPG but not to imported LPG, p~ omestic gas at a disadvantage to LPG imports). rl e government intends to ensure that all petroleum products are treated in a fiscally equivalent manner, such that one product is not financially disincentivised compared with another. Secondly, the initial cost of acquiring an LPG cooking pack (cylinders, stoves, regulators etc.) as compared to other fuels is higher. Not only are the LPG cylinders specialised, but they are also subjected to import taxes even though domestic production capacity is presently limited. This has contributed to the shortage of LPG cylinders with the estimated number of cylinders in circulation within the country today at approximately 1.5 million units as compared to a minimum a requirement of 100 Ministry of Petroleum Resources AO ===================================-' Nigeria National Gas Policy million LPG cylinders in relation to the population. This is a barrier to the growth of the LPG market. Due to a shortage of local cylinder manufacturing capacity, the policy will promote the phased injection of 20 million cylinders over a period of 5 years (for comparison the Indonesian Programme comprised the injection of 60 million units)2.

8.4.10 — LPG Regulation

8.4.10. LPG Regulation There are two main regulatory bodies responsible for the LPG sector, the Standards Organisation of Nigeria (SON) and the Department of Petroleum Resour~ s (DPR). SON sets product standards while the DPR is the inspections and pliance regulatory authority. Lack of compliance with the existing regulationl-~ H already exist is the major problem. ~ The government will ensure that the single petrolooSSgulatory authority will be strengthened so that LPG regul~ ;~d other regulations are enforced and complied with. C.,

8.4.11 — Governance Structure ~

8.4.11. Governance Structure ~ There is a need for strong institutional roles~~1 ~4 ess the challenge of growing the LPG market in order to create an enabling e~ nment that would attract investment.

8.4.12 — National LPG Coun~

8.4.12. National LPG Coun~ Whilst ultimate responsibility for t~ 1~ mentation of policy for the LPG sector rests with the Ministry of Petroleum rces, it is recognised that other agencies of Government have a critical r.~li to pay in this regard. As such an LPG Council, which is a multi-stakeholder g ~o ~ Y the Vice-President will be established to serve as an interface body betw n I the agencies of government and other stakeholders in respect of policy is~ mg to the LPG sector. 8.4.130 'la-; Forces In order fo~ i }G Council to execute its role within the context of the four thematic topics ov~ he LPG Council will be constituted into four specific task forces: 1. ~ aI abilit Task Force: to focus on improving LPG supply and delivery. The key challenges in this area are finance and infrastructure related; 2 This will cost a minimum of Three Hundred and Fifty Billion Naira (W350,000,000,000) over the duration of 5 years (cf. several billion dollars for Indonesia). Ministry of Petroleum Resources 81 Nigeria National Gas Policy 2. Accessibility Task Force: to focus on improved distribution and development of channels to access consumers; 3. Acceptability Task Force: 4. Affordability Task Force: tasked with driving the effort of reducing the cost of LPG equipment and accessories where the NLPGA has already identified a number of regulatory and infrastructure related costs.

8.4.14 — Role of the Ministry of Petroleum Resources

8.4.14. Role of the Ministry of Petroleum Resources The Ministry of Petroleum Resources shall have the responsibility to monitor and ensure the execution of this policy. The responsibility shall include but not limited to the following: JI\ 1. Constitute the various MDAs, Associations and Parastatals ~o • ~ ~tified in this policy within the National LPG Council under the variou rces, where such MDAs, Associations and Parastatals bodies would "DMo relevant; 2. Monitor the progress of the implementation of the initia~ ; 9 3. Ensure coordination among the Task Forces, implo ti~ MDAs and the FGN; 4. Serve as the secretariat for the LPG Council; /~ 5. Evaluate the impact during the implementf'~n~ se; 6. Co-ordinate all activities relative to thA ~pment of the domestic LPG market.

8.5 — Gaining Regional African M r

8.5. Gaining Regional African M r A policy option for Nigy;_ I~ o strive to become the hub for a regional interconnectt' ~ arket in West and Central Africa. This is a long-term aim ix_~ • Regional African ~ arkets are not yet big enough and have to be grown overtime; ~ • As a firs~ ~; challenges of managing regional gas export through WAGP, ~ d to be addressed and overcome. • erian government intends to learn the lessons from WAGP ddress them, and to look for opportunities over the medium to long term to expand pipeline gas supplies and LNG sales to neighbouring African countries.

8.6 — Financing Gas Projects

8.6. Financing Gas Projects Gas projects need to be financed. The policy is to encourage all types of project financing but the Nigerian government direct project-financing role will be minimal in future. Ministry of Petroleum Resources R2 ===================================-' Nigeria National Gas Policy 9. DEVELOPING NATIONAL HUMAN RESOURCES

9.1 — Current Nigerian Background

9.1. Current Nigerian Background

9.1.1 — Some Unique Features Affecting Nigerian Local Content

9.1.1. Some Unique Features Affecting Nigerian Local Content The need to develop Nigerian human resources and methods for doing so, are described in the following sections. Much of that discussion applies to any national local content development plan. Nigeria though has some unique features in the petroleum sector which have to be taken into account and considered when developing a local content strategy for the nation.

9.1.2 — Local Content In a Depressed Economy t'0

9.1.2. Local Content In a Depressed Economy t'0 Nigeria is now in the depths of a major recession, and early re. A may be a challenge. ft:)\;)"" It is more difficult to develop Nigerian local content in a low oil p~ ~nvironment where contractors are cutting jobs. Developing human resources~ ~ -Kvironment of cutting human resources is not easy. ✓~ '-J Another issue, which is more fundamental, and i h¥ more impact in this current era of cost cutting, There is evidence that ~ i en contractors make projects more expensive. This is a more fundamental iss hie has more impact in this current era of cost cutting. Were it not for legisla~ 1ect developers would rather import foreign workers and contractors, at a~~ cost to their operations. A policy approach is to encou~J ~ genous participation at competitive prices consistent with the law. ~ V

9.2 — Introduction Q

9.2. Introduction Q Policy Statement <)._, Deve/01'.li) wlt,erian human resources, to build competencies and cap~ i~ to enable Nigerians take full responsibility in managing Nig~ 's gas resources. Strateg jectives 1. Enhancing the Implementation of the Nigerian Content Act; 2. Building competence across the gas industry; 3. Institutional human capacity building for the public sector and industry; 4. Instilling international oil and gas industry best practice in maintenance and safety;

9.3 — Implementing Nigerian Content Policy

9.3. Implementing Nigerian Content Policy

9.3.1 — Summary of Provisions of the Nigerian Content Act

9.3.1. Summary of Provisions of the Nigerian Content Act Ministry of Petroleum Resources A3 ===================================-' Nigeria National Gas Policy The Nigerian Oil and Gas Industry Content Development (NOGICD) Act, 2010 was enacted to ensure better development of Nigerian skills and content. The main concern was how to increase the participation of Nigerians in the petroleum industry, which has been characterised by large numbers of expatriates brought in to the country, at executive and even technical levels. NOGICD Act is an important step forward in genuinely improving Nigerian content in the gas industry. NCDMB has been set up to manage this and can match its database of Nigerian content with operators' plans for skills needs and training.

9.3.2 — Route to Implementation

9.3.2. Route to Implementation Sometimes JV partners state that they cannot comply with some provi~ s of the NOGICD Act because the skills they seek are simply not available withirNie\:ountry. The most effective way to deal with this and to ensure compliance ~~ Act is to take steps to make those skills indeed available within the co~ nt -~ The human resources part of the gas policy th revolves around developing local content in petroleunyskj ll and making that available within Nigeria. The gas,}' :,~ will focus on 9.4. developing competent workers, possibly tv Building Industry Competency . \

9.4.1 — Competent Worker <ii'

9.4.1. Competent Worker <ii' « h apprenticeships. There are two main ways in which s~ n be acquired: 1. Formal training: whethe~ term or short term, normally classroom based teaching; ~ 2. Supervised exp~ ce: this is practical experience in the workplace where trainin~ can; , ~ into practice, and which is certified by a competent supervisor. ' A competent ker is one who is: 1. Eull~ d formally trained; and 2. ~ fied following examination with certification from a reputable accredited training institute; and 3. Experienced with certified numbers (hours) of supervised experience in each of the different areas of his trade or profession; and 4. Regularly updated with new developments and techniques in his trade or profession and where necessary with refresher courses (this is Continuous Professional Development, CPD); 5. Who is certified and registered as a competent worker. Ministry of Petroleum Resources A4 ===================================-' Nigeria National Gas Policy Competency training has become an important part of professional training in many countries, and is central to much of training thinking and provision. A competency framework is a system of supervised and monitored relevant practical on the job training and also mentoring. Nigeria needs a competency framework for the gas industry in Nigeria, operated nationally and in collaboration with international or national bodies who are experts in competency frameworks and their accreditation for the gas industry. The traditional way of developing competency is through apprenticeships.

9.4.2 — Skills Development ~

9.4.2. Skills Development ~ There are four main areas for skills development: 1' 1. Leadership: this covers the strategic management a"~ rship skills required for senior management and executive positio~ ~~..., 2. Management: this is general management traitA ,.toV middle and senior management and covers the whole range of_j'~l~ ded to be an effective manager; ~ 3. Engineering: this is graduate lev:_11 .r:~ ering, for university graduates, whether from Nigerian or internation~ versities; 4. Technical: this is technician l~ v I ~ etency, suitable for those with practical skills, for school leavers or th e "th some college education. Technical skills include, for example, wirinc ~ allations, pipe fitting or welding; 9.4.3. lnterna io aM"ucation Obtaining good quality ~ ications are the first part of the competency framework. The PTDF funds~ ~ schemes to provide Nigerians with good quality qualifications, inclu • ending Nigerian graduates for university graduate and post- graduate traini~ br d. Under the gas policy this will continue. 9.~ National Education Nigeria~ ersities and colleges need to be encouraged to develop their abilities to produce \ ood quality graduates. No matter how good a Nigerian University may become, employers are likely to prefer qualifications from good quality international universities (especially universities in the UK or USA and other parts of Western Europe, Australia or New Zealand). Nevertheless, Nigerian universities need to improve such that they can be competitive with the best international universities for producing Nigerian graduates. One way this could be done (for example) is for a Nigerian university to run programmes in collaboration with an international university, or even for the international university to award their own degrees with the education delivered through a partner university in Nigeria. This is a model which is being increasingly used in other parts of the world, and will be considered by the Government. Ministry of Petroleum Resources A5 ===================================-' Nigeria National Gas Policy There should also be collaboration among Nigerian universities and other educational institutions, government and the industry to develop skills which are relevant and necessary for the industry.

9.4.5 — Technical & Vocational and Educational & Training TVET

9.4.5. Technical & Vocational and Educational & Training TVET Technical & Vocational and Educational & Training (TVET) is training and education for post - 16 school leavers. This includes apprenticeships. Nigeria has had a good record for TVET historically, with technical skills accredited by the City & Guilds of the UK. Since approximately the 1980s though, technical training has l~ d significantly. There is now a large gap in the level of tee ·c skills provision in the country, such that IOCs compla~·n t/i y cannot even find petroleum welders (for example) a e to bring them in on expatriate packages from abroa1'"f. sts of which are charged to the JV). • V The gas policy recognises the need for technical trai~ ,~ ne of the objectives of the gas policy is to improve the level of technical trai~ ithin Nigeria.

9.4.6 — Supervised Experience ~

9.4.6. Supervised Experience ~ As already mentioned, university degrees~"'i,.,hnical qualifications are not enough. There is also need to gain supervised pra~ experience before such personnel can be called competent. lnternationa~ reaitation bodies have approached the development of competences in ~_;e~ ain ways: 1. International accreditat~ nV titutes (such as City and Guilds or the Gas Industry Apprentice~ Framework, both in the UK) accredit training organisations whe vide approved courses; 2. Alternativel~ ational accreditation institutes (the Institute of Engineering and Tecg il~~ f~r example) do not accredit training, but instead they accredit organisa • s (companies) to provide a competency based approach to enable eng~ rs ttain supervised practical experience that enables them to attain a ~ ~ed Engineer status; 3. l~ me cases, an international accreditation institute could approve existing courses. In order for competency development to work, there needs to be a large and dedicated group of experienced supervisors who can supervise and accredit the practical work experience of the students. These are people who are recognised internationally as competent who are working in the industry. Nigeria will need to ensure that there are sufficient numbers of competent workers in the industry who can act as supervisors for trainees or apprentices. In other words, a "train the trainers" programme will need to be set up to develop accredited work experience. Ministry of Petroleum Resources A6 ===================================-' Nigeria National Gas Policy It is feasible and essential to set up a competency development framework for the Nigerian gas industry. It is recognised though that currently there are not enough accredited experts to support a competency framework.

9.4.7 — Gas Industry Expected to Develop Competency Schemes

9.4.7. Gas Industry Expected to Develop Competency Schemes While the Nigerian government will do what it can to build the competency building approach in Nigeria, the industry is expected to and will be encouraged to develop gas industry appropriate competency schemes. This may be together with public sector agencies. The government will look to the private sector gas industry to develop competent worker schemes. ~ Competent worker schemes may take the form of apprenticeships. T ~ ct-based training of the NCDMB also provides a good model that could be ex~ c:11'l:lretl across the industry. Because of their international experience and ~~r.m in this, the international oil and gas companies are expected to be ~ n b ...Jlf,e in developing industry wide schemes. C., The government needs to make it clear to the indit!tw what is expected from the industry participants, particularly the internation~ 1~ mpanies. The industry for their part are expected to put in place sche~ei1-~i sure that competent gas workers are produced and made available to work o~ e s in Nigeria. Initially competent worker sche~ will be voluntary and not mandated by government. ~ ever, insufficient progress is being seen to be ach~· e~ e government will introduce mandatory measures sure the gas industry installs competency or appre ice ip schemes.

9.5 — Institutional C a ·ty Building

9.5. Institutional C a ·ty Building Whilst clear le~ i a~ required to move the industry forward, it is recognised that legislation al will not work. A competent policy and regulatory team, knowledg~ a oss engineering, finance, law, and related disciplines etc. is also essenti~'Xtie implementation of the policy and the law. Al ~ell as building expertise in the national gas industry, gas expertise also needs to be built in the public sector, in the regulatory agencies and in the Ministry of Petroleum Resources. The government is aware of the need to build institutional and human capacity and intends to work with industry, educational partners and international development partners to achieve this objective.

9.6 — Introducing a Maintenance and a Safety Culture

9.6. Introducing a Maintenance and a Safety Culture Among the most important milestones for the sustainable development of the gas sector is to install the highest international best practice standards of maintenance, Ministry of Petroleum Resources n7 ===================================-'o Nigeria National Gas Policy health and safety. Recent progress in the privatised power industry show the improvements that can be made in a short time when new management techniques are introduced. The gas policy will insist on the best international maintenance and safety practices being introduced and applied throughout the gas industry. The gas policy intends to bring about legislation that will make Directors liable to criminal prosecution if they or their company employees knowingly allowed severe safety lapses that lead to serious damage, injury or death to premises, people or the environment. ~ ~" fo<:;j c.,CV «.~ <S' ~<::) ~ ~o q_q_ ~ Ministry of Petroleum Resources AB ===================================-' Nigeria National Gas Policy 10. COMMUNICATIONS

10.1 — Introduction

10.1. Introduction Communications are important parts of any gas policy. There are two fundamental purposes for communication of the gas policy to all stakeholders in Nigeria and abroad: 1. Explaining the policy; 2. Changing attitudes. The Nigerian people, industry, international investors, even memb~ of the government itself, have to a certain extent, become sceptical or cynical ~f>~ reforms in the energy sector. On numerous occasions there have been prono~ ~e ts from various parts of government announcing an end to power shortageK._~I crises, but with no apparent change. ~ ~ There also exists a gulf and lack of understanding between in~ rs and government of their respective expectations and obligations. C., Government will develop an appropri~ J ~ommunications strategy, which will explain to all st~ j,~ s the purpose, intent, thinking and analysis behin~ r e~ s policy. Audiences need to understand that the g~ is not a promise of when the lights will stay on. Instead it is to show that!h) Ni~ n government is clear on what it wants to achieve, the reasons why and th te s to achieve the policy objectives. The gas policy will be communicated as a~ e to arrive at a long-term vision for the nation. • Internal communicati'1n~ audiences within government; • External communK ~- other stakeholders involved with the gas industry.

10.2 — Internal Co ~ ations

10.2. Internal Co ~ ations 10.2.1~ mistry Policies s• { led or fail through the efforts of the civil servants and it is important that they ar~ ~and active participants in the policy. The first, ask therefore is to explain the policy and its implications to stakeholders within the Ministry of Petroleum Resources. As the government body directly responsible for implementing the gas policy, staff within the Ministry need to be: • aware of the direction of the policy and the key parts of the contents; • aware of what is required of them individually; • persuaded of the benefits for the nation so that they can be motivated to work on its implementation. Ministry of Petroleum Resources Ag ===================================-' Nigeria National Gas Policy

10.2.2 — Other Government Entities

10.2.2. Other Government Entities The same applies to other parts of government, including parastatal organisations such as: • NNPC; • NGC; • Existing regulatory bodies such as PPPRA, DPR etc.

10.3 — External Communications

10.3. External Communications

10.3.1 — Communication to Stakeholders A

10.3.1. Communication to Stakeholders A. External communications will be needed to the other stakeholders in ~ ~ ~ian gas industry, covering: s:)'O • The general public; n'6 • International investors; V • Domestic investors; r • • Civil society; / i '-J • Donor community; ~ • Other stakeholders. ~ External communications to the general p ~ d other stakeholders will largely take the form of media presentations and in s, seminars, workshops, newsfeeds, websites, mass media and the like. <"'\

10.3.2 — Gas lndust 1v¥vement and Consultations

10.3.2. Gas lndust 1v¥vement and Consultations The gas industry in Nigeria ~ been involved in the development of the gas policy, through their participatiol""'(industry fora, such as the Nigerian Gas Association, the National Gas Flaring Co~ tee, the National Gas Requirement Working Committee, the OPTS and the ~ eum Club. This gas policAerefore, while driven by and led by the government, is a joint productionJ ' , ~e government and the gas industry community in Nigeria, with domestic a~ international industry involvement. ~ Ministry of Petroleum Resources QQ ===================================-' Nigeria National Gas Policy 11. ROADMAP AND ACTION PLAN

11.1 — Summary of Philosophy and Key Actions

11.1. Summary of Philosophy and Key Actions The philosophy of the action plan for the gas policy is for the government to put the legislative and commercial framework in place and then let the market develop by itself. The government will set targets for market development, monitor progress and take appropriate actions to ensure market development takes place. However, gas utilisation in Nigeria is ultimately up to the private sector to deliver. A roadmap and action plan for delivering the gas policy is set out with di\._~t scales for the types of activity: Sc)~ • Short term: Months, up to one year; C::::S 0..... • Medium term: One to two years; n-U • Long term: Longer than two years. V The roadmap presented below sets out how the ~ __P~ will be implemented, according to the timescales and considering the activ

11.2 — Critical Policy Milestones ~

11.2. Critical Policy Milestones ~ « nd the parties involved. There are critical milestones within th~ ~ icy that must be achieved for the policy to be effective. These include: -y • Stakeholder consultati".\sX t • Approval of the gas ~ ; • Enactment of legi~ on; • Establishment of ~ ew single independent petroleum regulatory authority; • Producing P~ s terms; • Complet~· o~ Wal infrastructure, namely the ELPS 2 loop and 0B3 East- West lin • Ac~ g e wholesale market/ Willing Buyer - Willing Seller market status as r~ ly as possible; • ~ antial progress towards industry wide restructuring. Ministry of Petroleum Resources 91 Nigeria National Gas Policy

11.3 — Short-Term Activities (Months)- Institutional Level

11.3. Short-Term Activities (Months)- Institutional Level Timescale: Months (up to one year) Scope: Institutional The short-term activities are those that can commence very soon and can reasonably be expected to be completed within a matter of months and within a year. Those short-term activities which the Ministry of Petroleum Resources can start immediately are those within its direct control, namely institutional activities within the Ministry of Petroleum Resources and NNPC. Table 6: Roadmap, Short Term (Months), Institutional Strate ic Role Activities Partie Gas policy • Ministry consultation MPRG earn approval • Wider government, industry and MPR other stakeholder consultation try • Presidential approval • Gazette the agreed and approve MB gas policy Tl PTDF Communications • Internal communication~ i MPR Gas Policy Team strategy • External communicati n~ MPR NCDMB Legislation MPR Gas Policy Team MPR DPR PPPRA NCDMB National Assembl Downstream gas • P"'(t an appropriate network code MPR Gas Policy Team regulations • ~ s MPR DPR NGPTC PPPRA GACN NNPC lndust erms • Develop PSC Gas Terms MPRIDPR • Present the PSC Gas Terms to NNPC Industry Gas industry • Finalise PSC gas terms GACN NCDMB Studies and • Develop Gas Resource MPR Gas Policy Team policies Management Plan NNPC/NGMC • Natural gas market study NLNG • GBI strategy LPGA • Gas for development strategy and DPR markets study PPPRA GACN Ministry of Petroleum Resources Q2 ==================================-' Nigeria National Gas Policy Strate ic Role Activities Parties Involved • Identify clusters and gas supply to NCDMB clusters G&PIC • Prepare detailed national LNG PPMC strategy • Develop LPG penetration strategy and action plan • Revise and clarify gas pricing framework • Develop tariff methodologies for infrastructure • Scoping study for new single independent petroleum regulatory authority Gas flare • FGN / Industry consultation MR commercialisation mechanism programme • Gas Flare Commercialisation Study CN • Workshops PC Downstream • Identify and concretise ~ s MPR Gas Policy Team sources for 0B3 Pipelin MPR • Progress mature off~ re SC DPR gas projects ~ PPPRA • NNPC • Q Progress mature s ore gas projects Identify s ~ II- le gas flare NGMC NGPTC capture e ts and develop = sele = t n c eria for investors • Iden -3 infrastructure and gas y projects for fast-track mentation Institutional ~ Restructuring within MPR MPR Gas Policy Team restructur~ • Restructure and complete MPR unbundling of NGC NNPC • Institutional capacity building and PTI ~ training in MPR and sector regulator PTDF NCDMB Ministry of Petroleum Resources q3 ===================================-' Nigeria National Gas Policy

11.4 — Medium-Term Activities (One to Two Years)- Regulatory

11.4. Medium-Term Activities (One to Two Years)- Regulatory Timescale: One to two years Scope: Regulatory and Institutional Medium-term activities are those which are largely (but not completely) within the control of the Ministry but which will take a little longer to complete. These are mainly those activities in the legislative and regulatory areas, which set the framework for the gas industry and market to grow. Table 7: Roadmap, Medium Term {One to Two Years), Regulatory International • International LNG and gas markets MPR reviews study MPR G Team • Regional African market study - S::5 identify markets for Nigerian LNG Legislation • Enact petroleum legislation (Petroleum Industry Reforms· ) PR Gas Policy Team • Enact Petroleum (Fiscal Ref National Assembly Bill Regulation • Complete establish of MPR Gas Policy Team petroleum regulat~ Petroleum regulator • Develop petro~ m V d gas MPR regulations • Develop t/91nic I codes and stan~8f~ • Fin~ nd implement network • Q benchmarking for facilities Tariff modelling Pricing regulations Market and price monitoring system • Transitional pricing • Standard licence templates Fiscal policy • Fiscal principles / framework MPR Gas Policy Team • Fiscal rules MPR Studies and • LPG pilot projects for poor (replace MPR Gas Policy Team policies wood and kerosene) MPR • Alternative fuels strategy- CNG, LPGA domestic LNG • Supply chain and blockages • Identify other gas projects and selection criteria for investors Ministry of Petroleum Resources q4 ===================================-' Nigeria National Gas Policy Institutional • Set National Petroleum Policy MPR Policy Team Directorate within MPR Petroleum regulator • Initial appointments MPR, NNPC • Implementation of single independent petroleum regulatory authority • Scope a competent worker I apprenticeship scheme • Institutional capacity building and training in MPR and sector regulator Gas flare • Gas flare Commercialisation commercialisation strategy study programme • Gas flare Commercialisation Pro ramme Im lementation Industry • Implement gas industry Policy Team restructuring restructuring leum regulator • Enable wholesale gas market mechanisms /,; • Fine tune tariff methodolo ·e~ Upstream Implement Gas Resc:>u\ce • MPR Gas Policy Team Management Pia~ NNPC • Develop portfolio ,~ gement methodologi~ • Tighten ~ 1b~ of all reserves, producti e, facilities, access to m!3r~ t e . (also useful for gas flari ~ gramme) • ~ anagement model l~ d basins commercial terms - ~- entity offshore resources ~ • Identify access to low cost gas , • Update the Gas Infrastructure ~ Blueprint ~' • Summit for marginal field cluster ~ gas development • Ensure gas supply contracts for 0B3 Infrastructure • Complete and commission 0B3 MPR Gas Policy Team pipeline link MPR • Make progress on AKK pipeline Contractors • Resolve Assa North and Ohaji Gas industry and South gas development investors • Implement 1-3 infrastructure and gas supply projects Ministry of Petroleum Resources q5 ===================================-' Nigeria National Gas Policy • Design and implement LPG infrastructure Ian Ministry of Petroleum Resources Q6 ===================================-' Nigeria National Gas Policy

11.5 — Long-Term Activities (Over Two Years)- Industry

11.5. Long-Term Activities (Over Two Years)- Industry Timescale: Over two years Scope: Industry After two years, the legislative, regulatory, institutional and commercial framework will be in place. The gas industry will then need to step up and implement the policy in terms of infrastructure projects and growing the Nigerian domestic and export gas market. Table 8: Roadmap, Long-Term Over Two Years), Industry Strate ic Role Activities Parties lnvo Yed Communications • Identify potential strategic partners MPR Gas y Team strategy MPR 1' Upstream • Bring on new gas from dedicated gas olicyTeam fields from inland and offshore basins LNG MPR Gas Policy Team NNPC Infrastructure • Complete and commi • n AKK MPR Gas Policy Team pipeline ~ MPR • Build gas tran" ' M >ackbone Contractors infrastructure V Gas industry and investors Downstream • Com establishment of wholesale MPR Gas Policy Team t Petroleum regulator Gas Industry and investors Institutional nstitutional capacity building and MPR Gas Policy Team training Petroleum regulator MPR, NNPC PTDF PTI Ministry of Petroleum Resources q7 ===================================-' Nigeria National Gas Policy

11.6 — Timeline

11.6. Timeline The activities set out above are now set out in a single timeline plotting activities and deadlines. Figure 17: Timeline of Gas Policy Roadmap First Second Year Six Six Year Two Three Months Months Plus Activity 2H 1H 2H 1H 2016 2017 2017 2018 2018 + SHORT TERM Gas policy approval • Minist consultation • Industry and wider stakeholder consultation • Presidential a roval Communications strate • Internal communications • External communications • Agree PSC Gas Terms • Establish single regulatory authority • Develo network code • Develop 2017 DSOs Studies and olicies • Develop Gas Resource Ma • Natural gas market stu • GBI strategy G policy, market nd action Ian • Deve methodolo ies for infrastructure • Draft an appropriate network code • Scopin stud for sin le petroleum re ulator • Policy re petroleum products & LPG • FGN / lndust consultation mechanism • National Gas flare commercialisation study • Worksho s etc. Downstream • Identify gas supply sources for OB3 Pipeline Ministry of Petroleum Resources Q8 ===================================-' Nigeria National Gas Policy • Progress OML 133 gas development project • Progress OML 42 gas development project • Identify small scale gas projects and develop selection criteria for investors • Identify 1-3 infrastructure and gas supply ro·ects to im lement uickl Institutional restructurin • Restructuring of gas within MPR • Restructure NNPC, separation of NGC MEDIUM TERM Legislation • Enact petroleum legislation Re ulation • Complete establishment of petroleum regulator • Develop technical codes and standards • Finalise and implement network code • Cost benchmarkin for facilities • Tariff modelling • Market and price monitoring system • Standard licence templates • Fiscal principles / framework Studies and policies • LPG pilot projects for poor • Alternative fuels strate lnstitu • Set u rch centre within MPR • Nati int - initial appointments rker scheme • Ins lndust • Im • NNPC re • Se aration of NGC • Enable wholesale as market mechanisms Upstream • Implement Gas Resource Management Plan • Develop portfolio management methodologies Ministry of Petroleum Resources qg ===================================-' Nigeria National Gas Policy • Tighten database of all reserves, production • Gas management model • Inland basins commercial terms • Offshore resources • Summit for marginal field cluster gas development • Ensure gas supply contracts for OB3 Gas flare out commercialisation ro ramme • Gas flare utilisation strategy study • Implement Gas flare Commercialisation Programme Infrastructure • Complete and commission OB3 pipeline link • Make pro ress on AKK pipeline • Resolve Assa North and Ohaji South gas development • Implement 1-3 infrastructure and gas supply ro·ects • Design and implement LPG infrastructure plan LONGTERM Communications strategy • Identifying potential strategic partner U stream • Bring on new gas dedicated ga ...,...1. ,,...,.., inland and offshore basins LNG • Implement LNG downs Infrastructure • Com n AKK pipeline • Build backbone infrastructure lnstitutio • Set up • Institutional capacity building and training Ministry of Petroleum Resources 100 ==================================

Nigeria National Gas Policy

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