Nigeria Tackles Oil And Gas Reform

Monday, June 8, 2009

With 184 trillion cubic feet of proven natural gas reserves, 36 billion barrels of proven oil reserves and significant deepwater production growth from finds such as Total's Akpo field, Nigeria remains one of the world's most promising energy markets. Although most attention focuses on the challenges posed by militant groups in the Niger Delta, the success or failure of the country's regulatory reform process could have an even greater impact on future energy production.

Popular discontent with the status quo largely focuses on recurrent fuel shortages and Nigeria's chronic inability to generate enough electricity to meet domestic demand. Persistent mismanagement and neglect have left the country's four domestic oil refineries regularly producing at less than 50% of their nominal capacity and forced Nigeria to import almost 85% of its refined petroleum products.

Complex reforms.In January 2009 the "Petroleum Industry Bill, 2009" was introduced in the Nigerian Senate. A daunting attempt to reform governance across the entire hydrocarbons sector, the bill contains 495 separate clauses. However, its principal aims fall into five categories:

--Clean slate. The Petroleum Industry Bill would repeal about 10 existing pieces of oil- and gas-related legislation, including the petroleum profits tax.

--NNPC break-up. The reform bill would break the Nigerian National Petroleum Corporation up into seven distinct entities. The existing NNPC is criticized for being a monolithic entity that confusingly combines policy, regulatory and commercial activities in one institution. The reforms would create a number of distinct regulatory agencies out of the current NNPC and also create a new national oil company called the National Petroleum Company of Nigeria (NAPCON), which would be a private commercial company. NAPCON would assume NNPC's shares in existing joint ventures with Shell, ExxonMobil, Chevron, Total and Eni. These partnerships will ultimately be reconstituted as incorporated joint ventures (IJVs). The IJVs will be financially autonomous entities able to secure their own funding directly from financial markets, thus relieving existing cash call pressures on the government.

Courtesy: Forbes.com