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Gas Development

​​​​Gas Utilisation

Nigeria is endowed with abundant natural gas resources, which in energy terms, is in excess of the nations proven crude oil reserve. Moreso, the gas was discovered whilst searching for crude oil, as no deliberate effort had been made to search for natural gas then. The current reserved estimate of the Nigerian gas is over 120 trillion cubic feet, with about 50/50 distribution ratio between Associated Gas (AG) and Non Associated Gas (NAG). Only a small fraction of this quantity is currently being utilized.

A large fraction (about 63%) of the AG produced during the production of crude oil is currently being flared. Even then this is a considerable improvement of between 7% - 17% from what it used to be three years ago, when it flared between 70% to 80%.

In order to diversify its revenue base and reduce the huge wastage of valuable resource as well as the degradation of the environment as a result of flaring, the Nigerian Government, through the NNPC, is vigorously pursuing a number of natural gas utilization projects with its joint venture partners whereby associated gas would be harnessed to achieve these objectives.

The government is sufficently concerned about the issues of environmental degradation so much so that it has targeted 2010 as the deadline year when all gas flares must be extinguished. In line with this target therefore, all the Joint Venture partners have also set their own targets in order to meet this deadline.

These targets range from year 2005 to 2010. This means that the gas sector in Nigeria is going to be a beehive of activities, and a lot of room exists for investment in this area. Some of these are: LNG (Liquefied Natural Gas), IPP (Independent Power Plant), GTL (Gas to Liquid Conversion), NGL (Natural Gas Liquids) and Methanol. Gas supply to local industries, is indeed an industry with great potentials and future in the 21 st century.

While a number of gas utilization projects have already been completed, commissioned and in operation, several other projects are at various stages of execution. In addition, local industries have started converting from the use of fuel oil to gas due to increase in awareness.

Domestic Gas Market

On the domestic front, NNPC through its subsidiary, Nigerian Gas Company (NGC), currently supplies gas for power generation, either as source of fuel or as feedstock to cement and fertilizer plants, glass, food and beverages, manufacturing industries and so on. More local industries are now aware of the advantages and benefits of using gas, hence the demand for gas is increasing. The Nigerian gas market is a profit oriented market awaiting potential investors.

Export- Oriented Gas Projects​

For the international market, NNPC and its Joint Venture partners are currently embarking on several gas utilization projects, which include the following:​

Escravos Gas Project

This project was executed by NNPC/Chevron JV. The plant is located in the Southwestern part of the country and it produces mainly LPG for export from its first phase. Detailed engineering for the second phase has reached advanced stage, while a third phase is being proposed.

Oso NGL Project​

The NNPC/Mobil JV recently commissioned an NGL plant located at its OSO field in the South Eastern part of Nigeria. It started production for export in the third quarter of 1998.

LNG Projects​

Nigeria, through NLNG (Nigeria Liquefied Natural Gas) Ltd., is currently embarking on the construction of its first LNG plant in collaboration with three partners, namely, ELF, AGIP, and SHELL. The LNG plant site is located at Finima in the Eastern region of Nigeria and, these three companies in joint venture with NNPC, will also supply up to 1 billion standard cubic feet of natural gas for feed stock/fuel to the plant from their Obite, Obiafu and Soku fields respectively. It is expected that flaring will be substantially reduced by the time these projects come on stream, in addition to the expected huge revenue.

Ekpe Gas Compression Projects

The NNPC/MOBIL JV executed this project in order to gather the gas that was being flared in this field for enhancement of oil production by gas lifting and gas re injection.​

Oso 2Y2 Project

This project is also being executed by the NNPC/MOBIL JV. The objective is to provide additional gas make-up for the Oso NGL as well as maintain condensate production at the expected plateau.

Belema Gas Injection Project​

The NNPC/SHELL Joint Venture is executing this project with an objective to reduce gas flares in Five flow stations by re-injecting some of the gas, some for gas lifting, some for use as fuel by local industries and the excess for backing out NAG that is currently used to meet various existing contractual obligations. The contracts for the execution of the EPC and gathering pipelines have reached advanced stages of execution. About 80mmscf/d of gas is expected to be utilised.

Odigbo Node Gas Project

The objective of this project is to gather about 113mmscf/d of AG from about Six flow stations in the NNPC/Shell Eastern Nigeria Fields, for supply (about 92mmscf/d) to ALSCON (Aluminum Smelting Company of Nigeria) as feed gas and for gas lifting.

Odidi AGG Project: This project is also being executed by the NNPC/Shell JV in the South Western part of Nigeria. The objective of the project is to gather gas and inject into the ELP (Escravos to Lagos Pipeline), which will eventually form part of the West African Gas Pipeline that will supply gas to some West African Countries.

Cawthorne Channel Gas Injection Project

The objective of this project is to gather the gas that is currently being flared in this field for re-injection and for supply to a third party for LPG extraction. The conceptual design is currently on-going.

The West African Gas Pipeline Project

The objective of this project is to supply gas to some ECOWAS countries, pursuant to Nigeria's commitment to Article 48 of the ECOWAS Treaty, which encourages member nations to co-operate, consult and co-ordinate their polities regarding energy and mineral resources.

Following deliberations by member-states on improving co-operation on energy, the governments of Nigeria, Ghana, Benin and Togo, through their ministries and departments responsible for energy matters, signed Heads of Agreements (HOA) in 1995, to provide a framework for the construction of a Ministerial Steering Committee (MSC), and Project Implementation Committee to monitor the development of the project.

A commercial group has also been set up comprising Nigerian Gas Company (NGC), Ghana National Petroleum Corporation (GNPC), SOBEGAZ (Benin) and SOTOGAZ (Togo); and two gas producers Chevron Nigeria Ltd. (CNL) and Shell Petroleum Development Company of Nigeria. (SPDC). In 1998, the commercial group retained a German company to conduct a feasibility study and the final report was submitted in March 1999. The report showed that the WAGP was commercially viable and technically feasible. Negotiations are currently on-going with a number of prospective buyers in the sub region which now include companies in Senegal.

In order to achieve the flare-out target date of 2010, NNPC and some of its partners, have drawn up activities and strategic programmes for the utilization of all gas that is currently being flared as well as future gas production resulting from growth in oil production. These programmes include: NNPC/Elf JV has set its flare-out target year at 2006, and some of their planned projects include Amenam/Kpono, Ofon (Phase-2) and 4-bar integrated oil and gas projects.

NNPC/Shell JV's flare-out target year is 2008. Some of their planned projects include Akri/Oguta, S. Forcados, EA, Bonga, Ubie, Bomu etc, and gas gathering and utilization projects. NNPC/Chevron JV's flare-out target year is 2006 and their planned projects are EGP phases 2 and 3.

Fiscal Incentives In Nigerian Oil and Gas Industry


  • There is a minimum guaranteed notional margin of $2.50 per barrel, after Tax and Royalty on the company's equity crude.
  • The minimum guaranteed notional margin increases to $2.70 per barrel if the actual capital costs exceed $2.00.
  • The notional fiscal cost is now $4.00 per barrel instead of $3.50 per barrel.
  • Tax inversion rate of 35% rewards for prudent producers whose operating cost are less than $1.70 per barrel.
  • No penalty for small companies producing below an average of 175,000 bbls per day, for operating cost not greater than $3.00 per barrel.
  • No penalty for companies producing above 175,000 bbls per day, for operating cost not greater than $2.30 per barrel.
  • Capital cost of haulage fees limited to 50% of total sum paid to third parties, in respect of crude oil transportation, processing and terminalling, is excluded from operating cost in determining high cost producers.
  • All levies and other impositions paid either to federal, state, local governments or their agencies; including withoutlimitation, Central Bank of Nigeria commissions, other than Royalty and PPT, are treated as allowable costs.
  • Investment tax allowance of 50% for PSC arrangements.


  • All Capital costs of upstream gas investments up to the custody transfer points, are treated as oil investments and the resulting capital allowances are deducted from PPT (at a marginal rate of 85%). These incentives also apply to some downstream investments.
  • The upstream producer is exempted from payment of royalty and PPT on any gas that is transferred to a downstream project.
  • The LNG projects receive a 10-year tax holiday/break.
  • The LNG project is also exempted from withholding tax on interest and dividends paid to non-residents and from incometax on work or services provided by non-residents.
  • There is an additional investment allowance of 20% for upstream projects, 35% for NGL extraction and gas-to-liquid facilities and 15% for downstream projects.
  • Downstream investments receive accelerated capital allowances of 90% of cost of plant and machinery expenditure in the first year with 10% retention.
  • Downstream gas projects which received a 3-year tax holiday/break that begins on the first day of production, is renewed for a further 2 years, and the accumulated capital allowances can be carried forward until the end of the holiday. Qualifying dividend distribution during the tax holiday are tax-free.
  • Downstream projects are allowed to fully deduct interest on project-financing for corporate income tax purposes.

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