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Using the gas sector as a catalyst for industrialisation - International Law Office

International Law Office

Energy & Natural Resources - Nigeria

Using the gas sector as a catalyst for industrialisation

June 20 2011

On March 24 2011 the president unveiled the 'Gas Revolution' initiative to catalyse industrialisation and revive the country's fledgling gas sector. The initiative involves the execution of several ambitious projects – namely, the construction of two large-scale petrochemical plants, two fertiliser plants, five fertiliser blending plants, a methanol plant and a liquefied petroleum gas (LPG) distribution plant. The primary drivers for the initiative, as described by the federal minister for petroleum resources, are to achieve a sustainable gas supply and delivery system for the ailing power sector and to implement a commercial framework for domestic gas.

Nigerian oil companies Oando Nigeria Plc and Nigerian Agip Oil Company have already entered into an agreement to build a $3 billion central gas processing facility in Warri, Delta State and Obiafu, Rivers State, a project that is expected to be completed by 2012. Foreign investors have followed suit, with Saudi Arabia's Xenel Industries Limited entering into a memorandum of understanding with the Nigerian National Petroleum Corporation to construct a petrochemical plant in the Koko Free Trade Zone with an output capacity of about 1.3 million tonnes a year – the largest in Africa to date – and India's Nagarjuna Fertilisers and Chemicals Limited teaming up with Chevron Nigeria Limited to build the five fertiliser blending plants.

The successful execution of these projects is expected to reposition Nigeria as the regional hub for gas-based industries, and to provide an avenue for the utilisation of flared gas, in relation to which Nigeria, according to World Bank reports, was the world's second-worst offender in 2010.

Related government initiatives in past years have included the Gas Master Plan, comprising:

  • the Gas Pricing Policy, which provides a framework for the minimum price that any purchaser of gas can be charged;
  • the Domestic Reserves Obligation, which aims to ensure the availability of gas for domestic consumption in order to stimulate economic growth; and
  • the Gas Infrastructure blueprint, which provides for the establishment of a network of gas hubs that will ultimately reduce the cost of supplying gas from Nigeria.

To give effect to the Gas Master Plan, the National Domestic Gas Supply and Pricing Policy was issued in February 2008, followed in March 2008 by the National Gas Supply and Pricing Regulations.

The Gas Revolution initiative should be a first step towards the implementation of the Gas Infrastructure Blueprint. It is expected that the full implementation of the Gas Master Plan agenda, together with the execution of the proposed projects, will:

  • attract up to $25 billion-worth of investment, including an inflow of foreign direct investment of about $10 billion over the next three years;
  • improve the current state of the country's gas infrastructure;
  • address continuing power sector challenges; and
  • create thousands of direct and indirect local jobs from construction and other related fields.

The Oil and Gas Industry Content Development Act 2010 (for further details please see "Implications of new Oil and Gas Industry Content Development Act") and the long-awaited Petroleum Industry Bill (when it becomes law) may provide a framework to support this ambitious initiative, which would give a significant and long overdue boost to the development of Nigeria's gas, power and industrial sectors.

For further information on this topic please contact Folake Elias Adebowale, Funmi Olojo or Nnewuoghor Okhai-Akhigbe at Udo-Udoma & Belo-Osagie by telephone (+234 1 263 4831), fax (+234 1 263 4541) or email (folake.adebowale@uubo.org , funmi.olojo@uubo.org or oghor.okhai-akhigbe@uubo.org). The Udo-Udoma & Belo-Osagie website can be accessed at www.uubo.org.

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