Gas supply shortages to industries to worsen unemployment, forex crisis
Unless urgent steps are taken to enhance gas supply to industries, Nigeria’s unemployment crisis may take a turn for the worse in the weeks ahead over supply shortages to businesses in Lagos and Ogun States, Daily Sun has learnt.
Gas supply in Nigeria is primarily routed to three sectors including; commercial sector (which manufacturing sector as a constituent), the power sector, and gas-based industries.
The National Bureau of Statistics (NBS) had put Nigeria’s unemployment at 33 per cent in the first quarter of 2021 rising from 27.1 per cent in the second quarter of 2020, making the country the second on the global list of economies with highest unemployment rate.
Some stakeholders who spoke to Daily Sun in separate interviews said the supply glitches which began in January has further dropped capacity utilisation in the manufacturing sector that has been struggling for survival.
Curiously, a popular Pentecostal Church on the Lagos-Ibadan Expressway in a protest letter to its gas distributor, lamented that the disruption in gas supply was equally affecting its day to day operation.
It expressed concern that gas supply hitches has continued unabated and was becoming an embarrassment.
According to industry observers, the gas supply setback to the industrial sector described as the engine room of development will further put more pressure on foreign exchange as more companies which hitherto had depended on gas will have to switch to diesel.
Nigeria’s inflation rate in June 2022 surged further to 18.6 per cent compared to 17.71 per cent recorded in the previous month. The highest level in 65 months (over 5 years), and the fifth consecutive monthly rise. The last time Nigeria’s inflation rate touched the 18.6 per cent ceiling was January 2017, when it stood at 18.72 per cent.”
This means that every month Nigerians have watched their income lose its purchasing power with their inability to afford the same quantity of commodities as they used to. With manufacturers forced to switch to more expensive alternative sources of energy, rising energy costs are inevitable and the inflationary pressure is expected to keep building, foreshadowing even higher inflation figures.
The NBS recently disclosed Nigeria’s manufacturing sector’s contribution to the overall GDP in 2022 first quarter was 10.20 percent higher than other sectors which included oil & gas that contributed 6.63 per cent.
At the end of the first half of 2019, the Manufacturers Association of Nigeria (MAN), estimated that cumulatively, about 1.64 million jobs was created by the sector over time.
At the heart of this sector is the Lagos-Ogun axis which hosts over 2,000 industries and accounts for over 70 percent of manufacturing employment. This industrial cluster powers the growth of the manufacturing sector and its contribution to economic growth is enormous.
Some of the industries affected by the downtime in gas supply include; Olam, Chellarams, Ok Foods, Coleman Cables and Wire, Guinness Nigeria Plc, British American Tobacco, Nestle Nigeria Plc, Bhojraj and Nigerian Breweries Plc.
Executive Secretary of Association of Local Distributors of Gas(ALDG), Mr. Ogagbano Adejo-Ogiri, in a position paper made available to Daily Sun, said that they have identified insufficient gas production by the gas producers and then more importantly, a de-prioritisation of gas supply to the commercial sector in favour of the power and gas-based industry sector as well the non-transparent application of the provisions of the Network Code across board by the Nigerian Gas Company (NGC), the operator of the gas transmission pipeline system.
The Association had argued that attacks on oil and gas pipeline infrastructure and crude oil theft have impacted gas production and supply.
“Associated gas production which is linked to oil production is no longer available anytime our critical oil evacuation pipelines are tampered with. This gas production becomes constrained and as a result, there have been gas supply shortages accompanied by rationing of available gas supply.”
They worried that the commercial and manufacturing sectors are therefore bearing a disproportionate burden of these gas supply cuts, meaning that industries that depend primarily on natural gas to run their business are left stranded.
Group General Manager, Sumal Food, Ibadan, manufacturers of biscuits, chewing and bubble gum, Mr. Sudharshan VP, said the last three months has been a difficult one for manufacturers.
He said his company and by extension other manufacturers have not been getting enough supply from its gas suppliers due to what he described as low pressure.
He said the lack of gas supply to industries have increased their operational cost as they have to rely on diesel which is currently about N800 per litre, compared to N118-120 for Standard cubic feet(SCM) of gas supplied through pipeline and N165-170 SCM supplied through cascade(tanker), adding that operating through Diesel was not sustainable for their business.
“Our suppliers can only supply us gas if they get enough supply from gas producers. But since they are not getting, they cannot inject us with supply. For us at Sumal, we rely on both Liquefied Natural Gas (LNG) and Compressed Natural Gas (CNG) for our operations. But at the moment, we are not getting any of the two gases.”
The Ota-Agbara industrial cluster in Ogun State is a major hub for industrial activities with virtually all the companies operating within the industrial corridor running on gas.
There were reports that over 300 companies are operating within the Ota to Agbara axis. As at October 2008, there are about 46 companies connected to the Shell Nigeria Gas (SNG) supply network.
Responding to Daily Sun inquiry on the disruption to gas supply for industrial users in Ogun and Lagos, a spokesperson for SNG said, “As stated in the Gas Sales Agreement, customers have been duly informed of the scheduled In-Line Inspection of our gas supply lines. This involves necessary and programmed evaluation of gas supply pipes and pipelines, using “smart pigs”, to ensure the internal conditions of the lines. The aim is to better serve our customers and assure uninterrupted supply of the product.
Last January, SNG Shell Nigeria Gas (SNG), signed a 20-year agreement for the domestic distribution of gas to industrial customers and manufacturing plants in Lagos and Ogun States.
In the deal with the Nigerian Gas Marketing Corporation (NGMC), SNG will also extend its distribution network to Badagry to serve a new market in the border community.
SNG’s Managing Director, Ed Ubong, said the new partnership would deepen domestic gas utilisation in Nigeria, and enhance further industrialisation in Agbara, Igbesa and Ota areas of Ogun State.
“This agreement will enable local industries to thrive and create employment opportunities for Nigerians. We look forward to continuing to grow domestic gas distribution to industries and manufacturing plants in Ogun State and other parts of Nigeria while unleashing the industrial potential of Badagry,” Ubong said.
He acknowledged the support of the Nigerian Gas Company and NGMC over the last 20 years in helping SNG to continue to provide gas to industries and manufacturing plants in Nigeria.
Managing Director of NGMC, Engineer Faruk Usman, said he was excited about the agreement which he said would enable the parties to further unlock the potential of the domestic gas market and contribute to industrialisation in Nigeria.
Usman said, “We continue to work with credible partners to accelerate the marketing and distribution of natural gas to major industrial users in Nigeria in line with the vision of the Federal Government of Nigeria and the steers of the Group Managing Director of the Nigerian National Petroleum Corporation.”
Speaking on the long-term deal, Country Chair, Shell Companies in Nigeria, Osagie Okunbor, said the knock-on effects of the gas distribution agreement would bring ‘tremendous benefits to the economy’ in SNG’s states of operation and Nigeria.
He said, “Shell companies in Nigeria will continue to turn Nigeria’s domestic gas opportunities into reality through our strategic intent to develop enough gas to meet our current commitments and future growth plans.”
SNG and its partners and local stakeholders have agreements to build infrastructure and deliver natural gas to over 150 industrial and commercial customers, mostly in Ogun, Abia, Oyo, Rivers, Bayelsa and Lagos States. The agreements drive industrialisation, provide employment for skilled and unskilled local population in addition to directly improving internally generated revenues in these states.
Distributors proffer solutions
To address some of the challenges which is capable of further compounding the woes of the industrial sector, ALDG advised that the country must deal the challenge of crude theft holistically, adding that, there was the need to remove pricing restrictions and move towards a market led pricing regime to incentivize the development and production of Non Associated Gas (NAG) reserves which is not tied to oil production like Associated Gas.
“We need to start thinking about strategic gas storage to mitigate gas supply issues, and have gas supply sources into our domestic market. Gas supply to the Lagos for instance could benefit from a Floating Regasification & Storage Unit (FSRU) introducing LNG into our domestic gas supply mix.
“Finally and very importantly, we need a transparent implementation of the Network Code which seems to also be at the heart of the current supply restrictions facing the manufacturing sector.”