Boosting domestic gas supply
The Nigerian government has made it a priority to unlock the potential of this resource to increase domestic and industrial power supply, raise living standards and support sustainable economic growth and diversification.
The Nigerian Gas Master Plan approved on February 13 2008 is a guide for the commercial exploitation and management of Nigeria’s gas sector. It aims to grow the Nigerian economy with gas by pursuing three key strategies: stimulate the multiplier effect of gas in the domestic economy; position Nigeria competitively in high value export markets and guarantee the long term energy security of Nigeria.
The rapid delivery of gas infrastructure is crucial in Nigeria’s quest to fully realize its huge gas aspirations. Despite being ranked as the seventh richest in terms of proven natural gas reserves in the world, the demand for gas in the Nigerian domestic market far outstrips the supply with insufficient infrastructure to meet the needs of the market.
The federal government has put down intervention plans to kick start viable domestic markets which include the introduction of Domestic Supply Obligation Regulation and Transitional Gas Pricing Structure.
Under the Domestic Supply Obligation (DSO), every gas producer must allocate a portion of their production to the DSO before they can allocate any gas to other commercial obligations. Non-compliance would result in significant penalties. The amount each supplier must allocate is not fixed but is determined each year based on domestic demand and the number of gas suppliers.
Before the DSO was introduced and became operational in 2010, practically all gas produced was exported because the price the PHCN generating companies (GenCos) were willing (and able) to pay was too low to make it commercially viable to supply gas to local GenCos.
Power-sector demand accounts for roughly 70 percent of domestic gas consumption. Under the power privatisation initiative, a new Gas Aggregation Company of Nigeria (GACN) was established as an intermediary between gas producers and off-takers among independent power producers (IPPs), harmonising the price nationwide and dispatching supplies to match demand. GACN responsibilities also include managing receipts of payments and disbursement of an aggregate gas price to suppliers and facilitating the execution of necessary securities in respect of default of gas payments.
Although natural gas production has steadily increased in recent years in line with domestic supply obligations and the broad road map of the Gas Master Plan (GMP), development of the required gas pipeline infrastructure in a country where it has traditionally been fragmented between regions has lagged far behind.
The problem of ensuring adequate natural gas supply for power generation has taken centre stage. The government unveiled a gas-to-power programme aimed at solving structural issues and ensuring locally sourced gas for power generation.
Two key challenges to attracting investments in gas-gathering and pipeline infrastructure projects have been the low price of domestic gas and chronic shortfalls in power companies’ payments.
To attain full commerciality in domestic market, “export parity pricing, legislative and structural reforms are already in place while infrastructure development is in progress”. Consolidation and expansion of infrastructure would be carried out so that gas flows across all the regions in the country. On attainment of full market status, there should be market led growth, willing buyer, willing seller arrangements, mature regulatory oversight functions and highly diversified gas sector.
Beyond financing and technical issues, awareness of the goals and details of the Nigeria Gas Master Plan is low outside the small enclave of oil and gas technocrats.