PSC contract deadlock stalls gas supply to power plants

The nation’s dream of achieving uninterrupted power supply may not materialise, following the alleged dispute between the Federal Government (FG) and international oil companies (IOCs), over the ownership of gas in the deep offshore fields being operated under the Production Sharing Contract (PSC), BusinessDay findings have shown.

A clause which is said to have vested exclusive ownership of the gas on the Federal Government, has prevented the international oil companies (IOCs) from developing the gas fields that would have been used to boost the supply of electricity.

A source close to the Department of Petroleum Resources (DPR), the nation’s regulatory agency for the oil and gas industry, who pleaded anonymity said, “some of the IOCs may have decided not to show interest in the development of the deep offshore gas, because of the clause in the PSC which governs the operations of deepwater operations, and which vested the ownership of the gas in the fields in the hands of government, while the oil is the commercial product on which economies should be based.”

Our source said because of the nature of the contract, oil companies were currently concentrating on finding crude oil and shunning anything that has to do with gas development deep offshore.  The clause which was contained in 1993 PSC contract, did not envisage huge gas discoveries in those fields.

Some of the fields affected in the controversy include Erha,  Ngolo, Nnwa /Doro, Bosi and Ansah, some of which have been lying dormant  for more  than ten years.

Erha  field operated by ExxonMobil, said  to  be having   gas reserves in the region  of over 200 billion standard  cubic  feet, according to analysts, could easily have been developed to mitigate the suffering of Nigerians because of inadequate  power  supply, if  government had acted proactively by giving the  companies the go ahead to develop the gas.

The gas volume in Erha is four times more than the reserve in Papau Guinea where ExxonMobil, the parent company of the Nigerian subsidiary has built an Liquefied Natural Gas (LNG) plant.

People familiar with the industry say Erha is about 120 kilometres from Lagos  and that with about  $2 billion, the project would  have been developed and put to use for the benefit of Nigerians, if not for the disagreement between ExxonMobil and government over fiscal terms.

Experts say that laying pipelines from the location of the gas straight to Lagos is an uncomplicated operation in terms of technicality and time, while the outcome would be that the country’s gas starved power plants would then receive the life blood they require and Nigerian businesses and households would get the much desired  power supply.

He stated further that from Lagos the gas could be transported through some reliable processes to power plants around the metropolis and beyond. 

The  Erha  gas, if  developed, could  serve as a backup to  the Ecravos –Lagos pipeline and even tee-off   the  West African Gas pipeline which supplies  gas to Ghana.

However, another official inside of the system, said inspite of the challenges posed by the PSC contract, the company still has a window through which it could develop the   gas, if  it had demonstrated the will to do so.

The source said attempts to make ExxonMobil begin work on the field had proved fruitless, as the company preferred to use the gas for reinjection purposes to boost crude oil production and flare the excess.

“ExxonMobil had informed DPR that it would prefer to use a third party to develop the gas, when it was asked to present a gas utilisation plan for Erha field.

“It was given the go ahead to do so, and told that it must bring the company that intends to develop the gas to DPR, along with officials of  the Nigerian National Petroleum Corporation (NNPC) for discuss on the gas development. It is about a year ago since we discussed this issue and nothing more has been heard of the matter.”

He said a company like Pan Ocean operated under the PSC contract, yet it was developing its own gas. “ExxonMobil is not interest in the development of the gas, that is why it is procastinating.”

When an officer of ExxonMobil was contacted for comment by BusinessDay, he said the company could not speak on the issue then.

Ngolo oil field was discovered by Shell several years ago and is said to have a gas  reserve in the region of  over three trillion standard cubic feet, and is  suffering the same fate. It has remained dormant for over ten years because there is no commercial framework on which it could develop.

Commenting  on the issue, Eddy Wikina, a former general  manager  external affairs, Shell Nigeria Exploration and Production (SNEPCO), who is  now  managing  director  Treasure Energy  Resources, said there had been no  commercial  framework for  the  companies  to work with,  and because of that, they  would not venture to develop the gas. Wikina said  the fiscal  terms  for  gas  were  still  being  debated by   government after  so many  years  since the discovery of gas, adding that it had been abandoned by the  company.

“Gas development is expensive, government cannot meet its aspect of funding the projects. It is a big investment which requires long term planning, long term sale and purchase agreement and huge capital to develop, but government does not have money to do this,” he said.

The operators agreed that government could encourage the companies to develop the fields by giving them  between 15-25 percent of the value of the gas as incentive.

They also suggested that government and the legal teams of the companies should come together and resolve the deadlock this contract has created.