Infrastructure, regulatory challenges still an unresolved clog in gas sector growth

Nigeria, no doubt is endowed with abundant gas resources which holds huge potentials for unprecedented growth, however a cursory look at developments in the sector suggest that the existing infrastructure, legal and regulatory framework does not provide robust technical and commercial framework for gas.

Nigeria accounts for an estimated 182 trillion scf of gas reserve. However recent figures show that of the gas produced, only 13.3 percent is consumed locally of which 8.9 percent is allocated to gas-to-power.

It is to this end that stakeholders in Nigeria’s gas sector have continued to agitate for improved pricing which may attract more investments. They observed that gas pricing is not the only issue bedeviling the gas sector in Nigeria, adding that even if the prices were right, gas infrastructure and regulatory challenges will continue to pose bigger barriers for development.

Oil and gas close watchers observe that if the issues around credible and enforceable gas contracts coupled with a price regime are not tackled, willing local investors will continue to shy away from putting their money into production of gas.

They are of the view 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.

Analysts opine that the issue of policy somersault and inconsistency present a major challenge in the oil and gas sector adding that Nigeria have arrived at a situation whereby investors are not sure of the sustenance of their investment.

They further insist that the situation in the country at the moment would not allow for proper planning nor would it stimulate investment, be it internal or external. This to them would directly point to the fact that Nigeria, the second largest economy by GDP should not expect any meaningful growth in the gas sector for now adding that it is not good for investors and the country at large.

According to them,” Gas infrastructure is a very expensive project, but the private sector is willing to invest provided there is a willing buyer willing seller system; provided they can earn decent rate of return for their investment”.

“Nigeria’s gas development in the medium term could derive much from local demands as from export, if not in volume but in value”. They said.

Assessment of Oil and gas sector

Chijioke Mama, CEO/Founder of Energy Datar, a Lagos-based advisory firm in his assessment of the prospects for the oil and gas sector observed that the oil sector might see some recovery, though it may be marginal.

According to him, “OPEC’s recent production cuts are already yielding impacts on the global price of crude which may revive the Nigerian oil and gas sector and the economy at large.

Mama is of the opinion that NNPC’s reforms which started in 2015 may deliver incremental benefits in 2017. But some regulatory challenges especially the now notorious PIB may continue to deter faster development, while other political risks escalate.

Ayodele Oni, an energy expert and lawyer insists that gas prices should be primarily left to market forces. To him, “At the current prices, it is more economically efficient for a gas producer to channel gas supplies abroad than to sell to the domestic market”

Oni however questions whether the domestic market can afford gas at a commercially viable price adding that the only way for the government to achieve a commercially viable price for producers that the masses can afford is to provide a subsidy for the reduced gas prices.

On his part, Wumi Iledare, Director of Emerald Energy Institute, University of Port Harcourt, Rivers State said the issue around gas pricing is a Catch 22 situation.   According to him, “The Price of a commodity is a signal as to answer four fundamental economic questions. What to Produce, How to Produce it, for whom and when to produce gas. The time is now”.

Iledare pointed out that the price and fiscals are the issues with development of gas in the country. “Having competing gas prices is always the case worldwide however, natural gas is a rare Commodity because the use of it competes-Industrial vs. Electric Utility and commercial”.

“There is also international and domestic competition.  So pricing is delicate and there can be what economists describe as price discrimination.  Here again is the Importance of having a sound institution to be the watch dog as the market expands. There is no fixed pricing for gas, It must be market determined competitively”. He added.

Gas Sector and the way forward

Ayodele Oni says a strategic effort towards solving the issues around gas is the need to incentivise gas projects by introducing a “gas preference” rule in the award and renewal of our current acreages.

To him, “The gas price must also be liberalised so that operators are incentivised to enter into the industry. We also need to aggressively clamp down on flaring. The government may need to guarantee gas supply agreements so that potential entrants into the market are assured of payment as the current off-takers are not yet fully stable”.

Dolapo Oni, Head, Energy Research, Ecobank Development Company (EDC) Nigeria Limited disclosed that a short term gas availability that will focus on meeting immediate power sector requirements, jump-start the domestic gas-based industries and more importantly, provide a base load of domestic gas volumes that will underpin a major investment in gas infrastructure should be encouraged by government .

Oni is optimistic that this will set the tune for a sustainable commercial framework underpinned by “credible and enforceable gas contracts, and a price regime that is commercially driven and recognises the long term affordability across different buyers.”

Chijioke Mama observes that the gas sector in Nigeria is progressing as an attachment to the oil sector and thus gas is sometimes treated as an incidental resource. Nigeria’s oil and gas laws contain many evidences to this and it should be discontinued.

Mama asserts that there should be a proper decoupling of the gas sector from the oil sector with frameworks that will enable it to progress independently. “This includes dedicated gas exploration licenses and gas utilisation specific laws. Once this is achieved we will see improvements and accelerated efforts in other areas such as infrastructure, pricing, technology and skills development”. He said

Analysts were unanimous in their calls that if government does not address pressing issues bedeviling gas sector in the country currently, there will not be one penny investment in gas infrastructure, in gas development, in gas projects in Nigeria in the foreseeable future.

KELECHI EWUZIE