In 1991, the Framework Agreement on Associated Gas (AGFA) was developed, which provided tax incentives to improve the efficiency of gas use projects to encourage the implementation of gas use projects. This agreement allowed the IOC to offset the cost of capital from gas projects on oil revenues. This agreement has encouraged the development of many gas projects, including most of the projects mentioned above. Prior to the AGFA regime, gas investments were not considered attractive by IOCs because they required much more resources and products had a lower market value than crude oil. The world`s gas reserve is about 5,365 tonnes, of which 360 tonnes are in Africa. Global demand for gas is cfpd 225 billion and represents a 60-year reserve rate. Nigeria`s gas reserve is estimated at 159 tonnes, representing more than 44% of Africa`s gas reserves. Nigeria`s gas reserves will last more than 100 years at the current rate of production. However, the use of gas in the country, both for domestic and industrial purposes, is relatively low. From a conservative point of view, about 60% of the gas produced is burned. The government and the joint venture partners are committed to achieving zero gas burners by 2008. To meet this deadline, operators, in particular, have launched so many gas projects that target the associated gas sources.
Most of these projects are expected to be commissioned over the next five years, during which time the volume and percentage of gas flames would have been significantly reduced. Separate oil and gas regimeThe plant provides for a new fiscal framework separating oil and gas. For the most part, gas projects are developed on the basis of their profitability and are not subordinated or consolidated to the taxation of oil. Currently, the Associated Gas Framework Agreement (“AGFA”) allows the costs of associated gas (AG) and unsusced gas (NAG) to be covered by cross-subsidies for oil projects on gas projects based on oil yields. This new fiscal framework aims to eliminate distortions within the AGFA by establishing a proper and optimal tax system with the “Fiscal Rules of General Application” scope (FRGA). While the FRGA is good for the development of the gas sector and the oil industry as a whole, we see that the AGFA (which wants to eliminate it) is codified in sections 11 and 12 of the Oil Profits Tax Act. Therefore, the FRGA born in the NPP can only take effect when the separate oil and gas taxation regimes envisaged are implemented until the PIRB or other legislation transposing the FRGA comes into force. The average demand for gas in Nigeria is estimated at about 600 millimetres cfpd. According to a recent study, average domestic gas demand could reach 1,900 millimetres cfpd in 2010 and more than 4,800 millimetres cfpd by 2020.
