To unlock the potentials in Nigeria’s $460 billion natural gas industry and latch on the opportunities inherent in the commodity to drive sustainable economic development, Nigeria would have to consider consensus gas pricing, according to a pool of industry experts.
The industry stakeholders at a recently concluded Business Forum of the Nigerian Gas Association’s 2020-2021 Multilogues said through the adoption of consensus gas pricing in Nigeria, the country’s estimated 202 trillion cubic feet (Tcf) of proven gas reserves will open some doors for economic growth.
According to Shell, despite the vast natural gas reserves in Nigeria with about 600Tcf of unproven gas reserves, the top crude producer in Africa have only about 25 percent of its natural gas reserves under development.
Nigeria could become a country where automobiles produce no smoke, rural dwellers cook with gas, farmlands yield five times more per hectare and factories run on clean, cheap and secured energy resource-gas.
To achieve such a pleasant future, it will require a domestic economy powered by gas for transport, cooking, agriculture, and industrial uses.
Due to its comparative advantage in terms of environmental consideration, natural gas development, especially in a developing country like Nigeria, has attracted international attention.
But, one of the critical challenges of natural gas market development centres on developing a policy framework that encourages an appropriate market-determined gas pricing as against the long history of regulated pricing. To solve the key challenges in Nigeria’s natural gas industry, a pool of industry experts and stakeholders recommended the following.
Find value drivers
While having a conversation on gas pricing with the theme “Achieving Consensus Pricing for the Nigerian Natural Gas Value Chain” industry experts inquired into the readiness of government and industry players for a full transition from a regulated, sector-based pricing regime to liberalised willing buyer, willing seller environment that matches current realities in developed markets.
Yusuf Usman, chief operating officer, Gas and Power of the Nigerian National Petroleum Corporation, commenting on the essence and timing of the conversation, noted that a key consideration for achieving consensus pricing was to find out the “value drivers” across sectors as well as the value drivers of the stakeholders.
“Because of the challenges across the industry, everybody wants to sell his gas to commercial users. What happens to the gas-based industry you are trying to promote, what happens to the power sector we are trying to resolve,” Usman asked.
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On that basis, Usman said he supported “the requirement to retain the sector-based pricing, actually not even the three we have, to even introduce the autogas because we have just flagged off the use of autogas and that particular sector also needs to reach some kind of maturation.”
According to Usman, autogas should also come into the sector-based pricing in order to achieve all the objectives as regards promoting the use of gas.
As regards the transition to a market-led pricing regime, he expressed key concerns to be taken into consideration before a full transition, noting that the power sector and gas-based industries still require some support to reach a certain level of sustained growth before a full transition to a willing buyer, willing seller environment.
Examine stakeholders’ needs
Encouraging a rapid move towards a willing buyer, willing seller regime, President of the Nigerian Gas Association, Audrey Joe-Ezigbo, stressed that a transition to a market-led pricing regime where gas prices were competitive and ensure commercial returns was essential to incentivise private sector investment and to ensure the deepening and acceleration of the domestic gas market.
According to industry analysts, some of the challenges of the gas industry in the Nigerian environment are the need to balance; maintaining the required level of gas supplies to support domestic economic growth, providing producers with sufficient incentives to continue to invest in the exploration and development of new gas reserves, and maximising revenue from exports.
Citing Egypt and India as examples of countries that have transitioned from regulated pricing with resulting dividends in investment and infrastructure, the president urged a “careful examination of stakeholders’ needs and priorities.”
“The reality is that there are too many challenges within our environment that don’t make for investments to be flowing into Nigeria, and we need to do a spin on this. In terms of looking at the pricing frameworks, we have to be looking at frameworks that ensure bankability, that ensure cost recovery and that ensures the return on investment is commensurate with the risk,” Joe-Ezigbo said.
According to Joe-Ezigbo, Nigeria has to look at things that “ensure that we are not subsidising one party at the expense of the other, so it has to be a value chain perspective.”
Adopt a market-led model
Acknowledging the contributions of the aggregated sector-based pricing model, Oga Adejo-Ogiri, executive secretary, Association of Local Distributors of Gas, noted that the aggregated sector-based pricing model has had its uses, especially with sectors requiring some nurturing and have the capacity to catalyse economic growth and create jobs like the Gas Based Industries.
He, however, advocated for a transition to “market-led pricing” because of the inherent advantages in allowing market forces dictate prices, noting that such transition can be staggered across sectors who have achieved maturity and have shown an ability to absorb higher prices.
“We have seen significant progress since when that policy came into being some 10, 12 years ago. The consensus now is around the switch to a market-led willing buyer, willing seller model as we call it. In the interim, I would support that we maintain that aggregated sector-based pricing but quickly transition towards the market-led model so we can realise the full benefits we can get from the sector,” he said.
Commenting on the importance of passing the PIB, CEO of Axxela, Bolaji Osunsanya, noted that it will have a significant influence on the success and ability of the gas sector to drive economic growth in 2021, and as such, the major preoccupation should be passing the current version of the bill even as industry players and government stakeholders continue to work together to make improvements targeted at efficiency.
“The Petroleum Industry Bill is a great attempt dealing with all the issues such as insecurity, infrastructure, among others, that we discussed in the last 20 years… There is some room for improvement on the PIB. Regarding the involvement of ministries in the regulatory body: I would advocate their non-voting participation,” Osunsanya said.
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