1. Overview of Natural Gas Sector
1.1 A brief outline of your jurisdiction's natural gas sector, including a general description of: natural gas reserves; natural gas production including the extent to which production is associated or non-associated natural gas; import and export of natural gas, including liquefied natural gas (“LNG”) liquefaction and export facilities, and/or receiving and re-gasification facilities (“LNG facilities”); natural gas pipeline transportation and distribution/transmission network; natural gas storage; and commodity sales and trading.
Nigeria possesses significant deposits of natural gas. As of 2022, Nigeria was reported to have proven gas reserves of 208.62 trillion cubic feet (“tcf”) – marking an increase of 2.09 tcf or 1.01% from the previous year, and unproven gas reserves of 600 tcf. These deposits comprise both associated and non-associated gas, with associated gas accounting for more (69.55%) of the country's total gas production even though non-associated gas accounts for more of its gas reserves. The country's ample gas reserves, however, remain underutilised. In November 2020, its average daily gas production was a total 5.134 billion cubic feet of which 6.09% was flared while 93.9% was utilised for: liquefied natural gas (“LNG”) export (32.7%); gas re-injection and gas lift make-up (32.35%); domestic gas sales (16.28%); fuel gas (6%); Escravos Gas-to-Liquid project (5.12%); and natural gas liquids or liquefied petroleum gas (“LPG”) (1.46%).
Production and exportation of LNG using Nigeria's gas output is primarily done by Nigeria LNG Limited (“NLNG”); an incorporated joint venture among Nigerian National Petroleum Company Limited (“NNPC”), Shell Gas B.V., TotalEnergies Gaz & Electricité Holdings, and Eni International N.A. N.V. S.àr.l. NLNG operates a liquefaction complex with six existing liquefaction trains and associated facilities (including export jetties and 23 dedicated LNG ships, among other assets) with a combined capacity of 22 million tonnes per year (“tpy”) of LNG and 5 million tpy of LPG and condensates. NLNG is constructing its seventh liquefaction train, which is expected to add approximately 8 million tpy of LNG and increase its overall production capacity to 30 million tpy.
The main natural gas pipeline transportation networks in Nigeria are: the Alakiri–Obigbo–Ikot Abasi Pipeline (forming the Eastern Network); the Escravos–Lagos Pipeline System (forming the Western Network); and the Ajaokuta–Kaduna–Kano Gas Pipeline (currently under construction and will form the Northern network). These pipelines are all owned by the Nigerian Gas Processing and Transportation Company Limited (“NGPTC”), a subsidiary of the NNPC. The NGPTC has granted franchises to private parties such as Shell Nigeria Gas, Gaslink Nigeria Limited, and Falcon Corporation Limited for the development of gas distribution infrastructure in specified markets on a build, own, operate, and transfer basis. Some natural gas pipelines, gas-processing facilities, and other related infrastructures have also been (and are being) developed by gas producers for their operations.
Plans are also underway for the development of the 5,600 km Nigeria-Morocco Gas Pipeline (“NMGP”) project. The NMGP is to run along the West African Coast from Nigeria, Benin, Togo, Ghana, Cote d' Ivoire, Liberia, Sierra Leone, Guinea, Guinea Bissau, Gambia, Senegal, and Mauritania to Morocco where it will be connected to the Maghreb Europe Pipeline and from there to the European gas network. It is expected that on completion, the NMGP would supply about 3 billion standard cubic feet of gas daily.
1.2 To what extent are your jurisdiction's energy requirements met using natural gas (including LNG)?
Natural gas is an important source of energy in Nigeria and is used to generate electricity, provide fuel for industry, and support domestic and commercial cooking. On a general note, biomass accounts for about 76% of the country's total energy consumption, followed by oil with 14% and then gas with 10%. However, in relation to electricity generation in particular, gas continues to dominate Nigeria's power generation mix as it accounted for 73.44% of the electricity generated in the country in 2022, while hydro accounted for 26.56%.
1.3 To what extent are your jurisdiction's natural gas requirements met through domestic natural gas production?
In its gas market report for Q3 2022, the International Energy Agency (“IEA”) reported Nigeria as being the largest natural gas market in sub-Saharan Africa, with an estimated 22 billion cubic metres (“bcm”) consumed in 2021. This means that only about half of the country's natural gas demand is met through its domestic gas production with the remainder imported primarily from Algeria and Ghana. Nigeria struggles to fully utilise its domestic natural gas resources due to a variety of factors, including inadequate infrastructure and regulatory issues. As a result, Nigeria imports a significant amount of natural gas to meet its domestic demand.
1.4 To what extent is your jurisdiction's natural gas production exported (pipeline or LNG)?
A significant portion of Nigeria's natural gas production is exported, both through pipelines and as LNG to countries in Europe, Asia and the Americas.
In 2021, Nigeria was reported to have exported 23 bcm of gas exports to the European Union and to have earned over $1 billion from the sale of natural gas to Portugal alone in 2022.
With regard to LNG in particular, Nigeria's LNG export in the past two years has been below the NLNG's total capacity of 22 million tonnes (“Mt”). Between January and August 2022, the country exported 10.32 Mt of LNG as opposed to 11.85 Mt exported during the same period in 2021. Its total LNG export in 2021 was 17.2 Mt, which was also a fall from the 21 Mt exported in 2020.
2. Overview of Oil Sector
2.1 Please provide a brief outline of your jurisdiction's oil sector.
Nigeria is a major oil-producing country, and its oil sector plays a significant role in the country's economy. The country is a member of the Organization of the Petroleum Exporting Countries (“OPEC”), whose data have shown that Nigeria remains one of Africa's largest oil producers and has an estimated reserve of over 37 billion barrels of oil.
Nigeria's oil reserves are primarily located in the Niger Delta region in the southern part of the country. The oil industry in Nigeria is dominated by State-owned NNPC, which is responsible for the exploration, production, and distribution of oil and gas in the country. However, there are also other international oil companies operating in Nigeria, including Chevron, ExxonMobil, and Shell.
Nigeria's oil sector is regulated by both the Nigeria Upstream Petroleum Regulatory Commission (the “Commission”) and the Nigeria Midstream and Downstream Petroleum Regulatory Authority (the “Authority”). These regulators are responsible for formulating and implementing policies related to upstream, midstream, and downstream oil and gas sectors. Nigeria has a number of laws, which primarily include the Petroleum Industry Act 2021 (the “PIA”), which governs the operations of the oil industry.
The oil sector in Nigeria has faced some challenges, including environmental degradation, oil spills, and conflicts with local communities. The Government has implemented various initiatives to address these issues, including the establishment of the Niger Delta Development Commission to address the development needs of the Niger Delta region. Despite these challenges, the oil sector remains an important contributor to Nigeria's economy and a major source of foreign exchange for the country.
2.2 To what extent are your jurisdiction's energy requirements met using oil?
Nigeria is a major oil producer and exporter, and oil is a significant source of energy for the country. However, Nigeria's energy mix is diverse and includes a range of sources, including oil, natural gas, coal, hydroelectric, solar, and wind. Data from the IEA shows that oil accounts for a significant portion of Nigeria's primary energy supply, but it is not the only source. In 2019, oil accounted for around 45% of Nigeria's primary energy supply, while natural gas accounted for around 35%, and other sources, including coal, hydroelectric, solar, and wind, accounted for the remaining 20%.
2.3 To what extent are your jurisdiction's oil requirements met through domestic oil production?
Nigeria consumes a significant amount of oil for domestic use. However, its domestic oil production has not always been sufficient to meet its domestic demand especially when we streamline the context to refined petroleum products. For example, in 2020, the NNPC reported that the four refineries in Nigeria produced a total of 136,813 metric tonnes of refined petroleum products, which is equivalent to about 36,823 barrels per day (“bpd”). This represents just 8% of the country's total consumption of refined petroleum products using 450,000 bpd. The remaining 92% of refined petroleum product consumption is met through imports. As of 2022, almost all of Nigeria's refined petroleum is imported.
2.4 To what extent is your jurisdiction's oil production exported?
The exact extent to which Nigeria's oil production is exported has varied over time due to a range of factors, including global demand, market conditions, and domestic production levels. Notably, OPEC, in its December 2022 edition of The Monthly Oil Market Report, noted that Nigeria produced an estimated average of 938,000 bpd in September, and Nigeria exported an estimated 870,000 bpd. Accordingly, this implies that approximately 92.5% of Nigeria's crude oil production was exported in that month alone.
According to data released by the National Bureau of Statistics (“NBS”) on Nigeria's international trade, the major purchasers of Nigeria's crude oil by (Q3) September 2022 included France, India, Italy, the Ivory Coast, the Netherlands, Portugal, South Africa, Spain, and the United States, among other purchasers. These 10 countries accounted for a 69.05% share of Nigerian exports.
3. Development of Oil and Natural Gas
3.1 Outline broadly the legal/statutory and organisational framework for the exploration and production (“development”) of oil and natural gas reserves including: principal legislation; in whom the State's mineral rights to oil and natural gas are vested; Government authority or authorities responsible for the regulation of oil and natural gas development; and current major initiatives or policies of the Government (if any) in relation to oil and natural gas development.
The rights to and ownership of oil and natural gas reserves in Nigeria are principally governed by the Constitution of the Federal Republic of Nigeria 1999 (as amended) (the “Constitution”) and the PIA. The Constitution and the PIA vest the ownership of all petroleum resources within Nigeria, its territorial waters, continental shelf and the exclusive economic zone in the Government of the Federation of Nigeria, which is the Federal Government of Nigeria (the “Government”).
The key Government authorities responsible for the regulation of oil and natural gas development in Nigeria include:
- The Minister of Petroleum Resources (“Minister”): The Minister heads the Ministry of Petroleum Resources and is responsible for policy formulation and issuing applicable upstream licences and leases, among others.
- The Commission: The Commission is responsible for the technical and commercial regulation of upstream petroleum operations in the Nigerian petroleum industry.
- The Authority: The Authority is responsible for the technical and commercial regulation of midstream and downstream petroleum operations in the Nigerian petroleum industry.
- The Federal Inland Revenue Service (“FIRS”): The FIRS is the Federal tax authority responsible for the administration and collection of tax revenues on behalf of the Government.
- The Nigerian Content Development and Monitoring Board (“NCDMB”): The NCDMB is the local content regulator responsible for monitoring, managing and encouraging the development and utilisation of Nigerian human, material resources and services in the Nigerian petroleum industry.
- The National Oil Spill Detection and Response Agency (“NOSDRA”): NOSDRA is responsible for surveillance, detection and response to all oil spillages in Nigeria.
Following the passage of the PIA in August 2021, the immediate focus of the Government and the regulatory authorities, particularly the Commission and the Authority, is the implementation of the provisions of the PIA with the key aim of encouraging and attracting investments in the industry.
In addition to the implementation of the PIA, there are other major policies and initiatives of the Government such as:
- The Decade of Gas Development Initiative – this initiative is aimed at the development and utilisation of Nigeria's gas resources.
- The National Gas Expansion Programme – a programme introduced to further encourage the domestic utilisation of gas in Nigeria for transportation, cooking, captive power, and industrial complexes.
- The Nigerian Gas Flare Commercialisation Programme – a programme introduced to drive the attainment of zero routine gas flaring by 2035 and net-zero emissions by 2060 in the country.
- The Announcement of the Nigeria Mini Bid Round 2022 – the newly announced bid round is the first under the PIA and is aimed at the further development of petroleum exploration and drilling activities within deep water offshore.
3.2 How are the State's mineral rights to develop oil and natural gas reserves transferred to investors or companies (“participants”) (e.g., licence, concession, service contract, contractual rights under Production Sharing Agreement?) and what is the legal status of those rights or interests under domestic law?
The rights to develop oil and natural gas reserves are transferred by the Government to participants through awards of licences and leases in accordance with the PIA. Participants may also acquire interests directly from existing mineral rights holders, subject to obtaining requite regulatory approvals/consent.
The licences and leases granted under the PIA are Petroleum Exploration Licence (“PEL”), Petroleum Prospecting Licence (“PPL”), and Petroleum Mining Leases (“PML”), and these licences and leases can only be granted to a company incorporated in Nigeria.
The licences and leases are granted subject to the terms of the PIA and other terms agreed in the relevant contractual arrangements under which they are granted. The legal status of the licences and leases is both statutory and contractual. Statutory on the basis that the licences and leases are subject to the terms of the PIA and regulations made by the Commission. Contractual on the basis that the licences and leases create a contractual relationship between the licence or lease holder and the Government.
The petroleum rights that are granted may be granted under several model petroleum arrangements, including the following:
- production sharing contracts for the exploration, development and production of petroleum on terms under which the financial risk-bearing party recovers their cost from a share of production;
- profit sharing contracts, under which arrangement profit oil is provided in cash to the Government;
- risk service contracts for the exploration, development and production of petroleum on terms under which the financial risk-bearing party recovers costs by payment in cash or in kind from production;
- concession agreements for the exploration, development and production of petroleum, which may include an incorporated or unincorporated joint venture with the NNPC; and
- any other internationally recognised form of contract for the exploration and production of petroleum.
3.3 If different authorisations are issued in respect of different stages of development (e.g., exploration appraisal or production arrangements), please specify those authorisations and briefly summarise the most important (standard) terms (such as term/duration, scope of rights, expenditure obligations).
We provide below the different authorisations issued in respect of different stages of development of upstream petroleum assets:
- PEL – this grants the holder a non-exclusive right to carry out petroleum exploration operations within the area provided for in the licence. The PEL is for a term of three years and may be renewed for an additional period of three years subject to the fulfilment of prescribed conditions. The right granted under a PEL does not include any right to win, extract, work, store, carry away, transport, export or otherwise treat petroleum discovered in or under the licence area.
- PPL – this confers on the holder the exclusive right to drill exploration and appraisal wells and non-exclusive right to carry out petroleum exploration operations within the area provided for in the licence. It also grants the holder the right to carry away and dispose of crude oil or natural gas won or extracted during the drilling of exploration or appraisal wells as a result of production tests, subject to the fulfilment of obligations imposed by the PIA. A PPL is granted for a period of not more than six years (comprising an initial exploration period of three years and an operational period of three years) in respect of onshore and shallow water acreages. With respect to deep offshore acreages (an area within the territorial waters, continental shelf or exclusive economic zone offshore of Nigeria with a water depth in excess of 200 metres), the maximum duration is 10 years, comprising an initial exploration period of five years and an optional extension period of five years.
- PML – this grants the holder the exclusive right to carry out the development and production of petroleum with respect to the formations under the leased area. It also grants the holder the exclusive right to drill exploration and appraisal wells in the leased area and a non-exclusive right to carry out petroleum explorations. A PML is granted to a holder of a PPL who has (a) satisfied the conditions imposed on it under the PIA, and (b) received approval of the Commission for the applicable field development. A PPL is granted for a maximum period of 20 years, subject to renewal provided that the conditions for the renewal have been satisfied.
3.4 To what extent, if any, does the State have an ownership interest, or seek to participate, in the development of oil and natural gas reserves (whether as a matter of law or policy)?
The Government participates in the development of oil and natural gas reserves through the NNPC and its subsidiaries. Section 64 of the PIA provides that part of the objectives of the NNPC is to be vested as the concessionaire of all production sharing contracts, profit sharing and risk service contracts as the national oil company on behalf of the Federation.
Also, where the petroleum arrangement under which a licence or lease is granted is a concession agreement for exploration, development and production of petroleum, the Government through the NNPC has the right to participate up to 60% in the contract. The Government can exercise its participation right at any time from the grant of the licence or lease, subject to the Government's compliance with the requirements for participation.
3.5 How does the State derive value from oil and natural gas development (e.g., royalty, share of production, taxes)?
Nigeria derives value from oil and natural gas development through various means depending on the nature of the petroleum arrangement adopted for the development of the relevant petroleum acreage.
Share of production/profit – Under petroleum arrangements involving production sharing contracts, profit sharing and risk service contracts as well as joint venture concessions, Nigeria (through the NNPC) derives value from oil and natural gas development through its share of production or profit.
Taxes – Under the PIA, Hydrocarbon Tax is payable by upstream companies operating in onshore and shallow water areas at the varied rates of 15% or 30%. The petroleum resources subject to Hydrocarbon Tax are crude oil, field condensates and natural gas liquids derived from associated gas and produced in the upstream of the measurement points.
Also, Companies Income Tax (“CIT”) is applicable to all companies involved in upstream, midstream or downstream petroleum operations at the rate of 0%, 20% or 30%, depending on the companies' annual turnover. However, most entities operating in the Nigerian petroleum industry may likely reach the annual turnover threshold to trigger the 30% CIT rate.
Other applicable taxes include:
- Tertiary Education Tax at the rate of 2.5% of assessable profits.
- Police fund levy at the rate of 0.005% of net profits.
- Value-added Tax (“VAT”) at the rate of 7.5% on taxable goods and services.
- Capital Gains Tax payable at the rate of 10% of the profits from the sale of the qualifying assets.
- National Agency for Science and Engineering Infrastructure levy at the rate of 0.25% of profits before tax of commercial companies and firms with turnover of 1 billion Naira and above covering certain sectors, including the oil and gas sector.
Royalties – All production of petroleum, including production tests, is subject to royalties. The royalties are payable monthly at their applicable rates into the Federation Account and verifiable by the Commission. For crude oil and condensates, the applicable royalties are based on price and production, whereas the royalties for natural gas and natural gas liquids produced are based on production.
Concession rentals – Holders of PPLs or PMLs are required to pay rents in the amount and time prescribed in the licence or lease, in the PIA or regulations made by the Commission.
Other fees and levies – Companies operating in the Nigerian petroleum industry may be subject to other fees, levies and statutory contributions. The obligation to pay these fees and/or levies or make the statutory contributions depends on different factors, such as on the segment of operations (whether upstream, midstream or downstream), the nature of the services received/rendered, etc. These fees and levies include the following:
- signature bonuses – these are upfront fees payable by a winning bidder prior to the grant of a licence or lease;
- production bonuses – these are payable upon attainment of agreed production levels;
- renewal fees – payable upon the renewal of a licence or lease;
- Nigerian Export Supervision Scheme levy for the export of oil and gas;
- levy to the Authority Fund;
- contribution/levy to the Midstream and Downstream Gas Infrastructure Fund;
- contribution to the Environmental Remediation Fund;
- contribution/levy to the Niger Delta Development Commission;
- contribution/levy to the NCDMB; and
- contribution to the Host Community Development Trust Fund.
3.6 Are there any restrictions on the export of production?
Except with respect to obtaining relevant export permits and approvals and undergoing mandatory inspections and checks, there are no legal restrictions applicable to the exportation of crude oil from Nigeria.
With respect to gas, however, the PIA restricts gas producers from exporting gas unless the exporting producer has complied with its annual domestic gas delivery obligation allocated to it by the Commission by supplying the allocated gas volume to the domestic market. A gas producer that supplies gas to midstream gas export operations prior to satisfying its domestic gas delivery obligation will be subject to sanctions imposed by the Commission.
3.7 Are there any currency exchange restrictions, or restrictions on the transfer of funds derived from production out of the jurisdiction?
The Nigerian foreign exchange market is regulated by the Central Bank of Nigeria (“CBN”), and the main legislation regulating foreign exchange in Nigeria is the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act (“FX Act”). Foreign exchange transactions are also regulated by the Foreign Exchange Manual (“FX Manual”) issued by the CBN pursuant to the FX Act.
In relation to export operations, the FX Act mandates all exporters (which includes oil and gas exporters) to open and maintain a foreign currency domiciliary account into which may be retained foreign currency corresponding to the entire proceeds of the export concerned. All petroleum exporters are required to ensure that all export proceeds are repatriated and credited to their export proceeds domiciliary account in Nigeria within 90 days from the bill of lading date.
Generally, it is worth noting that the FX Act and the Nigeria Investment Promotion Commission Act (“NIPC Act”) guarantee the unconditional transferability of funds, through an authorised dealer (an entity licensed by the CBN to operate as an authorised dealer in the Nigerian foreign exchange market) in freely convertible currency for investments in Nigeria. In order for an investor to be permitted to be able to freely repatriate capital and proceeds in foreign currency using the Nigerian foreign exchange market, such capital must have been imported into Nigeria through an authorised dealer. At the point of importation of capital into Nigeria, the authorised dealer would convert the capital into local currency and issue an electronic CCI (“eCCI”) in this regard. The eCCI evidences the importation of capital for the stated purpose and facilitates unconditional transferability and repatriation of funds with regard to both earnings and capital in foreign currency using the Nigeria foreign exchange market. Funds that may be repatriated in foreign currency unconditionally through an authorised dealer includes all dividends (net of taxes), profits attributable to the investment made, and interest on loans (net of all applicable taxes) or capital upon divestment from Nigeria. The repatriation of proceeds of investment capital must also be done through an authorised dealer. It is important to note that the non-issuance of an eCCI does not impact the legal right of an investor to earn investment proceeds; however, the investor would not have access to the official foreign exchange market.
With respect to repatriation of profits derived from production and held in an export proceeds domiciliary account, under the FX Manual and circulars issued by the CBN, holders of export proceeds domiciliary accounts have access to funds in their accounts for eligible transactions. The CBN provided a list of eligible transactions that can be financed with proceeds of oil and gas exports and the items provided include principal and interest payment and dividend payment.
3.8 What restrictions (if any) apply to the transfer or disposal of oil and natural gas development rights or interests?
Transfers or disposal of petroleum development rights or interests are subject to regulatory/contractual approvals and consents. These approvals and consent include:
- Approval of the Commission is required for transfer of interests in a PPL or PML.
- Consent of the Minister is required for transfer of interests in a PPL or PML.
- Approval of the Authority is required in respect of disposal of interest in a licence issued in respect of midstream and downstream petroleum operations/assets.
- Contractual restrictions (e.g., pre-emption right of joint venture partners, consent of joint venture partners, waivers, etc.).
- Approval of the Federal Competition and Consumer Protection Commission (“FCCPC”) where the transaction is within the notification threshold set by the FCCPC.
3.9 Are participants obliged to provide any security or guarantees in relation to oil and natural gas development?
Yes, participants may be required to provide security or guarantees in relation to petroleum development. The PIA provides that a model licence or lease in a bid round must include a clause detailing guarantees to be provided by the licensee or lessee regarding the performance of its licence or lease obligations. Under the model licence or lease, the security or guarantee will be provided to the Commission. Also, in contractual arrangements involving the NNPC (e.g., production sharing contract), the NNPC may generally require the provision of relevant security or guarantee.
3.10 Can rights to develop oil and natural gas reserves granted to a participant be pledged for security, or booked for accounting purposes under domestic law?
Yes, rights to develop oil and natural gas reserves granted to a participant may be pledged for security or booked for accounting purposes. The PIA provides that a holder of a licence or lease may, by way of security, wholly or partly assign, pledge, mortgage, charge or hypothecate its interests under the applicable licence or lease or grant a security interest in respect of the interest, provided that the consent of the Commission is obtained.
3.11 In addition to those rights/authorisations required to explore for and produce oil and natural gas, what other principal Government authorisations are required to develop oil and natural gas reserves (e.g., environmental, occupational health and safety) and from whom are these authorisations to be obtained?
The additional Government authorisations required to develop oil and natural gas reserves depend on the nature of the operations being carried out. These authorisations include:
- Environmental Impact Assessment (“EIA”) Certificate obtained from the Federal Ministry of Environment.
- Other environmental permits required in respect of activities that are considered harmful to the environment, including, among others, waste disposals, health and safety compliance and fire safety compliance.
- Oil and Gas Surface Facility Operating Permit issued by the Commission.
- Offshore Safety Permit issued by the Commission.
- Nigerian Content Plan approved by the NCDMB.
- Certificate of registration of factories in respect of all premises to be used as a “factory”. “Factory” covers premises in which or within which persons are, employed in any process for or incidental to the making of any article or of part of any article (which includes any solid, liquid or gas, or any combination).
- Permits from State or local town planning or development authorities (as applicable).
- Foreign investment approvals (such as business permits and registration with the Nigerian Investment Promotion Commission (“NIPC”)) applicable to companies with foreign equity participation.
3.12 Is there any legislation or framework relating to the abandonment or decommissioning of physical structures used in oil and natural gas development? If so, what are the principal features/requirements of the legislation?
Yes, the PIA contains provisions dealing with decommissioning and abandonment. The PIA provide that decommissioning and abandonment shall not take place without the written approval of the Commission or the Authority, as the case may be. The Commission or the Authority shall, by written notice, require a lessee, licensee or permit holder to commence the decommissioning and abandonment of a well, installation, structure, utility and/or pipeline, where such decommissioning and abandonment is required under good international petroleum industry practices or guidelines.
The PIA requires lessees and licensees in the upstream and midstream segments of the petroleum industry to prepare a decommissioning and abandonment plan (where none exists) and to set up, maintain and manage a decommissioning and abandonment fund, which will be held by a financial institution not affiliated with the holder of such lease or licence. This fund will be used to cover the costs associated with the decommissioning and abandonment of wells, installations, structures, utilities, plants and/or pipelines used in oil and natural gas development.
The Commission and the Authority have respectively developed decommissioning and abandonment regulations aimed at the implementation of the decommissioning and abandonment framework provided in the PIA.
3.13 Is there any legislation or framework relating to gas storage? If so, what are the principal features/requirements of the legislation?
Yes, the PIA contains provisions dealing with the gas storage. Under the PIA, a bulk gas storage licence is required from the Authority in order to undertake the bulk storage of natural gas, either for its own account or on behalf of customers. In considering an application for a bulk gas storage licence, the PIA mandates the Authority to take into account the economic case for a bulk gas storage facility and the potential demand for its use. Some of the general duties of a bulk gas storage licensee include establishing and making available the procedure and terms allowing third-party access or throughput to its storage facility and abstain from activities that may prevent, restrict or distort competition.
In addition to the PIA, the storage of gas is further regulated by the guidelines issued by the Authority regulating the establishment, operations of gas storage and utilisation facilities. These guidelines prescribe, among others, LPG storage vessel specifications and requirements, applicable storage conditions for LPG retailers' outlets/locations, minimum requirements for storage vessel/tanks in respect of autogas refuelling stations and add-on gas facilities in Nigeria.
3.14 Are there any laws or regulations that deal specifically with the exploration and production of unconventional oil and gas resources? If so, what are their key features?
There are no laws that focus exclusively on the exploration and production of unconventional oil and gas resources in Nigeria. The provisions of applicable oil and gas laws, including the PIA, the Environmental Impact Assessment Act, the Nigerian Oil and Gas Industry Content Development Act 2010 and regulations issued by the various applicable regulators may apply here.
We should note, however, that depending on the nature of the unconventional resources, the Nigerian Minerals and Mining Act and its applicable regulations may be applicable to the exploration and production of the resources.
3.15 What has been the impact, if any, of the “energy transition” on the oil and gas industry in your jurisdiction, and are there any policies or laws/regulations that require the oil and gas industry to decarbonise? Are there any policies or laws/regulations relating to the development of low-carbon hydrogen and its use in conjunction with or in place of natural gas, or the development of carbon capture and storage?
While there have been discussions around energy transition in Nigeria, Nigeria is still highly dependent on fossil fuels as a major source of revenue. The most recent legislative support regarding energy transition is found in the PIA, which sets out copious environmental protection obligations on entities operating in the petroleum industry, including the prohibition of the flaring or venting of natural gas and prescribes fines for gas flaring. The PIA mandates natural gas producers to submit a natural gas flare elimination and monetisation plan to the Commission. The Commission has also developed recent regulations requiring licensees and lessees to develop and submit a plan for decarbonisation and net-zero targets in connection with its operations.
Over the years, the Government has enacted polices, plans and regulations that seek to encourage the drive towards energy transition in Nigeria. At COP26, Nigerian President Muhammadu Buhari announced Nigeria's commitment to carbon neutrality by 2060. Pursuant to this, the Government launched the Nigeria Energy Transition Plan (the “ETP”) described as a home-grown, data-backed, multipronged strategy developed for the achievement of net-zero emissions in terms of the nation's energy consumption. The ETP sets out a timeline and framework for the attainment of emissions' reduction across five key sectors, including oil and gas. It seeks to propel Nigeria towards attaining net-zero emissions by 2060. In 2021, the Government also enacted a Climate Change Act, which provides a framework for achieving low greenhouse gas emission, inclusive green growth and sustainable economic development. The Climate Change Act imposes certain obligations relating to climate change on government ministries, departments and agencies and on some private entities.
The development of a hydrogen economy is not imminent in Nigeria, and the understanding is that the short-term plan is the adoption of natural gas, which is then expected to overtake crude oil as Nigeria's major source of revenue, provide a basis for reliable power supply and a cleaner environment. However, the legal and regulatory framework provided in the PIA can be broadly utilised to push the development of hydrogen projects in Nigeria.
4. Import / Export of Natural Gas (including LNG)
4.1 Outline any regulatory requirements, or specific terms, limitations or rules applying in respect of cross-border sales or deliveries of natural gas (including LNG).
Companies engaging in cross-border sales or deliveries of natural gas may be subject to various taxes and duties, including customs duties pursuant to the Customs and Excise Management Act (“CEMA”). CEMA applies to all goods that are imported into Nigeria. Customs duties rates vary, typically from 5% to 35%, and are assessed with reference to the prevailing Harmonized Commodity and Coding System. Other taxes include VAT, which is at a standardised rate of 7.5% for imported LPG. However, locally produced LPG is exempt from VAT.
Also, the Pre-Shipment Inspection of Exports Act of 1996 (“PIEA”), particularly Section 2 requires that all oil exports (defined to include crude oil and petroleum products) from Nigeria be inspected and certified by a pre-shipment inspection agency before they can be shipped out of the country. The purpose of this inspection is to ensure that the exports meet all relevant quality, safety, and technical standards, and to prevent the export of substandard or fraudulent goods. Section 11 of the PIEA requires an exporter of goods, including petroleum products, to open, maintain and operate a foreign currency domiciliary account in Nigeria into which all export proceeds shall be paid.
On a sectorial level, prior to the exportation of natural gas, Section 110 of the PIA, requires holders of a PML to comply with their various Domestic Gas Delivery Obligations (“DGDOs”). We have recently seen the inclusion of these DGDOs in the terms and conditions of a PML. The DGDOs of natural gas producers and suppliers in Nigeria generally ensure that enough natural gas is made available for domestic use, in accordance with the terms of any licences or other agreements that may be in place, and that the same is supplied to domestic consumers in a safe, reliable, and efficient manner, in accordance with good industry practice.
Furthermore, commercial contracts between parties to a cross-border transaction outline the terms and conditions under which gas will be sold or delivered. These contracts may include provisions related to pricing, payment, delivery terms, and other terms and conditions specific to the transaction.
5. Import / Export of Oil
5.1 Outline any regulatory requirements, or specific terms, limitations or rules applying in respect of cross-border sales or deliveries of oil and oil products.
An oil exporter must obtain a clearance permit certificate from the Federal Ministry of Industry, Trade and Investment. Additionally, the PIA authorises both the Commission and the Authority to issue export permits and certificates of quality and quantity to exporters of crude oil and petroleum products. Notably, the grant of an export permit by the Commission/Authority is subject to a crude oil producer's compliance with its crude oil supply obligations to the domestic market. Additionally, proceeds of oil and gas exports are required to be repatriated into the export proceeds domiciliary account within 90 days, failing which the exporter will be barred from participating in all segments of foreign exchange market in Nigeria.
Regarding imports, a Nigerian company may apply to the Authority for an import permit for petroleum products subject to having access to appropriate storage facilities that could be either owned or leased from third parties. An importer of petroleum products is required to obtain a certificate of quantity from the Authority upon the arrival of the vessel in Nigeria.
6.1 Outline broadly the ownership, organisational and regulatory framework in relation to transportation pipelines and associated infrastructure (such as natural gas processing and storage facilities).
The PIA is the primary legislation that provides the framework for the licensing, ownership, construction and operation of oil and natural gas transportation pipelines, associated infrastructure and ancillary activities. The PIA provides the framework for the issuance of licences in connection with oil and natural gas transportation pipelines, associated infrastructure and ancillary activities, including a Gas Processing Licence, a Bulk Gas Storage Licence, bulk storage of petroleum liquids, and a Transportation Pipeline Licence. In addition to the PIA, there are also other laws and subsidiary legislations that apply to transportation pipelines, associated infrastructure and ancillary activities. These subsidiary legislations cover different matters, including technical, engineering and operational matters in respect of the design, construction, commissioning, operation and maintenance of pipelines and ancillary installations.
Notably, there are no legal prohibitions in connection with the ownership, construction and operation of oil and gas transportation pipelines and associated infrastructure. Companies incorporated in Nigeria are legally able to apply for and obtain relevant licences from the Authority to own, construct and operate oil and gas transportation pipelines and associated infrastructure, subject to complying with the stipulated pre-conditions. Generally, the Authority may grant a licence where the proposed operations meet the required technical, health, safety and environmental standards and there is a good case for the efficient and economic use of the pipelines and facilities.
6.2 What governmental authorisations (including any applicable environmental authorisations) are required to construct and operate oil and natural gas transportation pipelines and associated infrastructure?
Under the PIA, the Authority may grant authorisations as applicable in connection with the construction and operation of oil and natural gas transportation pipelines and associated infrastructure, including the following authorisations:
- Gas Transportation Pipeline Licence – this grants the licensee the exclusive right to own, construct, operate and maintain a gas transportation pipeline within a route as defined in the licence for its own account with third-party access provisions or as common carrier.
- Gas Processing Licence – this permits the licensee to install and operate for its own account or on the basis of open access for customers the following plants: gas conditioning plants to condition natural gas removing CO2, H2S or other impurities; gas processing plants to produce ethane, propane, butane and other natural gas liquids and marketable natural gas; gas to liquids plants; LNG plants; or ethane extraction plants.
- Bulk Gas Storage Licence – this authorises the holder to undertake the bulk storage of natural gas either for its own account or on behalf of customers.
- Gas Transportation Network Operator Licence – this authorises the licence holder to, among others based on the terms of the licence: convey natural gas through the network on an open access basis; balance the inputs and offtakes from the network; provide access to shippers based on the Nigerian Gas Transportation Network Code (the “Network Code”); and charge for the use of the network based on the tariffs established by the Authority.
- Bulk Petroleum Liquids Storage Licence – this authorises the licence holder to undertake the bulk storage of petroleum liquids whether for its own account or on behalf of customers.
- Petroleum Liquids Transportation Pipeline Licence – this grants the licensee the exclusive right to own, construct, operate and maintain a transportation pipeline for the bulk transportation of petroleum liquids within a route as defined in the licence for its own account with third-party access provisions or as a common carrier.
- Petroleum Liquids Transportation Network Operator Licence – this authorises the licence holder to convey petroleum liquids through the network, balance inputs and offtakes from the network; provide open access and charge for the use of the network.
See also question 3.11 for additional government authorisations, including environmental, health and safety.
A licence holder also has ongoing environmental compliance obligations in connection with the operation and maintenance of the pipeline and associated infrastructure. In applicable cases, a licence holder will be required to prepare and submit for an environmental management plan for approval and pay a prescribed financial contribution to an environmental remediation fund for the rehabilitation or management of negative environmental impacts of its activities and operations.
6.3 In general, how does an entity obtain the necessary land (or other) rights to construct oil and natural gas transportation pipelines or associated infrastructure? Do Government authorities have any powers of compulsory acquisition to facilitate land access?
The PIA and the Land Use Act (“LUA”) are the principal legislation that govern access to land rights in connection with the construction of oil and natural gas transportation pipelines and associated infrastructure. The PIA provides that a licensee or permit holder is entitled to the rights of way for the laying, operation and maintenance of pipelines through or across the areas that the licensee or permit holder may require for its operations under the licence. However, the licensee may be required to pay compensation to the owners or occupiers of the impacted land.
Also, the Government has the powers to compulsorily acquire land to facilitate the construction of oil and gas transportation pipelines and associated infrastructure. Under the LUA, the use of land for purposes of petroleum operations is granted priority and the Governor of a State is empowered to compulsorily acquire land for overriding public interest, subject to the payment of compensation to the owner or occupier of the land. The PIA also provides that the Governor of a State of which land is required for carrying out licensed operations or activities may issue a certificate of occupancy in respect of the land in accordance with the LUA.
Also, an entity seeking to construct oil and natural gas transportation pipelines and/or associated infrastructure may also directly acquire land rights from the owners or occupiers of the land and register the acquisition with the relevant land registries.
6.4 How is access to oil and natural gas transportation pipelines and associated infrastructure organised?
The PIA regulates access to oil and gas transportation pipelines and associated infrastructure by third parties. Third parties are able to negotiate and agree access arrangements with licensees of transportation pipelines, networks and associated infrastructure. Generally, conditions in licences or permits issued by the Authority in respect of oil and natural gas transportation pipelines and associated infrastructure may mandate the licence or permit holder to publish terms of access to its pipeline or transportation networks and facilities. A general non-discrimination obligation is imposed on licence and permit holders as the PIA provides that a holder of a licence or permit shall not discriminate against customers or classes of customers in respect of access, tariffs, prices, conditions of standards of service, except for justifiable and identifiable differences in respect of quantity, transmission distance, length of contract, load profile, interruptible supply or other distinguishing feature approved by the Authority.
See question 6.6 in relation to third-party access requirement and open access regime.
6.5 To what degree are oil and natural gas transportation pipelines integrated or interconnected, and how is co-operation between different transportation systems established and regulated?
Gas transportation systems in Nigeria are interconnected through the Network Code. The Network Code seeks to ensure non-discriminatory open and competitive access to gas transportation pipeline systems by creating a contractual framework between authorised pipeline system operators and entities licensed as shippers to transport gas through the gas pipeline system. Shippers on the pipeline system may book capacity at entry points and exit points with sufficient flexibility. However, where a gas transportation pipeline is isolated from the main gas transportation network, the Authority shall develop separate terms of access for the isolated gas transportation pipeline.
For oil transportation, the pipeline network system is more liberalised. There are two types of pipelines within the system, which include crude oil lines and refined product lines. Different private upstream producers own crude oil lines. The Nigerian Pipelines and Storage Company Limited and the Petroleum Products Marketing Company (both subsidiaries of NNPC) own/manage crude oil lines and refined product lines. Third parties can access these pipelines through bilateral transportation arrangements with the owners/operators of the pipelines.
6.6 Outline any third-party access regime/rights in respect of oil and natural gas transportation and associated infrastructure. For example, can the regulator or a new customer wishing to transport oil or natural gas compel or require the operator/owner of an oil or natural gas transportation pipeline or associated infrastructure to grant capacity or expand its facilities in order to accommodate the new customer? If so, how are the costs (including costs of interconnection, capacity reservation or facility expansions) allocated?
The PIA provides for both third-party access regime/rights and non-discriminatory open access regime/rights to oil and natural gas transportation pipelines and associated infrastructure. Licences issued by the Authority in connection with oil and gas transportation pipelines, transportation networks, storage facilities and processing/refining facilities may mandate the licence holders to grant third-party access to use or have access to spare capacity within its facilities to encourage competitiveness where the licensee operates on its own account or to conduct its licensed activities in a non-discriminatory manner between all classes of customers where the licence is operated on an open access basis.
For gas, the PIA permits access to open access gas transportation pipelines or transportation network pursuant to the terms and conditions of the Network Code. The NGPTC operates the major gas transportation network and facilities in Nigeria and the Network Code applies to its entire system. Shippers who intend to utilise the NGPTC pipeline system are required to: accede to a Network Code Framework Agreement with the pipeline operator under which the terms and conditions of the Network Code will apply to their transaction; enter into an Entry/Exit Agreement with the pipeline operator on the terms and conditions of the natural gas flow at entry points, where the gas is supplied into the system and exit points and where the gas is delivered to an offtaker; and enter into an Operation Balancing Agreement with the pipeline operator to implement balancing arrangements on the system and to manage the interconnected points to reduce or eliminate operational imbalance on the entire network.
For pipelines that are not covered under the Network Code, gas transportation agreements are required to be entered into between the gas producer and the pipeline owner/operator. The PIA also empowers the Authority to develop separate terms of access for gas transportation pipelines isolated from the main gas transportation network.
Access to crude oil transportation pipeline is organised through bilateral contractual arrangements between the shipper and the pipeline owner/operator. Crude handling agreements and/or crude oil transportation agreements are typically used to transport oil from wells to the terminal or delivery point. The PIA, however, empowers the Authority to develop a Network Code governing the terms of access into oil transportation pipelines.
While the PIA recognises third-party access rights and open access regime, there is no law in Nigeria that empowers the Authority to compel an oil and gas transportation pipeline owner/operator to expand its facilities to accommodate new customers.
6.7 Are parties free to agree the terms upon which oil or natural gas is to be transported or are the terms (including costs/tariffs which may be charged) regulated?
Yes, parties may agree on terms for pipeline transportation of oil or natural gas. However, the terms under such agreement must conform with the regulated tariff framework set by the Authority for the transportation of oil or gas and/or the use of associated facilities.
In addition, the PIA requires the Authority to consider certain principles in determining the tariff for oil and gas transportation. The principles include the need for the tariff to be cost-reflective, allow for a reasonable return on investment, be non-discriminatory across shippers, and be set in US dollars or other appropriate foreign currency.
7. Gas Transmission / Distribution
7.1 Outline broadly the ownership, organisational and regulatory framework in relation to the natural gas transmission/distribution network.
The PIA establishes the regulatory framework for natural gas distribution in Nigeria. Pursuant to the PIA, the Authority is empowered to grant licences in connection with natural gas distribution activities. Licences may be granted to companies incorporated in Nigeria as there are no legal prohibitions in connection with ownership of gas distribution networks and the conduct of gas distribution activities in Nigeria. Although private entities can own gas distribution networks and conduct related activities in Nigeria, there appears to be a monopoly over gas distribution networks as the NGPTC assumes operatorship of the major gas distribution networks in Nigeria. Notwithstanding, the NGPTC granted franchises to certain private entities to develop and operate gas distribution networks in specified markets.
7.2 What governmental authorisations (including any applicable environmental authorisations) are required to operate a distribution network?
Under the PIA, the Authority may grant licences and permits in connection with the: retail trading or distribution of natural gas; establishment, construction or operation of a gas distribution network; or establishment, construction or operation of a facility for the supply or trading of natural gas. The licences and permits that the Authority may grant in connection with natural gas distribution include:
- Gas Distribution Licence – this licence confers the rights to establish, construct and operate a gas distribution system and to distribute and sell natural gas without discrimination to consumers in a defined local distribution zone.
- Wholesale Gas Supply Licence – this licence authorises the licence holder to purchase natural gas directly from any gas producer or third party and sell/deliver the natural gas to customers classified as wholesale customers (basically bulk purchasers of natural gas) and gas distributors at any location in Nigeria.
- Retail Gas Supply Licence – this authorises the holder to, among others, purchase natural gas from a gas producer, wholesale gas supplier or a third party and sell/deliver compressed natural gas (“CNG”) or LNG to customers at any location in Nigeria on a free market basis. The licence holder is also allowed to establish, construct and operate facilities to deliver CNG and small-scale facilities for LNG.
See also question 3.11 for additional government authorisations, including environmental, health and safety that may be applicable.
7.3 How is access to the natural gas distribution network organised?
Access rights to gas distribution networks are regulated by the PIA. The PIA guarantees third-party access rights to gas distribution networks by expressly recognising that the Gas Distribution Licence may include provisions pursuant to which third-party access to the gas distribution network may be provided to gas retailers under terms and conditions to be agreed between the parties.
7.4 Can the regulator require a distributor to grant capacity or expand its system in order to accommodate new customers?
The PIA mandates gas distribution licensees to connect all customers within their local distribution zones if it is economically feasible and to prepare a distribution development plan for connecting customers for the consideration and approval of the Authority. In preparing the distribution development plan or any amendment to the plan, the gas distributor is mandated to consult stakeholders within its local distribution zone and to consider all the representations received by it.
7.5 What fees are charged for accessing the distribution network, and are these fees regulated?
Gas distributors are required to offer and publish terms and conditions of access to their gas distribution networks. The published terms and conditions will invariably cover the access fees chargeable by the gas distributor, subject to any tariffs or tariff methodology prescribed by the Authority. The PIA sets out tariff principles that guide the Authority in the exercise of its powers to prescribing tariffs or tariff methodologies.
Also, the PIA expressly recognises that a gas distributor has the right to issue invoices to recover costs reasonably incurred in the provision of its infrastructure (including licence fees), subject to any conditions imposed by the Authority in connection with the structure and level of the distributor's charges.
7.6 Are there any restrictions or limitations in relation to acquiring an interest in a gas utility, or the transfer of assets forming part of the distribution network (whether directly or indirectly)?
Under the PIA, the prior written consent of the Authority is required for the assignment or transfer of a midstream/downstream asset, licence or permit or any right or obligation arising from the licence or permit. Additionally, the direct or indirect acquisition of an interest in a gas utility, or transfer of assets forming part of the distribution network will require the approval of the FCCPC where the transaction falls within notification threshold set by the FCCPC.
8. Natural Gas Trading
8.1 Outline broadly the ownership, organisational and regulatory framework in relation to natural gas trading. Please include details of current major initiatives or policies of the Government or regulator (if any) relating to natural gas trading.
The PIA sets out the regulatory framework applicable to natural gas trading in Nigeria at each stage of the value chain. Appropriate licences must be obtained by entities looking to engage in: wholesale natural gas supply; retail trading of natural gas; distribution or supplies of natural gas; or the establishment, construction or operation of a facility for the supply or trading of natural gas. As previously noted, corporate entities incorporated in Nigeria are permitted to apply to the Authority for appropriate licences to engage in natural gas trading activities, subject to compliance with the licensing conditions. See question 7.2 in connection with authorisations that may be granted by the Authority.
Nigeria also has a regime aimed at ensuring that natural gas is delivered to the domestic market for the following strategic sectors: the power sector; the commercial sector; and gas-based industries. The PIA created a domestic gas delivery obligation that requires upstream natural gas producers to supply yearly allotted natural gas volumes to the domestic market. A domestic gas aggregator (currently the Gas Aggregation Company Nigeria Limited (“GACN”)) supports the implementation of the domestic gas delivery obligation and is responsible for implementing a natural gas management model through which the demand and supply of natural gas for use in the strategic sectors are monitored.
8.2 What range of natural gas commodities can be traded? For example, can only “bundled” products (i.e., the natural gas commodity and the distribution thereof) be traded?
There are no limits on the range of natural gas commodities that can be traded.
9. Liquefied Natural Gas
9.1 Outline broadly the ownership, organisational and regulatory framework in relation to LNG facilities.
The PIA sets out the regulatory framework applicable to LNG facilities. Appropriate licences must be obtained by entities looking to engage in the establishment, construction or operation of an LNG plant for the processing of LNG.
A significant volume of LNG is produced for export by NLNG, a joint venture entity established by the NNPC, Shell, TotalEnergies and Eni with six liquefaction units producing 22 million metric tpy at Bonny Island in Rivers State. In 2020, NLNG signed a financing package for the construction of the seventh LNG train. Private entities such as Axxela Limited and Greenville Oil and Gas Company supply LNG to the domestic market.
9.2 What governmental authorisations are required to construct and operate LNG facilities?
The Authority is empowered to issue licences and permits required for the construction and operation of LNG facilities. See questions 3.11, 6.2 and 7.2 in relation to relevant governmental authorisations that may be issued by the Authority.
9.3 Is there any regulation of the price or terms of service in the LNG sector?
The price of LNG supplied to the domestic market is not
regulated as parties are free to contract on a market-based
seller-willing-buyer arrangement. However, the feedstock gas sold to the LNG plant is subject to the export parity price, which is the average prior-year price of total gas sold by gas producers to the NLNG.
9.4 Outline any third-party access regime/rights in respect of LNG facilities.
See question 6.6 above on third-party regime/rights.
10. Downstream Oil
10.1 Outline broadly the regulatory framework in relation to the downstream oil sector.
Similar to other activities in the Nigerian petroleum industry, the PIA is the primary legislation that regulates the downstream oil sector in Nigeria. With respect to downstream oil sector activities, the PIA provides for the requirement to obtain a licence from the Authority in respect of the following activities/operations, among others:
- the construction or operation of any facility for the distribution or sale of petroleum products to retail customers;
- the establishment, construction or operation of a depot for the storage of petroleum products; or
- the undertaking distribution, marketing or retail trading of petroleum products.
Where there are petroleum product shortfalls in Nigeria, a licence to import any product shortfall may be assigned to companies with active local refining licences or proven track records of international crude oil and petroleum products trading.
The PIA also provides a framework for the grant of a crude oil refining licence. A crude oil refining licence is granted by the Minister on the recommendation of the Authority and the holder of the licence is permitted to procure, construct, install and operate facilities to process crude oil into derivative chemicals and petroleum products and sell such chemicals and products.
10.2 Outline broadly the ownership, organisation and regulatory framework in relation to oil trading.
The PIA sets out the regulatory framework applicable to oil trading in Nigeria at each stage of the value chain. Holders of a Wholesale Petroleum Liquids Supply Licence issued by the Authority can sell and deliver petroleum liquids to bulk customers in Nigeria or for export to foreign entities. Generally, the NNPC is vested with the responsibility of selling the Government's crude oil entitlements in an open and transparent manner.
11.1 Which governmental authority or authorities are responsible for the regulation of competition aspects, or anti-competitive practices, in the oil and natural gas sector?
The regulatory authority primarily responsible for competition aspects and the prevention of anti-competitive practices is the FCCPC. The FCCPC is a Federal Government agency that was established under the Federal Competition and Consumer Protection Act of 2018 (“FCCPA”) to promote and protect fair competition, consumer protection, and economic efficiency in Nigeria.
In addition to the FCCPC, the PIA grants the Authority the power and responsibility of regulating and preventing anti-competitive behaviour in the midstream and downstream oil and gas sector. The PIA, however, subjects this regulatory power of the Authority to the powers of the FCCPC derived from the FCCPA.
11.2 To what criteria does the regulator have regard in determining whether conduct is anti-competitive?
In determining whether conduct is anti-competitive, the FCCPC may consider a variety of factors, including the market power of the companies involved, the impact of the conduct on competition in the relevant market, and the effect on consumers. Some specific examples of conduct that may be considered anti-competitive include:
- Cartel conduct: This refers to agreements between companies to fix prices, divide markets, or restrict output, in order to limit competition and increase profits.
- Abuse of dominant market position: This refers to the use of a company's dominant market position to engage in conduct that is likely to have an adverse effect on competition, such as engaging in predatory pricing or imposing exclusivity agreements on customers.
- Exclusionary conduct: This refers to conduct that is designed to exclude competitors from the market, such as through the use of exclusive contracts or other tactics.
The FCCPC may also consider other factors in determining whether conduct is anti-competitive, such as the nature and extent of the conduct, the duration of the conduct, and any public interest considerations. In making its determination, the FCCPC may consider relevant laws, regulations, and guidelines, as well as any guidance or precedent set by other competition authorities or courts.
The PIA also sets out criteria to be considered by the Authority in determining whether conduct is anti-competitive with respect to midstream and downstream petroleum operations.
11.3 What power or authority does the regulator have to preclude or take action in relation to anti-competitive practices?
The FCCPC has a range of powers and authority to take action in relation to anti-competitive practices. Under the FCCPA, the FCCPC is empowered to investigate and take enforcement action against companies that engage in anti-competitive conduct, including conduct that is likely to have an adverse effect on competition.
Some specific powers and authority that the FCCPC has in relation to anti-competitive practices include the following:
- the power to conduct investigations;
- the power to impose penalties;
- the power to order divestiture or dissolution; and
- the power to issue cease and desist orders.
In addition to these powers, the FCCPC also has the authority to seek the assistance of other agencies, such as the Nigerian Police Force, in enforcing its orders and decisions. It can also refer cases to the courts for further action.
On its part, the PIA confers the Authority with the following powers to take the following steps in connection with the prevention of anti-competitive practices:
- issue “cease and desist” orders;
- require and compel the disclosure of information from licensees;
- undertake inquiries and investigations; and
- levy fines.
11.4 Does the regulator (or any other Government authority) have the power to approve/disapprove mergers or other changes in control over businesses in the oil and natural gas sector, or proposed acquisitions of development assets, transportation or associated infrastructure or distribution assets? If so, what criteria and procedures are applied? How long does it typically take to obtain a decision approving or disapproving the transaction?
The FCCPC has the authority to review “mergers” – which the FCCPA has defined to mean “when one or more undertakings, directly and indirectly, acquire or establish direct or indirect control over the whole or part of the business of another undertaking”. The parties to a merger are mandated to notify the FCCPC if the contemplated merger falls within a notification threshold. Regulation 1.1 of the FCCPC Notice of Threshold for Merger Notification issued pursuant to the FCCPA states that the notification threshold is either the combined annual turnover of the acquirer and target in, into, or from Nigeria that equals or exceeds 1 billion Naira or the annual turnover of the target undertaking in, into, or from Nigeria that equals or exceeds 500 million Naira.
The length of time it takes to obtain a decision from the FCCPC approving or disapproving a merger transaction can vary significantly depending on the specific circumstances of the case. The FCCPC has stated that small mergers are processed within 20 business days after the parties to a small merger have fulfilled the notification requirement and may be extended by a single period not exceeding 40 business days. Large mergers are processed within 60 business days after the parties to a large merger have fulfilled the notification requirement and may be extended to 120 business days.
Additionally, the prior consent of the Minister is also required to be sought and obtained where one of the parties to the merger possesses a PPL or PML. This is pursuant to the provisions of the PIA. The decision of the Minister is expected to be based on the recommendation of the Commission. The timeframe for receiving a decision from the Minister varies. However, the Commission is expected to act on any application and recommend a decision to the Minister within 60 days of receiving the application from a PPL or PML holder. The Minister is subsequently required to within a period of 60 days communicate its decision to the Commission.
Under the PIA, the prior written consent of the Authority is required for the assignment or transfer of a midstream/downstream asset, licence or permit or any right or obligation arising from the licence or permit.
12. Foreign Investment and International Obligations
12.1 Are there any special requirements or limitations on acquisitions of interests in the natural gas sector (whether development, transportation or associated infrastructure, distribution or other) by foreign companies?
Foreign companies may invest in any enterprise in Nigeria, including acquisition of interests in the Nigerian petroleum industry. However, such foreign companies are generally precluded from carrying out such business (including activities within the Nigerian petroleum industry) in Nigeria, except through a separate legal entity incorporated in Nigeria. The PIA also provides that, a licence or lease will only be granted to a company incorporated and validly existing in Nigeria under the Companies and Allied Matters Act 2020.
Furthermore, foreign companies carrying on business in Nigeria are required to be registered with the NIPC and obtain a business permit from the Federal Ministry of Interior. Generally, 100% foreign ownership of a local entity through which a foreign company carries on business is permitted. However, pursuant to the provisions of the Nigerian Oil and Gas Industry Content Development Act 2010, first consideration is required to be given to companies that have at least 51% Nigerian ownership in the award of oil blocks, oilfield licences, oil lifting licences and all projects for which contracts are to be awarded in the Nigerian oil and gas industry. Exclusive consideration is also required to be given to Nigerian indigenous service companies that demonstrate ownership of equipment, Nigerian personnel and capacity to execute such work to bid for contracts and services on land and swamp operating areas of the Nigerian petroleum industry.
12.2 To what extent is regulatory policy in respect of the oil and natural gas sector influenced or affected by international treaties or other multinational arrangements?
The regulatory policies within the Nigerian petroleum industry have historically been influenced by the petroleum-related policies of these international organisations. More notable is the production quotas requirement imposed by OPEC on Member States, which has influenced the petroleum policies in Nigeria towards ensuring that the quota is met.
International treaties that are ratified and domesticated by Nigeria also continue to regulate petroleum-related activities in Nigeria. Some of the conventions that have been ratified include the International Convention on Civil Liability for Oil Pollution Damage 1969, International Convention for the Prevention of Pollution of the Sea by Oil 1954 (as amended in 1962) (which has been incorporated under the Oil in Navigable Waters Act 1968), International Convention for the Prevention of Pollution from Ships 1973 and 1978 Protocol (Ratification and Enforcement) Act 2007 and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971.
13. Dispute Resolution
13.1 Provide a brief overview of compulsory dispute resolution procedures (statutory or otherwise) applying to the oil and natural gas sector (if any), including procedures applying in the context of disputes between the applicable Government authority/regulator and: participants in relation to oil and natural gas development; transportation pipeline and associated infrastructure owners or users in relation to the transportation, processing or storage of natural gas; downstream oil infrastructure owners or users; and distribution network owners or users in relation to the distribution/transmission of natural gas.
The general licence/lease conditions attached to a PPL/PML issued by the Commission under the PIA include a mandatory dispute resolution procedure that applies to both the Government and the PPL/PML holder. Under these licence/lease conditions, a disputing party must inform the other party in writing, stating the nature of the dispute and the remedies sought, after which the parties must pursue an amicable settlement of the dispute. However, if the parties are unable to reach an agreement within 45 days, the dispute will be settled under the Arbitration Rules of the United Nations Commission on International Trade Law (“UNCITRAL”), and such arbitration must take place at the Regional Centre for International Commercial Arbitration Lagos State or its successor entity, or at any other venue mutually agreed by the parties before a panel of three arbitrators appointed further to the UNCITRAL Arbitration Rules.
Furthermore, the Petroleum Act (which continues to apply to non-converts/holders of an Oil Mining Lease (“OML”) or Oil Prospecting Licence (“OPL”)) emphasises the use of alternative dispute resolution mechanisms to settle disputes arising in the oil and gas industry.
In addition, the PIA empowers the Authority to make regulations relating to dispute resolution and, specifically, mediate disputes in relation to third-party access to gas transportation pipelines and networks.
13.2 Is your jurisdiction a signatory to, and has it duly ratified into domestic legislation: the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards; and/or the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID”)?
Yes. Nigeria is a party to the New York Convention. It acceded to the Convention on 17 March 1970, and the Convention came into force in Nigeria on 15 June 1970. The Convention, however, will only apply based on reciprocity to the recognition and enforcement of awards made only in the territory of a State party to the Convention and to contractual or non-contractual disputes arising from legal relationships that are considered commercial under the laws of the Federal Republic of Nigeria.
Nigeria is also a party to the International Centre for Settlement of Investment Disputes Convention and consequently enacted the International Centre for Settlement of Investments Disputes (Enforcement of Awards) Act in November 1967 (the “ICSID Act”). The ICSID Act provides that if the award duly certified by the Secretary-General of ICSID is filed in the Nigerian Supreme Court by the party seeking its recognition for enforcement in Nigeria, the award shall for all purposes have the effect as an award contained in a final judgment of the Supreme Court and be enforceable accordingly.
13.3 Is there any special difficulty (whether as a matter of law or practice) in litigating, or seeking to enforce judgments or awards, against Government authorities or State organs (including any immunity)?
Enforcing monetary judgments in Nigeria through garnishee proceedings against a Federal or State government authority whose funds are lodged with the CBN due to the Treasury Single Account Policy presents a special difficulty. This is more so given the provisions of the Sheriffs and Civil Process Act, which requires a litigant or judgment creditor to secure the consent of the Attorney General of the Federation or State (“AG”) for the enforcement of a monetary judgment where the money sought to be enforced is held by a government agency, i.e., the CBN. Notably, the consent of the AG is hardly ever granted in practice. Therefore, judgment creditors are faced with a great difficulty in enforcing the judgment. Importantly, it is worth noting that enforcement proceedings must be commenced within 12 months from the date of delivery of judgment, or delivery of the last judgment where there have been appeals.
Furthermore, other limitations in commencing legal actions against public officers in Nigeria include a one-month pre-action notice requirement and a three-month limitation period for instituting such legal action with limited exceptions, including breach of contract, the establishment of bad faith and/or abuse of office against such public officer.
Regarding immunity, certain assets belonging to the Government are immune to any award or judgment enforcement actions. For instance, the present or future premises of its diplomatic missions and its consular missions, assets of the CBN, assets of the Nigeria Sovereign Investment Authority and any other property or assets of Nigeria located in Nigeria and used solely to discharge government functions of the Government, and the military property or military assets of the Government, are all immune to any sort of enforcement actions against Nigeria.
13.4 Have there been instances in the oil and natural gas sector when foreign corporations have successfully obtained judgments or awards against Government authorities or State organs pursuant to litigation before domestic courts?
Yes, there have been instances where foreign corporations have successfully obtained judgment before a court against the Government or a State actor. For instance, in the case of Korea National Oil Corporation v. Owel Petroleum Services Nigeria Limited (2018) 2 NWLR (pt. 1604) 394, Korea National Oil Corporation was able to successfully challenge an unlawful revocation of its oil asset (OPL 321 and 323) after a purported revocation and reallocation of the same to Owel Petroleum Services Nigeria Limited by the Government. Similarly, in the case between CNOOC Exploration and Production and Anor v. Nigeria National Petroleum Corporation and Federal Inland Revenue Board, the Court of Appeal heard and gave its judgment in favour of CNOOC in the matter.
14.1 Have there been any new regulatory or policy initiatives in your jurisdiction directly in response to the recent rise in global oil and gas prices (such as price caps, subsidies or a new focus on local sources of energy)?
Please see generally our response to question 3.1 on the major initiatives and policies from the Government in relation to the oil industry. Specifically in relation to oil price, there are no specific major regulatory or policy initiatives directed towards responding to the recent rise in global oil and gas prices. In 2022, the world saw the price of oil rise above $100/barrel. However, this did not translate into the rollout of new policy initiatives in Nigeria. Petroleum subsidies, for instance, remain consistently paid – typified by the official data from the NNPC that shows that, between January and June of 2022, an amount of 1.372 trillion Naira was paid as petroleum subsidy. This amount almost equals the amount paid by the NNPC for the whole of the year 2021 for the petroleum subsidy. It has been reported, however, that the Government would commence a phased removal of petroleum subsidy from June 2023.
Notwithstanding the foregoing, there appears to be some optimism that the gradual operationalisation of the PIA (which includes the roll-out of regulations) should put Nigeria in a position to capitalise on a positive rise in oil prices.
14.2 Please provide, in no more than 300 words, a summary of any new cases, trends and developments in Oil and Gas Regulation Law in your jurisdiction (other than anything already discussed above).
In the second quarter of the year 2022, the Presidential Steering Committee on the PIA and the Commission and the Authority published several draft regulations aimed at providing additional clarification/information on the intent of some key provisions of the PIA. Some of these regulations have been published in the Gazette while others are in the final stages of being published in the Gazette according to the Commission. Both the draft regulations and the regulations that have been published in the official Gazette can be found on the official website of the Commission and the Authority.
Also in the second quarter of the year 2022, the FHC, held in Abuja (the “Court”), in the case between Members of the Gbaramatu – Egbema, and Ogulagha Coastal Communities Front of Delta State (“the Plaintiff”) and Attorney General of the Federation and the National Assembly (who were the defendants), dismissed an action (with Suit No: FHC/ABJ/CS/9/2022) seeking to nullify Section 257(2) and (3) of the PIA (the “Stated Provisions”) – which provides for the exclusion of the cost of repairs of damaged facilities attributable to any act of vandalism, sabotage, or other civil unrest, from the computation of payments to the host community development trust fund. The Plaintiff had sought relief from the Court that the Stated Provisions infringe on the right to a fair hearing, citing the same as unconstitutional, and therefore null and void. The Court ruled that the Stated Provisions are very clear and unambiguous, and do not take away the constitutional rights of host communities from seeking redress from the Court.
The Authority has the duty to make regulations relating to dispute resolution. On 27 October 2022, the Authority drafted proposed regulations for disputes resolution. The regulations provide for rules for dispute resolution in the Nigerian midstream and downstream petroleum industry. The regulations also established a centre for alternative resolution of disputes including disputes relating to or in connection with the commercial, technical, and operational aspects midstream and downstream petroleum operations among licensees or permit holders, disputes emanating from trading and settlement of wholesale gas transactions and any other dispute involving companies, within or outside Nigeria, relating to midstream and downstream petroleum operations.
Originally Published by ICLG - International Comparative Legal Guide
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.