NATURAL GAS UTILISATION AND ELECTRICITY IN NIGERIA & THE EUROPEAN

UNION: EXAMINING THE LEGAL AND REGULATORY FRAMEWORKS

Tade Oyewunmi

Doctoral Researcher

Centre for Climate Change, Energy and Environmental Law, University of Eastern Finland,

Joensuu, Finland

+358466341712, oyetade.oyewunmi@uef.fi

Introduction

Examining the legal and regulatory framework

for natural gas utilisation in electricity markets in

Nigeria and the European Union (focus on UK

and Germany).

Instrumental regulation- laws, regulations

and institutions are not ends in themselves, but

a means to attaining defined policy and

economic objectives

Effective and efficient institutions required

to-

curb market opportunism and uncertainties

Support and incentivize sound investments

Liberlised markets depend on effective

institutions and organisations for functionality

and equilibrum.

EU Gas and Electricity: Trends, Outlook, Regulation

Examining the regulatory models

The three central energy policy objectives

A growing paradigm shift from competition and

liberalisation to broader goals like environmental

protection, consumer protection and security of supply

A parallel development of Internal energy market

(IEM) integration/liberalisation regulations and pro-

renewables and climate change regulations

Common rules for internal electricity and gas markets-

Directive 96/92/EC (electricity); Directive 98/30/EC

(gas); Directive 2003/54/EC (electricity); Directive

2003/55/EC (gas).

Third Energy Package- Directive 2009/72/EC

(electricity); Directive 2009/73/EC (gas); Regulation

(EC) No 714/2009 (network access/cross-border

electricity exchanges); Regulation (EC) No 715/2009

(natural gas transmission networks access); Regulation

(EC) No 713/2009 (Agency for the Cooperation of

Energy Regulators (ACER)).

Regulation 1227/2011/EU (Wholesale market integrity

and transparency); Regulation 994/2010/EU (Gas

security of supply)

2001 – 2009 EC Decisions/Directives on renewable

energy use, GHG emissions reduction, 20-20-20

targets, Climate Change National Action Plans and

Emission Trading Scheme

Nigerian Gas and Electricity: Trends, Outlook, Regulation

Gas & Power sector objectives- privatisation and

liberalisation to enhance economic growth.

Electricity sector’s reform on a steady path (2001

– 2014)

• National Electric Power Policy, 2001

• Electric Power Sector Reform Act, 2005

• Commercialisation, unbundling &

privatisation state-owned vertically integrated

monopoly- NEPA – PHCN – 6 generation

companies/11 Distribution companies

• Nigerian Electricity Regulatory Commission

(NERC)- semi-independent regulator.

Prolonged oil and gas industry reforms and

uncertainties.

Inefficient regulatory framework on gas.

Commercial solutions- World bank

PRGs/PRIs???

Conclusion

Good regulatory framework must be- legitimate;

accountable; provide fair, accessible and open

procedures; institutional capacities and efficiency; above

all instrumental to attaining defined economic and policy

objectives.

Traditional energy regulatory models, liberalisation and

privatisation are not ends in themselves but must be seen

as a means to an end i.e. economic & policy objectives

Drive towards privatisation liberalisation and commercialisation of gas and electricity markets

Unbundling vertically integrated utilities, Third Party Access, competition and competitiveness, independent regulators

Concerns on environmental protection, consumer protection, transparency, deregulation vs over-regulation, optimal market contracts and arrangements

Industrialisation economic

growth, sound investments

Defined policies + effective

regulation

Sustainable Gas supply

Reliable electricity

Sustainable energy market

Competitiveness

Sustainability Security of

supply

IEM Liberalisation & Integration

• Competition, unbundling, third party access

• Market led orientation vs. increase state intervention

• Independent regulators and consumer protection

Recent trends and outlook

• Environmental protection vs. competitiveness

• subsidisation of renewables vs. more regulations for gas utilisation

• North American shale gas boom/international gas market dynamics

• Reduction in gas-fired power plants profit margins

• Shutdown of gas-fired generation

• Capacity remuneration mechanisms debate- UK Energy Act 2013- capacity payments to guarantee future supplies; contract for difference

Main Observations

• Minister of Petroleum (Minister)/Ministry of Petroleum Resources (MPR)

• Department of Petroleum Resources (DPR)

• Nigerian National Petroleum Corporation (NNPC)

Institutions and

Administration

•NGC Limited

•NNPC’s Joint Ventures

•Other upstream companies with Gas reserves

•Nigerian Liquefied Natural Gas Limited (NLNG)

•West African Gas Pipeline Co. Ltd

•Local gas distribution companies

Gas Sector Operators

• The Petroleum Act, 1969

• The Petroleum (Drilling and Production) Regulations 1969

• Oil pipelines Act 1956

• National Oil and Gas Policy, 2004

• Nigerian Gas Master Plan, 2008

• National Domestic Gas Supply and Pricing Policy 2008- National Domestic Gas Supply and Pricing Regulations 2008

• The Petroleum Industry Bill, 2008 - 2012

Regulatory framework

Nigerian Gas Industry Trends

• Largest proven gas reserves in Africa and the 9th largest in the world

• a disequilibrium between the power sector and the emerging domestic gas market

• restricted by the lack of infrastructure to monetize gas that is currently flared

• Flares more gas than supplied as fuel and through the Nigerian Gas Company (NGC) NNPC’s subsidiary responsible for gas transmission, distribution and marketing.

• NGC Limited to be re-registered as ‘PLC’ under PIB 2012 rather than unbundled

Nigerian Electricity Supply Industry (NESI) Trends

• Privatization of PHCN successor companies concluded- 6 power generation (Gencos) and 11 power distribution (Discos).

• power generation falls short of demand= load shedding, blackouts, and a reliance on private generators.

• Peak Demand Forecast- 12,800.00 MW (Presidential Task Force)

• National Peak Generation – 3,158.50MW as at 04/04/2014 (NERC)

• 4 out of the 6 Gencos are gas-fired thermal power producers. The National Integrated Power Project (NIPP) is based on gas-fired generation.

• Gas-fired power generation projections- over 20,000 MW by 2020 and contribute over 75% of national grid capacity.

Efficient institutions and energy markets

Certainty, responsiveness

and instrumentality

of laws and regulations

Vertical-integration unbundling Privatisation Liberalisation

Altering institutional settings affects sectoral performance

and productivity positively or negatively.

EU- emergence of stronger institutions; detailed laws,

regulations and policies; risk of countervailing policies and

regulations vs decision-making; market-led developments vs

more state intervention; strained profitability and

sustainability for gas-fired utilities; vulnerability to

international gas market dynamics

Nigeria- inability of NNPC to fund its majority share of JV

capital expenditure; ineffectiveness of anti-gas flaring

regulations; institutional and regulatory inadequacies and

‘opportunism’ by operators; uncertainties and opaque

framework; NNPC/NGC being directly or indirectly both the

regulator and the regulated; unbundling or re-registration of

NGC and capacity to raise finance post-reform, some

international finance solutions.