Each time oil prices crash below Nigeria’s budget benchmark, the argument to discard the country’s costly petrol subsidy resurfaces but the Department of Petroleum Resources (DPR) has said it wants to offer Nigerians energy freedom, not subsidy removal.
In an exclusive interview with BusinessDay, Sarki Auwalu, director of DPR outlined the oil and gas sector regulator’s vision, which seeks to drive a transition from premium motor spirit (petrol) to compressed natural gas.
The economic reasoning behind this transition is straightforward. Landing cost for petrol in March is N117.8 per litre, down from a high of N193.2 in January. At the January cost levels, the government paid N48.2 per litre to keep pump price at N145 per litre. There are conflicting figures on how many litres of fuel Nigeria consumes a day but at an average of 50 million litres a day, the Federal Government paid N2.41 billion daily, that is, N74 billion to subsidise petrol in January.
Although a landing of N117 per litre of petrol in March means there is currently no subsidy on petrol and this why the government can afford to reduce pump price from N145 to N125 per litre.
Conversely, the landing cost for compressed natural gas (CNG) is less than N90 per cubic metre (the equivalent of a litre of petrol) and it is cleaner than petrol. This means it is already cheaper than petrol without subsidy. Using gas as an alternative, will not only ease out the pressure on the subsidies paid out by the Federal Government of Nigeria but will provide Nigerians with a much cleaner and cheaper alternative fuel solution.
One litre equivalent of CNG gives at least 180 percent more of distance covered when compared to one litre of petrol and it is cheap, Auwalu pointed out.
“We subsidise petrol because we want Nigerians to get affordable fuel. Now, compressed natural gas (CNG) is an alternative fuel, cheaper and cleaner. Some countries have gone far with alternative fuel. These countries include Italy, Mexico, China, Brazil and Iran. Our mission is to use the global system mobile (GSM) strategy,” Auwalu said. “The GSM democratised telecommunication and gave people choices. This is what we want to achieve with CNG, energy freedom.”
To make gas available across the length and breadth of Nigeria, massive gas pipeline projects have been embarked upon and the Auwalu said two of the three big gas pipeline projects will be commissioned this year. The Escravos-Lagos Pipeline System (ELPS), which connects the East and West. This has a capacity of 1.1 billion standard cubic feet (scf) but has been doubled to 2.2 billion scf. The Obiafu-Obrikom-Oben (OB3) that has a capacity of 2 billion scf, will also be commissioned this year.
The Ajaokuta-Kaduna-Kano gas pipeline with a capacity of 2 billion scf has reached advanced engineering design phase and construction will start in the second quarter of 2020. The director of DPR said with gas availability across Nigeria, it will become easier to make alternative cheaper and cleaner fuel available to Nigerians.
“This is why a committee was set up for liquefied petroleum gas (LPG) and CNG penetration which the DPR is hosting. The aim is to take gas to the people by converting commercial vehicles such as tricycles, taxis, buses and private cars to CNG,” Auwalu said.
The DPR plans to persuade the government to convert the vehicles free of charge. If a car owner knows their vehicle is going to be converted free of charge, they will their cars and pay nothing. Then the government can put a token on CNG. If a litre equivalent of CNG is N80, the government can make it N90, N10 will go for the cost of conversion. Just like GSM. The first users paid N150, 000 per subscriber identity module (SIM) card, because they needed it. For them it was not expensive, they were paying for the masses that will get it free one day.