Any plan by the Federal Government to improve electricity generation and supply domestically, which is currently on an estimated figure of 3,686.3mw, without a corresponding enabling environment for investment in gas infrastructure may just be an effort in futility, operators say.
Operators are worried that despite Nigeria’s huge gas reserves, availability of gas domestically has been a major challenge in the energy sector.
They observe that gas producers, most of which have the technical and financial capacity, are reluctant to put the necessary infrastructure in place to meet domestic gas demand, which has seen some increase in the last few years. Rather, many have chosen to develop export projects.
The expectation is that once government through a sustainable framework encourages investment in gas infrastructure, private sector, especially local operators, are willing to invest in gas development to feed into power companies.
Dada Thomas, managing director, Frontier Oil Limited, observes that freeing gas for local investors is the first step toward encouraging willing investors to develop gas for the domestic market.
Industry players maintain that while it is not difficult to decipher that utilisation of gas has assumed a new dimension, especially now that the Federal Government is out to increase electricity, saying achieving the desired result in local gas generation and supply will remain a very sensitive issue with government involvement in unrealistic prices.
Federal Government power reforms will not yield sustainable results in the views of Ayodele Oni, an international energy investment law specialist, unless gas supply/availability challenge together with diversification of fuel sources is addressed.
Oni observes that a major reason for gas producers not wanting to invest in the domestic gas sector infrastructure and the domestic gas market generally has been the absence a commercially viable pricing structure.
According to Oni, “proper pricing of electricity that adequately factors the cost of gas, which is what the multi-year tariff order seeks to achieve; the expected domestic gas and gas export price parity, the challenges in the gas sector must quickly be resolved.”
He says the power sector is capable of creating a ‘demand pull’ for investments in the gas subsector once the right business environment is entrenched.
Wumi Iledare, director of Emerald Energy Institute, University of Port Harcourt, Rivers State, observes that the gas market is still evolving, adding that perhaps a Gas Purchase Agreement per contract can help as the domestic gas market evolves.
On his part, Dolapo Oni, head, Energy Research, Ecobank Development Company Nigeria Limited, discloses that a short term gas availability that will focus on meeting immediate power sector requirements, jump-start the domestic gas-based industries and more importantly, provide a base load of domestic gas volumes that will underpin a major investment in gas infrastructure should be encouraged by government.
Oni is optimistic that this will set the tune for a sustainable commercial framework underpinned by “credible and enforceable gas contracts, and a price regime that is commercially driven and recognises the long-term affordability across different buyers.
The solution to this is simple, a local gas market without government interference in pricing will definitely be attractive to investors, Kareem Jubril Adedayo, an energy expert with Ecobank, observes.
Adedayo says government determination to keep cost of electricity low is hindering this development, as a cost reflective gas price will translate to higher tariff for electricity consumers.
He is however optimistic that in the long run when such investment are matched by improvement in power generation and transmission price will definitely find a lower level than the expected interim surge, should the government decide to deregulate the industry.
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