Gas challenge harming IPPs in Nigeria
With over 100 licences already given to interested investors for independent power projects (IPPs) in the country, a major common challenge facing many of the IPPs is gas supply in a country likened to an island of oil sitting on an ocean of gas.
Over 100 applications for IPPs are awaiting approval, the Nigerian Electricity Regulatory Commission (NERC) said last week at the Policy Dialogue on Power organised by the Lagos Chambers of Commerce and Industry (LCCI). But the challenge of securing gas supply has led to the regulator having to make access to gas a mandatory requirement before licensing.
IPPs are privately financed, green-field generation projects supported by non-recourse or limited recourse loans with long-term power purchase agreements with the state utility or another off-taker.
While further reform measures put in place including the establishment of the Nigeria Bulk Electricity Trading Company and the privatisation of the 11 electricity distribution companies are said to have significantly increased the prospects for new IPPs, the issue of gas supply remains a big hurdle.
Despite Nigeria’s huge gas reserves, estimated at about 186 trillion cubic feet (Tcf), the country produces only 2.5 billion cubic feet per day against demand of about 5 billion cubic feet, according to Ecobank Energy, Oil and Gas Research in its Middle Africa Market Update on December 11, 2013.
The power sector alone is expected to require 3.5 billion cubic feet per day over the next three years and could require more than 5 billion cubic feet of gas daily when some of the power plants to be privatised under the National Integrated Power Project (NIPP) scheme are completed.
“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 Ecobank report said.
Recently, the IPP industry saw the completion of the signing of the key industry contracts and confirmation on the debt financing of the flagship 450MW Azura-Edo IPP in Edo State by Azura Power Holdings Ltd, with a $300 million investment by Seplat Petroleum Development Company Plc in new gas processing facilities at its Oben Gas Plant to supply gas to the Azura-Edo IPP.
At the LCCI dialogue, Beks Dagogo-Jack, chairman of the Presidential Task Force on Power (PTFP) said gas supply is expected to hit 3 billion standard cubic feet per day by 2020, according to NNPC strategic plan, and gas pricing will reach export parity by 20115 or latest by first quarter of 2016.
The pace of investment in power generation assets in the country needs to be matched with a commensurate investment in gas field development to boost gas production.
FEMI ASU