Incentivised Fiscal gas policy to strengthen investment in virtual pipelines

The lack of a proper commercial structure for gas production especially for domestic use; insufficient gas pipelines and lack of a strong infrastructure backbone remains a subsisting challenge in the Nigeria gas industry.

Another issue last year that threatened gas supply in the country was vandalism of the existing pipeline infrastructure. Even where the government has sought to make domestic production and use of natural gas profitable and attractive and despite Nigeria’s natural advantage of having large gas reserves, not much gas reaches the locations.

It is against this backdrop that industry analysts opine that an incentivised fiscal policy on gas would strengthen investment in virtual pipeline system which could be instrumental to improving gas availability.

Among measures being implemented under the Nigerian Gas Master Plan (NGMP) is the requirement that all gas producers in Nigeria should dedicate a portion of their gas production, as specified by the Minister (typically acting through the department of gas within the Ministry of Petroleum Resources), for sale and utilisation in the domestic gas market (Domestic gas supply obligations or DSO).

The idea, however, was that gas suppliers who have supplied their DSO quantities could sell excess gas (or non-DSO gas) on a “willing buyer, willing seller basis,” to third party buyers; reflecting such price as may be determined by market forces.

“Nonetheless, in the last few months, the DomGas supply challenge has taken a new dimension as gas supply for economic growth and development has reduced by as much as fifty per cent of its peak.

The gas industry, arguably, produced the lowest supply from its key pipelines in the last four years between May and June 2016.

The concept of virtual pipelines in the views of Ayodele Oni appears simple but as with most seemingly simple projects, the challenge is typically with implementation and lack of robust consideration of all relevant project dimensions, prior to commencement.

Oni disclosed that one way to get started is for government to mandate companies which carry on this business to also participate in infrastructural development whilst also receiving tax breaks/ cuts, amongst other fiscal incentives. There could also be a structure that ensures that the LNG trucks only ply the roads at certain periods of the day to reduce the adverse impact on road transportation. This is plausible, because it is not at every point of the day that vehicular traffic is heavy.

“Yet another option which is crucial in connection with this endeavour is transportation by rail. This option is however expensive and time consuming and will therefore require government support at all levels to be successful. It is common place in other more advanced countries like Canada, for example to see petroleum products transported this way”. He said.

Industry analysts observe that pricing for the gas to be purchased for compression or liquefaction may constitute a hiccup towards the drive for investment in virtual pipeline.

In their opinion, “The federal government and indeed the Minister of Petroleum Resources may need to develop a pricing regime or some of modulation to ensure a workable pricing template which particularly encourages the virtual pipeline model as this stands a good chance of improving natural gas supply for economic growth in Nigeria”

KELECHI EWUZIE