“Deregulation, cost-reflective tariffs, transportation infrastructure key for growth in power sector”

Audrey Joe-Ezigbo is the Co-Founder and Executive Director, Commercial Operations of Falcon Corporation Limited and a member of the Executive Committee of the Nigerian Gas Association. She spoke to Frank Uzuegbunam, Editor, West Africa Energy, at the recently concluded Power Conference in Abuja recently. She shares her perspectives on the imperative for concerted focus on Natural Gas production and transportation infrastructure development required for sustainable and profitable gas sector for Nigeria. Excerpts: 

Your delivery dwelt on the building of a sustainable and profitable gas sector. What were the key issues from the discussion?

The focus of the summit is on powering Nigeria, and so we looked at the need to develop the appropriate linkages in our gas transportation network infrastructure in order to ensure sufficient feed to the NIPP’s and IPP projects. The key considerations were centered around how best to gasify the Nigerian economy, looking at the Nigerian Gas Master Plan (NGMP) and how best to secure the regulatory environment so as to incentivize investors, local and international, to take up more active roles in growing the sector in a sustainable way.

What is your take on the state of the oil and gas industry in Nigeria today?

The landscape of the oil and gas industry in Nigeria today is both exciting and challenging. In my view, it is at a stage that only the savviest of players will thrive. We have seen significant divestments of assets by the IOC’s as they move deeper offshore, and this in itself has presented clear opportunities for increased indigenous participation in the upstream space. Additional divestments are in play and there are some of us who have positioned to move into these emerging opportunities. There are upside and downsides to this development, but in the long run it is good for Nigeria in terms of increasing investment by indigenous players, and beefing up local content capabilities, capacity development and technology transfer.

On the gas side, it is now essentially a sellers’ market with demand far outstripping supply. This presents a major challenge to the various gas-to-power projects and initiatives that are ongoing. While we see many of the new players progressing to monetize their gas reserves, we are a long way off from having sufficient molecules available to support the projects that demand gas as fuel or feedstock.

Do you believe the new leadership of the NNPC is on the right track?

The current restructuring within the NNPC is for me a welcome development. For me, from the appointment of Dr. Kachikwu to the strategic approach he has marshaled out for the restructuring of the NNPC, we are finally on the right track to achieve the much needed efficiency and refocusing that is long overdue; from the regulatory elements and across the entire value chain. I am looking forward to a remodeled industry where strategic gas development will feature prominently and in which there will be more concerted focus on gas value addition.

There are some who posit that the NGMP has not made progress or added to the development of the industry. What is your view on this?

The NGMP was put in place to address the issue of long-term energy security which is critical to national development. The three strategic objectives are delivery of gas-to-power targeted at ensuring about threefold increase in generation capacity by 2015; to achieve a reasonable level of gas-based industrialization and thereby positioning Nigeria as the regional hub for industries such as fertilizer, petrochemicals and methanol which require Natural Gas as feedstock; and of course to ensure we deepen our export gas market making it more robust and profitable.

It would certainly not be correct to state that no progress has been made with the implementation of the Gas Master Plan. Going by the quantum of progress and how appreciable this is viz-a-viz the huge need and infrastructure gaps as envisaged to be addressed by the NGMP, progress has certainly been made. One significant area of impact has been with respect to the domestic supply obligation (DSO) and the level of compliance by the producers.

We can also attest to a reduction in the level of flaring. On the pricing side, we have seen some movement towards achieving a strong commercial and more cost-reflective pricing framework, and certainly the scope of the Gas Master Plan itself has created several investment opportunities that we expect to begin to see movement in over time.

What then do we need to do differently if the National Gas Master Plan is to achieve more tangible results?

The key things that we still need to address include the issue of pricing and deregulation. We must address the pricing issue across the value chain to attract investment into the sector. This is the only way we will be able to ramp up the pace of investment in gas field development to be at par with investments in power generation – a situation which has led to the current demand supply mismatch.

Similarly, the issue of policy needs to be addressed.  This is where the PIB comes into play. We need to allow private investment to drive the industry, while the government sticks with providing an enabling environment and regulatory oversight.

The government must give attention to enabling policy to drive investment by the private sector. Investors need to be certain of returns that are secure and sustainable over the long term. Investors need to be assured of sanctity of their contracts. Investors want to be certain that the regulatory environment is stable, and they will not have to contend with regulatory undulations and outright summersaults that have potential to cripple their investments or threaten their revenues. Due attention must be paid to the reduction of undue bureaucratic bottlenecks and systemic redundancies that impinge on the close-out timelines for project reviews and approvals, in order to minimize cost escalations and distortions. The issue of multiplicity of agencies must be addressed and streamlined to enable smooth process flows.

Do you support the proposal that there should be a dedicated ministry for gas?

Yes, as a player in the gas space, I look forward to Nigeria having a dedicated ministry for gas, which would then be charged with the responsibility for providing regulatory oversight for export gas, gas-to-power, and the domestic gas-based industrialization segments. My expectation is that such a ministry will address the major bottlenecks, overlaps, and inconsistencies that are not helping the sector develop at its full potential.

Do you see any prospects for deepening of the industry with the placement of the National Gas Transportation Network Code (NGTNC)?

Certainly! The NGTNC is designed to provide the contractual framework between transporter and network users where this open access can be operated. Our industry must necessarily move into the space where it is driven by an unambiguous interplay between competitiveness and capacity all through the value chain; from gas producers to transporters that operate the network, to shippers that use the gas, and right across to the commercial agents that feed the ultimate end-users.

I believe that with the NGTNC and the build-up to an open access system, we are also likely to see increased private sector-led investment in gas transmission and transportation infrastructure being attracted into the gas sector. The NGTNC is also designed to ensure equity in entry and exit, transparency in the tariff mechanism, and of course, ensure fair competition. These are essential to the build-up of a robust and efficient gas industry. If properly managed, the code should also portend nearer-term investment return timelines as it encourages the use of the integrated monopoly franchise model and tariff plans.

Has the industry seen manifest benefits from NGTNC?

We are a way off yet from seeing the full benefits. It is very much in its early days and we do not have the pipeline infrastructure network that is the fundamental consideration underpinning the full implementation of the code. There is still a lot of work to done towards streamlining the various existing commercial agreements in place with various stakeholders along the value chain, in order to ensure the necessary alignment required for a seamless implementation. Though the NGTNC promises to sustain existing legacy agreements, the existing concerns around how this affects the legacy considerations and current constraints on existing contracts and arrangements cannot be wished away and must be effectively addressed if the code is to succeed. Of course, the market is going to have to make an adjustment as the implementation of the code begins to unfold in real terms.