Why NNPC’s aim to triple domestic gas supply by 2020 is untenable?

Reuters published on its sight that Nigeria’s state energy company and its partners plan to more than triple the country’s gas supply for domestic consumption within the next three years.

 

According to Reuters, Nigeria National Petroleum Corporation (NNPC) said it and seven other oil and gas companies had identified seven projects that would require fast-track completion to meet the growth target.

 

The projects include Assa North-Ohaji South Field Development and Oil Mining Lease (OML) 24 and Chevron Nigeria Limited’s OML 49 Makaraba Cluster Development.

 

We have fact checked and come to a logical conclusion that it will take government more than three years to fulfill the aforementioned ambitious plans.

 

This is because the Federal Government has created a myriad of bottlenecks for operators or stakeholders  in the  gas industry.

 

One of the pains inflicted by policy makers on operators is the policy on taxation and tariff on the product and equipment alike.

 

Despite the debilitating challenges, investors have invested $400 million in constructing new terminals as they pursue a growth strategy.

 

In 2015, the Electricity Regulatory Commission, NERC, approved an upward review of the gas price from $1.5 per thousand cubic feet, MCF, to $2.5 per MCF.

 

The Commission had described the review as a “pragmatic and creative” short term approach to address the challenge of inadequate gas supply to thermal power generation plants across the country.

 

The new gas-to-power pricing benchmark also included 80 cents as transportation cost per MCF for new electricity generation capacity.

 

The approval of the price review had triggered fears about the plan by government to increase electricity tariffs by about 40 per cent.

 

The new pricing regime and other measures adopted by government were expected to help raise national power generation capacity to at least 5,000 megawatts, MW, within four months.

 

Operators had however agitated for a gas price of between $5 and $7, a price they will make them breakeven.
 Another factor hindering LPG growth in the country according to Michael Umudu, President Liquefied Petroleum Gas Retailers Association of Nigeria, is lack of proper storage facilities by a number of organisations operating in the country’s LPG sector.

 

There are inadequate low –draft vessel- only one in Nigeria as well as inefficiencies in shipping operations leading to high unit of freight costs.

 

Also, the inadequate and uneven spread receiving terminals-m only two in operational terminal in Lagos and limited jetty availability and restricted or limited access to facilities are stumbling blocks to growth of operators in the gas sector.

 

The speedy in the passage of the Petroleum Industry Bill (PIB) that has been laying fallow in the National Assembly will unlock the potentials in the oil and gas sector.

 

The Petroleum Industry Bill 2012 (“PIB”) seeks to ensure that the management and allocation of petroleum resources in Nigeria and their derivatives are conducted in accordance with the principles of good governance, transparency and sustainable development in Nigeria.

 

The country lost at least N217bn last year as oil and gas companies flared a total of 244.84 billion standard cubic feet of natural gas in that period, data from the Nigerian National Petroleum Corporation (NNPC) have shown.

 

In the second half of the year, the country recorded the highest volume of gas flared in November at 24.54 billion scf, up from 22.60 billion scf in October; 21.5 billion scf in September; 21.14 billion scf in August, and 21.79 billion scf in July.
The NNPC said, “Total gas supply for the period, January 2016 to December 2016, stood at 2,581.42 billion scf, out of which 1,448.91 billion scf (307.16 billion scf and 1,141.75 billion scf for the domestic and export market, respectively) was commercialised while non-commercialised stood at 1,132.52 BCF.

 

A total of 21.15 billion scf of gas was flared in December, according to the NNPC data.

 

The latest monthly report from the NNPC showed that 22.32 billion scf of gas was flared in January; 20.38 billion scf in February; 20.11 billion scf in March; 18.7 billion scf in April; 15.8 billion scf in May, and 14.8 billion scf in June.

“Out of the 788.11million scf per day of gas supplied to the domestic market in December 2016, about 480.64 million scfpd of gas, representing 60.99 per cent, was used for gas-fired power plants while the balance of 307.47 million scfpd or 39.01 per cent was supplied to other industries.

 

“Similarly, for the period of January 2016 to December 2016, an average of 839.70million scfd of gas was supplied to the domestic market, comprising an average of 517.92 million scfd or (65.72 per cent) as gas supply to the power plants and 321.77 million scfd or (40.83 per cent) as gas supply to industries.”