Nigeria is looking to accelerate the development of its $257 billion non-associated gas (NAG) fields through tax credits, according to the Nigeria Tax Bill 2024.
With an estimated 106.67 trillion cubic feet (Tcf) of NAG, accounting for 51 percent of the country’s total gas reserves, the proposed tax incentives under the Nigeria Tax Bill 2024 could spur investment and fast-track the development of these fields. By offering tax credits of up to $1.00 per thousand cubic feet for qualifying fields, the government aims to incentivise gas projects, particularly in onshore and shallow water terrains, where infrastructure challenges have slowed production.
Nigeria has the ninth-largest gas reserves in the world, estimated at around 209.26 trillion standard cubic feet (Tcf), according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC). With the base price of gas in Nigeria set at about $2.42 per million British thermal units(MBTU), or $2,414 per million standard cubic feet (MMscf), these NAG reserves are valued at approximately $257 billion.
The bill, which is currently before the House of Representatives, proposes a tax credit of between $1.00 and $0.50 per thousand cubic feet of gas produced from non-associated gas fields. This initiative aligns with the Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc.) Executive Order signed by President Tinubu in February 2024.
Non-associated gas refers to natural gas found in underground reservoirs without the presence of crude oil. It is extracted directly from these gas fields, unlike associated gas, which is produced alongside crude oil. At present, a significant portion of Nigeria’s feed gas for processing comes from associated gas, highlighting the need to unlock more NAG reserves.
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According to the bill, tax credits for non-associated gas fields are determined based on their hydrocarbon liquid content. Fields with 30 barrels of hydrocarbon liquids or less per million standard cubic feet (MMscf) qualify for a tax credit of $1.00 per thousand cubic feet or 30 percent of the fiscal gas price, whichever is lower. Meanwhile, fields with hydrocarbon liquids between 30 and 100 barrels per MMscf can receive $0.50 per thousand cubic feet or 30 percent of the fiscal gas price, whichever is lower. NAG fields that produce more than 100 barrels of hydrocarbon liquids per MMscf of gas are excluded from the tax credit.
A key provision in the bill is that these tax credits are only applicable to onshore and shallow water NAG developments. The incentives apply to projects achieving first commercial gas production from the enactment of the Act until January 1, 2029. Additionally, the gas tax credit will be valid for only 10 years, starting from the date of first gas production.
Despite making up the majority of gas reserves, non-associated gas accounts for just 39 percent of Nigeria’s daily gas production. According to NUPRC’s annual report for 2023, Nigeria had an average daily production volume of 2.644 billion standard cubic feet (Bcf), compared to associated gas volumes of 4.213 Bcf per day.
The tax credit regime is already operational under the executive order signed in February 2024. Based on available data, Shell Petroleum Development Company (SPDC) is the major beneficiary of these tax credits, being Nigeria’s largest producer of non-associated gas. However, upon completion of SPDC’s acquisition, Renaissance Consortium will inherit this advantage.
According to a BusinessDay report, Shell’s divested assets contain approximately 56.27 Tcf of associated and non-associated gas, representing 27% of Nigeria’s total gas reserves. In 2023, Shell produced about 281.4 Bcf of non-associated gas, primarily from its onshore assets, including 37 gas wells in the Soku and Iseni gas fields.
The Soku conventional gas field, located in OML 23 near Port Harcourt, has been a major supplier of feed gas to NLNG since its commencement in 1999. Meanwhile, the Iseni gas field in OML 35, Bayelsa State, is set to supply gas to the Dangote Fertiliser and Petrochemical Plant once an upstream facility is fully developed.
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A key challenge for Renaissance Consortium in benefiting from the tax credit is the hydrocarbon liquid content of the Soku gas field. In 2023, SPDC reported an increase in oil output to 290,000 barrels of oil equivalent per day (boepd) from 267,000 boepd in 2022, largely due to increased liquids evacuation from Soku. This indicates that the field may not be as ‘dry’ as previously thought, potentially affecting its eligibility for tax credits.
The second-largest producer of non-associated gas in 2023 was NNPC E&P Limited (NEPL), which produced 152.3 bcf, largely from its joint venture with Sterling Oil E&P in OML 143. Chevron also contributed significantly, producing 123.8 bcf of NAG, though primarily from offshore assets.
Seplat, another key non-associated gas developer, holds a 20 percent stake in the Assa North-Ohaji South (ANOH) gas field, located in OMLs 21 and 53. The ANOH project is operated by SPDC, which owns a 15 percent share. Seplat also produces non-associated gas from OML 41 in Warri, Delta State, contributing approximately 84.6 bcf in 2023.
As Nigeria grapples with persistent electricity shortages, these NAG fields present an opportunity to bolster the country’s gas-fired power generation. Furthermore, they position Nigeria to expand its liquefied natural gas (LNG) exports, particularly as Europe seeks alternatives to Russian gas. In 2024, Nigeria exported approximately 2.4 bcf of gas daily, totalling around 880 bcf for the year. While this marks a notable increase from previous years, it remains significantly lower than Norway’s 4.13 tcf of pipeline gas exports in 2024.
To fully capitalise on the vast potential of Nigeria’s gas reserves, it is imperative for the government to address infrastructure bottlenecks, enhance regulatory clarity, and create an investment-friendly environment.
A GIS report authored by Carole Nakhle, founder and CEO of Crystol Energy, an advisory, research and training firm based in London, said “strategic policy reforms and investments in gas can enable a return to growth.”
“Nigeria risks falling behind without proactive exploitation of its reserves. Declining oil production impairs the nation’s extraction-dependent economy. Natural gas offers a transformative opportunity as global markets seek cleaner alternatives to oil,” the report further said.
Olakunle Williams, CEO, Tetracore Energy Group, said in a keynote address at the recent Nigeria Energy Conference that “Nigeria’s gas reserves are vast and underutilised, representing one of the greatest untapped assets in the global energy market.”
Williams emphasised the urgent need for a strategic pivot in Nigeria’s energy landscape, noting that the natural gas is not just an alternative but the backbone of Nigeria’s energy future.
He highlighted the country’s estimated 290 trillion cubic feet of untapped reserves. “We stand at a critical juncture, with the power to leverage these resources to drive unprecedented economic growth and ensure long-term energy security for our nation.”
