Is Gas Utilization Incentive still necessary?

It is important to appreciate that fiscal incentive packages alone will not trigger the level of investment demanded under the GMP

Presently, the Nigerian economy is in need. It is in need of huge capital injection by way of foreign direct investment from foreigners or Nigerians in diaspora into critical sectors or industries. It is in need of serious infrastructural investment howsoever can be achieved. And despite the present challenges facing Nigeria's oil and gas sector, the sector is still very much relevant to Nigeria's progress. The pursuit of diversification and growth in the contribution of the non-oil sector to GDP is not and should not be treated as an abandonment of Nigeria's crown jewel source of revenue. 

It is a fact that “Nigeria is endowed with abundant natural gas resources, which in energy terms, is in excess of the nation's proven crude oil reserve.  Moreso, the gas was discovered whilst searching for crude oil, as no deliberate effort had been made to search for natural gas then.  The current reserve estimate of the Nigerian gas is over 120 trillion cubic feet, with about 50/50 distribution ratio between Associated Gas (AG) and Non Associated Gas (NAG). Only a small fraction of this quantity is currently being utilized.” This reserve estimate indicates an inherent possibility of exploiting Nigeria's gas reserves for at least the next 100 years with the potential for a further 600 tcf in undiscovered reserve. 

Accordingly, one of the significantly big plans before the Federal Government of Nigeria is the Gas Master Plan (GMP). This is aimed at significantly improving the level of gas utilization in Nigeria and to provide stimulus for development and production of natural gas in Nigeria. It is noteworthy that about 63% of the AG produced during the production of crude oil is flared. Whilst this appears a considerable improvement relative to about 80% that was flared in the past, Nigeria loses an estimated 18.2 million U.S. dollars through gas flaring.

No surprise, applicable fiscal terms for gas utilization are a crucial component of the GMP even though some of these fiscal terms predate the adoption of the GMP. Nigeria's tax framework thus contain incentives to gather the AG and to develop the NAG. Thus, it is stipulated that “all incentives granted in respect of investments in associated gas shall be applicable to investments in non-associated gas”.

Download the article

Is Gas Utilization Incentive still necessary?
Did you find this useful?