Nigeria’s Plan to Boost Non-Associated Gas Fields with Tax Incentives
Nigeria is taking steps to enhance the development of its $257 billion non-associated gas (NAG) fields by introducing tax credits through the Nigeria Tax Bill 2024.
The nation boasts an estimated 106.67 trillion cubic feet (Tcf) of NAG, accounting for 51% of its total gas reserves. The proposed tax benefits outlined in the Nigeria Tax Bill 2024 aim to attract investments and accelerate the development of these fields. By offering tax credits of up to $1.00 per thousand cubic feet for eligible fields, the government hopes to stimulate gas projects, particularly in onshore and shallow water areas facing infrastructure challenges.
Nigeria ranks as the ninth-largest holder of gas reserves globally, with approximately 209.26 trillion standard cubic feet (Tcf) in its reserves, as per the Nigerian Upstream Petroleum Regulatory Commission (NUPRC). With the base gas price in Nigeria around $2.42 per million British thermal units (MBTU), or $2,414 per million standard cubic feet (MMscf), the value of these NAG reserves stands at approximately $257 billion.
The bill, currently under review by the House of Representatives, proposes a tax credit ranging from $1.00 to $0.50 per thousand cubic feet of gas extracted from non-associated gas fields. This initiative 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, tax credits for non-associated gas fields will be determined based on their hydrocarbon liquid content. Fields producing 30 barrels of hydrocarbon liquids or less per million standard cubic feet (MMscf) are eligible for a tax credit of $1.00 per thousand cubic feet or 30% of the fiscal gas price, whichever is lower.
For fields with hydrocarbon liquids ranging from 30 to 100 barrels per MMscf, they can qualify for a tax credit of $0.50 per thousand cubic feet or 30% of the fiscal gas price, whichever is lower. Non-associated gas fields producing over 100 barrels of hydrocarbon liquids per MMscf are not eligible for the tax credit.
One key aspect of the bill is that these tax credits are specifically applicable to onshore and shallow water non-associated gas developments. The incentives are open to projects that commence commercial gas production from the date of the Act’s enactment until January 1, 2029. Furthermore, the gas tax credit will be valid for a period of 10 years from the initial gas production date.
Despite non-associated gas making up the majority of gas reserves, it only contributes 39% to Nigeria’s daily gas output. According to the NUPRC’s 2023 annual report, Nigeria’s average daily gas production stood at 2.644 billion standard cubic feet (Bcf), while associated gas volumes reached 4.213 Bcf daily.
The tax credit scheme came into effect following the executive order signed in February 2024. Data indicates that Shell Petroleum Development Company (SPDC) is set to benefit significantly from these tax credits, given its status as Nigeria’s largest non-associated gas producer. However, once SPDC’s acquisition is finalized, Renaissance Consortium will assume this benefit.
