Nigerian Gas Master Plan slows as PIB gets stuck

The much-talked about Petroleum Industry Bill (PIB) – which is expected to overhaul the beleaguered Nigerian oil and gas sector, but has been in the works for the past six years – is putting the brakes on the Nigerian Gas Master Plan (NGMP).

 The NGMP, which was approved in February 2008, was designed to optimise the vast gas resources in the country, with a target to move from the ground zero – characterised by increasing unstable position, thriving export, starved domestic, sub-commercial domestic market and poor infrastructure – to attain full market-driven status by January 2014.

The key strategies of the Plan includes to stimulate the multiplier effect of gas in the domestic economy; position Nigeria competitively in high value export markets, and guarantee long-term energy security in the country. 

 Aside from the security risks in the Niger Delta hampering the development of necessary infrastructure for supporting gas monetisation, poor regulatory regime coupled with sub-commercial frameworks, notably fixed low prices for domestic users, also discourage investment in natural gas.

 The uncertainty created by the non-passage of the PIB over the years has continued to impede investments in the gas sector.  The bill is still in the National Assembly.

 Yinka Omorogbe, former legal adviser and company secretary of the Nigerian National Petroleum Corporation had in February said that “If the PIB is passed in its present state today the natural gas industry will be no better, because the provisions of the present draft before the National Assembly do not adequately cater for gas.”

 “The non-passage of the PIB is actually creating more uncertainty in an industry that is already full of risks… And I say this with due appreciation to what the government is doing with respect to trying to reform the industry, but it has taken too long, 13 years in the making,” said Wumi Iledare, president of International Association for Energy Economics and director, Emerald Energy Institute, University of Port Harcourt.

Ayodele Oni, an energy law and policy expert and senior associate in top law firm, Banwo & Ighodalo noted that so far some of the NGMP’s targets of having gas producers reserve specified quantity of gas for domestic use are being fulfilled and the pricing regime also seems to be working slightly well as domestic gas prices seem to be moving towards being commercial and cost reflective. 

He however said that the passage of the PIB and higher gas prices can help improve the current situation. 

 Other challenges, according to him, include funding and lack of clarity particularly regarding some commercial and technical issues, sabotage, corruption and the principal-agency principle, adding “I also believe things are slowing down because elections are around the corner.”

 “The infrastructure blueprint isn’t doing great, but modest achievements have been made (not in gas processing plants or the central processing plants that should be developed) in the pipeline network as there have been upgrades and contracts have been awarded to expand the network,” Oni said. 

Gas supply biggest risk to power generation growth

Gas supply to power plants has over the years been a big challenge, with low pricing said to be discouraging gas suppliers from servicing the power sector as well as hampering further investments in gas development. 

 Also, analysts say that inadequate investment in gas infrastructure in Nigeria has affected the supply of gas for domestic use, particularly for power generation.

 Power companies, which accounts for about 80 percent of the domestic gas consumption in the country, currently pay gas suppliers at the rate of $1 per 1000 standard cubic feet (scf). 

  “I believe the power sector can also help improve the gas sub sector, as demand for gas increases by power generation companies who are willing to pay commercial rates for the gas can set the tone for a positive gas revolution. The power sector can create a demand pull for gas and also help better achieve the primary aim of the Plan, which is to have the country benefit from its gas advantage,” said Oni.

 The power sector is expected to require 3.5 billion cubic feet per day (bcfd) over the next three years and could require more than 5 bcfd when some of the power plants being privatised under the National Integrated Power Project (NIPP) scheme are completed, according to Ecobank Energy, Oil and Gas Research headed by Rolake Akinkugbe in its Middle Africa Market Update on December 11, 2013.

 “Furthermore, there are several other independent power projects already licensed and in various stages of development that could come on-stream in the 36 months. The pace of investment in power generation assets however has not been matched with a commensurate investment in gas field development to boost gas production,” the report said.   

 Failure to secure adequate gas feedstock remains the biggest risk to Nigeria’s efforts to ramp up power generation capacity, which is forecast to grow by 9 percent yearly to 2023, according to a new report by Business Monitor International (BMI), an independent provider of country risk and industry analysis specialising in emerging and frontier markets.

 Raising gas prices not enough

In January, the Nigerian National Petroleum Corporation (NNPC) had disclosed that the rate being paid by power companies for gas would soon be raised to $1.5 per 1000 scf, a development that was greeted with mixed reactions.

  David Ige, group executive director, gas and power, NNPC, told BusinessDay West Africa Energy that the gas pricing policy approved by the ministry of petroleum resources aimed at a gradual migration of the pricing until it reaches export parity, which will be attained by 2015. 

 “Gas price is indexed to supply. The price changes when we reach a certain supply level. There is a certain level of power generation that is expected to be reached such that the generation companies will be able to have enough revenue to pay for increase in gas price,” he said.

In its Nigeria Power Report Q2 2014, BMI noted that government’s decision to raise domestic gas prices incrementally in an attempt to encourage private investment in the country’s chronically underperforming gas sector to bring prices in line with international market rates, saying “raising prices will do nothing to tackle issues such as security risks in the Niger Delta and the high degree of regulatory uncertainty pertaining to the long-awaited PIB.

“While higher prices may strengthen the domestic market (with gas prices kept artificially low, the industry is struggling to meet production and processing costs; capacity upgrades and expansions remain largely uneconomical), price rises alone will only create limited upside to our gas production forecasts,” said BMI.

FEMI ASU