Economy
Gas Reservices: Nigeria to exploit $257 billion with tax incentives
Nigeria aims to boost the development of its $257 billion non-associated gas (NAG) fields through implementing tax credits, as outlined in the Nigeria Tax Bill 2024.
With an estimated 106.67 trillion cubic feet (Tcf) of NAG, which makes up 51 per cent of the nation’s total gas reserves, the proposed tax benefits under the Nigeria Tax Bill 2024 could encourage investment and expedite the development of these fields. By providing tax credits of up to $1.00 per thousand cubic feet for qualifying fields, the government seeks to stimulate gas projects, particularly in onshore and shallow water areas where infrastructure issues have hindered production.
Nigeria holds the ninth-largest gas reserves globally, 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 approximately set at $2.42 per million British thermal units (MBTU), or $2,414 per million standard cubic feet (MMscf), these NAG reserves stand at roughly $257 billion.
The bill, currently under consideration by the House of Representatives, suggests a tax credit ranging from $1.00 to $0.50 per thousand cubic feet of gas sourced from non-associated gas fields. This proposal aligns with the Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc.) Executive Order signed by President Tinubu in February 2024.
Under the bill’s provisions calculate tax credits for non-associated gas fields based on their hydrocarbon liquid content. Fields generating 30 barrels of hydrocarbon liquids or fewer per million standard cubic feet (MMscf) are eligible for a tax credit of $1.00 per thousand cubic feet or 30 per cent of the fiscal gas price, whichever is lower.
On the other hand, fields with hydrocarbon liquids ranging from 30 to 100 barrels per MMscf can qualify for $0.50 per thousand cubic feet or 30 per cent of the fiscal gas price, whichever is also lower. Non-associated gas fields that produce over 100 barrels of hydrocarbon liquids per MMscf are not eligible for the tax credit.
An essential aspect of the bill is that these tax credits apply exclusively to onshore and shallow water non-associated gas developments. The incentives are available for projects that achieve their first commercial gas production from when the Act is enacted until January 1, 2029. Moreover, the gas tax credit will be applicable for 10 years, beginning from the date of first gas production.
Although non-associated gas constitutes most of the gas reserves, it only accounts for 39 per cent of Nigeria’s daily gas output. According to the NUPRC’s annual report 2023, Nigeria’s average daily production was 2.644 billion standard cubic feet (Bcf), whereas the associated gas volumes reached 4.213 Bcf daily.
The tax credit scheme is in effect following the executive order signed in February 2024. Data indicates that Shell Petroleum Development Company (SPDC) is the primary beneficiary of these tax credits, given their status as Nigeria’s largest non-associated gas producer. However, after SPDC’s acquisition is finalized, Renaissance Consortium will take over this benefit.
