‘Higher gas prices in Nigeria, a big detriment to industrial growth’

Industry players in the oil and gas sector of the Nigerian economy say high price of gas is deterring the growth of industries in the country. They therefore call on the President Muhammadu Buhari-led administration to review this urgently as it will encourage investment growth.

They maintain that a lower retail price to industries will boost domestic manufacturing, hence reducing reliance on imports and directly benefiting the consumer.

According to them, with the abundance of natural gas in Nigeria, the significant economic and environmental benefits of operating on natural gas and the large power deficit in Nigeria, a lower gas price will be beneficial for the country.

Experts in the energy sector observe that as a benchmark, the natural gas price in Nigeria is high compared with international price, stressing that while the domestic retail price of gas is $7.39 per mmbtu, (one million British Thermal Units) whereas the global gas price is approximately $3-4 per mmbtu. Therefore, higher gas prices in Nigeria are a big detriment to industrial growth, they say.

Deepak Khilnani, CEO of Powergas Africa Limited, in an interview with BusinessDay, said if natural gas, which is a domestic resource, was made available at a competitive price, then the resultant price of power could be reduced.

Khilnani maintained that Private investment would only grow if investors were given the returns, adding that this was the only practical way for power generation to increase in the country.

“The gas industry in Nigeria is growing fast. There is a strong economic incentive for industries and power generation companies to switch to natural gas. Yet, the total size of the market is very small compared to the potential. There is no gas pipeline infrastructure in the North of Nigeria, where the primary fuel source is diesel and the gas availability in the South does not nearly meet demand.

“Nigeria holds the world’s ninth largest proven natural gas reserves, however, the source of gas is not connected to the demand and much gas is flared – that’s the fundamental problem. It’s also where we come in. Additional investment in gas extraction, pipeline and compression stations and last mile distribution is critical for the whole industry to grow,” Khilnani said.

The gas market is still evolving, Wumi Iledare, director of Emerald Energy Institute, University of Port Harcourt, Rivers State, observed, adding that perhaps a gas purchase agreement per contract can help as the domestic gas market evolves.

According to Iledare, “Export parity pricing with respect to LNG may not be the best way to go if the domestic market is to be expanded for gas. This is intertwined with the tariff paid by electricity consumers as well, more so if gas remains the primary input for power generation.”

Gas demand for power in Nigeria could reach 5 billion scf by 2017, observed Rolake Akinkugbe, head, Energy and Natural Resources, FBNQuest, but however pointed out that supply is likely to fall short due to limited incentives for companies to invest in gas processing plants and pipelines to supply the local market.

Akinkugbe opine that improved gas prices could help secure off takers for produced gas at higher price although the regulated price of electricity will still hinder the ability of power plants operators to raise the price of feedstock.

“Given the sheer demand for gas, the prospects are bright, but whether that gas can reach its desired market is a completely separate issue,” she said.

The solution to this is simple and not in any way complicated, a local gas market without government interference in pricing will definitely be attractive to investors Kareem Jubril Adedayo, an energy expert with Ecobank observed.

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.

“There are some levels of improvement among local gas producers and I expect them to be the major driver of local gas market in 2016. Producers with high gas production are likely to begin commercialisation to cushion the effect of revenue drop from crude oil production. I also expect a push for higher gas price among producers supplying power plants, although I believe export and non-commercialized gas are still going to dominate the industry” he said.

KELECHI EWUZIE