Why private investment in gas infrastructure is low

Despite the introduction of the Gas Master Plan and the immerse opportunities that abound for private investors in the development of a gas pipeline network, private investment into gas infrastructure has remained low. This is as a result of a low commercial basis for investments and vandalism on the systems.

According to Clement Oke, acting chairman, Presidential Taskforce on Power, “there has been no incentive for private players to invest in gas supply and infrastructure projects for the longest time; investments in gas infrastructure has been by the government without an economic basis for the projects.”

“Even though the Gas Master Plan is changing this, the biggest challenges remain in tariff collections and vandalism,” he said at the 2014 Nigeria Indigenous Oil Summit.

The biggest users of gas in Nigeria are power companies. The power sector is struggling to achieve higher revenue collection, with losses as high as 80 percent in the Eastern part of the country.

In Lagos, 2 percent of customers bring in 50 percent of the revenues.

This is of acute importance in the gas supply business, because it is ‘like a marriage’ according to Oke, saying “if the buyer is unable to pay, the gas supplier or transporter cannot unearth his or her pipeline and supply to someone else.

“The market works and investments in infrastructure pour in when it is a market of willing buyers and willing sellers.”

Nigeria is moving to that direction and developing a market of willing buyers and willing sellers, giving the example of Azura and Seplat, he said.

In addition to commercial viability, vandalism is a big deterrent to investors, especially during construction.

Oke pointed out the example of the ECPA pipeline that was blown up by dynamites, saying Shell’s plant in Afam was running on less than 25 percent of its capacity due to vandalism on the pipeline.

Even as the Gas Master Plan seeks to change the dearth of investments in gas infrastructure, he appealed to members of the public to refrain from by-passing meters and vandalising infrastructure, as the losses far outweigh the gains.

He noted that distribution companies were rolling out intelligent meters and anti-tamper meters to plug loopholes in the system.

Rolake Akinkugbe, VP/head, energy and natural resources, FBN Capital, at the event, pointed out the urgent need for a regional gas pipeline network.

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Speaking on the oil price slump, she said: “If we are to consider the worst case, an apocalyptic scenario where prices drop significantly, the biggest concern would be ‘how will this region (West Africa) defend its market share?’

“We have to look inwards to develop our market for our oil and gas resources. Right now, there is not much of an absorption capacity.”

She pointed out that China, the go-to market for West African oil exporters, had its own shale oil deposits. As the technology continues to improve and/or if oil prices reach an economical level, there is the potential for another supply glut.

Yinka Abraham