Madam Minister free gas for power

Nigerians are groaning as the gas supply crisis threatens to upend the landmark privatisation of Nigeria’s electricity industry as Diezani Allison-Madueke, the Minister for Petroleum Resources fails to act. Her ministry controls gas prices by regulation; the Nigerian Gas Company, a subsidiary of the Nigerian National Petroleum Corporation (NNPC), owns the largest network of gas transport pipelines in the country.

The NNPC lately acknowledged that domestic gas prices would increase by 2016. Why delay medicine for a chronic disease? Opening up the supply of gas to the power sector is a weighty political appraisal issue.

Power outages across the country have been constant, debilitating for households, excruciating for businesses that suffer rising production costs, falling productivity, lower revenues, leading to staff lay-offs. Last week, during an energy conference in Abuja, there was an outage while Madam Minister delivered a speech on gas reforms.

The reason for this poor power supply is connected with the shortage of gas supply to power plants in the country, which has been exacerbated by the recent shutdown of the 400,000-barrels-capacity Trans Forcados pipeline as a result of a leakage close to the Forcados export terminal.

The Escravos-Lagos gas pipeline and Trans Forcados pipeline are the most strategic arteries for gas supply in the country and any hitch on them results in severe supply problems which then hinder power supply.

The shutdown of the pipeline has led to the suspension of 220 million standard cubic feet (scf) of gas supply to the national power grid, translating to about 1,000 megawatts (MW) of electricity.  What this means is that power supply has gone down by 1,000 MW. With about 80 percent of the power plants in Nigeria being gas-fired, it is evident why these power outages are now so frequent.

But what will continue to negatively impact the generation capacity of Nigeria’s power plants is not the temporary setback posed by damage in the strategic gas pipelines, but the subsisting regime of very low gas tariff which is a major disincentive for gas production and supply in the country.

The regulated price of domestic gas is too low to spur investment. This is partly understandable; there is currently no assurance that IPPs, the main buyers of domestic gas can recoup a higher cost of gas from Discos which today cannot pay for even the energy being supplied. The fear is that a rise in gas prices will result in higher electricity tariffs, with the attendant political implications in a country where there is barely any power.

The power sector is estimated to require up to 3.5 billion cubic feet per day (bcfd) of gas, over the next three years and could require more than 5 bcfd when power plants under the National Integrated Power Projects (NIPPs) scheme are privatised.

Unfortunately, the cart: gas-powered generating plants have been put before the horse: ensuring an adequate supply of gas?  New owners of the NIPPs will soon discover that compared to finding gas, paying for the assets will be child’s play.

There has been so much posturing over power generating capacity targets in recent years. The shifting promises to deliver a negligible 6,000MW in the last two years has become like  child’s play, revealing government’s insensitivity to a variable that shapes livelihoods and the entire productive capacity of Nigeria’s economy. Current peak demand estimates for power in the country hovers around 13,000MW.

If Nigeria’s power plants would indeed live up to the power demand, then gas supply to these plants must be gotten right. This means freeing gas prices to attract investors e.g. IOCs, indigenous suppliers, non-NGC pipeline owners, IPPs, other major non-IPP gas buyers (fertilizer, cement, heavy industry) and thus end monopoly of NGC.

We urge the Minister of Petroleum Resources to do the needful to deregulate the gas market today and make it an investors delight, to prevent a regime of gas shortages, vandalism and perennial power outages.