NMDPRA Releases Draft Midstream and Downstream Petroleum Operations Regulations 2024

Pursuant to its powers under Section 33 of the Petroleum Industry Act 2021 (“PIA”), the Nigerian Midstream and Downstream Petroleum Regulatory Authority (the “NMDPRA”) has released the draft Midstream and Downstream Petroleum Operations Regulations 2024 (the “Draft Regulations”), which will revoke the Midstream and Downstream Petroleum Operations Regulations 2023 (“2023 Regulations”).

The NMDPRA has invited input and consultation from stakeholders prior to the finalization of the Draft Regulations. Stakeholders are encouraged to submit their feedback within 21 days from the date of publication.

Some provisions of the Draft Regulations include:

1.       Harmonisation of midstream and downstream petroleum regulations

The Draft Regulations revoke certain midstream and downstream regulations with a view to merging their provisions into a single regulation. Regulations made by the defunct Department of Petroleum Resources (DPR) as they relate to midstream and downstream operations will be revoked pursuant to the Draft Regulations. Specific regulations to be revoked are the Midstream and Downstream Petroleum Operations Regulations 2023, Petroleum Measurement Regulations 2023, the Petroleum (Transportation and Shipment) Regulations 2023 (PTSR), Assignment or Transfer of Licence and Permit Regulations 2023, Midstream and Downstream Penalties and Enforcement Mechanisms Regulations 2023, and the Petroleum Refining Regulations 1974.

2.       New licensing regimes for midstream and downstream operations

The Draft Regulations introduce new licensing categories for midstream and downstream petroleum liquids and gas operations. These will include licences for (i) the operation of bunkering vessels and barges for storing or supplying natural gas and natural gas products; (ii) the designation of gas and petroleum liquids export points; (iii) storage of industrial gas; (iv) the storage and utilisation of natural gas liquids and plant condensate for the licensee’s own use and not for sale to customers; (v) open access and third party access operations; (vi) carbon capture, storage and utilisation; (vii) carbon credits trading; and (viii) the production, distribution, and storage and utilisation of biofuels and other clean fuels.  

3.       Transport and shipment of petroleum liquids or natural gas

Under the Draft Regulations, the transportation or shipment of petroleum products will require the submission of an Advance Lifting Schedule (ALS) and a written declaration of the quantity and quality of the products to the NMDPRA by any person intending to carry out the shipment or export of petroleum products; the procurement of a wholesale supply license, a certificate of quality and Lifting Identification Number (LIN) all issued by the NMDPRA. The Draft Regulations prohibit topping of vessels within or outside loading ports or terminals in Nigeria and the offloading of products or loading of products in ballast tanks of unauthorised vessels. The Draft Regulations provide that the official fiscalised figures for lifting products will be the onshore figures except where the measurement system is on the vessel and certified by the NMDPRA, and where the figure recorded on the vessel exceeds onshore figures, the limit of tolerance allowed will depend on the cargo quantity and the allowance prescribed by NMDPRA guidelines. Where ship/shore difference exceed this limit, such vessels will not be cleared for sailing from the relevant terminal, without an undertaking given by the vessel captain to verify an outturn discharge at an NMDPRA designated port.

4.       Construction and operation of petroleum pipelines

We note the NMDPRA in 2022 released a draft Petroleum Pipelines Regulations (PPR), which was never formally issued by the NMPDPRA, and this has been included in the Draft Regulations. Under the Draft Regulations, the following licenses and permits will be required in connection with petroleum pipeline operations- permit to survey, licence to establish, permit to construct, pipelines licence and a permit to operate a pipeline. The NMPDRA must be given notice of least 3 months for any proposed discontinuance of petroleum pipeline operations and decommissioning and abandonment of pipelines which must be done in accordance with applicable regulations. Licensees will be required to carry out annual pipeline audits and promptly notify the NMDPRA of any line break, encroachment, accident, spill or dangerous situation detected on the pipeline or the pipeline right of way.

5.     Petroleum measurement

Licensees must install and operate measurement systems at appropriate measurement points for their operations in line with the guidelines issued by the NMDPRA and provide the NMDPRA with information on the performance, maintenance or malfunctioning of the measurement system. The Draft Regulations prohibit the bypassing of measurement systems and provides that the primary measurement method for determining quantities of petroleum liquids or natural gas will be by dynamic measurement methods. Classes of dynamic measurement, based on the purpose of their deployment, are categorised into classes A- E.

6.       Assignment, transfer or surrender of licences or permit

NMDPRA approval will be required to assign or transfer permits or licences. The transferor must notify the NMDPRA of its intention to assign a licence and proceed with the transfer with the approval of the NMDPRA. The transferee will make an application for the assignment or transfer of the licence or permit and pay the applicable fees. The NMDPRA will undertake the transfer of the licence after it has conducted a due diligence on the proposed transferee. We note that the requirement to notify the NMDPRA where the permit holder intends to change its name due to a rebrand is absent under the Draft Regulations.

The Draft Regulations also has provisions for the surrender of licenses or permits on application to the NMPDRA, which will include the reasons for the surrender,  settlement of outstanding liabilities and a decommissioning and environmental remediation plan. The NMDPRA will publish a notice of the surrendered licences or permits on its website.

7.          Code of conduct for midstream and downstream operations

The NMDPRA in 2023, issued a draft Midstream and Downstream Petroleum Code of Conduct Regulations (MDPCCR) which was never formally issued, and its provisions have been incorporated into the Draft Regulations. The qualifications for persons to be appointed as managing directors or chief executive officers of midstream and downstream companies, are stated in the Draft Regulations. Licensees are required to establish codes of business conduct and ethics and to submit annual reports on matters relating to the code of conduct to the NMDPRA.

8.          Establishment of the Midstream and Downstream Petroleum Data Repository (Repository) and maintenance of licence registers

The NMDPRA will establish and maintain the Repository at its headquarters and make same available to the public. The Repository will generally serve as the technical data centre for the midstream and downstream petroleum industry in Nigeria. It will contain, amongst other things, information on holders of midstream and downstream licenses and permits, geographic and satellite data on midstream and downstream petroleum facilities and operations.

In addition to the Repository, the NMDPRA will maintain and update registers on issued, revoked, suspended, surrendered, or withdrawn licences, permits and authorisations and any matters affecting the status of or interests in licensees. The NMDPRA legal adviser will be responsible for maintaining the registers which will be located at the NMDPRA’s headquarters and accessible by the public.

9.       Penalties and enforcement mechanisms for non-compliance

Where a licensee fails to comply with the Draft Regulations or carries out its operations in a manner that fails to ensure the safety of lives and properties or the protection of the environment, or promotes unfair market practices or other unlawful practices in its operations, the NMDPRA may impose sanctions/penalties. Notices of non-conformity or non-compliance may be issued to the defaulting licensee to provide an opportunity for corrective actions or for a defaulting licensee to make representation to the NMDPRA regarding the non-compliance. Where the defaulting licensee fails to make a representation or provide a compelling reason why sanctions should not be issued, the NMDPRA will issue a demand notice for the applicable administrative fines or sanctions provided in the PIA and applicable regulations.

The consolidation of the relevant regulations by the NMDPRA is a welcome development which will ensure consistency, ease of access to regulations, clarity of regulatory regime and efficiency in midstream and downstream regulatory oversight. We note that the extension of the NMDPRA licensing requirements to all industrial gas storage and utilisation means that not only sales to third parties will be regulated; the importation and storage of products in bulk for personal use and consumption by the importer/owner will also be regulated. This appears to be a closure of a lacuna in the regulations which was considered in the case of IHS (Nigeria) Limited & Anor v NMDPRA[1] . Furthermore, the new licences for carbon capture and carbon trading proposed under the Draft Regulations signals a serious attempt to regulate carbon trading and to expand the commercial economic opportunities within the carbon market.

A copy of the Draft Regulations can be accessed here. Lessees, licensees, permit holders, host communities and other stakeholders within the sector have been invited to review the Draft Regulations and submit their inputs and comments to the Secretary and Legal Adviser of the NMDPRA via email at: stakeholdersconsultation@nmdpra.gov.ng.

For more information, please contact aoenergy@aluko-oyebode.com

Oghogho Makinde, Partner | Cephas Caleb, Partner | Olagoke Kuye, Partner | Oghenetega Abu, Senior Associate | Favour Agbonyehemen, Associate

[1] IHS (Nigeria) Limited & Anor. v NMDPRA (2024), Federal High Court of Nigeria, Suit No.: FHC/ABJ/CS/1480/2023 (Unreported)