‘How to resolve gas-to-power challenges in Nigeria’

Indigenous oil and gas operators have the capacity and commitment to develop gas for domestic consumption as well as to solve the country’s perennial power outages, the Managing Director of Frontier Oil Limited, Dada Thomas, has said.

Speaking at a media briefing in Lagos last week, Thomas said that government and all stakeholder should note that gas remained the future for rescuing Nigeria from the perennial power crisis.

He said that companies like Frontier Oil Limited, with the successful development of the hitherto stranded Uquo marginal gas field, have demonstrated their capacity and commitment to developing gas for domestic consumption.

Thomas stated: “Indigenous operators are supplying about 53 per cent or 0.9bcfpd of the locally consumed gas in Nigeria today. This level will increase over time as gas pricing improves and more indigenous operators take final investment decision on a number of projects. I strongly believe that Government should incentivise indigenous operators as they did International Oil Companies (IOCs) in the past.

“The highly successful Bonny Nigeria Liquefied Natural Gas (NLNG) project by the Shell led Joint venture, the Chevron Escravos Gas to Liquids project and similar projects were all given incentives to ensure the projects came to fruition. If the Government could give incentives to International Oil Companies in the past then surely it is only fair and equitable that they should also give similar incentives to indigenous operators to undertake domestic gas projects which will help Nigeria meet its power and other gas related requirements”.

He however noted that the challenges of pricing and payment have made the entire gas-to-power value chain in Nigeria risky and unattractive to investors.

He said the crisis of acute power shortage in the country was the culmination of a number of problems and challenges, some of which had lingered for more than 40 years and others of a more recent nature, which were allowed to fester unchecked.

Thomas said gas prices in Nigeria had been relatively low compared to markets around the world for more than 40 years, making the gas business unattractive compared to the oil business especially for International oil companies.

He said: “Now, the situation is only marginally better. Gas prices are still below the levels that will make gas projects attractive and readily bankable and gas off-takers are still not paying for gas consumed as and when due.

“The solution is for the gas transactions to be based on a willing-buyer-willing-seller market driven commercial platform with government removed from regulating commercial transaction between profit-making entities.”

He noted that in 2014, the Federal Government increased baseline gas price to the power sector to a minimum of $2.50 per thousand standard cubic feet plus transport tariff of $0.8 per mscf or a total of $3.3 per mscf.

Thomas said this is a good trend but because the necessary modalities were not put in place, gas producers, transporters and end-users have yet to actualise the new pricing regime as the parties argue with each other

He said the gas price must be in the region of $3 per mscf and above for the gas producer to truly make investment in domestic gas a highly attractive proposition.

“If we can attain this price level coupled with attractive tariffs for transportation through independently owned and operated pipeline transportation systems and consumers pay for gas consumed, then there will be no shortage of gas to power our industries, offices and homes in the medium and long term.”

The Frontier oil boss noted the lack of a robust and widespread gas transport and distribution pipeline system which would allow the source and producer of gas, often in the Niger-Delta, to be connected to the consumer of gas, the bulk of which is located in the South West or other faraway places.

He said: “Nigeria must rapidly roll out a gas distribution pipeline system. This will require collaboration between the private sector and government, but actual implementation must be by the private sector.”

Thomas said such pipeline systems must be operated and owned by independent private sector entities but subject to an open access and economic tariff basis so that gas producers can tie-in into the nearest pipeline and gas swaps can become a reality in Nigeria.