Low prices remains obstacle to closing $55bn investment gap in Nigeria’s gas industry             

Nigeria still remains far from meeting market demands that its domestic gas prices be raised up and made competitive to create more positive investor sentiments in order to attract higher volumes of capital investments into the sector.

Investments worth about $55 billion are said to be required to commercially sustain the nation’s gas industry and spur economic growth and development.
“Nigeria has to raise its gas prices to attract an estimated $55 billion of investment needed to plug persistent local shortages,” Bolaji Osunsanya, the CEO of Oando Gas and Power/ president, Nigerian Gas Association, noted in a recent statement.

According to him, such investments are needed to explore for more gas, set up five processing facilities at the cost of $2 billion each and develop domestic distribution channels.
At the end of April, the federal government announced it had increased its benchmark price for gas produced and sold locally, especially to the power sector.

The price for gas used to be $1.30 per mcf for local consumption and $4 per mcf for gas exported out of Nigeria, but that gap has now been bridged by the addition of $2 to bring local gas prices to $3.30 per 1000 cubic feet, making the production of the commodity unattractive to investors, said Babatunde Fashola, the minister of power, works and housing.
According to Barth Nnaji, former minister of power and CEO of Geometric Power, the current minister has continued in that track and it is a very good approach because you have to sell gas commercially.

 “It is not yet there, but it is on the way, it is making improvement,” Nnaji commented on the latest increase in the benchmark price of gas.

In a telephone chat with BusinessDay, Sunday Oduntan, the executive director of the Association of Nigerian Electricity Distributors (ANED), said it was a big step forward for the Nigerian power sector.

“That is a big step forward because we need to have more gas to be able to generate and distribute more electricity to consumers across the country,” he concluded.

The Nigerian government has been at crossroads with industry players in the gas sector over an appropriate price for the energy commodity.

Operators in the nation’s gas sector have always preferred the export of gas against domestic distribution as the former does not require huge investments in gas infrastructure.

To encourage investment in domestic gas facilities, the price of gas-to-power per mcf was raised from five cents to $1 in 2010.

It was further raised to $1.50 in 2011, and to $2 by the end of 2013, before being increased again to $2.5 in 2014.
Gas producers in the country have been demanding a price range of between $5 and $7 to bring the domestic price at par with the Henry Hub benchmark price in the United States.
International oil companies, which have been export-focused due to low domestic gas prices fixed by the government, have sold off $10 billion of assets across Nigeria in the past three years, according to Bloomberg Intelligence.

Those assets were largely taken over by local companies, such as Seplat Petroleum Development Company and Midwestern Oil and Gas Company.

Oando’s $1.65 billion acquisition of oil and gas assets from ConocoPhillips in June 2015 made it one of the country’s biggest indigenous gas producers.

The recent round of gas price increment could help Nigerian oil and gas companies sell their products locally at competitive prices and sustain their operations and remain commercially viable, while supplying adequate feedstock for electricity generation.

While Nigeria is the world’s fourth-biggest exporter of liquefied natural gas, the country still struggles to meet local demand for the fuel that is used by its electricity plants that generate at least 80 percent of the nation’s electricity needs.

The federal government plans to have 20000mw of installed electricity generation capacity by 2020.
Holding Africa’s biggest gas reserves of more than 180 trillion cubic feet, Nigeria desperately needs huge capital to expand pipeline networks for efficient gas supply to power plants and industries to boost productivity and economic prosperity.

In contrast, gas flaring remains rampant in the country, with attendant medical and environmental consequences.

From March 2015 to February 2016, a total of 3,097 billion cubic feet (bcf) of gas was produced, representing an average daily production of 7,861.96 million standard cubic feet (mmscfd) during the period, said data from the Nigerian National Petroleum Corporation (NNPC).

Out of this amount, total domestic gas supply was 387.74 bcf, and the total amount of gas exported was 1,244.08 bcf, with 1,233.33 bcf of non-commercialized gas, which was either flared, re-injected into the ground or used up as upstream fuel.

A further analysis of the data shows that 43.4 percent of the gas produced was exported, 13.5 percent was consumed domestically, while 43.0 percent was not commercialized.
Gas shortages and low volumes of electricity production and delivery have kept electricity prices high across Nigeria.

A report by PricewaterhouseCoopers titled “A privatized power sector: The pain and the glory” shows that electricity in Nigeria costs 18 cents per kilowatt hour (kwh), while in South Africa, it is 10 cents per kilowatt hour.

It also puts the price for the United Kingdom as 20 cents per kilowatt hour, while in the United States, it is 12 cents per kilowatt hour, and in Germany, it is 32 cents per kilowatt hour.