It is no longer news that Nigeria is currently trying to close its gas export gap. This gap has become more apparent due to a number of factors, including the sanctions on Russia (who has been a dominant worldwide exporter), which has resulted in Europe sourcing gas from alternative countries. Other factors that have led to the Nigerian gas export gap include lack of infrastructure and funding constraint.
The Nigerian National Petroleum Company Limited ("NNPC") recently disclosed its interest in investing in the ambitious Nigeria-Morocco Gas Pipeline ("NMGP") project to address this issue. Mele Kyari, the Director/Chief Executive Officer of the NNPC, disclosed that the investment decision will be taken in 20231. The NMGP could very well be the world's longest offshore gas pipeline running from Nigeria to Morocco, thereby relieving Europe from its dependency on Russia for gas2. It is expected that the NMGP project will be carried out in phases, with the first phase projected to take 3 (three) years to complete and the other phases, to take 5 (five) years. The NMGP is expected to run for 5,600 kilometers, passing through 13 (thirteen) African countries before connecting with pipelines and potentially delivering gas to Europe and is estimated to cost between US$20 billion and US$25 billion to develop3.
The NNPC's disclosure of the NMGP project's estimated cost suggests that discussions with key project finance stakeholders (such as lenders and EPC contractors) relating to its bankability and financing have progressed. Tying up agreements on the project financing aspects of the NMGP project will be key to achieving the goal of the NNPC. It is worth noting that the NNPC deployed a similar collaboration, specifically in relation to the 614km long Ajaokuta-Kaduna-Kano pipeline project (commonly referred to as the "AKK Project")4. Notwithstanding that the NGMP project is almost 10 times longer than the AKK Project, it is expected that a similar financing structure will be utilized.
The announcement by the NNPC spells exciting times ahead for the Nigerian oil and gas industry. However, as should be expected, the practicability of the proposed timeline by the NNPC may be tested by various factors, including infrastructure failures, particularly due to the international nature of the NMGP project.
It is anticipated that with the growing investments in natural gas infrastructure to increase Nigeria's gas export, investors will take advantage of the gas fiscal incentives under the Petroleum Industry Act, which provides for up to 10-year gas tax holiday. Companies engaged in domestic midstream petroleum operations, downstream gas operations and large-scale gas utilisation industries5 are entitled to benefit from the incentives provided under section 39 of the Companies Income Tax Act, and investors in gas pipeline will be granted an additional tax-free period of five years at the expiration of the tax-free period granted in section 39 of the Companies Income Tax Act6.
Footnotes
1 Nigeria's $25 Billion Gas Line May Get Investment Approval Next Year, Says NNPC - Bloomberg
2 The World's Longest Offshore Gas Pipeline Could Get The Green Light Next Year | OilPrice.com
3 NNPC: Nigeria to Take Final Investment Decision on $25bn Gas Pipeline Next Year – THISDAYLIVE
4 The AKK Project is expected to promote and increase the consumption of domestic gas in Nigeria, as well as strengthen the industrial sector within the country's eastern and northern regions
5 Large-scale gas utilisation industries means large-scale industries that use natural gas as a feedstock such as gas-to-liquid plants, petrochemical industries and fertiliser plants; and mini-LNG plants, power plants and such other industries as may be defined in regulations.
6 Section 302 (6) of the Petroleum Industry Act, 2021
Originally Published 28 October 2022
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