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$1.3bn owed to IOCs halts new gas investments

$1.3bn owed to IOCs halts new gas investments

The lack of investment in the development of natural gas in Nigeria has been hinged on the debts owed to International Oil Companies in the country.

Osagie Okunbor, managing director of Shell Petroleum Development Company of Nigeria, told journalists on Tuesday after a meeting with the state minister for Petroleum (Gas) that gas producers were currently owed $1.3 billion

Speaking on behalf of the Oil Producers Trade Section, a body made up of IOCs, Okunbor said this was hampering investments in the sector and should be addressed.

Read also: Natural gas is game-changer in Nigeria’s quest for energy security

“At the last count, we are owed about $1.3bn for gas that has been produced and sold in the past. If you are owed that kind of money across the board, you can imagine the impact,” he said.

According to the managing director, this development doesn’t create the environment to want to put in more investment and it is a key issue for the Decade of Gas discussions.

“How do we crack this problem so that you incentivise people to make investments? How do we build the infrastructure?” he queried. “You heard the minister talk about key infrastructural projects that are under construction such as the AKK (Ajaokuta-Kaduna-Kano pipeline project) and others.”

Okunbor said that there is a need for gas pricing to be reliable, highlighting the importance of keeping costs reasonable while still encouraging investment in the sector.

“Gas prices have just been announced. This is crucial because if it’s not reflective of costs, it will have far-reaching implications,” Okunbor said.

The longstanding issue of gas debts owed to producers in Nigeria has impeded investments and hindered the growth of the gas sector.

A portion of these debts is considered legacy debt accumulated over the years due to factors such as payment defaults by power-generating companies and inadequate gas pricing mechanisms.

To address this, the Federal Government launched the Gas Supply Stabilisation Fund in July 2022, aimed at ensuring timely payments for gas supplied to the power sector by providing upfront funding to Gencos. Operators view this as a positive step towards resolving the debt issue.

“Nigeria requires substantial infrastructure investment in the midstream sector to facilitate the exploration of alternative energies,” remarked Kelvin Emmanuel, CEO of Dairy Hills Limited, during a discussion on gas as a transitioning fuel.

Emphasising the importance of addressing key challenges, he stated: “Policy should address critical areas, from gas extraction and field development to pipeline networks, separation and treatment facilities, high-pressure transmission lines, city gate stations, and distribution points.”

Efficient gas utilisation, he concluded, is essential for achieving the country’s energy goals.