The domestic natural gas market in Nigeria has undergone significant changes in the past decade. Domestic demand has substantially increased, supply projects are been accelerated and the old amorphous market framework is been gradually organized. The strategic aggregator, the Gas Aggregator Company of Nigeria (GACN) is authorized by government policy to administer the domestic gas supply obligations (DSO) issued for operating exploration and production companies.
GACN matches gas suppliers and potential buyers and also negotiates as part of a tripartite party the Gas Sale Aggregation Agreements (GSAAs). The GSAA template was developed to achieve uniform commercial terms in gas sale transactions across strategic offtake industries. The template has provisions that are protected to achieve uniformity and prevent distortion of the price aggregation process while other provisions are bilateral that allow parties ample room for negotiation. The agreement allocates rights and obligations, risks and roles, rewards and penalties to the parties (gas seller and buyer). GSAAs are long term, multi-million dollar commitments and parties are at the risk of exposure to significant economic losses if they are not aware of the key value drivers. Furthermore, outcome of recent negotiations have necessitated redrafting of hitherto sacrosanct provisions in line with reality.
This paper therefore seeks to highlight the key value drivers, bilateral gaps and contractual provisions that can guarantee proper risk allocation and management amongst parties in the GSAA. The paper further explores generic solution to GSAA activation bottlenecks, outlines operability of certain clauses in the GSAA, provides simple mathematical illustrations of the various interdependent gas supply terms and notes potential areas of conflicts during and after negotiations. An insight into other ancillary agreements to the GSAA is also included. Increased education and understanding of the GSAA framework would minimize commercial disputes, support the growth of the domestic gas market and help mitigate the Nigerian energy challenge.