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Proposed PIB Imposes Domestic Gas Supply Obligations, With Strict Non-compliance Sanctions

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The Petroleum Industry Bill (PIB) currently before the National Assembly has imposed a domestic gas supply obligation on licensed gas producers in the country as part of effort to cause a gas revolution in the country.

The bill prescribes a fine of $3.50 per MMBtu of gas not delivered in compliance with the domestic gas obligation.

According to the bill, the Commission shall, by a regulation or guideline prescribe and allocate the domestic gas delivery obligation on a lessee before 1st March of each year based on the domestic gas demand requirements determined or updated, as well as ensure compliance by every Lessee.

It stated however, that a lessee who has complied with its domestic gas delivery obligation, may wish to supply wholesale customers who are not part of the strategic sectors on a willing seller and willing buyer basis.

“A wholesale gas supplier may, on a voluntary basis and following the procedure stipulated under subsection (2) of this section enter into a contract with a lessee or wholesale customer of the strategic sectors for the delivery of marketable natural gas to the customers; and inform the Commission of the contracts,” the bill stated.

It added that the “Commission shall require a lessee producing natural gas to carry out works and operations which may be required to increase production and to dedicate specific volume of the natural gas produced towards the requirements of the domestic market.”

It explained further that the volume of natural gas to be dedicated by a lessee towards the domestic gas delivery obligation shall be based on an allocation system among lessees as determined by the Commission upon consultation with the Authority with consideration of availability of supporting infrastructure.

“Subject to the provisions of subsection (7) of this section, a lessee who fails to comply with the domestic gas delivery obligation shall incur a penalty of US$ 3.50 per MMBtu not delivered,” the bill stated.

Furthermore, failure to comply with the domestic gas delivery obligation, gas producers, in addition to the fine, shall not be entitled to supply natural gas to any midstream gas export operations, the bill stated, adding that “An approval for the supply of natural gas for export projects shall be subject to prior compliance by the Lessee with its domestic gas delivery obligation.”

While noting that the fine of $ 3.50 per MMBtu referred to may be adjusted as the Commission may prescribe in a regulation made under the Act, it stated however, that gas producers shall not incur a penalty where it can establish that its failure to comply is as a result of a force majeure, inability of a purchaser to accept allocated natural gas volumes or the inability to transport the allocated natural gas for reasons beyond its control or the failure of a purchaser to pay for allocated natural gas volumes.

The bill added that the imposition of domestic gas delivery obligations can be discontinued where the Authority has determined that the natural gas market has attained full market status.

 

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