‘Non-Associated Gas cannot be exploited until there is a better pricing’

In other climes, there are established platforms for the determination of the appropriate pricing for gas and that pricing pervades whatever the end objective and application of the gas might be. In Nigeria, however, we started on a faulty premise. We were content to flare all the gas we found for the simple reason that we did not value the gas and we were not willing to put the infrastructure in place for the utilization of the natural gas.

Historically, the gas we found was associated gas (AG) which is found while drilling for oil. Because the investments in those explorations were targeted at crude oil, there was this temptation to think that there was no cost to the associated gas, and therefore it was treated practically as a waste. We were willing to flare our associated gas because of the enormous revenue inflows from crude oil and this is reflected in the pricing that we historically placed on the gas first, and the highly inappropriate and insignificant penalty we placed on flared gas.

Today, natural gas prices are about $2.50 per 1000 standard cubic feet (scf) for the power sector, while for industrial use; it is about $7.34. Today also, natural gas is utilized for not only power generation but also for use for steam generation in industry, as well as use as feedstock for fertilizers and other industrial processes.

It is time for us to actively explore and exploit our non-associated gas reserves but the investments required to actualize this are huge, and the pricing framework does not support private sector investment in this regard.

So again, if you ask me today what is the appropriate pricing for gas, I will simply tell you this: when you prospect for oil and you get gas, the oil pays for the exploration of both the oil and gas. But where you want to actively explore for non-associated gas in pure gas wells, the pricing as it is today cannot pay for your exploration. So, non-associated gas cannot be exploited unless we put a better pricing for gas. An appropriate pricing for natural gas will be one that is market-drive, and that allows for equitable economic returns to be made by the investor within typical industry project recovery timelines.

It is unfortunate that when trying to solve a Nigerian problem, we borrow a leaf from countries whose economic, social and political landscapes bear no resemblance to ours and whose solutions therefore do not tend to have any bearing or tangible impact on Nigeria in the long run. We have, for instance, issued close to 35 licenses for refineries so far; why are they not running? It’s because we are borrowing a leaf from overseas that we cannot apply in Nigeria. The frameworks are wrong and unsuited to our own realities in the first place and because of that, it is uneconomical for anybody to build a refinery in Nigeria.

Why can’t we look inward? We have the capacity and the capability to get things right ourselves if only we are honest with ourselves and prepared to make those initial hard choices that are needed to reposition the economic direction and restore prosperity to this country.

We need to look inward taking into consideration our history, our social, cultural balance, our economic situation. Why can’t we say this is the price that Nigerians can afford; this is the price that we can run with, and then peg it at that. I know sometime in the future, we will get it right.

I think the DSO is a welcome policy. It places an imposition on international oil companies (IOCs) to deliver a known volume for domestic use which is an imperative for this country to attain our infrastructure development and industrialization aspirations. But putting the DSO requirement is not the end of it. The policy must be backed by an equivalent commitment and action to deliver on the infrastructure that will be used to deliver the gas accrued out of DSO compliances to the endusers that need to use the gas. Minus distribution infrastructure, the DSO will not achieve the purpose for which it was put in place

For now, there are two things, gas pricing and infrastructure. If we get our gas pricing right, and then set sound and appropriate policies that will guide the pricing framework and the industry as a whole, the rest will fall in place. People will invest in gas and there will be infrastructure growth and that is what is holding Nigeria back from an industrial explosion. The industries are just waiting. Industries follow gas lines. Take a look at the western side of Nigeria: look at Lagos, from Apapa to Ikeja, Ikorodu, Agbara, Ota, industries are springing up everywhere because there is natural gas available in those areas. Infrastructure will come once we policies and pricing right.

Let us take a look at consumers of electricity in Nigeria; the people that pay for electricity are industries and commercial people. Most homes rarely pay for electricity.There is a lot of power theft across the country.  60 per cent of electricity delivered to the public is not paid for. The other 40 per cent (industries and commercial people) pay for those who do not pay. The situation makes it possible for the corruption in that sector to continue to thrive. There are no meters. Billings are arbitrary and that needs urgent redress.

Falcon has put forward several suggestions on ways we could begin to grow electricity supply and bring our national supply standard up. The distribution companies are still too large to effectively deliver and deploy power across the country. We believe if sub-zones are created or the distribution zones further disaggregated, it would make for increased delivery efficiencies and management. As time has shown, many of the DISCOs had no clear understanding of what it was they were acquiring, and the extent of the challenges they would first have to overcome in order to be effective first, and then ultimately profitable.

One of our proposals for instance, was to set up embedded power whereby Falcon Corporation could deliver 24hour power to Ikorodu by  strategically deploying  10,000 megawatts  gas generators throughout the entire Ikorodu , piping gas to them, generate electricity and taking this to homes and other commercial concerns in various controlled areas.  Unless we have several initiatives like this operating across the nation, we will continue to walk backwards.

It is by now a well-known fact that Nigeria is actually more of a gas country with little deposits of oil. We have about 187 trillion cubic feet (tcf) proven reserves of gas and this does not take into consideration that we have not actually actively drilled for gas. It is very likely that if we explore for gas, the reserves will be in the region of about 600 to 700 tcf of gas.

Our position is that if the new Buhari administration directs adequate attention to gas, create an environment backed by appropriate legislation and private sector support, there will be an industrial explosion in Nigeria. Once the Buhari administration is able to fully recognize the linkages between cost of production, security of supply, appropriate pricing and investment, and industrial growth and development, gas is one of the first things they must give their focus to.

The next area of focus would be agriculture. And let me qualify that if we get gas right, it will be easier for us to adopt new technologies in mechanized farming that can quadruple our agricultural outputs in a very short period. We believe that if we take it in that order, we will rebuild our beautiful country, restore our pride of place in Africa and the world.