‘Reduction in retail price of gas to industry would foster significant industrial growth’

DEEPAK KHILNANI, CEO of Power Gas Limited, Africa’s largest compressed natural gas producer and distributor in this interview with KELECHI EWUZIE, explains the aspiration behind the new strategy ‘off-pipeline gas distribution’ and how the company hopes to provide CNG to clients where piped natural gas (PNG) is unavailable. He also shared his thoughts concerning issues in the oil and gas industry. Excerpt.

What is your assessment of gas pricing in relation to the current economic realities in the world today?

As a benchmark, the natural gas price in Nigeria is high compared to international standards. For example, the domestic retail price of gas is $7.39 per mmbtu, (one million British Thermal Units) whereas the global gas price is approximately $3-4 per mmbtu. Higher gas prices in Nigeria are a big detriment to industrial growth.

A lower retail price to industries would boost domestic manufacturing, hence reducing reliance on imports and directly benefiting the consumer. Moreover, with the abundance of natural gas in Nigeria, the significant economic and environmental benefits of operating on natural gas and the large power deficit in Nigeria, a lower gas price would be beneficial for the country.

Nevertheless, there is still a significant saving operating on gas instead of diesel in Nigeria today and industries are quickly switching to natural gas for power and process. I expect that trend to only grow.

What is the impact of the low crude oil price on natural gas?

Since the fall in the price of crude oil, the global natural gas price has also fallen as gas is both a substitute to diesel as well as a by-product of oil production. However, in Nigeria the retail price of natural gas is fixed, while the diesel price fluctuates on the free market and has fallen over the last twelve months.

Hence utilisation of natural gas is at a disadvantage. Even with this differential today, there is a significant saving operating on natural gas instead of diesel. Using domestic natural gas is far better for Nigeria than imported diesel, which is a drain on the foreign exchange reserves for the country.

PowerGas Nigeria limited hopes to supply gas to areas not connected to the pipeline. What is your take on gas infrastructure in Nigeria?

PowerGas is Africa’s largest compressed natural gas (CNG) producer and distributor and pioneer in “off-pipeline gas distribution,” providing CNG to clients where piped natural gas (PNG) is unavailable.

The pipeline infrastructure is widening. Both the new Buhari administration and the private sector is investing in additional infrastructure, however the demand for gas far outstrips supply, even with the projected new pipelines coming online. Hence the market for CNG and piped gas will actually complement each other as CNG can service more remote areas. Also, gas outages are quite frequent in Nigeria so CNG can also act as a back-up fuel solution.

Is Compressed Natural Gas (CNG) as safe and reliable an alternative?

Safety standards at Powergas for the compression and distribution of CNG are most critical to the organisation. In fact CNG deliveries are much safer than many of the diesel tankers that ply the Nigerian highways.

You hear of many unfortunate events where diesel spillage has resulted in quite a few tragedies. This is because the chemical composition of diesel is far more inflammatory than gas. If an accident were to occur with a gas tanker, then the gas would dissipate into the atmosphere, whereas diesel will ignite.

Since our first CNG project seven years ago, we have made over 60,000 road deliveries without any major safety breaches – something I am very proud of.

What are the best ways to grow the Nigerian gas industry considering its relatively small market size?

The gas industry in Nigeria 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, where the primary fuel source is diesel and the gas availability in the South does not nearly meet demand.

Nigeria holds the worlds’ 9th largest proven natural gas reserves, however the source of gas is not connected to the demand and much gas is flared – that is the fundamental problem. It is also where we come in. Additional investment in gas extraction, pipeline and compression stations and last mile distribution is critical for the whole industry to grow.

Education on the benefits of natural gas is also very important. 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 – it’s a ‘no brainer.’ We have found that once our customers switch to gas and experience the benefits, they seek to replace other processes and build new facilities with natural gas.

What is the aspiration of Powergas Nigeria as a major player in the gas industry?

Our fundamental aspiration is to continue to deliver high quality natural gas and reliable power solutions to our customers. Market share and growth follows after getting your product and service right. In the past 7 years we have had a 100 percent safety record with over 60,000 CNG deliveries across Nigeria and our team keeps getting stronger.

We are currently the largest CNG producer and distributor in Africa and are now also developing one of Africa’s first mini LNG plants. Our group has been promoting natural gas for nearly 20 years – we strongly believe in its potential and plan to invest over $300 Million in the Nigerian gas and power sector over the next 4 years.

What policy suggestions do you have for the Buhari led administration?

The president Muhammad Buhari-led government is doing a great job in prioritizing power generation in Nigeria and utilising domestic natural gas. 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.

The Buhari administration is also 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.

What is the current market share of Powergas Nigeria and what is the expectation for the gas market in the next five years?

Powergas is the market leader and pioneer in the Nigerian CNG industry. I estimate Powergas’s market share is approximately 30 percent of the domestic CNG market and will ramp up even further as two new compression stations are set to come online this year.

Besides simply market share, we truly strive to offer the best quality CNG in the market and a total energy solution. We have strict quality, filtration and safety processes and invest heavily in distribution capabilities to ensure customers have continuous access to natural gas. Reliability is critical to Powergas – we understand the cost of downtime at our customer end.

Moreover, Powergas works closely with sister organization Cummins Power Generation Nigeria to offer a full energy solution – electricity at a fixed tariff and no capital investment for the customer.

KELECHI EWUZIE