‘Nigeria’s gas sector is robust enough to support growth in both export and domestic markets’

VICTOR OKORONKWO is the 1st Vice President, Nigerian Gas Association (NGA) & Senior Vice President at Aiteo Eastern E&P Ltd with over 30 years of Oil and Gas Industry experience. In this interview with FRANK UZUEGBUNAM, Okoronkwo talks about investment opportunities in Nigeria’s gas sector, using gas as a tool of West African sub-regional co-operation, power privatisation amongst other issues. Excerpts:

What kind of challenge does seeking to attract investment to Nigeria gas sector face?

The Nigeria gas sector holds enormous investment potential from a resource perspective with over 180Tcf of discovered natural gas reserves. So, the gas sector in Nigeria is robust enough to support growth in both export and domestic markets. Despite numerous efforts, growth in the Nigeria’s gas market seems to have stagnated in both markets. However, recent policy initiatives and pronouncements from the Petroleum Ministry seem to re-energize the sector leading to the increasing hope for the Train7 of the NLNG, the ANOH project development, the trans-national AKK pipeline, the Brass Fertiliser project, etc. 

The sector however, still faces challenges in attracting investments. These challenges can be categorized broadly as follows: Low domestic market off-take due to inadequate infrastructure, high debt owed by the electricity sector impacting major domestic gas suppliers, illiquidity in the power market arising from non-cost reflective tariffs and inadequacy in metering and revenue collection, quasi price control in the domestic gas market, multiplicity of policies and lack of clarity on the regulatory landscape occasioned by the non-passage of the Petroleum Industry Bill.

Hopefully with the elections now over, government may take steps to help mitigate these challenges.

Where are the most attractive opportunities in the Nigeria gas sector at the moment?

Nigeria is resource-rich in natural gas with over 180Tcf of discovered reserves and about 600Tcf of upside potential. Therefore, from a resource perspective, there are lots of attractive opportunities. However due to some or all the factors I mentioned earlier, the most attractive opportunities for natural gas investment seem to tend towards export-oriented projects. This is mainly because of market uncertainties within the domestic gas sector, a situation that is not helped by the huge debt owed the sector by the electricity sector. Even existing market dynamics show that domestic supplies hover around 1.2bcf/d to 1.5bcf/d, whereas the export supplies are in excess of 3bcf/d. In fact, new gas developments targeting existing LNG expansion far outstrip the development from ANOH which is being celebrated as the biggest domestic supply project in country. Several studies have shown that with the right environment, the domestic sector could grow to over 3bcf/d in the medium term. So, opportunities to triple the domestic sector exist under the right conditions of infrastructure expansion and downstream utilization projects bankability.

Opportunities also exist within the LPG and the virtual pipeline space. Nigerian LPG consumption at less than 2kg per capita is far below the regional average. This provides tremendous investment opportunities, but the government needs to step in to level the playing field amongst local producers and major IOC and NLNG producers, particularly with respect to taxes and infrastructure development like transportation, LPG cylinder manufacturing, jetty and storage construction that will aid market penetration.

The 10th annual international conference and exhibition of NGA late 2018 spoke  to ’shift to gas economy-pace and scale of innovation in the West African Sub-Region’. What role can Nigeria and/or NGA play in helping to foster the economic revitalization and cooperation in the region using gas?

In fact, the terminology shift to gas economy sounds interesting. Interesting because the Economic Recovery and Growth Plan (ERGP) of the government of Nigeria revolves around the utilization of natural gas. Look at the four priority areas enunciated in that plan: Energy Sufficiency, Transportation, Agriculture, Manufacturing/Industrialization – the common denominator in all these areas is natural gas. Natural gas is a major fuel for power generation, for transportation and key ingredient for manufacturing fertilizer which is required for agriculture. Natural gas derivatives of petrochemical products aid manufacturing and industrialisation, natural gas is also a preferred fuel choice for generating both electricity and steam required for manufacturing. Really, natural gas has a key role to play in unlocking the potentials of the Nigerian economy. So, I think that the ERGP is government’s way of saying we are shifting to a gas-based economy without necessarily saying so, but they should say so. The NGA is engaging with ERGP team with a view to reviewing the plan and highlighting the dependency on natural gas. This will therefore give the natural gas the attention it deserves in our journey to economic development.

For the West African sub-region, in this age of global energy transition, collaboration is required at the sub-regional levels for energy optimization, particularly around natural gas. There is already a key infrastructure: the West African Gas Pipeline. The countries within the region can leverage this pipeline as enabler for collaboration to ensure the success of the West African Power Pool. There are discussions to extend the WAGP to Cote d’Ivoire and even up to Morocco. Nigeria and indeed the NGA are very well positioned to lead this collaborative effort. This effort has indeed started as you saw at the last NGA conference that you referred to. You will recall that there was attendance from Ghana and a few other West African countries. We at the NGA will be working to embed and deepen these collaborations.  NGA has also supported the LPG West Africa Conference and Exhibition focused on building and expanding the LPG business across the West African sub-region.  Similarly, there are also possibilities of extending the northern flank of Nigeria gas transportation system from Abuja, Kaduna, Kano and then Algeria. African Countries are of late also considering REGAS facilities in their energy mix. This will create a market for mini-LNG projects in Nigeria and also help to unlock the resources in Nigeria’s shallow water assets. These and the other initiatives with respect to legislations, economic development, common power solution, etc, will work to enable the collaboration across the African sub-regions – a dream the NGA is poised to help actualise.

How can the share of West and Central African gas in Europe’s energy mix be increased?

The paradox in Africa is that it is resource-rich and yet energy deficient. Africa houses about 13 percent of global population and yet accounts for less than 4 percent of global energy demand. There is, therefore, a massive potential for African gas to feed the African energy needs. The International Energy Agency in its African Energy Outlook Report estimated that more than 620 million people in Sub-Saharan Africa have no access to electricity.

  In recent times however, there have been substantial discoveries of oil and gas in Africa signalling a global appetite for African energy. The huge gas discoveries in Mozambique and Tanzania coupled with emergence of small to mid-scale producer nations like Ghana, South Sudan, Niger, Kenya, etc. lend credence to this. African traditional major producers like Nigeria, Angola, etc. are also planning capacity additions to their existing LNG export. There is, however, a looming challenge as the European energy transition shifts more towards renewables, the question will be: can these African resource-rich countries find investments capital in good time to develop these resources before the train leaves them behind?

Have the expectations of power privatization on the broader gas-to-power value chain been impactful?

At the current generation level in Nigeria, the average per capita electricity consumption is estimated at an abysmally low level of 120KWh. The Nigerian electricity grid generation hovers around 4500MW whereas suppressed grid demand is estimated to be over 23000MW. Closing the gap has remained the dilemma of the Nigeria Electricity Supply Industry (NESI). This is in spite of all the attention and investment that have gone into that sector since the passage of the Electricity Power Sector Reform Act (EPSRA) in 2005. A recent report by the Nigeria Economic Round Table on Power estimates that Nigeria losses about $29.3bln annually to lack of adequate electricity supply. This statistic therefore begs the question of the impact of the electricity power sector reform in the past 14years.

In fact, experts within the sector have identified liquidity issues creating a market shortfall of over one trillion naira as a key factor. Other challenges impacting the gas-to-power sector include foreign exchange challenges created by the slide of the naira from around 180 to a dollar down to nearly 500 to dollar and now stabilizing at about 360 to a dollar in recent times. The gap created by this slide has left a huge hole in the books of the industry players. This power sector liquidity challenges have led to huge debt owed to the fuel gas suppliers to the power sector.

The NESG Power Roundtable sees the power sector liquidity issue as the most pervasive across the entire gas-to-power value chain. Facilities granted by money deposit banks to the power sector constitute significant portion of their non-performing loan portfolio, making it difficult for the sector to attract more loans.

The other major factor is the MYTO tariff, which has become non-cost reflective occasioned by the foreign exchange gap. Some reports claim that the tariff gap is in excess of 1.3trillion naira and growing. These cocktail of liquidity issues make it difficult for the distribution companies to make the necessary investment to curtail losses and improve metering.