‘Indigenous operators, key to developing domestic gas supply’

Indigenous operators are the key to developing Nigeria’s domestic gas supply, said Dada Thomas, Chief Executive Officer, Frontier Oil Limited. According to him, indigenous operators are supplying about 53 percent or 0.9bcf/d of the locally consumed gas in Nigeria today adding that this level will increase over time as gas pricing improves and more indigenous operators take FID on a number of projects.

“Gas is the future for rescuing Nigeria from the perennial power crisis we are suffering and indigenous operators have demonstrated their capacity and commitment to developing gas for domestic consumption hold the key to growing the domestic gas market”, Thomas said.

Speaking during a media interactive forum in Lagos recently, Thomas said that government should incentivise indigenous operators as they did IOCs in the past.

“The highly successful Bonny NLNG project by the Shell-led Joint venture, the Chevron Escravos Gas to Liquids project and similar projects were all given incentives to ensure the projects came to fruition. If the Government could give incentives to IOCs in the past, it is only fair and equitable that they should also give similar incentives to indigenous operators to undertake domestic gas projects which will help Nigeria meet its power and other gas related requirements

The future for gas and gas-to-power in Nigeria is bright. Some 182TCF (trillion cubic feet) of gas is there waiting to be developed. What is lacking and is urgently required is the political will, enabling policy, commercial and regulatory framework to unleash the true potential of gas for the benefit of Nigeria and all Nigerians”, the Frontier Oil chief executive added.

Gas-to-power projects risky, unattractive

Gas prices in Nigeria, according to Thomas, have been relatively low compared to markets around the world for more than 40 years making the gas business unattractive compared to the oil business especially for IOCs.

He said the crisis of acute power shortage in the country was the culmination of a number of problems and challenges, some of which had lingered for years and others which were allowed to fester unchecked.

He noted that “the entire gas-to-power value chain is especially susceptible to these problems thus making the value chain a fragile and risky one and unattractive to investors”.

“But the situation is only marginally better now. Gas prices are still below the levels that will make gas projects attractive and readily bankable and gas off-takers are still not paying for gas consumed as and when due.

“The solution is for the gas transactions to be based on a willing-buyer-willing-seller market driven commercial platform with government removed from regulating commercial transaction between profit-making entities.”

In 2014, the Federal Government increased baseline gas price to the power sector to a minimum of $2.50 per thousand standard cubic feet plus transport tariff of $0.8 per mscf or a total of $3.3 per mscf but Thomas said that “because the necessary modalities were not put in place, gas producers, transporters and end-users have yet to actualise the new pricing regime as the parties argue with each other.”

He said the gas price must be in the region of $3 per mscf and above for the gas producer to truly make investment in domestic gas a highly attractive proposition.

“If we can attain this price level coupled with attractive tariffs for transportation through independently owned and operated pipeline transportation systems and consumers pay for gas consumed, then there will be no shortage of gas to power our industries, offices and homes in the medium and long term.”

Inadequate gas distribution infrastructure

Thomas said that despite the fact that Nigeria currently lacks adequate pipeline transportation and distribution system, the disturbing thing is that the little we have has been subjected to attack and sabotage over the last five years, a recent phenomenon that has helped to create the crisis.

“There is clearly no rationale for any reasonable person to vandalise a gas pipeline because the consequence is far worse than vandalising an oil pipeline. Yet throughout the last five years gas (and oil) pipelines were consistently vandalized forcing the various power plants connected to such gas pipelines to shut down resulting in the frequent blackouts the nation has experienced despite the huge amounts spent on new power plants and pipelines.

Nigeria must rapidly roll out a gas distribution pipeline system. This will require collaboration between the private sector and government, but actual implementation must be by the private sector.”

Thomas said that pipeline systems must be operated and owned by independent private sector entities but subject to an open access and economic tariff basis so that gas producers can tie-in into the nearest pipeline and gas swaps can become a reality in Nigeria.

FRANK UZUEGBUNAM