EXCLUSIVE: PIB: FG To Establish Export Parity Pricing System For Gas Producers

– Gas Price To Hover Between $3.2 And $4 Per MMBtu

The Federal Government through the instrumentality of the Petroleum Industry Bill is to establish an Export Parity Pricing System For Gas Producers in the country.

The Bill which is currently before President Muhammadu Buhari is expected to be sent to the National Assembly soon for legislative scrutiny.

The PIB, obtained exclusively by THE WHISTLER provides for a wide variety of features to ensure that natural gas assists in providing electricity to all Nigerians.

This Newspaper had exclusively reported on Thursday that the Attorney-General of the Federation and Minister of Justice Abubakar Malami (SAN) had transmitted the Petroluem Industry Bill to President Muhammadu Buhari.

THE WHISTLER had also exclusively reported on Friday that the Federal Government would be setting up a Host Community Development Trust Fund if the provision made for that purpose in the Petroluem Industry Bill 2020 is approved by the National Assembly.

According to the Bill, the gas pricing template is being projected to range from a floor price of $3.2 per Million British Thermal Units in January 2021.

The domestic base price is expected to be increased every year by $0.05 per MMBtu until 2037, when a price of $4 per MMBtu will apply for that year and future years.

This price range, according to the Bill, should be sufficiently attractive to significantly increase gas production for the country.

The gas pricing in the Bill is seen to be within the range of gas prices in other emerging nations with significant gas production.

It is therefore expected to be fully competitive with international conditions.

However, the goverment, according to the Bill may, by regulations, change the domestic base price in order to reflect changes in market conditions and supply framework

The Bill Stated, “The domestic base price as of January 1, 2021 shall be $3.20 per MMBtu. The domestic base price shall be increased every year by $0.05 per MMBtu until 2037, when a price of $ 4.00 per MMBtu will apply for that year and future years.

“The Authority, may, by regulations, change the domestic base price pursuant to paragraph (1) and the yearly increase pursuant to paragraph (2) to reflect changed market conditions and supply frameworks.

“The objective is to establish a fully functioning free market in natural gas for domestic supplies. This is to be achieved through the voluntary supplies pursuant to subsection 110(2) 121(2).

“If insufficient voluntary supplies are occurring, the Authority may increase the domestic base price and/or the yearly increases.

“At the same time, the Authority shall monitor the gas prices in other major emerging countries and ensure that Nigeria continuous to have a price level for natural gas that is less than the average of these emerging countries in order to promote the non-oil sectors in the Nigerian economy.”

Section 139 of the PIB also establishes a comprehensive system whereby lessees of Petroleum Mining Leases are to comply with the domestic gas delivery obligations to the strategic sectors.

Similarly, Sections 165 and 168 of the Bill provide for interested investors to become licensees of gas transport pipelines or gas transportation network operators.

The Bill also allows network operators to include third party owned pipelines in their network in order to expand the current network rapidly.

It added that Producers, Suppliers and clConsumers can construct and operate their own pipelines in order to transport their own gas.

Under the Bill, investors also guaranteed a reasonable profit through the tariffing principles established in Section 152 and other related tariffing process.

For instance, it stated that Tariffs for gas pipelines, gas distribution networks and gas processing plants must be based on a 20 per cent rate of return on equity.

This is expected to encourage strong investment in gas infrastructure projects.

In addition, the Bill made a provision of a substantive Midstream Gas Infrastructure Fund to be established with the focus of assisting private investment in the development of the necessary infrastructure to transport gas by pipeline to all regions of Nigeria.

Also, Section 183 of the Bill has created the function of a gas aggregator to ensure that any power plant requiring gas will receive such gas through a gas purchase order issued to producers to deliver gas to such plants.

It also added that any shipper of gas through the transportation network system must receive fair and non-discriminatory service.

The Bill also provides a comprehensive framework to supply gas to an expanding power sector.

Apart from the power sector, the Bill also covers Strategic Sector which consist of gas industries that use gas as a feed stock.

Some of them are the producers of ammonia, urea, methanol, petrochemicals and gas to liquids plants.

The Bill also covers the Commercial Sector which use gas as significant energy source, such as cement plants and steel plants.

While the power sector, according to the Bill will have a price equal to the export parity price, the commercial sector is expected to have a price equal to the export parity price plus $0.75 per MMBtu.