Nigeria's TotalEnergies deal marks shift to gas development

The Nigerian production-sharing agreement with TotalEnergies will be a model for future agreements, according to the oil regulator. It is the first contract based on a new law aimed at boosting the gas production of the OPEC country.

The Petroleum Industry Act of 2021, which recognised the economics of oil exploration and production, was followed by incentives from government such as tax credits for gas-only development and allowances to invest.

The agreement reached by the French energy giant and its local partner, on September 1, concerns oil and gas exploration licences granted last year in the Niger Delta Basin. These licenses cover approximately 2,000 square kilometers (772 square miles).

Gbenga Kmolafe is the head of Nigerian Upstream Petroleum Regulatory Commission.

Komolafe stated that all new deepwater production sharing contracts and frontier acreage contracts would likely adopt similar terms for gas and set a model contract dedicated to gas development.

Africa's biggest oil producer wants to increase the proportion of gas in its mix, both as an economic factor and to transition to cleaner energy.

In July, Nigeria's daily output of gas was 1,31 million BOE, compared to 1.86 million BOE for crude oil and condensates. The estimated 210.5 trillion cubic feet of proven reserves is comparable to crude oil reserves and highlights the potential in the gas sector.

In the past, however, regulatory and infrastructure gaps have hindered gas development and the country continues a large amount of gas to be flared. The flaring rate in July was still higher than 7%, even though it had dropped to a low of three years.

Analysts remain cautious, even though officials are confident that the new framework will lead to more deals and investments. The real challenge is in the details of cost recovery. This includes the timing, scope and administrative process, said Ayodele ONI, a Lagos energy lawyer at Bloomfield Law Firm.

Mikolaj JUDSON, an analyst at Control Risk, said that in order for the new incentives be meaningful, broader reforms are needed in the sector, where in the past, infrastructure shortages and inadequate regulation discouraged investment. In a note, he warned that "investors would continue to face different risks when developing gas projects".

(source: Reuters)