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Gas pricing, inadequate infrastructure deter industrialization in Nigeria

Ideally, homes in Nigeria, industries and vehicles could be running on natural gas, and industrialisation could have been well underway. Agriculture would be booming and job creation would happen in millions. This is possible because Nigeria is more of a gas than an oil territory.

Gas has the potential to catalyse Nigeria’s industrial growth and development in addition to its role as a key revenue earner to government. However, despite having the highest gas reserves in Africa, only about 25 percent of those reserves is produced or under-developed.

Nigeria’s domestic gas sector is struggling to capitalise fully on the potential of its sizeable gas reserves even though some big-ticket projects are emerging in the country.

Seplat Pe t roleum’s $700mn gas joint venture with the state-owned Nigeria Gas Company in Imo State is emblematic of what the government would like to happen more often – a high impact project run by a homegrown company.

When it eventually comes on stream 2021 the Assa North- Ohaji South plant will process wet gas from Niger Delta crude producing blocks 21 and 53. It is slated to have a capacity of 300mn cubic feet a day (f3/d). Another plant, run by Shell Petroleum Development Company (SPDC), will process another 300m ft3/d from the field.

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There is no doubt that Nigeria needs gas domestically. Electricity supply remains intermittent, despite successive administrations putting gas at the centre of their power sector reforms. However, the gas supply is not the biggest bottleneck in the system.

Distribution to households and industrial plants is being hampered by a lack of investment in power and gas distribution infrastructure, in part due to market uncertainties such as those resulting from the botched privatisation of the electricity sector in 2013.

Gas availability, pricing

The Manufacturers Association of Nigeria, Gas Users Group argue that it is difficult to plan with the erratic supply of natural gas even after investing in some cases N65 million and in others

N500 million to acquire gas generators. Gas, they say is rationed and unavailable sometimes forcing some to close shops.

“We cannot generate jobs when we cannot plan. We cannot plan when the gas supply is erratic. You should know that joblessness is the biggest source is insecurity,” Michael Adebayo, chairman, MAN Gas Users said.

Natural gas provides a strong base for industrial development. Developing the sector will position Nigeria for unprecedented growth as it creates an alternative source of public revenues.

Yet, a critical enabling factor for the development of the sector is “pricing.” Nigeria’s gas pricing mechanism is largely regulated. This has failed to promote a framework that attracts quality private capital. The government would be required to engage in a delicate balancing act that balances the need to guarantee investors a reasonable return on investment alongside the need to deepen domestic gas utilisation.

In June, the Federal Government initiated plans to review the price of gas in the country. This was made known by Timipre Sylva, the minister of state, Petroleum Resources while inaugurating the Committee on Gas Sector- Wide Review of the domestic Gas pricing framework.

Sylva underlined the need for an appropriate price regime that will be beneficial to the manufacturing industry, Nigerians, and the gas sector at large.

Nigeria produces an average of 8.06 billion standard cubic feet per day ( BSCFD), according to the Department of Petroleum Resources; 41 percent of this production goes to the export market (LNG and WAGP).

Seventeen percent goes to the domestic market, whereas 31 per cent is used for oil field operations including gas re-injection and the balance 11 percent is flared. Nigeria has the largest gas deposits in Africa, making it the leader on the continent and the ninth globally.

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