Nigerian Gas Sector Watch

Volume 2
KPMG in Nigeria

October 2020

This publication provides information on developments in the Nigerian Gas Sector space during the two quarters
ended September 2020. It also features a review of the Framework for the National Gas Expansion Programme
which was released by the Central Bank of Nigeria (CBN) on 4 September 2020. We hope you find the information
and insights in the publication useful.

Introduction Commercialisation Programme (NGFCP)) would lead

to improved gas supply to power, growth of gas-based
The Federal Government of Nigeria (FGN) declared 2020 industries, domestic Liquified Natural Gas, Compressed
as the year of gas. Following the declaration, the FGN has Natural Gas (CNG) and Liquefied Petroleum Gas (LPG)
continued to make concerted efforts through the Ministry of penetration, to enhance Government’s revenue from the
Petroleum Resources (MoPR), Ministry of Finance and the gas sub-sector.
CBN to improve its commitment towards significant flared
gas reduction and driving gas utilization for domestic and One of the objectives of the NGTNC is to unleash the
industrial usage. Below are some of the useful information potentials of accelerated growth to stimulate investment
and status of the various initiatives around gas, being opportunities and national economic development. Thus,
pursued by the government. for ease of operationalization of the NGTNC, the DPR
has established a Network Code Electronic Licensing
and Administration System (NCELAS) portal to process
1. Nigeria’s Proven Gas Reserves all licenses required for operating gas transportation
According to the Department of Petroleum Resources arrangements and administration of all regulatory roles,
(DPR), the country’s proven gas reserves has increased required for the optimal performance of the Network
by 0.57% from 202tcf recorded in January 2019 to Code. The DPR has also commenced the issuance of
203.16tcf as at June 2020. This pronouncement by the license to gas transporters, shippers and agents, via
DPR puts to rest the controversies around the figures the network code, and the migration of existing gas
being put out in the public space by stakeholders in transportation agreements into the network code regime
the industry. The DPR is also set to achieve a proven has begun1.
reserves target of 210tcf by 2025 and 220tcf by 2030. Despite the challenges posed by the COVID-19 Pandemic,
The above figures only serve to validate Nigeria as a the traction achieved by the FGN in implementing some
gas province with some oil reserves. Nonetheless, the of the policies introduced for the sector in 2020 (dubbed
FGN should continue to drive the implementation of the as the “year of gas”), has made stakeholders become
various policies that are geared towards revitalizing the more optimistic that the FGN is dedicated to stimulating
gas sub-sector, to enable the country benefit from the the necessary investments in the sub-sector.
monetization of this vast resource.

3. The National Gas Expansion Programme (NGEP)

2. Nigeria Gas Transportation Network Code (NGTNC) –
Go Live The challenges bedeviling the domestic gas subsector,
particularly, the absence of a clearly defined framework,
Following the launch of the NGTNC to deepen the have continued to constrain investment in the sub-sector,
growth of domestic gas market which became effective culminating into the low level of production and utilization
in February 2020, the FGN virtually flagged off the of gas, as a clean alternative source of domestic energy
operationalization of the NGTNC in August 2020. This in Nigeria. Thus, in a bid to steer the gas subsector for
was in line with the FGN’s 2020 strategy to drive key optimal performance and increased utilization of Nigeria’s
policies and regulatory initiatives that would enhance vast gas resources, the FGN launched and subsequently
gas reserves growth to support domestic and export inaugurated the NGEP committee in January 2020.
projects. The Minister of State for Petroleum Resources
(the Minister) highlighted during the virtual Go - Live
that the implementation of the NGTNC and other
related interventions by the FGN (i.e. National Gas 1
https://www.dpr.gov.ng/dpr-to-fast-track-integration-of-
Expansion Programme (NGEP) and the Nigerian Gas Flare domestic-gas-market-hubs-into-ngtnc/

© 2020 KPMG Advisory Services, a Nigerian member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
 The mandate of the Committee is to reinforce and gas is generally considered as a cheaper, cleaner and
expand domestic gas supply and stimulate demand more-environmentally friendly alternative to petroleum
through effective and efficient mobilization and utilization motor spirit (PMS), dual purpose kerosene (DPK) and
of available gas assets, resources and infrastructure in automotive gas oil (AGO). Given that most automobiles
the country. The Committee is also expected to come up in Nigeria are not configured to run on Autogas,
with strategies to reform and implement a market-based the government plans to collaborate with various
and cost-effective gas distribution. stakeholders on the most efficient way to reduce the cost
burden of converting existing vehicles to run on Autogas.
It is expected that through the effective implementation Nonetheless, the NGEP committee has been charged
of the NGEP, CNG and LPG would become the fuels of with the mandate to reinforce and expand domestic gas
choice for transportation, domestic usage, and captive supply to stimulate demand through an efficient and
power generation. This is especially so given that effective mobilization and utilization of all available assets,
CNG and LPG are more environmentally friendly than resources and infrastructures in the country.
other heavier hydrocarbons - thus a critical component
of sustainable energy generation and, by extension, The collocation of LPG and CNG modular plants at
development of industrial clusters. fuel stations would increase LPG penetration and
accessibility. However, the real issue would be apathy of
people towards change – from PMS to LPG/Autogas and
4. Adoption of LPG Cylinder Recirculation Model to CNG as the alternative sources of transportation fuel. In
increase LPG penetration addition, there are already heightened safety concerns on
The FGN has reiterated its objective of achieving 5 the adoption of LPG as domestic fuel, given our safety
million metric tonnes (MT) annual consumption of LPG records as a country in general. In response, the DPR has
by 20222. In order to achieve this objective within the approved the deployment of skid-mounted modularized/
defined timeline, the FGN has indicated its commitment containerized LPG/Autogas handling systems and other
towards adopting the Cylinder Recirculation Model intrinsically safe systems for gas storage and handling, to
(CRM) to increase LPG penetration in Nigeria. Under promote affordability, accessibility and availability of the
the CRM model, cylinders will be delivered and retrieved products.
by the marketers who will also be responsible for the
maintenance and refurbishment of the cylinders, thus 6. FGN Steps up Sale of Gas Assets
making LPG accessible to a whole new segment of non-
LPG users, at the least possible cost. The FGN, through the DPR, has announced its plan to
commercialize 96 gas flare points in a bid to generate
The CRM is a paradigm shift from the current Consumer additional revenue and expand the domestic consumption
Cylinder Owned Model, where LPG consumers purchase of gas. The commercialization of the flare sites has a dual
and own the cylinders, and refill the gas when necessary. purpose of reducing gas flaring in line with the NGFCP
Expectedly, CRM will eliminate the consumers’ up-front and expand gas utilization based on the NGEP. During the
purchase of LPG cylinders which in some cases are first quarter of 2020, about 200 Companies had indicated
substandard, thus replacing it with a cylinder exchange, interest in taking over 45 out of the 178 gas flaring sites
whereby the consumer only pays for the content and not in the country. However, investors were unable to access
the cylinder. the flare sites due to COVID-19 curtailment measures. It
is expected that the sites would be visited and allocated
The model is inherently capable of significantly lowering as soon as normalcy returns to the public health space.
the bulk cost of switching from other sources of fuel to
LPG, improving the safety of recirculated cylinder, and As part of the DPR’s efforts to monitor and monetize flare
increasing the distribution of LPG to remote locations for gas, it has deployed fiscal meters to monitor gas quality
household usage. and monetize the gas produced, and allocation meters
to measure the utilization of the produced gas. Any gas
5. CNG as a Cheaper and Cleaner Alternative to Gasoline flared beyond an acceptable level and allowable volume
for Transportation attracts charges. The data collected by the meters are
also harnessed to determine the financial viability of the
The Nigerian National Petroleum Corporation (NNPC) flare sites.
has announced the activation of CNG refill stations for
motorists across all the 36 states and the Federal Capital Whilst the level of flare gas has remained constant at
Territory. Consequently, the DPR has commenced the 10% for about 3 years3 , it is expected that this volume
audit of fuel retail outlets with the aim of segmenting will further reduce with the commercialization program.
them into different categories. Based on the outcome of It is therefore important for the DPR to conclude the
the audit, about 9,000 retail outlets, representing 27 per process of allocating the flare sites to the interested
cent of total number of retail outlets in Nigeria were listed bidders, in order to jumpstart activities in this space
as Category 1, and identified as suitable for integration and potentially increase the amount of gas available for
of modular add-on gas dispensing plant based on robust domestic and industrial usage.
safety assessment and technical considerations by DPR.
The gases intended to be dispensed include LPG, CNG
and LNG, depending on the type of vehicle/mechanical
device. Operators of retail outlets in Categories 2 and 3,
whose facilities do not meet the minimum requirements,
or do not have sufficient land area, are encouraged to
apply for stand-alone LPG, CNG, LNG or Autogas facilities
(full-scale or modular) under an incentivized regulatory
regime.
2
https://economicconfidential.com/2020/03/nigeria-exceeds-cooking-
It is expected that the integration would promote gas gas-consumption/
as a replacement fuel for automobiles and domestic
usage, and in the long run, conserve the foreign 3
https://www.dpr.gov.ng/government-steps-up-sale-of-crude-gas-
exchange expended on imported fuels. In addition, assets-with-96-flare-sites/

© 2020 KPMG Advisory Services, a Nigerian member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
7. Framework for the Implementation of Intervention Based on the Framework, some of the eligible activities
Facility for the NGEP include:
As part of its effort to harness finance to the critical • Establishment of gas processing plants and small-
sectors of the Nigerian economy, the CBN recently scale petrochemical plants, gas cylinder manufacturing
announced a ₦250 billion intervention facility to help plants, L-CNG regasification modular systems, auto gas
stimulate investment in the gas value chain in line with conversion kits or components manufacturing plants,
the objectives of the NGEP. The Intervention Facility (or and CNG primary and secondary compression stations.
the Facility) is aimed at:
• Establishment and manufacturing of LPG retail skid
• Improving access to finance for private sector tanks and refilling equipment
investment in the domestic gas value chain;
• Development/enhancement of auto gas transportation
• Stimulating investment in the development of systems and conversion and distribution infrastructure
infrastructure to optimize the domestic gas resources
for economic development; • Enhancement of domestic cylinder production and
distribution by cylinder manufacturing plants and LPG
• Fast-tracking the adoption of CNG as fuel of choice wholesale outlets;
for transportation and power generation, as well as LPG
as the fuel of choice for domestic cooking, • Establishment/expansion of micro distribution outlets
transportation and captive power; and service centers for LPG sales, domestic cylinder
injection and exchange; and
• Fast-tracking the development of gas-based
petrochemical ventures to support large industries, • Any other mid to downstream gas value chain related
such as agriculture, textile, and related industries; activity recommended by the MoPR.

• Providing leverage for additional private sector The applicant under each category is expected to
investment in the domestic gas market; and submit its application through any PFIs or NMFB to the
CBN. Expectedly, the PFI or NMFB would carry out the
• Boosting employment creation across the country. due diligence on the application based on documents
submitted, which would include relevant endorsements
Depending on the scale of the project, businesses can and permits from the MoPR, together with the business
access the intervention funds either through the Power and credit considerations of the applicant. Afterwards,
and Airlines Intervention Fund (PAIF), the Targeted Credit the application would be forwarded to the Credit
Facility scheme operated by the Nigeria Incentive-based Committee of the CBN for approval. On its part, CBN
Risk Sharing System for Agricultural Lending (NIRSAL) would conduct an internal review of the application to
Microfinance Bank, or any other Participating Financial ensure that it complies with the guidelines, and only
Institution (PFI) under the Agribusiness/Small and applications that meet the requirement will be processed.
Medium Enterprises Investment Scheme (AgSMEIS). Thereafter, it is expected that the CBN would release
Specifically, aggregators, manufacturers, processors, the approved sum to the PFIs or NMFB according to the
wholesale distributors and related activities (Category mutually agreed disbursement schedule tied to specific
A) shall be funded under the PAIF Scheme, while the milestones. Upon release of the fund, the PFI or NMFB
SMEs and retail distributors (Category B) shall be funded would disburse the approved sum to the successful
by NIRSAL Microfinance Bank (NMFB)/ PFIs under applicants within 5 working days.
AgSMEIS.
The successful applicants or beneficiaries are expected
A quick overview of the intervention facility is provided to adhere strictly to the terms and conditions of the
below: Facility and ensure prudent utilisation of the funds for
the purpose for which it was granted. The facility is to
be repaid based on an approved repayment schedule and
beneficiaries are expected to keep updated records of
their operation and financial activities, as they would be
required to grant the PFIs / NMFB/ CBN access to the
project and records. The Intervention Facility is being
managed by the Development Finance Department of
the CBN, while all the stakeholders including the PFIs,
MoPR and the beneficiaries are required to perform
their respective responsibilities as highlighted under the
Framework.
It is imperative to note that whenever the facility is repaid
or otherwise discontinued, the PFIs / NMFB is obliged
** Interest Rate: Maximum of 5.0% p.a. (all inclusive) to return any funds with it under the Framework to the
up to 28-Feb-21, thereafter 9% p.a. (all inclusive) from CBN within three (3) working days, providing necessary
1-Mar-21 details of the Facility. Moreover, applicable sanctions as
determined by the CBN shall be pronounced in the event
*This includes a moratorium of 2 years on the principal. of an infringement.

© 2020 KPMG Advisory Services, a Nigerian member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
 Whilst the above intervention is a welcomed subsector, in addition to the initiatives discussed above.
development, some stakeholders have expressed their Nonetheless, it is important that the FGN accelerates its
reservations about the Facility, given the potential for process of allocating the gas flare sites to the successful
abuse and manipulations. For instance, the Framework bidders in order to further lower the volume of gas flared
for accessing the loan is currently subsumed under the whilst potentially increasing the amount of gas available for
PAIFs and AgSMEIS, and there are concerns on the ability domestic and industrial usage. In addition, the DPR should
of eligible applicants to access the loan under those step up its efforts on the CRM and the discussion with
two schemes. Furthermore, the acceptable collateral stakeholders on the most efficient ways of achieving the
for projects to be financed under the intervention is at desired utilization rate of Autogas as a substitute for PMS.
the discretion of the PFIs and NMFB, which may be too
stringent for the applicants to provide.
How KPMG can help

Conclusion KPMG has dedicated business units that support end-

to-end business processes. We provide a wide range of
The gas subsector has continued to receive increased services from outsourcing to transaction advisory services,
attention from all stakeholders in recent times, especially, preparation of statutory accounts, maintenance and
given the potential of the subsector to ease the forex preparation of employee payroll, monthly management
pressure associated with importing PMS for domestic reporting, statutory audit of financial statements, and tax
use. It is instructive to note that the Minister has set compliance and advisory services among others (which
up a committee to examine the domestic gas pricing include preparation and submission of statutory tax returns,
framework in a bid to stimulate additional investment in the etc.).

For feedback and enquiries, please contact:

Adewale Ajayi home.kpmg/ng
Partner and Head, TRPS ENR home.kpmg/socialmedia
T: +234 803 402 1014
E: [email protected]

Ayo Luqman Salami Download KPMG NIgeria

Partner, TRPS ENR Tax Mobile App:
T: +234 802 864 6604
E: [email protected]

Aminat Jegede
Senior Manager,TRPS ENR
T: +234 802 781 2086
E: [email protected]

© 2020 KPMG Advisory Services, a Nigerian member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.