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Nigeria is almost running late in attempts at gas monetisation – Joe-Ezigbo

Audrey Joe-Ezigbo, president, Nigerian Gas Association (NGA), is walking the road least travelled by women in Nigeria’s male-dominated oil and gas industry. In this interview with Stephen Onyekwelu, she talks about gas pricing, gas infrastructure, gas-enabled industries and what Nigeria needs to do with gas to quicken its industrialisation drive. Excerpts:

How has Nigeria advanced on the 2020 deadline for zero-flare policy and what can be done so that associated gas is put into more profitable uses, rather than flare it?

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Given that we are right in 2020, we are certainly not at zero-flare level. I, however, always prefer to start with an acknowledgement of the fact that Nigeria has come a long way when we speak about gas flaring. It used to be just 20 years back that Nigeria was flaring between 50 and 60 percent of all its associated gas.

Of course, this was largely because gas was looked at as a nuisance by-product of oil exploration and production activities. However, from the early 90s with the Associated Gas Re-injection Act, the Liquefied Natural Gas (LNG) Act and other pieces of legislation, what has steadily evolved is a situation where today Nigeria is flaring less than 10 percent of its associated gas. As at 2019, for instance, about 425.9 billion standard cubic feet (scf) of gas was flared.

Specifically, I refer to the Nigerian National Gas Flare Commercialisation Programme (NGFCP) which is underpinned by the National Flare Gas (Waste & Pollution Prevention) Regulations 2018. The NGFCP is slowly being rolled out and we remain optimistic that the programme will begin to yield results over the next few years.

I have said consistently that the core benefit of this programme if successfully implemented, goes beyond the current flares, but indeed further presents clear strategies and frameworks to ensure that new gas development projects will have clear zero-flare technologies and strategies embedded in them from conceptualisation stage.

In terms of profitability, this is always a toss between penalisation and incentivisation, with neither the penalties nor incentives of the past being sufficient to engender the desired results. Historically, it had been that it was cheaper to flare the gas and pay the attendant penalties, if at all than to invest in gas utilisation technologies to address the flare sites.

With the new regulation, this is no longer the case as the penalties have been significantly increased and related to the quantum of operations. It, therefore, makes more sense that people are rethinking about flaring gas in advance in order to avoid the huge penalties.

However, it is our view as Nigerian Gas Association that beyond a penalisation regime, there needs to be in place a plethora of incentives that make it more attractive for any producer to incorporate flare reduction mechanisms in advance, either directly or through collaboration with indigenous companies with midstream capacity.

Many say the domestic gas market is not attractive due to highly regulated prices and uncertain off-takers. How can this be fixed?

Yes, ours is not the most attractive of domestic gas markets and certainly challenges as you’ve outlined in the question include the uncertainty of off-takers and regulated prices which I also made reference to earlier. Gas projects are unique in themselves, first in the sense that they are highly capital intensive and secondly, to the degree that they need large volumes to be contracted to underpin the investment.

Now, from the supply point of view, the primary constraint is the infrastructure deficit and the need to commit huge sums of capital into either new field development projects or expansions of existing capacities in order to meet a demand at the other end. Now, these kinds of investments are typically contracted in dollars, therefore the vagaries in the exchange rate, the differentials between the Central Bank of Nigeria and parallel rates and the impact of this on project cost profiles becomes a huge challenge.

On the other hand, speaking to the domestic gas market’s demand profile, the challenge that exists is primarily the fact that the largest off-taker currently is the power sector. The power sector as we know is seriously broken and this is manifesting in a gross illiquidity situation that has persisted for a few years. Credible off-take of molecules in the quantum that would make any gas development project profitable is then a huge challenge in our domestic environment.

We need to see more large volume users of natural gas, from gas-based industries, petrochemicals, methanol plants, and suchlike which can then justify gas supply investments. At the same time, it is our view that the government must necessarily then also back away from regulated pricing of the power sector and allow that sector to develop independently. This is because the power sector will provide the backbone energy that will allow for the development of several other economic sectors.

In the 2017 National Gas Policy, the government took a bold step to disaggregate the gas value chain into distinct upstream, midstream and downstream sectors. This midstream sector is very grossly under-developed. The midstream is largely an infrastructure play whether in terms of gas transportation pipelines, central processing facilities, pipe mills, storage facilities, et cetera and we desperately need investors in this area.

Of course, there are other variables that will need to be addressed, and we cannot get away from the urgent need for gas legislation and the Petroleum Industry Bill.

Why has Nigeria been failing its West African peers who signed on to the West African Gas Pipelines project by not feeding the pipeline with gas?

The West African Gas Pipeline project remains a laudable one even though it has been plagued with several issues right from inception. From a proposed start date of 2006 to a delay into an actual start date of 2011, to the fact that it then cost almost 50 percent more than it was budgeted to cost.

As at 2008, the pipeline had been completed but on the Nigeria end, there were some compressors and receiving stations that were not operational. It is unfortunate that gas supplies from Nigeria have not been that consistent and that we have struggled to comply with the terms of the contract but remember we had those years where militancy was an issue and indeed, till today, we still have some incidents of vandalism that impact on gas supplies.

At one point, gas supply shortages caused Nigeria to channel the gas to our domestic power plants instead, a breach of contract and not justifiable in any way. There have been piracy issues, issues about non-payment from Ghana, though those debts have since started to be addressed, and so on. I am sure there are a whole lot of other technical or contractual counter-party issues that are playing out even as we speak.

Ultimately, our reality is that Nigeria’s commitments on the WAGP projects would be better assured and consistently so if we are able to open up the landscape to investors and investments in new exploration and production. We continue to dance around associated gas when we speak about Nigeria’s gas resources, but we must also then necessarily and intentionally create an investment framework that supports those who want to go and prospect directly for non-associated gas.

In my view, there is no better time than now since we have recently approved the National Gas Transportation Network Code, made advancements in the funding of the Ajaokuta-Kaduna-Kano pipeline projects, and so on.

What are the top three challenges that once fixed will make the sector more efficient and attractive to investors – local and foreign?

I really wish it would be as simple as the top three things. If you allow me, I would speak to the top four or five things, and even at that, qualify it to say that these are things that need to be done in concert; and that they need to be supported by several other efforts, underpinned by a consistency and tenacity in carrying them through, seeing them into fruition.

Among the key things that need to be addressed are enabling a firm legislative and fiscal framework for gas investments. In this regard, we come back to the PIB conversation and the imperative to give investors a clear line of sight. Policy is not legislation so much as we have set out a National Gas Policy, we need this codified into law. In addition to needing the PIB, we must deal with the tariff issue.

We must allow the markets to determine pricing and not using regulation to drive pricing. It is time we allow for willing buyer-willing seller transactions. We must ask ourselves why we are holding on to concepts we adopted ten to fifteen years ago which have clearly not attained the objectives for which we thought they were required.

The gas industries locally, regionally and globally have changed; investors’ appetites and sensitivities have shifted; economic fundamentals do not resemble what existed at those times. Something must necessarily shift if we are to see traction with new investments and the issue of regulated tariffs and end-pricing must be dealt with.

Thirdly, and this is related to the last point, we have talked for too long about the currency of investment and revenue mismatch. It does not make sense that we expect investors to happily model 18 percent value erosion into their projects, and at the same time be readily accepting of constraining prices on their end products or services.

We do not manufacture the bulk of the components required for projects in the industry. Gas projects and project inputs are typically contracted in dollars and need to be repaid in dollars at an equivalent rate. What is happening now does not make sense and is not sustainable in any way.

Until we address this, we will continue to see capital flight away from the industry. We must also necessarily address this issue of the illiquidity in the power sector. It is impacting very negatively on gas projects since gas is the fuel source of about 80 percent of our power generation. What is happening now is completely unsustainable and I am not sure how long producers can continue to operate as-is.

Lastly, as NGA we will continue to emphasise the need for the sanctity of contracts. Gas investments are typically long term in nature and therefore agreements that govern these relationships tend to be long term as well. It is important that the provisions of these agreements are deemed inviolable, regardless of the changing of representatives of the parties to the contracts over time.

We started on the right track with the 7 Big Wins which speak also to the need for greater transparency and accountability in the industry. Despite the change of baton, this must continue to be held as a prime area of focus for Nigeria’s gas industry.

Bottom line is that there are too many changing dynamics locally and globally for us to continue business as usual. Globally, National Oil Companies are in the line of fire stemming from the crash in oil prices, not just from the coronavirus but with the recent happenings between Russia and the Organisation of Petroleum Exporting Countries (OPEC).

We must intentionally and aggressively look for new ways to partner with both international and local oil and gas companies to push the agenda of gas-based industrialisation, enhanced gas-to-power, LPG penetration and the like. We need the global investment community to again begin to ascribe seriousness and willingness to participate in investments in Nigeria.

Qatar pulled out of the OPEC to concentrate on gas development, what can Nigeria learn from this?

I personally think it was an impressive and bold move that Qatar made, deciding to leave the OPEC after a 60-year membership and after making such clear strides in the global gas industry.

From a major economic downturn in the early into the late 80’s, it is amazing how Qatar has established itself to date as one of the world’s largest suppliers of LNG and it is my understanding that they have plans to increase capacity by as much as 64 percent by 2027. Qatar is working to grow its gas industry quite aggressively and primarily through international partnerships such as the one it has entered into with Exxon Mobil.

They have created a clear landscape of incentives to draw the private sector investors in. They have clearly articulated their gas goals, coupled with realistic timelines and a stable political climate. Their decision was about a focused diversification and they have not wavered from that.

The first lesson for Nigeria is that you cannot rest the future of your economy on a failing resource, especially one that you have mismanaged and abused consistently over decades. We are blessed with gas, a secondary resource which we have more of in abundance and one which comes with more economic, social and environmental benefits to the country.

What are some of the big-ticket gas development projects in Nigeria and how will they change the landscape?

I am sure many Nigerians are by now familiar with the seven critical gas development projects which are targeted at bridging the gas supply gap in the country and providing feeder gas for up to 15GW additional power generation capacity.

The projects include the 2.2TCF SPDC JV gas supply to Brass Fertiliser plant; the 5TCF cluster development from OML 13 geared towards the expansion of Seven Energy’s Uquo Gas Plant; the 10TCF Okpokunou/Tuomo west cluster development.

There is also the 600mscf/d Assa North/Ohaji South project, amongst others. We are behind on the timelines, but I am confident many of these projects will ultimately come to the fore. The NLNG Train 7 project is another big win for the country. Of course, we continue to remain hopeful that the OB3 (Obiafu-Obrikom-Oben Gas Pipeline) will finally see completion before the end of 2020, and same goes for the ELPS II looping pipeline that has been stalled for a couple of years. There is also the proposed Ajaokuta-Kaduna-Kano (AKK) pipeline project which is an important piece of infrastructure designed to move Gas into the northern regions of Nigeria.

There are also several other projects being undertaken along the value chain such as investments in LPG storage facilities, in LPG-to-power technologies, virtual delivery technologies in LPG and CNG, etc. What remains to be seen is a sufficient development of off-take capability to offset the supply-side developments.

How will natural gas transform Nigeria’s economy and what can Nigeria do to reap these benefits?

Gas is an enabler. Gas is a tool for economic growth and diversification. It is a catalyst for productive activity. Let me give an example that is somewhat granular because when most people hear ‘gas’, they immediately begin to think of very technical aspects of the oil and gas sectors. But gas is more than the equipment and processes. Gas is employment. Gas is agriculture. Gas is power. Gas is a balanced economy. Gas is foreign exchange. Gas is capacity building. Gas is social engagement and empowerment.

Let me explain using the agricultural sector as an example. Imagine our food products, many of which are highly perishable in nature. The North is the primary food basket of Nigeria and food items produced there must necessarily be transported to the South. As a result of the poor state of the roads, the level of insecurity and a few other variables attributable to road transportation, there is a rather tortuous farm-to-market journey for the food items and an attendant high level of wastages. Enter gas.

Gas feeds from mechanised farming using methane-powered tractors, to gas-powered greenhouses, to gas-fired processing plants, drying and packaging facilities. So, farmers harvest their produce and take them to either farm markets located in their vicinity or food processing centres, well equipped with packaging facilities, proper warehouses, storage facilities and logistics facilities, all powered by gas; either gas powering their machines as fuel, or gas providing power for their processes.

Visualise the processed and packaged foods the being transported via high-speed rail lines powered by LNG, to different parts of the country as well as export-ready shipments. Image the scale that can be achieved in production. Imagine the reduction in spoilage, waste, theft, the significant reduction in operational costs. Imagine how many thousands of individuals are adequately engaged, employed and empowered at every stage of this value chain.

Imagine the support industries that would be generated from this one sector. This is what we mean when we speak about in-country value addition and the direct impact on economic activities that gas can potentially bring. Imagine what we can do with our mineral resources if we channelled gas into their extraction and commercialisation. Mining will take on a whole different level of importance in the country.

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