2016: How absence of investment stifled gas utilisation prospects

The unresolved issues around credible and enforceable gas contracts coupled with a price regime in the last 12 month frustrated willing local investors from putting their money into production of gas for local use.

Operators observe that gas projects will become more profitable if indigenous companies are given access, stressing that it will be easier for local companies with proven track records to attract investors to execute projects that can unlock gas for Nigeria.

Nigeria with an estimated 182 trillion scf of gas reserve has the lowest user of fertiliser per square meter in the world and equally ranks lowest in per capita usage of Liquefied Petroleum Gas (LPG) in Africa with 1.1 kilogramme consumption rate behind South Africa, Morocco and Ghana.

Also the fact that Gas penetration out of the major cities in Nigeria is only 1 percent in a nation with a population of over 170 million people speaks of low gas utilisation.

Dada Thomas, managing director, Frontier Oil Limited while reacting to the issues around gas investment said that Government has no business in commercial transactions stressing that they should stick to technical regulation.

“There should be attractive fiscal regime (tax regime should be attractive) there should be tax holidays. Instead of the 5 years pioneer tax regime that we have right now, it should be ten years” he said.

Thomas says that government needs to do more in freeing gas for local investor because 85 percent of the gas in the country is locked up with the IOCs leaving indigenous companies starving for gas yet we want to develop gas for the domestic market adding to only incent for indigenous company willing to continue to invest in gas for domestic use is if government addresses the problems they have.

He reiterated that the only way to make gas project profitable and bankable is when there is a willing buyer willing seller market. Government should not be prescribing price of gas between two profit making entities.

Industry experts also pointed out that 70 per cent of gas projects are in dollars because the technology, the equipment is not resident in Nigeria. You have to spend dollars to get a gas project going. So if government does not address this investment and income currency mix match, there will be no future investment in gas project in Nigeria, there will be no more addition power therefore Nigeria economy cannot grow.

They maintain that the infrastructure distributing gas around the country is poor and there need to be a public private partnership in growing this infrastructure because the molecule of gas are over there in the Niger delta while the largest consumer of gas are in the south west and you have to connect the two.

Other countries give 13 while give 15 years so that they can attract investment; there should also be a reduced royalty on gas projects. Government should make it attractive for investors to bring their money which has choice of where to go in the world to come to your jurisdiction, stay there and create wealth and grow

The foreign exchange issue is at the heart oil why the gas to power value chain will crumble in the next few years if the government does not do something about it. The future in my view is to see that framework for developing gas is made better by the government.

Bank-Anthony Okoroafor, the chairman of the Petroleum Technology Association of Nigeria, (PETAN). In a recent interview observed that Oil & Gas industry is dying. Activity level is at the lowest. Projects have been deferred or cancelled. Service industries that have built capacities and capabilities are laying-off well trained personnel. Banks are no longer lending, there is tightened access to capital with decreasing cash flows, highly leveraged companies will struggle as lenders and investors tighten access to capital, limiting their ability to continue exploration and developmental activities.

Rig count is almost zero; well intervention and well completion activities are down to zero level. We should as a matter of urgency review our fiscal terms to maintain attractiveness and investment. Investment goes to friendly environments.

We should honour our joint Venture (JV) cash calls obligations or convert them to Sovereign Loans. Another possible scenario is to reduce government equity in these JVs to 10 percent and focus more on royalties and taxes, which generate close to 80 percent to the government. Investors’ confidence in oil and gas activity in Nigeria is eroding within all these frameworks of uncertainty.

KELECHI EWUZIE