Energy Transition - News - Oil & Gas - April 1, 2022

Energy transition: What upstream oil industry regulator is doing to attract new investments

By Bassey Udo

Despite the quest for the global energy transition, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) says it has created an attractive environment for new investments in the country’s oil and gas industry.

Although the Commission reiterated the country’s commitment to the reality of the energy transition agenda, the Chief Executive Officer of the Commission, Gbenga Komolafe, said the drive for fresh investments in the country was informed by the belief that fossil fuels would continue to play a major role as a source of the world’s energy supply beyond the deadline set by advocates of the transition.

Komolafe was speaking on the topic: “Upstream Industry Regulations & Global Energy Transition: Implication on Future Investments in the Nigerian Oil and Gas Industry” at the 2022 Oloibiri lecture series & energy forum organised by the Society of Petroleum Engineers Nigeria Council in Lagos.

Pursuant to the PIA 2021, he said the Commission has so far developed regulations for the upstream sector of the industry, by reviewing ten draft Regulations received from PIA Steering Committee.

Also, he said the Commission has so far harmonized five of the draft regulations relating to conversion and renewal of oil mining leases (OML) and oil prospecting license (OPL); Nigeria Licensing Round; Nigeria Royalty payement; Domestic Gas Delivery Obligations, and Upstream Petroleum Fees and Rent.

In addition, he said the Commission has issued a Notice of Consultation with stakeholders on Regulations Development in Compliance with Section 216(4)(g) of the PIA 2021.

The notice, he said, would provide stakeholders the opportunity to critically review the regulations, and make their inputs.

The Commission, he announced, plans to have a public stakeholders’ engagement on these regulations on the April 19, 2022, apart from four additional draft regulations that are coming relating to safety, environment and host communities.

He listed the pending regulations to include Upstream Petroleum Environmental Regulations; Upstream Environmental Remediation Fund Regulations; Upstream Petroleum Safety Regulations, and Host Community Development Trust Regulations.

He identified Section 92 of the PIA 2021 as the backbone of the investment drive by the Commission, as it provides a flexible tool for honouring investment guarantees and contract sanctity.

The provision, he explained, has created the much-desired stability and predictability for the Nigerian oil and gas industry to excel and enable existing pre-PIA businesses to succeed.

Besides, he said Part II of the PIA 2021 on the newly introduced National Grid System and Acreage Management for Upstream Petroleum Operations administration aims at opening up derisked acreages.

The regulation would also encourage the participation of more players in the Nigerian oil and gas space, thereby eliminating entry barriers.

Consequently, the NUPRC boss said the existing producing marginal field players are now granted a separate Petroleum Mining Lease (PML), same as undeveloped existing marginal fields and the incoming marginal field awardees, including future awardees, that would be granted a Petroleum Prospecting License (PPL).

“The business opportunity ensuing by this gesture includes, but not limited to, easier access to attracting funds and more operational flexibility.

“The lower fiscal terms, such as progressive royalty rates leading to lower effective royalty rates relative to pre-PIA royalty rates for all terrains, zero hydrocarbon tax for gas production in all terrains and oil production in deep-water acreages, consolidated taxation on lease- and company-basis, are all designed toward creating additional opportunities for new investments in Nigeria.

“The generous fiscal terms consciously enshrined in the PIA are aimed towards bolstering return on every dollar invested in Nigeria as against any other jurisdiction,” Komolafe said.

On Nigeria’s strategy in the energy transition journey, he said considering the country’s endowment with abundant gas resources, gas was being positioned as the immediate transition fuel.

“As all the world’s geopolitical zones grasp with the appropriate energy mix for its energy security, Nigeria is poised towards the development of her untapped huge gas resources to achieve economic growth and energy security.

“This will help us in meeting our lower carbon emission footprint in line with our climate change commitment,” he added.

As the upstream industry regulator, he said the Commission was leading the investment drive for cleaner hydrocarbon development through gas development and utilization schemes such as gas reserves growth, optimized gas production, domestic gas utilization, gas flare elimination and monetization.

He said the Commission would continue to explore opportunities in the industry to increase the country’s oil production capacity through prudent reservoir management for each asset, drilling new wells for ‘swing’ production from offset reservoirs or fields, improving drilling and completion practices, extending drilling to deeper targets in producing fields to test new prospects, conducting nearfield explorations or new explorations to discover new hydrocarbon pools, accelerating ‘marginal fields’ development for new productions.

Apart from the Maximum Economic Recovery initiative of the Commission, he said other initiatives to reduce the unit cost of production were being pursued vigorously.

Beyond all this, Komolafe said the Commission was ready to facilitate discussions on the fiscal regime and policies with key industry players, to provide much needed incentives to increase hydrocarbon production.

Globally, Komolafe said the quest for cleaner energy and achievement of net-zero carbon footprint was garnering momentum, especially with the predominant energy transition discussion at the front burner of every energy forum.

Curiously, he said Nigeria, as a key petroleum producer in the world, was aware of the reality of energy transition, and was strategically positioning itself to take advantage of the unfolding era.

As a signatory to the Glasgow Climate Pact, Komolafe said Nigeria was fully committed to the COP26 agreement aimed at focusing on activities that do not promote climate change, but protect the environment .

Despite the general notion that petroleum as a primary source of energy was being relegated in favour of renewable energy in future, he said data on energy consumption suggests otherwise.

With fossil fuel sources, comprising coal, oil and natural gas, still accounting for about about 83 percent of the world’s primary sources of energy, Komolafe argued that expectations are that it would continue to be a core part of the global energy mix well into the future, even beyond the 2050 targets for achieving net-zero set by most western countries.

On the recent increase in the price of crude oil as a result of the conflict between Russia and Ukraine, he said the disruption in the global energy demand-supply chain reawakened the call for geopolitical energy security and sustainability.

For instance, he said in the United Kingdom, the North Sea Transition Authority (NSTA) – formerly the Oil and Gas Authority – was envisaging a leasing and licensing round for oil and gas exploitation and future projects, to reassure the relevance of oil and gas in the future energy mix.

Although he acknowledged the reality of the global energy transition, with the challenges it poses to future investments in the Nigerian oil and gas industry, Komolafe said, however, that Nigeria was working hard to mitigate every negative impact.

“We at the Commission, empowered by the Petroleum Industry Act (PIA) 2021, have steered our focus towards working with all stakeholders to ensure business investments in the oil and gas sector are adequately protected.

“We are striving to ensure that all bottlenecks associated with regulatory processes are eliminated or minimised, to ensure seamless operations as we gradually roll out the key policy initiatives necessitated by the PIA,” he said.

Given the recent outlook, the NUPRC chief noted that to meet the growing energy demand in the short and medium term would require carrying out further exploration and development drilling to optimize reservoir extraction, drilling into new targets, and employing technological advances to maximize production yields for appropriate energy mix.

On funding for oil and gas projects, Komolafe described it as a huge challenge in the light of the global energy transition, as sources were now predominantly channeled towards financing renewable energy projects.

Regardless, he said the clarity in the fiscal regime by the PIA would hopefully help to turn the situation around, particularly as regards some strategic upstream industry projects that have been stalled due to financing constraints.

He listed some of these projects to include the Preowei project, the Bonga South West Aparo project, the Bonga North project, and others, which when completed, would add a combined capacity of about 800,000 barrels of oil per day to the country’s production output.

The CEO underlined the imperative of Nigeria taking advantage of the current high crude oil prices, and the emergent energy transition, to fully exploit the country’s hydrocarbon resources in a timely manner.

On its part, he said the Commission would ensure all the necessary engagements were made to find innovative ways to fund oil and gas projects, to bring them back on stream.

He acknowledged the contributions of the SPE, through its members, the world over, in various oil and gas organizations, asding that the group has continued to proffer proactive solutions and recommendations for the optimization of energy resources.

Through its symposia, conferences, seminars, workshops, industry collaborations and lecture series, as the Oloibiri Lecture Series and Energy Forum (OLEF), Komolafe said the SPE has continued to blaze the trail in the energy discourse, especially in times of the evolving energy transition.

While commending the SPE Nigeria Council for sustaining the tempo, the NUPRC boss said the OLEF has continued to wax stronger in commemoration of the country’s first commercial oil discovery at Oloibiri, Bayelsa State in 1956.

In addition, he said the Commission would take advantage of the Alternative Dispute Resolution Centre (ADRC) set up by the government to resolve potential grey areas among stakeholders and interest groups, rather than resort to court litigationy to avoid unnecessary delays in its business.

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