How feasible is NNPC’s commitment to 5bSCf daily supply of gas?
The Nigerian National Petroleum Corporation (NNPC) has committed to supply 5 billion standard cubic feet (SCf) of gas daily to Nigeria’s domestic gas market to drive willing buyer, willing seller pricing model but this plan might hit a cul-de-sac.
Investors have stayed away from Nigeria’s domestic gas market due to opacity of fiscal terms, lack of functional gas infrastructure and high entry barriers, which have in turn kept the market underdeveloped and impacted gas utilisation.
“To ensure there is willing buyer, willing seller model in the domestic gas market, the NNPC decided that to supply 5 billion standard cubic feet of gas daily to the market will be able to sustain supply and sufficiency of gas to the domestic market” Bello Rabiu, Chief Operating Officer, Upstream, Nigerian National Petroleum Corporation (NNPC) said. “Part of the reason for the gas master plan is to make the domestic gas market viable and reduce entry barriers.”
For incentives, the NNPC have stipulated variable gas prices for different sectors of the economy to drive investment inflows and competitiveness. There is one gas price for power, one for industries and another for industries that use gas a feedstock to manufacture fertilizers and petrochemicals. In this sense, a Nigerian fertilizer manufacturer should be able to compete with other fertilizers makers around the world.
“The economics of natural gas development and utilisation are driven by the high cost of gas production and transport facilities, and the need for economies of scale. Therefore, to drive an increase in private-sector led activities, government have to execute at the least, the gas infrastructure blueprint as contained in the GMP” Chijioke Nwaozuzu, deputy-director at Emerald Energy Institute, University of Port-Harcourt stated in a newspaper article published May 31, 2018.
The Nigerian Gas Master Plan (GMP) specified a revised transitional pricing structure for gas to power projects in 2010, and ultimately a price of $2.50 per million British thermal unit (MMBTU) was set in 2014 for contracts that are supplied under the domestic gas supply obligation (DGSO) scheme.
The price by 2010 was $1.99 per MMBTU. The GMP also imposed penalties for non-compliance with the DGSO which includes: payment for volumes not supplied, or a penalty price of $3.50/Mscf, whichever is higher; and disqualification from supply of gas to any export projects.
“Gas is a big source of economic diversification. It can transform agro based industries and boost food production through the use of fertilizers. But to attract the needed investment, we need fiscal terms that incentivise investors. Some companies have supplied gas but have not been paid. We also need fiscal terms that encourage small and medium term projects” Jeffrey Ewing, chairman and managing director, Chevron Nigeria Limited said.
To achieve the target of developing Nigeria’s domestic gas market, huge upfront infrastructure spending is needed. The oil and gas sector needs $20 billion to $30 billion annually to maintain production.
As long as there are no pipelines to move the gas from where it is produced to where it is utilised, the domestic gas market will continue to suffer.
“An initial phase of about 2,500km of gas pipeline infrastructure was planned to be completed by the end of 2018. This target, when achieved, will boost investor’s confidence in natural gas market in the country” Nwaozuzu said.
Experts say some pipelines that need attention include: expansion of the Escravos-Lagos Pipeline System (ELPS) from 1.1 Bscf/day to 2.2 Bscf/day.
The Trans Nigeria Pipeline Project (TNPP) needs to be completed. TNPP aims to connect the gas pipeline systems in Nigeria to create an inter-connected system that will provide flexibility and better management of gas supplies.
The framework of this system is an integration of the three gas pipeline systems: Obiafu-Obrikom-Oben (OB3) system with a flow capacity of 2.0 Bscf/day, the Calabar-Ajeokuta-Abuja system with flow capacity of 3.0 Bscf/day, and the Abuja-Kaduna-Kano system.
STEPHEN ONYEKWELU