Nigeria may have 192 trillion standard cubic feet of gas reserves, the largest in Africa and a thriving liquefied natural gas operation for export but new money is seeing Egypt as the most attractive destination for investment on the continent.
A visit by Miguel Arias Cañete, European Union Energy Commissioner last week promising support to transform Egypt into a regional energy hub should have Nigeria worried – assuming its administrators can still muster capacity for outrage.
Last week Monday, Egypt and the EU signed a four-year Memorandum of Understanding for a Strategic Cooperation in Energy, which opens up a wide range of opportunities for investment between the two sides in the field of renewable energy. Another deal that will see Cairo become a major gas supplier to Europe is on the cards.
A string of factors share a disproportionate amount of blame for Nigeria’s sorry pass. There is a deadlock over the Nigeria LNG which lawmakers want amended to allow NDDC collect three percent of its revenue though this negates the Act. As a result Nigeria seems willing to forego over $25billion investments in LNG Trains 7 and 8, leading to loss of investor confidence and reputational risk.
“Rather than squabbling over this pie, why not bake a bigger pie? What signal does this decision by legislators send to investors? It simply says, Nigeria cannot keep its word,” Victor Eromosele, a former chief financial officer of NLNG said.
Nigeria needs to monetise its gas and the NLNG has proven to be the best vehicle to do so but it is deliberating putting up barriers.
Oil majors with access to gas acreages have no financial incentive to develop them because it does not make economic sense due to limited returns in domestic market sale, this leaves these assets stranded.
Independents have motivation but lack acreages and Nigeria does not have separate licensing round for gas blocks.
The domestic market is not even attractive either. The gas pricing template is every investor’s favourite nightmare. Local gas producers say prices are low and uncompetitive but industries buying in Lagos say it is too exorbitant.
“It is also important that we develop a business friendly environment that will help gas investments to thrive,” says Sipasi, a partner at Aelex law firm.
Nigeria arrived at this impasse because it compels industries to buy gas at $7.20 per standard cubic feet while legacy power plants can buy at $3:30. Industries pay promptly to fulfil their contractual obligations but power plants owe because DisCos collect poorly.
Yet gas producers are forced to sell to power plants on the basis of national security and allocated domestic gas supply obligations which they must meet to keep their license.
To further compound their woes, local gas producers lose almost 20 percent of their market invoice due to exchange rate volatility. Their gas contracts are in US dollars but they are paid in naira at Central Bank exchange rate of N305 to a dollar. Forty percent of their income was wiped out in 2016 when the dollar exchanged for N510.
Worse still, Nigeria lacks critical infrastructure to move gas around the country. Statutory charges involved in moving gas do not incentivise producers.
Investments required to drive them stalls on absence of a viable fiscal law that encourages investment and tardiness in enacting a reformative petroleum industry bill.
“In framing gas fiscal term, Nigeria would need to decide if it wants to grow revenues or develop the domestic market,” Austin Avuru, the CEO of Seplat said at the Association of International Petroleum Negotiators (AIPN) conference in February.
These factors are helping cede the gas market on the continent to Egypt.
In remarks made at the EU-Egypt Sustainable Energy Forum in Cairo, Canete said that Egypt has the potential to become an energy hub, adding that the EU “is keen to support Egypt with sharing of experience, financial and technical assistance, and with the mobilisation of international finance.”
The discovery and development of the offshore Zohr field, estimated to hold 30Tcf of gas is oiling the relationship. Zohr is being developed by Italy’s oil and gas major ENI, Shell and BP also have a stakes in the project.
Through this deal, Egypt could get a long-term, viable gas customer benefit from technology transfer and financing by European partners of the upstream and downstream oil and gas sector. It will also accelerate its renewable energy ambitions.
For Europe, it will lead to increase of its security of energy supplies via diversification of sources, and shore up huge declines in European onshore gas production, as the Dutch Groningen gas field is facing a complete shutdown by 2030.
ISAAC ANYAOGU
