FG’s inaction on gas reforms seen scuttling efforts at resolving epileptic power

The Federal Government’s inaction on calls to liberalise gas pricing and resolve ownership of gas discoveries in the country’s production sharing contracts (PSCs) with oil companies is hindering improvements in power supply and killing industries.

While Nigeria has 8,457.6MW installed capacity of thermal based generation (which accounts for 86 percent of power generation), only 4,996MW capacity is available due to inability to obtain gas.

“A total of 689mmscfd was delivered to the gas-fired power plants in the month of March 2017 to generate an average power of about 3,056MW,” notes the NNPC financial and operations report for March, released yesterday.

Across Nigeria, dozens of power projects cannot take-off due to gas constraints. Yet Nigeria has over 187Tscft of associated and non- associated gas reserve, making it the ninth largest gas reserve holder in the world, with Associated Gas making up about 88.8Tscft or 49.2%, while Non – Associated Gas makes up of 91.7Tscft or 50.8% of gas reserve in the country.

Experts blame this situation on a refusal to liberalise gas prices.

“The price of gas in the international gas market, as of today, is about $3.4 while it is sold here to commercial users at $7.49 for 1,000 standard cubic feet of gas. This is discouraging embedded generation plants from coming on stream.” said Chuks Nwani, energy analysts and vice president of PowerHouse International, an energy advisory firm.

The Nigerian Gas Company (NGC) has been broken into two with both successor companies, subsidiaries of the NNPC. They are the Nigerian Gas Processing and Transmission Company (NGPTC) and Nigerian Gas Marketing Company (NGMC).

The NGC operated over 2,000km of gas pipelines all over the country and was responsible for the doubling the capacity of the Escravos Lagos Pipeline System, and superintending the construction of the Obiafu-Obrikom-Oben (OB3) gas pipeline, as well as work on investment decision regarding the Ajaokuta-Kaduna-Kano (AKK) gas pipeline project, for which bids for Build, Operate and Transfer (BOT) have been recently awarded  to a Chinese firm.

The NGPTC is responsible for these constructions, while the NGMC will be responsible for marketing the gas molecules. But it is insufficient.

“The pipeline gas infrastructure in Nigeria to transport natural gas to the point of use is relatively small, given the size of the nation and high demand for natural gas. The pipeline network is limited to just a few cities – Lagos, Port Harcourt, Aba & Benin City,” said Deepak Khilnani, chairman, Cummins Power Generation Nigeria and Powergas Africa, in an interview.

Nwani said as a result of this, “NGC and its successor companies insist that gas is priced beyond the reach of manufactures, even if officially the petroleum ministry says transactions could proceed on market based rate.  This is killing our local production by making local products uncompetitive,” said Nwani.

The huge cost of building liquefaction units discourages foreign importation. Gas is shipped abroad in liquid form and has to be regasified to be used in industries.

As demand for gas from local operators shrinks, gas companies shift focus abroad. “What most of the gas companies do, is that because they need dollars, they tend to export overseas and starve the local market,” said Frank Jacobs, a former president of the Manufacturers Association of Nigeria (MAN).

Since Nigeria has no gas terms for its PSCs, gas from drilling operations in deep offshore acreages is either flared, or used as fuel for by the oil companies. Yet, more gas exists in deep offshore than onshore basins.

The NNPC operations report cited earlier, states, “Out of the 226.24 BCF of gas supplied in March 2017, a total of 135.46 BCF of gas was commercialised, comprising of 34.38 BCF and 101.07 BCF for the domestic and export market respectively.

This implies that 59.87% of the total gas produced was commercialised, while the balance of 40.13% was either re-injected, used as upstream fuel gas, or flared,”

“A possible explanation for this, is that the signed PSCs do not make any provision for how the parties should treat gas available for commercial exploitation; except that the parties define a separate agreement. No such agreements have been concluded,” said a NEITI report, released in December.

It further said, “Where gas is already in commercial production, such as in Bonga, the absence of an agreement results in loss of income to the Federation. One of the reasons is inadequacy, or an outright lack of infrastructure in the gas industry. This is even more evident in PSCs, as they mostly operate deep offshore.”

According to NEITI, apart from Snepco and TUPNI, all other PSCs do not have the facilities to deliver gas onshore for commercial purposes. Consequently, they usually flare the gas, reinject it, or use it for fuel.

At the 2016 edition of the Nigerian Gas Association (NGA) annual conference and exhibition in Abuja, Kachikwu announced that the Federal Government has developed a draft national gas policy that will resolve the absence of gas terms in PSCs. Six months later, no action has been taken.

 

 ISAAC ANYAOGU