The Oil Producers Trade Section (OPTS), of the Lagos Chamber of Commerce and Industry (LCCI) has said that for Nigeria to realise the full benefits of gas as a catalyst for economic growth and diversification, several challenges across the entire gas value chain need to be resolved.
The group also gave conditions that could help to fast-track the development of these resources, government policy needs to focus on developing adequate infrastructure, providing enabling commercial terms, settling and preventing future debts related to gas and power supply, and improving the business environment. It however said it is well positioned to collaborate with the government and other stakeholders in this regard.
According the chairman of the group, Paul Mcgrath who is also the managing director of ExxonMobil there four main challenges which are related to the development and production of gas as; inadequate infrastructure along the value chain; regulated low prices; legacy debt related to gas and power supply and the challenging business environment.
The OPTS chairman who was evaluating the place of gas as a prioritised enabler of Nigeria’s economic diversification agenda at the 2019 Business Forum and annual general meeting of the Nigerian Gas Association (NGA) said it is no longer news that infrastructure along the gas and power value chain remains inadequate. Particularly, Nigeria lacks sufficient pipelines to deliver gas from the fields where it is produced to the current and potential off-takers (e.g., power plants, manufacturers). In addition, the transmission and distribution systems lack the capacity to deliver the generated electricity to businesses and other consumers.
Building infrastructure he said, requires a sustained joint effort of the stakeholders led by government. “Active government support will help enable a stable investment climate, acceptable commercial terms and contractual risks. The above elements will help in attracting the required private investments which would strengthen existing off-takers and ultimately lead to emergence of new buyers and suppliers”.
On regulated low prices, he stated that to date, Nigeria’s domestic gas prices are kept at a regulated low price, which does not cover the cost required to fully develop its gas resources. Of the 162 TCF reported gas reserves, about 75% will require the building of new infrastructure to deliver these gas resources to the domestic market.
The current regulated gas price of USD 2.50/mmbtu he explained falls short of the price required to attract investment for these new gas developments, adding that the gas sector should transit into a liberalized market based on the ‘willing buyer, willing seller’ principle and ensure the existence of a competitive fiscal regime to support upstream gas development.
As regards legacy debt related to gas to power, he said the commercial and financial structures of the gas-to-power commercial value chain remain weak with growing arrears and uncertainty in the payment system which disincentivises gas investors.
A conducive business environment he explained is essential towards achieving a diversified economy. Critical elements of a conducive business environment he said include: security of life and property, improved efficiency of regulatory bodies and stability of laws and policies. “OPTS believes that improving the regulatory, judicial and legislative framework in line with global standards (dispute resolution, contract sanctity) would promote investor confidence and significantly improve Nigeria’s ease of doing business towards growing and diversifying the economy”.
“Gas has a leading role as a key enabler to the diversification and growth of Nigeria’s broader economy through adequate power generation, provision of feedstock for value-adding manufacturing, and increased FGN revenue from LNG. Therefore, the development of Nigeria’s vast gas resources and strengthening of the gas value chain should be a national priority”, he said.