‘New gas code will create an open-access regime in Nigeria’s market’
Chichi Emenike is the head of Gas Ventures at Neconde Energy. In this interview with Josephine Okojie, she spoke about the gas industry and the critical need for the passage of the PIGB among others.
It has been said that Nigeria is a gas country with crude meant to be a side business. But the reverse is the case as even the gas is not efficiently supplied to the local market and other issues. What is the nature of the domestic gas sector and what is hampering investments therein?
We have gained some traction in the local market but there is still a lot to be done. The focus is really on gas as an enabler. For us, we say gas is revenue, it is jobs, and it is food. Gas can guarantee us economic security and it is the new crude. We all know Nigeria is more of a gas nation than a crude nation, however, for all the gas that we have in this country, we haven’t even touched a tenth of it. Most of the gas volumes you are looking at are the gas volumes that have been generated from crude oil drilling activities. We haven’t really gone for full gas development, that is, non-associated gas, and most of the gas is still trapped in the ground.
There is also the angle of gas development for increased economic impact, so, as I speak to you, there are reports that have been done showing that there’s a direct correlation between investment in gas development and economic growth. Reports done show that if you put in a dollar in gas investment and it earns you around three dollars in GDP. Additionally, there is a direct proven correlation between the level of power generation and utilization, and a nation’s economic growth and development. Therefore, it cannot be overemphasized that natural gas is, therefore, a critical resource with the potential to be the core enabler for very serious economic growth.
The focus has been more on exporting, should that be the focus and what can be done to make gas available for local consumption to aid the development of the economy? What is Neconde’s role in this?
There’s so much focus on taking this gas outside, that’s okay and has its benefits but what about opening up domestically and then across the value chain, you know, from here even into the West African region. All those are initiatives that we need to begin to look at. The benefits of whether we export or use the gas domestically are enormous. Take a look, for instance, a project like the NLNG Train 7, we’ve put some figures to it, so for the about 1.27BCF that is involved in this train of the project, this will yield at least well over 4000 jobs. We’re talking of economic recovery, even the Federal Government’s Economic Recovery Growth Plan (ERGP), and these are directly linked to opening or creating more jobs, driving the GDP. Our GDP, when compare to the resources we have and then look at the dismal figures, it is just not adding up.
For Neconde and its JV partner the Nigeria Petroleum Development Company (NPDC), we are committed to developing our huge volumes of gas reserves on OML 42. We have been delivering gas into the domestic market since December 2018 to our current off-taker the Nigerian Gas Company. We have also been working with other initiatives to see how to increase our Gas production capacity, monetize the volumes, and ultimately achieve zero flaring on our asset. We have also initiated what we refer to as accelerated gas development programs. On the asset, we have some existing Gas infrastructure and working on deploying additional Capex to acquire more.
What are the issues preventing investments from coming to the gas sector? Why are investors sceptical of the sector?
The number one issue is a lack of adequate legal, fiscal, regulatory, and contractual framework, which has prevented a whole lot of international investors from participating in the Nigerian gas market? What I speaking to is specifically the Petroleum Industry Bill (PIB). Everywhere else in the world, at least for most of the countries that there have developed their oil and gas sector, you have in place frameworks that have encouraged this growth. Here in Nigeria, we need to get very deliberate about what we are doing about this bill.
We keep talking about local gas development and the utilization and over time the concerns have been from the off-takers in terms of gas pricing. How do we address this issue?
You have come to a big lacuna in the room, which is the gas pricing issue and I need to first paint the big picture. You need to understand the peculiarities, first of all, of doing business in Nigeria. Doing business in Nigeria is not easy. Two, we want to speak to gas pricing; we need to also look at the available volumes and how that complements pricing. We need more volumes in the system and those volumes that we need will come from gas development, investment in infrastructure, in the drilling of upstream wells. Now, please note that most of these activities mostly require Foreign exchange because the equipment and technical solutions required are mostly imported. The market has to open up and accepts this gas at prices that also make sense to the investors and that are where we begin to talk to the willing buyer, a willing seller situation. What we have continued to advocate for is sort of what we happened in the telecoms sector with GSM. We need more players to come on board with investments and then over time liberalize the market. Investments need to come in at prices that can make sense to those who brought in the money as well as making consideration for affordability for the end-users.
On the recently launched Gas Transport Network Code, What role is it coming to play in the light of these deficiencies in the key legal and fiscal infrastructure?
The gas conversation is never-ending and, so you are correct as it relates to the legal and fiscal framework. The network code was just recently launched and it is seeking to achieve is to help to liberalize the market and this is all driven towards an open-access regime. If you know a bit about what’s available now as regards existing infrastructure, it’s more around a certain monopoly. However, the network code is seeking to encourage diversified participants, buyers, sellers, shippers, transporters, just trying to get users to use the infrastructure more with a framework that backs these arrangements. Companies and end-users can contract volumes upstream and then speak to transmitters and shippers and then sort it all out with non-discriminatory access.
Effective operationalization of the code will create a transparent and optimally available open access pipeline regime that will accelerate the growth of the domestic gas market. All this is really just encouraging the use of gas. The network code has come to stay and it something we have also been advocating for a very long time. It will also serve as an enabler for the gas master plan which came upon 2008. What the gas master plan was trying to do was create a crisscross of gas infrastructure all over the country to see how we can get more industries to open up. We need to create that enabling environment and part of this is the enabling environment is the network Code.
I know you’re one of the top players within the gas development and utilization sector. What are the specific challenges that your company has encountered?
For most of us players, it’s about securing a bankable market. About 40 percent of gas volumes in Nigeria are used in the power sector and that power sector is completely on lockdown, despite all the investments that have gone in there. If you are investing, you want to know where your money is going to come out from and have a clear line of sight to how you will get it back. Funding is very contingent on this market. Also, we need to address the issues surrounding access to financing. You need loans that can give you better tenor with better interest rates so that with our kind of economy, plus or minus your numbers can take the knocks and hits from regular business. Most of the economies worldwide have gone into red and capital is seriously constrained. Capital, however, will always go to the place of highest and secured return. We also have had to deal with communities’ issues and we are working on more ways to effectively collaborate with the communities where we operate. These are some of the challenges we have been dealing with.
What are the key concerns for companies intending to do business in the Nigerian gas market and what are the key financial challenges indigenous companies face?
Most of the investments needed to liberalize the sector are FDIs. It’s huge, we are talking about Foreign exchange that would come out of the country and those CAPEX have to make sense and can be repatriated to where they came from. Some of the discussions today has centered on the PIB, creating this environment, a willing buyer, willing seller situation to kick-off, allow the market to liberalize. If we try to unbundle it, layer by layer probably at a faster rate, we may see the influx of more investments. We also have issues with how the domestic market pays for these foreign exchange-based investments with the naira. There is a mismatch between investment and revenue currency, forex risk and value erosion, and even regulatory inconsistencies relating also to forex. These are some of what investors are looking at and deciding whether their capital is coming to Nigeria or not.
What is the quantum of gas being delivered domestically daily by Neconde and how has this helped the efficiency of the power sector?
Currently, we have an infrastructure with a capacity of 80million Scf, and our short to medium term plans under what we call accelerated gas programs will deliver an additional 100m Scf to be pumped into the local market. Our current offtaker is Nigeria Gas Company who is not the final end-user but rather supplies this gas to the market part of which is the Power sector. That is what it looks like now for our associated gas, gas coming out with our crude drilling activities, which we are trying to capture and process, all geared towards zero gas flaring activities on our asset.