Use the Lexology Navigator tool to compare the answers in this article with those from other jurisdictions.
Trading and distribution
How are oil and gas resources traded in your jurisdiction and what (if any) regulations and procedures apply to oil and gas sales, distribution and marketing activities, both nationally and internationally?
Crude oil trading is primarily determined by contract. A joint operating agreement, or any other related agreement, prescribes the terms for the valuation, allocation, lifting and marketing of crude oil produced from a licensed area.
The sale of the Nigerian National Petroleum Corporation’s (NNPC) crude entitlements involves bids for crude oil sale and purchase term contracts by potential off-takers, which may be:
- refiners with retail outlets;
- trading subsidiaries of upstream companies operating in Nigeria;
- established large-volume crude traders; or
- indigenous companies engaged in the Nigerian downstream sector.
The NNPC sets pre-qualification requirements for prospective off-takers, including:
- the requirement to demonstrate significant annual turnover;
- the ability to establish significant lines of credit;
- compliance with the Nigerian Oil and Gas Industry Content Development Act; and
- commitment to develop other sectors of the economy.
The trading regime for gas in Nigeria is similar to the regime for crude oil, which is subject to domestic gas supply obligations imposed by the Ministry of Petroleum, pursuant to the National Domestic Gas Supply and Pricing Regulations. Operators are prohibited from exporting gas until they fulfil their domestic gas supply obligations.
Is oil and gas pricing regulated in your jurisdiction?
The price of the dominant Nigerian crude oil grade (Bonny Light) is benchmarked alongside other prominent marker crude oils, the price of which is determined by various factors, including:
- the global demand for crude oil;
- the cost of transportation; and
- the chemical characteristics of the crude oil.
The government, pursuant to the National Domestic Gas Supply and Pricing Policy, developed a gas pricing strategy for gas sales to the:
- strategic domestic sector (ie, the power sector);
- strategic industrial sector (ie, gas-based industries utilising gas as feedstock, such as fertilizer projects); and
- commercial sectors that use gas as fuel (eg, the cement and steel sectors).
The federal government revised the price of gas sold to the power sector to $2.5/million standard cubic feet with effect from January 1 2015.
Click here to view the full article.