The volume of natural gas produced from the nation’s deepwater oilfields has hit its lowest level in at least five years, an analysis of data obtained from the Nigerian National Petroleum Corporation has shown.
The deepwater gas production plunged in April this year to 41.65 billion cubic feet (1.44 billion standard cubic feet per day) amid the coronavirus-induced collapse in crude oil prices and demand, from 45.38 Bcf (1.56 billion scfd) in March.
The recent collapse in crude oil prices added to pressure on Liquefied Natural Gas prices, some of which are linked to oil.
The demand for Nigeria’s LNG cargoes in Europe, one of the country’s key markets, tumbled as buyers defer red deliveries amid the lockdown introduced by many economies.
The Group Managing Director, Nigerian National Petroleum Corporation, Mele Kyari, said in March that over 12 LNG cargoes were stranded in the market globally, for the first time ever.
The nation’s oil and gas production structure is majorly split between Joint Ventures (onshore and in shallow waters) and Production Sharing Contracts in deepwater offshore, to which many international oil companies have shifted their focus in recent years.
Deepwater PSCs currently account for about 40 per cent of Nigeria’s oil production, rising from zero in 2004 to about 780,000 barrels of oil equivalent per day, according to Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry.
The deepwater oilfields account for about 22 per cent of the total gas production in the country, the NNPC data showed.
Under the PSCs, the NNPC is the oil licence holder but engages oil firms as contractors that bear all risks and recover costs through a share of production at a tax rate of 50 per cent.
The NNPC said a total of 226.51 Bcf of natural gas was produced in April, translating to an average daily production of 7.79 billion scfd.
It said, “For the period April 2019 to April 2020, a total of 3,082.91 Bcf of gas was produced, representing an average daily production of 7,857.18 million scfd during the period.
“Period-to-date production from Joint Ventures, Production Sharing Contracts and NPDC contributed about 69.57 per cent, 21.46 per cent and 8.97 per cent respectively to the total national gas production.”
Nigeria has the largest gas reserves in Africa and the ninth largest in the world but only about 25 per cent of the reserves is being produced or under development.
The country’s total gas reserves stood at 203.16 trillion cubic feet as of January 1, 2020, up from 202Tcf in 2019, according to the Department of Petroleum Resources.
In November last year, the President, Major General Muhammadu Buhari (retd.), assented to the Deep Offshore and Inland Basin Production Sharing Contract (Amendment) Act, 2019 following its passage by the National Assembly in October 2019.
The Amendment Act introduces a combined production and price-based royalty system to replace the existing production-based royalty system, which varies according to areas of operations.
The new royalty regime specifies a baseline royalty of 10 per cent for crude oil and condensates produced in the deep offshore (greater than 200-meter water depth) and 7.5 per cent for the frontier and inland basin.
In addition to the baseline royalty, a royalty based on the applicable price of crude oil, condensate and natural gas will apply, but only when the price exceeds $20 per barrel.