NGA says DSO should be predicated on willing buyer-willing seller

The Nigerian Gas Association (NGA) has said that Domestic Supply Obligation (DSO) should be predicated on willing buyer-willing seller basis, according to its position during stakeholders’ engagement on the draft National Gas Policy organized by the Ministry of Petroleum Resources in Abuja recently.

“While we support the allocation of Domestic Supply Obligation (DSO) to producing companies, we believe that the national objective of guaranteeing sufficient gas volumes to the domestic market can be better achieved if such DSO policy is implemented on a willing buyer, willing seller basis”, NGA stated.

The association noted that it should now be obvious that relying on the Gas Aggregation Company of Nigeria Limited (GACN) process cannot guarantee the desired volumes to the domestic market irrespective of the assignment of DSO to operators as the aggregation process cannot support bankable transactions because it introduces an undue layer of uncertainty to the income stream of projects.

On gas pricing, the position of the association is that the 2008 Domestic Gas Supply Pricing and Regulation had contemplated a 5‐year transition period from 2008 to 2013. However, rolling out a new policy with an indeterminate transition period 8 years after, is far from encouraging particularly as the triggers for the Wholesale Market Regime and end of regulated pricing suggested in section 4.3.8 of the draft policy seem to be very far‐fetched and mostly unachievable within the short to medium term.

“We strongly support a move towards deregulated pricing on a willing buyer‐willing seller basis while retaining the existing regulatory approvals by NERC of prices for gas to power transactions”, said Dada Thomas, NGA President,

In a statement the association stated that the draft Policy appears to be “too detailed and prescriptive and runs the risk of ultimately conflicting with supporting regulations when put in place”.

The association believes that one major problem for legal separation of upstream and midstream companies as contained in the draft policy is that it will negatively impact existing commercial structures with significant additional tax costs and could end up being a barrier to further investment rather than opening up the sector to increased competition.

“The Policy’s objective to incentivize investment in midstream sector may be hampered by forcing a legal separation between upstream and midstream companies. The Policy should encourage all types of partnerships between upstream producers and midstream participants including vertical integration down the value chain. New entrants who choose to play in a single part of the chain should be adequately protected by legislation/regulation”, NGA stated.

The association stated that the National Gas Policy should make specific pronouncements to address payments and other dislocation in the gas-to-power value chain adding that this is essential for the sustainability of the gas industry as the power sector accounts for about 80 percent of the domestic gas market.

The association also made input on the Gas Infrastructure, Open Access and Network Code, which it said the draft National Gas Policy currently contains no detail on the key principles surrounding the proposed Gas Network Code and third party access.

“Any potential investor would be very interested in these details before making a commitment to invest in gas infrastructure as the Code in effect regulates the participant’s return on investment”.

The association which prides itself as the voice of gas industry in Nigeria said the NGA should be recognized as a key stakeholder in Nigeria’s gas industry and should be robustly engaged in the development of the policy and the subsidiary regulations.

Olusola Bello