El-Rufai’s energy ministry focuses on gas, petrochemicals

Nasir El-Rufai, former governor of Kaduna State, will head up the new Ministry of Energy focused on the larger strategic goal of using the Electricity Act 2023 to bring Federal and State government capacities to widen energy access for Nigerians.

With the creation of a new ministry for energy and the appointment of a swashbuckling reformer to head it, the Federal Government is signalling its intention to turn the focus away from oil, bringing together gas and power to deepen industrialization and grow petrochemicals, experts say

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BusinessDay gathered that El-Rufai has lined up a broad team of experts comprising local and international consultants and experts to develop a strategy for the new ministry.

The creation of a new ministry for energy and power to manage the country’s vast gas resources seeks to solve the perennial problem of lack of gas to run plants and remove control of gas supply and pricing, something industry operators have clamoured for long craved.

In an earlier story, this paper reported that the government was considering excising gas from the Ministry of Petroleum Resources. The proposed appointment of El-Rufai, with a track record as a strong-willed reformer, to head the ministry signals Tinubu’s intention significant for changes.

The new ministry will be tasked with removing constraints to gas supply by establishing a complementary and flawlessly interconnected framework for electricity and natural gas, giving the electricity sector regulator, the Nigerian Electricity Regulatory Commission (NERC), the purview of the energy, not just electricity, industry.

The privatization of the power sector in 2013 aimed to inject private capital into the industry, excise government control allowing private operators to manage power generation, distribution and transmission.

However, things went differently than planned. Firstly, Nigeria needed help finding a buyer for its transmission assets. The entities that bought power distribution assets needed more capacity to invest in improving the network and couldn’t even fund meters for their customers. Debts owed by legacy plants bogged down generation companies, and tariffs could not guarantee commercial returns as NERC’s cost-reflective taxes were at odds with the industry that supplies natural gas for power.

“There is currently no assurance that Discos can pay up for even the energy being supplied today, let alone higher priced energy due to more expensive gas. If they let gas prices rise, electricity tariffs will follow; with the attendant political implications in a country where barely any power is being supplied,” an investor told BusinessDay.

The results soon manifested in erratic power supply, frequent grid collapses, and a flight of investments. The government regulator NERC began to implement reforms, but they were said to be poorly sequenced and sometimes conflicted with the priorities of the Petroleum Ministry. Power plants were mandated to keep turbines running with a gun to their heads, citing national interest.

Thus a good day in the sector is one in which no gas pipeline has been vandalized, there is no maintenance outage by NGC or any of the gas suppliers, and every molecule of gas that available power plants can burn has been delivered, said one industry stakeholder.

Nigeria last saw such a day on 23rd December 2012, when all available power plants delivered 4517MW to the grid, including about 700MW of hydropower, leading to about 1.1 billion standard cubic feet of gas (1.3bcf) given to power plants that day.

Sources with knowledge of the government plans tell BusinessDay that the Ministry of Energy will pay specific attention to gas to deepen the use of the resources for power, industries and petrochemicals. The government employs local and international consultants, including analysts at Boston Consulting and McKinsey, to develop the strategy.

Some of the ideas being proposed are the equivalent of a gas Domestic Supply Obligation (DSO) overseen by a collection of stakeholders, including International Oil Companies, indigenous suppliers, non-NGC pipeline owners such as there are, IPPs, other major non-IPP gas buyers (fertilizer, cement, heavy industry) and the ministry rather than a situation where government by fiat commands supply.

The price control regime for gas-to-power set up in 2009 has yet to incentivize the development of new gas supply and processing facilities. The new reality will require renegotiating current prices from the politically mandated to the best possible commercial price. Experts are calling for the Gencos, NERC, and the Ministry of Power to sit down with gas suppliers and the NNPC.

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The new energy ministry will tackle the challenge of poor sequencing and coordination of government interests in some gas projects the NNPC is engaged in, including the $400mn OB-OB3 pipeline project that was supposed to be due in 2016. The project will deliver 700mmscfd to Western Nigeria, where demand and thermal Gencos are highest from the Eastern Niger Delta. The project aligns with the aspirations of operators. Bolaji Osunsanya, CEO of Axxela Limited, in an interview with BusinessDay, said Nigeria should be looking at increasing exploration beyond the 206 Trillion Cubic Feet of gas it currently has and developing the market.

“The policy should be growth-oriented and expansionary; we should do more than export, but use more gas locally, which means additional LNG trains to complement what the Nigeria LNG is doing. There’s no reason why we shouldn’t be more aggressive in exploiting our gas resources,” he said.