Investment in gas extraction, pipeline remain critical to gas industry growth
A cursory look at the gas industry in the country indicates that the industry 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.
It is therefore against this backdrop that operations and industry closers watchers insist that additional investment in gas extraction, pipeline and compression stations and last mile distribution is critical for the whole industry to grow.
Deepak Khilnani, CEO of Power Gas Limited said that gas has approximately one tenth as many nitrogen and sulphar oxides as diesel, is up to 40percent cheaper for power generation, more efficient, easy to store, reduces wear and tear on industrial machinery and domestically sourced.
Gas and issues around it
Dolapo Oni, an energy analyst with EcoBank Lagos opine that of the estimated 8 billion scf per day volume of gas produced in Nigeria, 40 percent are tailored towards export, while 13 percent of gas produced is flared. Nigeria is one of the leading countries with the highest gas flaring activity.
Oni is optimistic that Nigeria electricity generation output will receive increase once the federal government and its other joint venture partners intensify its investment commitment to gas gathering projects which will further achieve zero gas flaring in the country.
According to him, “When the estimated figure of 211.836 billion SCF of gas been flared are converted into power, Nigeria could be generating a sizeable amount of electricity for domestic use.
Analysts maintain that attracting the needed investment for gas extraction should start with the introduction of the domestic gas obligation which imposes an obligation on the oil companies to assign certain percentage of the gas being produced for domestic uses.
“Looking at what is going on in the industry, the future is selling our gas domestically because the international prices are in decline”, they said.
Implementation would do the trick for gas
Industry 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 for local use.
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.
Ayodele Oni, a lawyer with keen interest in oil and gas sector insists 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
Industry experts also pointed out that 70 percent of gas projects are in dollars because the technology, the equipment is not resident in Nigeria.
They maintain that the infrastructure distributing gas around the country is poor and there is need for a public private partnership in growing this infrastructure because the molecule of gas are over there in the Niger delta while the largest consumer of gas are in the south west and you have to connect the two.
From all indication, Nigeria remains very strong in terms of gas production as production has not drop by any significant margin since the global crude oil price drop started.
Industry analysts are of the view that 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 are optimistic that the quantum value gain from the combine price increase and the demand from the power and industrial sector will outstrip LNG which will remain constrained by new supplies into the global market from unconvential gas.
While it is not difficult to decipher that ultilisation of gas has assumed a new dimension for both economic and technological development, this is even made manifest in business decisions as industries especially are seriously embracing gas as alternative source of energy generation with the recent shortfall in electricity.
Deepak Khilnani acknowledges that the present government is doing a great job in prioritizing power generation in Nigeria and utilising domestic natural gas.
He maintains that economic growth is positively correlated to electrification and there are many socio-economic spillovers with reliable and cost effective power. It promotes local employment, relieves strain on dollars for diesel imports and enables cheaper electricity tariffs for the people and businesses of Nigeria.
He further observes that government is connecting the dots in the power industry – investing in not only power plants, but also the gas fields and the transmission and distribution networks. This is very important to encourage additional private investment in the sector.
The key policy intervention that I believe would be a game changer would be to reduce the retail price of gas to industry to a competitive level, which in my view would foster significant industrial growth.
Analysts believe that achieving the desired result in local gas supply or the lack of it will remain a very sensitive issue with government involvement in unrealistic prices.
They insist that to achieve the local gas demand projection, the domestic market must be made attractive to investors who need to invest huge capital upfront in gas processing and pipeline for distribution.
KELECHI EWUZIE