AN OVERVIEW OF THE LEGAL AND REGULATORY FRAMEWORK OF THE

NIGERIAN GAS MARKET
INTRODUCTION
Nigeria is one of the largest and oldest producers of oil and gas in Africa. In
2019, this sector accounted for about 5.8 per cent of Nigeria’s real Gross
Domestic Product (GDP) and was responsible for 95 per cent of Nigeria’s
foreign exchange earnings and 80 per cent of its budget revenues. 1 Globally, it
ranks the ninth-largest in terms of gas reserves.
Gas has become and continues to be the fuel of choice in developed and
developing countries, allowing Nigeria to become a solid regional as well as an
international gas supplier. This industry, despite its many prospects, has faced a
myriad of challenges. The new Petroleum Industry Act (PIA) 2021 has tackled
some of the challenges and problems to reform the gas sector, however, some
questions remain unanswered.
This essay seeks to evaluate the laws, regulatory framework and risks that
inundate the Nigerian Gas Sector, as well as provide workable solutions to the
controversies surrounding it.

LEGAL FRAMEWORK OF THE NIGERIAN GAS MARKET

Apart from the Constitution of the Federal Republic of Nigeria (CFRN) 1999
which is the grundnorm, there are a plethora of laws that control the Nigerian
Gas Market, they are as follows;
1. Petroleum Industry Act (PIA) 2021: This is the principal statute that
regulates the gas industry and governs activities in the upstream,
midstream and downstream sectors. Sections 125-173 of the Petroleum
Industry Act have extensive provisions relating to the Administration of
Midstream and Downstream gas Operations, its licensing regime, rights
of way, regulation and review of prices. The Act also provides for the

1
Kasirim Nwuke,’ Nigeria’s Petroleum Industry Act: Addressing old problems, creating new ones’ (2021) <
https://www.brookings.edu/blog/africa-in-focus/2021/11/24/nigerias-petroleum-industry-act-addressing-old-
problems-creating-new-ones/>
 establishment of key regulators, incorporation of NNPC Limited and
other matters.

2. Petroleum Act 1969: This was the principal legislation prior to the
enactment of the Petroleum Industry Act. However, the Petroleum Act
will continue to exist alongside the Petroleum Industry Act, until the
termination and expiration of all permits issued under the Petroleum Act.

3. National Oil Spill Detection and Response Agency (Establishment) Act

2006: This Act establishes the National Oil Spill Detection and Response
Agency (NOSDRA), which coordinates and implements the National Oil
spill Contingency Plan (NOSCP) for Nigeria. It is the regulatory body with
the responsibility of surveillance and monitoring oil spills in Nigeria.

4. Nigerian Oil and Gas Industry Content Development Act (Local Content
Act) 2010: This Act provides a framework for promoting the participation
of Nigerians in the gas industry, and laying down the minimum
thresholds for local content utilized in the sector.

5. The Niger Delta Development Commission (Establishment) Act 2000:

This Act mandates the payment to the Commission by oil and gas
companies of 3 per cent of their annual budgets, for the development of
the Niger Delta areas where oil and gas are exploited.

6. The Oil Pipelines Act 1956: This Act makes provision for the granting of
licenses and permits for the laying and use of pipelines for the
conveyance of petroleum.
REGULATORY FRAMEWORK OF THE NIGERIAN GAS MARKET
1. Nigerian National Petroleum Corporation (NNPC): Nigerian National
Petroleum Corporation (NNPC) was founded to harness Nigeria's oil and
gas reserves for sustainable national development. The scope of
activities of the NNPC ranges from exploration, production, refining,
transportation, distribution and supply of oil and gas products.
 However, by Section 53(1) of the Petroleum Industry Act, the Nigerian
National Petroleum Company Limited shall be incorporated within six
months from commencement of the Act, that is, from 16th August 2021.
By Section 53(2) of the PIA, the Government shall subscribe to the initial
paid-up share capital of NNPC Limited. This implies that NNPC no longer
exists as an entity existing to serve any form of public interest as it is
now privatized.

2. The Ministry of Petroleum Resources: The Ministry of Petroleum

Resources has the overall duty to supervise and regulate the gas
industry. The ministry also formulates, coordinate, and implement
Federal Government policies for the gas sector.

3. Nigerian Content Development & Monitoring Board (NCDMB): The

primary duty of NCDMB is to promote local investment and participation
in the gas sector. It registers and monitors companies participating in the
upstream sector, to ensure that the company has the requisite
indigenous participation under the Act.

4. National Oil Spill Detection & Response Agency (NOSDRA): NOSDRA is

the government agency responsible for monitoring and control of oil
spills in Nigeria. The functions of the Agency include surveillance and
ensuring compliance with all existing environmental legislation and the
detection of oil spills in the petroleum sector. As part of its duties, the
Agency receives reports of oil spillages and coordinates oil spill response
activities.
With these frameworks in place and the country’s global position, the gas
market is met with dire challenges. Between 2016 and 2020, Nigeria flared 1
252.26 trillion cubic feet of natural gas into the atmosphere, according to the
Nigerian National Petroleum Corporation’s monthly oil and gas reports. 2 Gas
flaring is the process by which natural gas that comes with extracting
petroleum is burned off in the atmosphere. Alternative means of gas flaring
include confining the gas to storage tanks for resale, subterranean re-injection,

2
Oluwole Ojewale, ‘Are Nigeria’s promises to end gas flaring merely hot air?’ (2021) https://bit.ly/3KRbWAf
etc. People residing in communities where gas flaring occurs in Nigeria have
their health affected. Exposure to air pollutants released by gas flaring has
been linked to diseases such as cancer, lung damage, and neurological and
reproductive problems. Also, according to the World Bank, gas flaring costs the
global economy US$20 billion in 2018. The Nigerian economy lost N233 billion
(US$761.6 million) to gas flaring which translates to 3.8% of the global total cost
in 2018.3
However, in section 104 of the Petroleum Industry Act 2021, a licensee, lessee,
or marginal oil field operator can only flare or vent gas in the event of an
emergency, where exemption has been granted by the Commission and where
such flare is the acceptable safety practice under the regulation. The penalty is
a fine as stipulated by the Commission. This penalty is not enough to curb this
act. The ripple effect of this is the triggering of the locals in these communities
where this gas extraction happens.
Over time, the Government has done its best in keeping the peace with the gas
companies and the locals. The Government created the Host Community
Development Trust Fund (HCDTF) whose purpose will be to, among others,
foster sustainable prosperity, provide direct social and economic benefits from
petroleum to host communities, and enhance peaceful and harmonious
coexistence between licensees or lessees and host communities. However, if
gas flaring continues and poses danger to the lives of the locals, it could lead to
a revolt that would affect business and lives in these areas, which would
invariably create an unattractive look to potential investors.
Also, the country has significant domestic demand for gas, mainly from the
power sector. The gas-fired power plants in the country are consistently under-
utilized due to the lack of an uninterrupted gas supply. Over time, gas
producers have been cautious about investing in gas infrastructure in the
country, as a result of low gas prices and lack of assurance or guarantee of
payment from the power generating companies. Hence, the processes of gas
supply agreement have been fraught with challenges. For a producing country
ranked seventeenth in the world, the government has a lot of legal framework
overhauling to do.
3
Pedro Omontuemhen, Akinyemi Akingbade, Omomia Omosomi, ‘Assessing the impact of Gas flaring on the
Nigeria Economy’ https://www.pwc.com/ng/en/assets/pdf/gas-flaring-impact2.pdf
Furthermore, political risks are not ideal for investors in emerging markets such
as the gas market. Prior to investing, investors undertake extensive due
diligence to ensure that such risks are adequately addressed or mitigated.
Where the costs of mitigating or addressing outweigh the benefits, they simply
move to another market.
Foreign Direct Investment in Nigeria continues to be led by the oil and gas
sector. This means that any factor that affects foreign investment will
disproportionately hit the gas sector, affecting players across the value chain
and causing the country to lose out on potentially large energy deals.
A 2021 Marsh political risk index placed Nigeria’s political risk in the range of 6.1
to 8 out of 10, the same category as countries like Iran, Afghanistan, Pakistan,
and North Korea. An Africa Risk-Reward index from 2017 pinpointed it to 7.3, a
number which would have very likely risen to hit the top of the range indicated
by Marsh, with an imminent possibility of crossing into the political risk red
zone where we have countries like Syria. 4

CONCLUSION
It is evident from the above discussion, that there is ample room for regulatory
manoeuvring or re-engineering to enhance investment and infrastructure in
Nigeria’s gas industry. Thus, concerted efforts must be made to translate the
gains of the industry into more enduring and sustainable projects. This
perspective is important in light of the finite nature of oil resources, as well as
the ever-constant factors of demand and supply, both of which are principally
responsible for the volatility of gas prices in the international market.
Also, the penalty for gas flaring should go beyond the fines stipulated by the
Commission. Other punitive sanctions should include temporal suspension of
license and actual termination should the wrong persist.
In addition, the local gas industry is highly regulated, yet it has been bedevilled
with notable infrastructure and systemic failures; costly structural and

4
Caleb Adebayo, ‘How Buhari’s high political risk regime could hurt Nigeria’s energy investments’ (2019)
https://nairametrics.com/2021/06/09/how-buharis-high-political-risk-regime-could-hurt-nigerias-energy-
investments/
operational challenges; and numerous corporate social responsibility lapses.
These are all strong pointers on the need to critically review the regulatory
processes governing such outcomes, in order to mitigate losses in various
respects.
Hence, this article has laid emphasis on some relevant regulations, and in doing
so, by no means relegates the significance of other laws and policies that are of
relevance to varying degrees.
Thus, the onus lies on all the stakeholders to consistently exhibit the unfolding
issues that are either positively or negatively affecting their operations. The
adoption of such an open-door policy approach, will in effect provide a good
starting point to make necessary adjustments and where required, a complete
paradigm shift. Such an outlook will in the long term provide enduring benefits
to the matrix of stakeholders that are dependent on the revenues attributable
to Nigeria’s gas industry.
Finally, the government must exert more effort to guarantee the safety and
security of both citizens and investors; only then, would we see the growth of
the Nigerian gas market.