Scaling up gas utilisation prospects hinge on incentive for local investment

Nigeria is the lowest user of fertilizer per square meter in the world and equally ranks lowest in per capita usage of Liquefied Petroleum Gas (LPG) in Africa with 1.1 kilogramme consumption rate behind South Africa, Morocco and Ghana.

Recent figures show that Nigeria currently produces 7 billion scf per day and account for an estimated 182 trillion scf of gas reserve. Among this figures, only 13.3 percent is consumed locally of which 8.9 percent is allocated to gas-to-power.

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.

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, Dada Thomas, managing director, Frontier Oil Limited observed.

According to him, “Gas infrastructure is a very expensive project, but the private sector is willing to invest provided there is a willing buyer-willing seller system; provided they can earn decent rate of return for their investment. Therefore if that can be guaranteed by the government in the areas of sorting out the PIB, NNPC, they you will get the investment. Government has to work hand to hand with the private sector to grow this pipeline network”.

LPG issues

When it comes to LPG, Bonny LNG is the only big producer of LPG in Nigeria and they do LPG primarily for export, however they earmark 250 thousand metric tonnes of LPG that is sold domestically and that amount are increasing on a yearly basis.

Analysts are of the opinion that given the fact that LNG is the only the bulk producers of LPG in Nigeria, there is need to encourage indigenous operators because they are the ones willing to invest in domestic gas production.  They opined that the only way to increase the gas utilisation is reduction in LPG price to accommodate various consumers’ pockets.

“LPG can easily be produced here in Nigeria because we have 182 trillion cubits feet of gas from that we can easily meet all of Nigeria domestic demand. But that requires investment in LPG plants. This not free of charge and if the government does not make it attractive for local investors to produce LPG, the shortfall will continue”, experts insist.                          

Dolapo Oni, Head, Energy Research, Ecobank Development Company (EDC) Nigeria Limited disclosed that a short term gas availability that will focus on meeting immediate power sector requirements, jump-start the domestic gas-based industries and more importantly, provide a base load of domestic gas volumes that will underpin a major investment in gas infrastructure should be encouraged by government .

Oni is optimistic that this will set the tune for a sustainable commercial framework underpinned by “credible and enforceable gas contracts, and a price regime that is commercially driven and recognises the long term affordability across different buyers.”

Scaling gas utilisation 

Dada Thomas, managing director, Frontier Oil Limited said that government has no business in commercial transactions stressing that they should stick to technical regulation.

“There should be attractive fiscal regime (tax regime should be attractive), there should be tax holidays. Instead of the 5 years pioneer tax regime that we have right now, it should be 10 years” he said.

Thomas insists that government needs to do more in freeing gas for local investor because 85 percent of the gas in the country is locked up with the IOCs leaving indigenous companies starving for gas yet we want to develop gas for the domestic market adding to only incent for indigenous company willing to continue to invest in gas for domestic use is if government addresses the problems they have.

He reiterated that the only way to make gas project profitable and bankable is when there is a willing buyer willing seller market. Government should not be prescribing price of gas between two profit making entities.

Industry experts also pointed out that 70 percent of gas projects are in dollars because the technology, the equipment is not resident in Nigeria. You have to spend dollars to get a gas project going. So if government does not address this investment and income currency mix match, there will be no future investment in gas project in Nigeria, there will be no more addition power therefore Nigeria economy cannot grow.

They maintain that the infrastructure distributing gas around the country is poor and there need to be 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.

Some countries give 13 while others give 15 years so that they can attract investment; there should be a reduced royalty on gas projects. Government should make it attractive for investors to bring their money which has choice of where to go in the world to come to your jurisdiction, stay there and create wealth and grow

Bank-Anthony Okoroafor is the chairman of the Petroleum Technology Association of Nigeria, (PETAN). In a recent interview, he observed that oil and gas industry is dying. Activity level is at the lowest. Projects have been deferred or cancelled. Service industries that have built capacities and capabilities are laying-off well trained personnel. Banks are no longer lending, there is tightened access to capital with decreasing cash flows, highly leveraged companies will struggle as lenders and investors tighten access to capital, limiting their ability to continue exploration and developmental activities.

Rig count is almost zero; well intervention and well completion activities are down to zero level. We should as a matter of urgency review our fiscal terms to maintain attractiveness and investment. Investment goes to friendly environments.

We should honour our joint Venture (JV) cash calls obligations or convert them to Sovereign Loans. Another possible scenario is to reduce government equity in these JVs to 10 percent and focus more on royalties and taxes, which generate close to 80 percent to the government. Investors’ confidence in oil and gas activity in Nigeria is eroding within all these frameworks of uncertainty.