Falling Gas Production, Experts Faults Regulations

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Poor legal framework or lack of it has been blamed as the major imbroglio mitigating Gas development in Nigeria despite its 9th position in the world. At a recent roundtable talk to fathom an elixir to the falling Gas production in Nigeria, which was monitor by our correspondent in Abuja; not few among industry experts that reviewed vitiating elements in the Nigeria Gas industry blamed the industry’s set back on lack of proper legal framework for a sector many believe holds Nigeria future if properly annexed, more importantly as fortunes from crude oil subsides further.

The immediate past Group Managing Director of the Nigerian National Petroleum Corporation, NNPC, Gas and Power, Dr. David Ige, at the fora, analysed the potentials of the Nigerian Gas Industry. He dwelled on immediate and what future portends for the Nigerian Gas. Ige noted that the Nigeria Gas Master plan as designed will help turned the enormous gas reserves in the country into a viable economic vehicle, describing it as the key trigger that will revolutionize the economy.

Providing details of the gas infrastructure development drive, Dr. David Ige, said the aspiration for gas development is anchored on the three point strategic focus of the Gas Master Plan (GMP).

Also Read: $20bn Ogidigben Gas Industrial Park project stalled – David Ige

“Under the strategic themes of the GMP, it is envisaged that the plan will deliver gas to power for at least threefold increase in generation capacity; achieve reasonable level of gas based industrialization by positioning Nigeria as the undisputed regional hub for gas based industries such as fertilizer, petrochemicals and methanol. The GMP is also focused on achieving high value export via Liquefied Natural Gas, LNG and regional export drives.” He said.

Ige, who is currently the CEO of GASINVEST Ltd, further recalled that the GMP has thrown up investment opportunities in the gas sector to the tune of $16billion.

“Opportunities for investments exist in the areas of Financial Services, Gas Transmission Pipelines, Pipe Milling and Fabrication Yards, Upstream Gas Development, LNG and LPG Plants and Gas Processing Facility/Gas Based Manufacturing Industries,’’ he said.

He listed key projects embarked upon by the government through public-private sector partnerships to include; expansion of the Escravos to Lagos pipeline to 2bl cubic ft capacity by the end of 2015, Oso to QIT,Ibeno project by 2016, the massive Calabar to Kaduna gas pipeline project by 2017/2018, Obiafo to Oben a 120km a 2bl cubic ft linking the eastern to western part of Nigeria, QIT-Obigbo and Egbin pipeline.

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On attainment of fully market status, he said there would be market led growth, willing buyer, willing seller arrangements, mature regulatory oversight functions and highly diversified gas sector.

The former GED revealed that gas demand is projected to reach 2 billion cubic feet per day by the end of 2015.

Though, Nigeria is renowned for its crude oil production with approximately 187 tcf (Trillion Cubic Feet) of proven gas reserves, and a 600 tcf unproven gas reserves, on this note.

But another industry expert tends to burst the bubble of Dr. Igeon the postulated progress Nigeria is making in Gas wealth. Yemi Oke, Energy Expert and Senior Lecturer at the University of Lagos frowned at the level of domestication of Gas and availability of the substance to power Nigerian embattled Power sector among other internal usage.

He argued that, legislation needs to be set aside for the Nigerian Gas Industry outside the existing law regulating Crude oil before Nigerian Gas could be properly annexed, particularly for internal usage, adding that not much of Nigerian Gas has been harnessed with the nation’s primary focus being on crude oil production yet the nation could not support its electricity generation turbine with adequate gas.

Also Read: NLNG Deserves Regulatory Framework for Development 

Further in his analysis, Oke posited that the progress recorded in the Gas is not too impressive. He believes there is disconnect in the actual gas reserve and gas production for local consumption, saying such has caused a distortion in the Nigerian power sector.

“The amount of gas available is attached to the export market and it makes commercial sense to gas producers to produce gas and sell abroad and make a lot of money. This is because the pricing of gas domestically wasn’t commercially realistic, so the Power sector suffers inadequate gas supply that would have been used to make it function, because it actually rely on gas that is produced. If the amount of gas require domestically is being produced, that means every home in Nigeria will not be without electricity”

“We also look into the issue of LPG, which is Liquefied Petroleum Gas. This is essentially for cooking gas as well as DLPG for domestic use. But we still have long queue for Kerosene, that is the kind of disconnect am talking about, because we didn’t have substitute for kerosene and yet it is not made available.”

“On the other hands, I can’t really see any legal framework in the Gas sector, we had flexible framework which is ought to have led into documentation in terms of agreement and as to market and so on.”

“Two days ago, the CBN came up with a policy, which is a new way to funding areas such as Agric and Power, but gas and oil is totally out of the picture. What this portends is that, there is no policy backing a new way to fund Gas sector the more. So the picture is not as impressive as Dr. Ige will want us to believe”.

“We have not really had the regulatory regime that will deal with pricing, the consumption as well as to strike a balance between the export market and the domestic utilization.”

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“There is no amount of gas that is produce in Nigeria that cannot be consumed locally, because we really need the substance to power the country, which should be the trend. But the business side of it focuses more on export and creates the kind of disconnect.”

Today, I can’t point to any gas law in Nigeria, of course we have the Petroleum law and the rest, but the actual legal framework for the gas sector is missing, which really is key because the country still essentially rely on gas to power policy.” He argued.

Professor Wale Dosunmu, (Dept. of Petroleum UNIPORT, though did not rule out private sector in his submission. He believes there should be a blend of both the domestic and external factor in addressing the renew downturn in the Nigerian Gas industry. Dosunmu expressed his worries on how best Nigeria could measure the development in the gas sector, especially now that evolution of Shore gas is affecting the global price revenue, which he noted also affecting Nigeria’s gas production capacity.

“Yes, we have made a lot of progress, but the issue to be address is that there are certain basic fundamentals that are necessary to drive the gas business. One is that government can act as a driver, but the principal things to drive it are the companies.”

“To achieve this there are major issues to be address, most of the gas that Nigeria produce at the moment is actually committed externally to the extent that we do not have enough gas for home use. And most of the issue that has not been address is that people talk about 187cubicle of Gas. We require about 8bcubicle of gas per day, but the fact is that Nigeria does not have enough gas to meet up with its domestic obligation, which is the statutory that must be delivered.”We flair about 13%; need about 15% for domestic use between the industry, Power plant and the rest.The steps to be taken depend on the infrastructure.”

Also Read: Nigeria Paid More for Petrol, Diesel and Kerosene in July | UK-Based Savannah Energy Posts Impressive $17.8 Maiden Revenue in Nigeria

One, how do we gathered this Gas? Second, how is the pricing and how profitable is it for those investing in the business? Then the funding mechanism; who is going to bring the money forward and get their returns in this particular investment? As my colleagues have address, legal framework is very essential and critical.”

“We need to look at it from the point of local consumption vis a vis the external ones. Another thing we have to consider is that the market for gas may not be open indefinitely is either producer coming into the global market. For instance, the East African market is coming up, that is Uganda, Kenya, and Mozambique, which are also closer to this market. In this case, we need to balance the local consumption with the external market.”

“The gas master plan is a good plan, but we need to go back and look at the implementations. The law we have in place has been put in place many years ago, and considering the conditions we have in the past,that is quite different from what we have now.”

“So, the section of PIB that deals mainly on Gas also needs to be address. Most of the gas we have is also not always available; only 26% of Nigeria Gas is available in terms of infrastructure to deliver. We must have in place a mechanism to have available gas supply if and when required. We need to look at all this in the global context as a business not as a social service; companies will go into this if there is something to gain. So strategies to stimulate production must be adopted in other to encourage consumption.” Dosunmu suggested.

Corroborating Yemi Oke on reserve domestication of Gas for internal benefits, Professor Dosunmu speaks: “People have talk about DLPG for domestic usage, which is very good, but how do we convince the housewife and the ‘Akara’ seller by the road side to buy into gas usage, that will encourage local consumption.We are 9th producer in the world and 23rd in terms of utilization, and we need to do something about this.” He added.

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Still on regulation and business concern, Dosunmu therefore advocates for a review of the existing regulation that will encourage private investment in the Gas sector.

“The framework for the sector is designed for oil production and not to Gas production, so there is need to go back and reveal those terms to encourage investors against existing obsolete laws, which are tied to Oil and not to gas, because the idea is that most of the gas we are going to need for the future will actually come from the offshore.” My take is that even if all the pipelines and other infrastructure are there, and there is no gas to supply to the network, there lies the issue. These are things we need to address.” He opined.

Frowning at the Master Plan on infrastructural build-up without investments, Mr. Sammy Atuma, an Energy Expert questioned progress so far made by the government, in terms of investment through private participations and product diversification.

“I am happy the immediate past GMD NNPC on Gas, Dr. Ige is here, they have not done enough in terms of production and refining. We have always been on master plan non-stop without implementations, and that is why we are where we are now.”

“There are products derivable from gas refining such as fertilizers, which has been in the government agenda for a long time and so many other products that ordinarily, if we tried to fix the industry will go a long way in solving unemployment related problems.”

Also Read: Nigeria Lags Behind In Gas Production – NLNG Boss

“Other countries we supply make use of Nigerian Gas to solve problems back home. So, the increase utilisation of gas for fertilizers for industrial purpose is critical here. We should also go in tandem with global trend in reducing global emission by adopting fossil fuel in homes.” He advised.

Responding to views raised, especially on domestication of products and obsolete legal framework, which others panelists believes underpins various transaction and worrisome, including challenges in the production capacity, Dr. Ige was quick to clarify on what he described as confusing segment as speculated by other panelists. He said shortage in the domestic supply of Gas transcend the price frame work, while blamed rationale behind inadequate gas supply to Power sector on indebtedness of domestic consumers.

“The issue of price attraction based on external supply is major misnomer in Nigeria. When we send Gas to LNG, it doesn’t have to do a lot of processing before it send same to the outside market. Whether we send Gas to NLG for 9 or 10 dollar exchange to external market or the Power sector, we are still selling to outside market. This is what people don’t know.”

“The Master Plan effort is to make sure that the price of Gas as supplied to these areas attracts nothing different in terms of price. The major reason investors prefer to sell to outside market is simple. The outside market offers you a high level security for the payment for the Gas; you sell Gas at an export market, which is about 9 or 10 dollars outside exchange. You know that you are selling to high-grade-triple A credit rated customers who will pay for the gas.”

“The track record in the domestic market is one where a lot of consumers, particularly the Power sector has not been able to pay as at when due. So the issue is about the credibility of the domestic relative to the external market. This has been confused over time; our pricing for the external market is the pricing for the domestic.” Ige said.

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On legislation, Ige speaks thus:

“We talk about the issue of legislative framework. That is also a very correct observation. The Petroleum Industry Bill was actually the legal framework that was put in place to address all the issues of legislation in Gas. As we are talking right now, the parliaments are working on things that should be passed. There is an issue between the legislative framework and the contracting agreement between the buyers and the seller. This contracting agreement never really exist in the past, we have now standardized regulation with the kind of contracting agreement. People can now contract between the buyers and seller, which basically have nothing to do with the PIB or the legal framework, but a contractual agreement between the buyer and seller.” Dr. Ige added.

Engr. Bala Saka, is a Petroleum Engineer and Researcher, University of Ibadan. He believes domestication of gas will trigger unimaginable development for the Nigerian economy, saying with Gas, era of petroleum scarcity will be a forgone issue when the abundant gas is adequately annex for internal consumption.

“The first thing you have to do is ask basic elementary question. Gas as we have seen today, is cleanest and a cheap fossil fuel. Nigeria is more of a Gas nation than an oil nation. When you look at the potentials of Nigeria Gas reserve which is 600trcubit feet, this equates 155bn barrels of crude oil. And that simply means for every barrel of crude oil, we have equivalent of 5.2tr cubic feet of Gas. This means Nigeria supposed to touch so many things.”

“In an elementary form, why we are having fuel scarcity in Nigeria is because we lack electricity. NEPA or PHCN was unbundled on availability of gas. My investigation suggests that, even if you brings 1million barrels of Petroleum product for local consumption today, they will disappear in the sense that, more than 80% of both the Diesel and Petrol supplied to filling stations, are consumed by homes and industries, which is run on generators. All we need do is to improve our electricity with adequate supply to the gas turbines. This will go a long way to reduced concentration on petroleum domestically.”

Also Read: FG Gives Nod to Gas Masterplan

Saka expressed his confident that with Gas, the much touted reinvigoration of the Agric sector is achievable. “This is because the basic ingredient of fertilizer is gas and sand, while natural gas is major feature of Ammonia. So having all this, why shouldn’t we develop it? Apart from West African Pipeline, there was a plan to develop the Trans-Sahara pipeline that was supposed to start from Warri in Nigeria through Mediterranean Sea into Europe. Imagine the way we conceived great idea in Nigeria for the development of our gas wealth. At some point implementation becomes problems and sometime somewhere we are still in the doldrums. So it is sacrosanct to put proper regulatory framework in place to advance the course of this great sector.” Saka posited.

Meanwhile, not many Nigerians are aware that the country is committed to supplying Gas to Ghana; but two m earlier, Nigeria could not deliver the gas on delivery and payment term. Nigeria in the past had not been honoring its agreement in the amount of gas it must contractually supply Ghana which became a major talking point from late 2014 into early this year.

Currently, the level of gas supply to Ghana has fallen to 70 mcf relative to the 120 mcf indicated in the contract. Six months ago, Nigeria was delivering around 80 mcf in what industry operators said has become a persistent trend of erratic supply.

However, there is an indication that the Ghanaian government may look elsewhere for reliable gas supply to her Volta River Authority (VRA) following repeated failure by NGAs, a company owned by Chevron, Shell and the Nigerian National Petroleum Corporation (NNPC).

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The setback is largely blamed on falling production capacity, likewise the pressures emanating from local consumption by the Power sector. Even the scheduled Nigerian Liquefied Gas (NLG) Trade could not kick off due to insufficient gas, and many more of similar project is affected as a result of Gas shortage. Analysts believe the nation must go back to the drawing board to ensure improvement in gas production, more importantly as the future of crude oil bleak.

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