Nigeria has lessons to learn from Egypt’s bold energy sector policy reforms that have first phased out fuel subsidies and now converting formerly petrol- and diesel-powered vehicles to use compressed natural gas (CNG).
Egypt’s spending on fuel subsidies dropped by about 69 percent year on year to 7.25 billion Egyptian pounds ($451 million) in July-September 2019, according to Petroleum Minister Tarek El Molla.
But Nigeria, Africa’s largest oil producer, earmarked the sum of N305 billion ($1 billion) for fuel subsidy in the 2019 budget after it spent N648 billion (($1.8bn) on fuel subsidies in 2018 as it kept prices pegged at N145 ($0.40), data from the Budget Office and state-owned oil company, NNPC, show.
Compressed natural gas (CNG) seems to present an opportunity to turn this narrative around and Egypt has been quick to latch on.
In Nigeria, CNG costs N100-N110 per unit (or a litre), Sumeet Singh, director, sales and strategy at Powergas Nigeria, told BusinessDay. This is below the N145 a litre cost of subsidised petrol.
Bigger trucks in Nigeria are already running on either CNG or liquefied natural gas (LNG). However, these heavy trucks come with dual fuel carriage systems and cryogenic facilities to enable them to utilise either CNG or LNG.
“All our trucks run on CNG. This is a much better fuel, as it is cheaper and much cleaner,” Singh said on phone. “We strongly believe that it is a more viable alternative to petrol and diesel. However, market forces need to determine the price.”
Dangote Cement and 7up are also successfully using CNG to power their fleet, BusinessDay found.
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 also provide the common man with a much cleaner and cheaper alternative fuel solution, Singh said.
Gas investments require huge capital and investors want to be sure they can recoup their investments with some margin of profit. The absence of a clear legal framework that incentivises gas development stalls gas investments.
In terms of comparative cost analysis between petrol and CNG, gas is naturally cheaper. But what will determine the economic viability of powering vehicles with CNG in Nigeria is the conversion cost from petrol or diesel to a CNG engine and availability of refilling stations, Lukman Agboola, head of research at Sofidam Capital, said.
Technology has, though, driven down the cost of conversion of vehicles to anywhere from $100-$1,000 depending on how the car owner wants it.
Egypt had taken the cost of conversion head-on. To offset the initial cost of converting vehicles from petrol to CNG engines, Egyptians were receiving concessions. Two oil-affiliated companies, Car Gas (Natural Gas Vehicles Company) and Gastec (Egyptian International Gas Technology Company), have continued to offer concessions to drivers who want to transfer cars to natural gas and to study the development of new and affordable payment systems. The companies offer easy payment facilities to car drivers who want to transfer their cars through instalment systems without advance or interest and with simplified contracting procedures.
“The rest of the world is moving towards the use of gas to power economic growth and to develop natural gas vehicle (NGV) technologies. Nigeria must do something about this,” Inibong Jackson, managing director and chief executive officer, Nigeria’s Oil & Gas Free Zones Authority, told BusinessDay on phone. “To achieve this, a strategic long-term plan will be needed. It cannot be an overnight transformation.”
Today, a CNG plant can be built in every petrol station and cars can do the same journey which one litre of petrol can at N110 for CNG and N145 for petrol.
Egypt has probably done the math and has signed agreements that will lead to the establishment of 54 natural gas refuelling installations across 15 governorates, including a number of car-conversion centres, by 30 primary and 24 secondary phase stations. Furthermore, it is intended that 350 new stations would be completed in six years after the study and selection of suitable sites.
In Nigeria, NIPCO, a downstream oil and gas company, claims it has converted a total of 5,600 vehicles into CNG engines at the company’s workshops in Benin, Edo State and Ibafo, Ogun State as one of the company’s efforts at providing access and an alternative to motorists to power their vehicles.
But Agboola reckons that the use of CNG might not be viable in the country yet.
“If we considered the viability of natural gas cars in terms of demand, the outlook does not look good for Nigeria, because there is none currently,” Agboola said.
STEPHEN ONYEKWELU
