OIL AND GAS

MAJOR INDUSTRY POLICIES

Introduction

Under the Petroleum Act of 1969 as amended, the entire ownership and control of oil and gas in Nigeria (including under its territorial waters and continental shelf) is vested in the state of Nigeria. The ownership of oil and all minerals in Nigeria is further reinforced under section 40(3) of the 1979 constitution of the Federal Republic of Nigeria.

Since the discovery of oil in Nigeria in 1956, the government, through its appropriate agencies like Nigerian National Petroleum Corporation (NNPC), Ministry of Petroleum Resources and Federal Environmental Protection Agency (FEPA), has put in place a number of policies,
agreements and regulations for the control and supervision of the oil industry for the overall economic development of the country. Notable policies and agreements in place include: Joint Ventures, Production Sharing Control (PSC), Service Contract, and Memorandum of Under-standing (MOU).

 

THE OIL AND GAS INDUSTRY IN NIGERIA

BACKGROUND TO THE NIGERIAN PETROLEUM INDUSTRY.

Following the discovery of crude oil in 1956 by Shell D’Arcy Petroleum, pioneer production began in 1958 from the company’s oil field in Oloibiri in the Eastern Niger Delta. Nigeria has since made its mark as Africa’s leading producer of oil and ranks in the top ten oil producers in the world. In 2004, Nigeria’s OPEC’s quota increased to 8.2%.

By the late sixties and early seventies, Nigeria had attained a production level of over 2 million barrels of crude oil a day. Although production figures dropped in the eighties due to economic slump, 2004 saw a total rejuvenation of oil production to a record level of 2.5 million barrels per day. Current development strategies are aimed at increasing production to 4million barrels per day by the year 2010.

CURRENT STATUS OF THE PETROLEUM INDUSTRY IN NIGERIA.

Sedimentary Basins

Table 1, lists Nigeria’s 7 main sedimentary basins with some information on size and prospectivity, main reservoirs, exploration status etc. The core producing areas cover some 60% of the total acreage of about 31,105 sq. km. The outlying areas remain a significant asset yet to be exploited.

Oil and Gas Reserves

A 2003 estimate showed recoverable crude oil reserves at 34 billion barrels. The reserve base is expected to increase due to additional exploration and appraisal drilling. Already, over 900 million barrels of crude oil of recoverable reserves have been identified. The government has also set a target to achieve a reserve of 40 billion barrels by 2010.

Nigeria has an estimated 159 trillion cubic feet (Tcf) of proven natural gas reserves, giving the country one of the top ten natural gas endowments in the world. Due to a lack of utilization infrastructure, Nigeria still flares about 40% of the natural gas it produces and re-injects 12% to enhance oil recovery. Official Nigerian policy is to end gas flaring completely by 2008. The World Bank estimates that Nigeria accounts for 12.5% of the world’s total gas flaring. Shell estimates that about half of the 2 Bcf/d of associated gas — gaseous by-products of oil extraction — is flared in Nigeria annually. The new industry strategy is to collect the associated gas and process it into liquefied natural gas (LNG), greatly enhancing Nigerian natural gas revenues while simultaneously reducing carbon dioxide emissions

Oil Fields

Of the 606 oil fields in the Niger Delta area, 355 are on-shore while the remaining 251 are offshore. Of these, 193 are currently operational while 23 have been shut in or abandoned as a result of poor prospectivity or total drying up of the wells. Outside the Niger Delta, a total of 28 exploratory oil wells have been drilled all showing various levels of prospectivity as seen in Table 2. These wells include two (2) discovery wells in Anambra State, one (1) discovery well each in Edo State and Benue State each and Twenty-four (24) wells in the Chad Basin. However, production is yet to commence from any of the wells.

Nigerian liquefied Natural Gas:

The Nigerian LNG project is being implemented in phases with an initial production from two trains. The plant is situated at Bonny Island. NLNG has successfully secured market for its moderate production volume from its base project and train three.

Sources of Gas:

The bulk of the gas for base project is mainly NAG supplied from the following gas supplier fields:

· SPDC – SOKU;
· NAOC – OBIAFU OBIKROM;
· EPNL – OBITE;

The bulk of gas for train three will contain more of associated gas from which both LNG and LPG will be produced.

* Gas Supply Contract: The NLNG had signed Gas Supply Agreements (GSAs) with three upstream gas producers in 1992. This is aimed at securing adequate and regular supply of gas for the project. These gas producers are:

* The Shell Petroleum Development Company of Nigeria Limited (SPDC) – NNPC/SPDC/NAOC/EPNL JV: operator & sellers’ representative – SPDC (Shell affiliate);

* Nigerian Agip Oil Company limited (NAOC) – NNPC/NAOC/POCNL JV: operator & sellers’ representative – NAOC (Agip affiliate);

* ELF Petroleum Nigerian limited (ELF), (then Elf Nigerian Limited) – NNPC/EPNL JV: operator & sellers’ representative – EPNL (Elf affiliate).

These three joint ventures are expected to supply the gas requirement for the project for the next 221/2 years.

* Gas Supply Contract Quantities: The joint venture will supply a total of 302.17 billion standard cubic metres (BSCM) of feed-gas required for the NLNG’s three trains. The feed-gas for the three trains will be a combination of associated and non-associated gas. When NLNG’s train three becomes fully operational, a total of about 41.83 million standard cubic metres will be required by the plant daily.