CNG can save Nigeria N3trn, but infrastructure lacking

Switching from petrol to Compressed Natural Gas (CNG) can save Nigeria as much as N3 trillion yearly but this requires a political will to fix the teething problems facing the country’s domestic gas sector, experts have said.

The world is turning away from petrol to CNG as an alternative energy source because it is cheaper and burns cleaner. But Nigeria is yet to come to terms with this global development as the controversial fuel subsidy projected to hit N3 trillion by the end of 2021 continues to crowd out other development expenditures.

Experts say converting from petrol to Natural Gas Vehicles (NGV), a campaign Egypt has taken head-on and making progress with, is a necessity that can reduce Nigeria’s exposure to the wasteful subsidy regime.

They have noted that despite the high cost of conversion kits for CNG, its utilisation can help Africa’s largest economy leverage its 600 trillion cubic feet of natural gas reserves, cut down excessive addiction for fuel demands and convert the country from an oil to a gas giant in the template of Australia or Qatar.

“These conversion kits are imported and should the government work out favourable terms and conditions such as free import duties and tax incentives, the cost per kit will fall and more car owners will participate; there is demand, no doubt,” Ola Alokolaro, partner Energy and Infrastructure at Advocaat Law Practice said.

The numbers look good too. Nigeria spent a combined total of N905.27billion to keep the pump price of petrol at N145 per litre as of August 2021. But without subsidies, CNG per cubic metre costs between N100 and N110 per standard cubic meter (the equivalent of a litre).

“CNG can save Nigeria billions of naira as cars run on a cleaner and healthier fuel, but the sector needs more action from the government, not promises or projections,” said Niyi Awodeyi, CEO at Subterra Energy Resources Limited.

At this year’s Oil Trading and Logistics (OTL) Africa Petroleum Downstream Expo, the managing director of Total Energies, Samba Seye announced the company was making plans to construct two CNG stations in Abuja and Lagos expected to become operational within the first quarter of 2022.

“The project will be predicated on two issues which include government policies on the scheme and profitability of the endeavour,” Seye said at the event.

He listed some of the fiscal incentives to attract investors in the area of gas utilisation for vehicles to include tax holidays for upward of five years, removal of Value Added Tax (VAT) on natural gas vehicles components on imported materials like conversion kits among others.

A survey by BusinessDay shows it costs between N350, 000 and N450, 000 to purchase the kit needed in converting a car from a petrol or diesel engine to a CNG engine, depending on the nature and condition of the car. But experts say the conversion leads to a 40 percent savings in energy cost for car owners.

Read also: Why Nigeria’s decade of gas requires a master plan

“NGVs maintenance costs are lower because CNG is a cleaner-burning fuel and generates less wear-and-tear on some engine components,” Awodeyi, explained.

Tunji Adeniji, former president, Independent Petroleum Marketers Association of Nigeria (IPMAN) recently converted his Toyota Hilux truck to use CNG (two cylinders) at the NIPCO gas station at Ibafo, which also houses a conversion workshop.

Adeniji says the two cylinders take him as far as Lokoja from Lagos where there is a CNG refuelling station. It cost N7, 000 to fuel at Ibafo and another N7, 000 at Lokoja for refuel to get to Abuja. This is a trip that costs N25, 000 on petrol in the same vehicle to Lokoja and another N25, 000 from there to Abuja.

“The savings are massive,” he said.

Although there is a lack of holistic action by the federal government to attract investment, some investors are bracing the odds with tales of bold innovations, social investments, and local capacity development.

For instance, NIPCO Plc, a Nigerian energy company, is currently constructing a pipeline from Ibafo-Sagamu-Ibadan to provide CNG services for industries.

According to Ramesh Virwani, the managing director of NIPCO Gas Limited, the company, which got its licence to operate in 2007, has seven gas stations in Benin, with other stations in Lagos and Delta states.

The company has also laid 51 kilometres of gas pipeline in Benin to distribute the CNG to the seven stations in the city and built the capacity to dispense 500 standard cubic metres and dispense to no fewer than 20,000 vehicles.

Also, Powergas Limited is in talks with ECO Bus maker to provide autogas filling stations in Nigerian cities where CNG-powered vehicles can be refuelled and will be put to good use.

Nonetheless, investors want the government to match intent with actions.

“Nigeria needs more investors who can set up CNG for commercial services but what are the returns on investment, especially when there are no clear policy directions from the government,” Awodeji said.

A report by KPMG, a global network of auditing firms, says the current state of the Nigerian gas industry has shown that the pricing regime is not sufficiently attractive to potential investors, despite the vast opportunities.

“To boost gas availability for CNG purposes, a holistic approach to gas pricing that will accommodate the dynamics for gas and create headway for businesses within the gas value chain to thrive concurrently is paramount,” KPMG said in a report titled Evolution of Compressed Natural Gas in Nigeria.

The report advised the federal government to provide a transparent and hitch-free licensing process for proposed CNG outlet investors.

Justice Derefaka, technical adviser, Gas Business and Policy Implementation to the minister of petroleum resources has on a number of occasions stated that the federal government has made available a million conversion kits. However, many Nigerians are unsure how the kits would be distributed – subsidised or given out free of charge.

However, without CNG refuelling stations, experts say the Federal Government’s drive to deepen gas utilisation for transportation through its autogas programme is likely to suffer significant setbacks.

Launched under the National Gas Expansion Program (NGEP) in December 2020, Nigeria’s autogas programme was aimed at transiting Nigeria from the use of petrol to gas for automobiles as a way of deepening the penetration and utilisation of gas in various forms.

However, BusinessDay findings have shown that ten months after the launch of the programme, the hope of meeting the target of converting one million vehicles by the end of 2021 may be dashed as the programme is yet to be opened to members of the public.