July 16, 2021/Proshare
By FBNQuest Research
The recently passed Petroleum Industry Bill (PIB), by both chambers of the national assembly could be transformational in many ways for Nigeria. Following our review of the Bill, it is quite clear that the authors’ intention is to, amongst other things, secure Nigeria’s energy future by securing investment capital to boost hydrocarbon reserves growth and deliberately transitioning local energy consumption from petroleum products to primarily cleaner natural gas.
There is now a harmonised version of the PIB, which the Senate approved yesterday. The allocation to the host communities was the most obvious difference between the upper and lower house versions.
We expect a swift assent by the presidency.
The PIB passage is in itself a landmark achievement for the Buhari-led administration, as it has been in the pipeline since 2008.
We are excited about three notable outlets created by the Bill to achieve various goals. They are: the Frontier Exploration Fund (FEF), Midstream Gas Infrastructure Fund (MGIF) and the Host Communities Development Trusts.
From our estimates, based on provisions within the Bill, these funds could cumulatively receive inflows of around USD1bn annually.
The FEF is, at the moment, proving to be the most controversial. Primarily funded by a share of the government’s profit oil and profit gas, the FEF will focus on the discovery of commercial reserves in the nation’s frontier basins. In our view, there is indeed a solid case to attempt to replace reserves and boost hydrocarbon production.
Additionally, while the world is working towards a post-oil existence, we fully expect natural gas to play a major role in the world’s energy mix in the coming decades. As such, Nigeria must remain competitive in a race the country is already lagging in.
The MGIF will be tasked to grow gas utilisation in the country by investing in high-risk gas-based projects. Relatively, Nigeria’s gas usage per capita of 3.67 compares with Egypt (18.3) and Algeria (35.2) respectively.
Less controversially, the MGIF will be funded by gas flare fines and a charge on wholesale petroleum products and natural gas sales.
Finally, the Bill mandates the creation of host communities trusts to provide direct social and economic benefits from petroleum operations to host communities. The PIB extends the legislation across the value chain and beyond upstream activities.
The history of agitations in the Niger Delta, resulting from the negative impact on the environment from petroleum exploitation, is well documented. We note that this is not the first attempt by the federal government to solve these issues. However, these trusts localise the solution and, in our view, will be more effective.
Following a review by a joint committee of the national assembly, the Senate yesterday approved a 3% of operating expenditures of petroleum operations for host communities. This appears to be the final allocation for the host communities going forward, although there will be opportunities in the future for upward revisions if required.
On balance, the PIB is a major step forward for the industry and provides a solid platform to secure the country’s energy future.
