The Case for an Investor-Friendly Gas Market

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Wednesday, March 10 2021   /04:30 AM / By Proshare Research/ Header Image Credit: EcoGraphics


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The benefits of an investor-friendly gas environment are clear. The advantages range from the increased flow of foreign direct investment (FDI) to an increase in employment and revenue generation. To facilitate growth in the gas industry, analysts note that it is necessary to guarantee that the regulations or policy guidelines deliver favourable outcomes such as affordability, commercialization, availability, access to market, and gas deliverability.

 

Energy bosses note that the government's gas policy must facilitate and ensure that major gas infrastructure across the production value chain is properly planned and built-in in concert with planned power and industrial consumers. The government could facilitate this through non-discriminatory regulations to enable investment by domestic and foreign investors in gas infrastructure.

 

An effective gas policy should promote the commercialization of supply i.e., enable willing buyers to contract with willing sellers, allow and protect commercial structures which enable alignment along the value chain, and facilitate secure offtake with long term back-to-back bilateral contracts that pass obligations and liabilities through to sub-contractors and partners and/or use integrated business models. Also, a policy that would facilitate competition must have the important outcome of ensuring that there is easy access to the market i.e., it must support the right, but not the obligation, to directly access or invest in all parts of the market.

 

Deepening and strengthening the domestic gas industry may require that regulations by the government must be clearly defined and agreed upon among all parties about issues such as third-party access, pipeline, ownership, and tariff structures. Furthermore, an effective gas policy should not hinder the availability of gas i.e., it should balance available gas resources in line with the demand in domestic, regional, and international markets (see Illustration 13).

 


Illustration 13: Outcome of an Effective Gas Policy

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Australia is an example of a country with an investor-friendly regulatory framework. The Australian oil & gas policy and the relevant environment are broadly supportive. The country has a stable tax regime, transparent access to resources for exploration and development, and a supportive small and medium-sized enterprise environment. The Australian government has helped deepen its oil & gas industry through its Local Content Programme (LCP). The LCP helps develop sectors connected to the oil & gas industry by using incentives rather than obligations, one of the most effective incentives used by the Australian government is tariff cutbacks in exchange for supplier development, especially for SMEs. The Australian government offers import tariff waivers on locally unavailable petroleum equipment in exchange for developing and implementing an Australian Industry Participation (AIP) plan. The LCP thus promotes the development of a sustainable domestic industry by providing a unified approach to advancing local capabilities which also assists in identifying existing qualified suppliers without infringing on the country's international trade obligations.



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Downloadable Version of Memo to the Market: PPPRA and the Nigerian Gas Market, Avoiding a Robinhood

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