‘Liquidity issues stalling gas industry development’
• OML 42 targets additional 80mmscf/day by year end
The Group Managing Director, Nestoil Group, Dr. Ernest Azudialu-Obiejesi, say the current liquidity issues bedeviling Nigeria’s power sector is impeding the development of the country’s gas industry.
The Nestoil boss, who said this at the Nigeria Gas Summit 2018 in Abuja, pointed out that the power sector accounted for over 80 per cent of the domestic gas off take market.
“Liquidity issues in the power sector means that gas producers are owed huge sums of money for gas they have supplied. Furthermore, they cannot get the required financial securitisation to invest in additional supply of gas to power generating companies (GenCos) even if the infrastructure were in place,” he explained.
He said the theme of this year’s Nigeria Gas Conference – “Shift to Gas Economy: Pace and Scale of Innovation” could not have come at a better time, adding that despite its very well documented potentials, the gas industry was in dire need of innovation from public and private sector players.
He stressed: “As a player in the power sector, I am very conversant with the liquidity issues bedeviling that sector. I am of the very firm belief that if the liquidity issues in the power sector are resolved, the gas supply industry in Nigeria will experience a boom and the need for price regulation and other forms of government interventions would diminish.
“I am always pleased to be part of any conversation aimed at improving the Energy sector in Nigeria. This is not only because I am a major player in this sector but because I hold the very strong view that this sector still represents the pivot on which dreams of Nigeria’s economic transformation lie.”
Over the years, Azudialu-Obiejesi said there had been no shortage of policies from the Federal Government to strengthen the gas sector and make it a major contributor to Nigeria’s Gross Domestic Product (GDP) growth, adding that this was the thinking behind the Domestic Gas Supply Pricing and Regulatory Policy of 2008.
“Sadly, the audacious goal of having the gas sector contribute up to 10 per cent to Nigeria’s annual GDP has yet to materialise. Inadequate investment in upstream gas development, pipeline and other related infrastructure has resulted in both inadequate aggregate gas supply and several stranded gas assets across the country,” he said.
He said the well-intentioned plan to set up Central Processing Facilities (CPF) in three franchise areas had also not worked because of the obvious limitations in the commercial arrangements driven by government and International Oil Companies (IOCs).
Government, he noted, might need to review the existing CPF franchise arrangement and invite indigenous companies to drive the gas processing infrastructure that will serve as the building block of a re-loaded Nigerian Gas Master Plan (NGMP).
“Furthermore, the thinking behind the Domestic Gas Obligation (DSO) in the present policy framework is commendable as it shows government truly wants to stimulate growth of the domestic gas market. Has this worked? The answer is a resounding ‘no’ if you are on the gas supply end of the value chain,” he said.
According to the Nestoil boss, gas flaring is the result of these obvious gaps in the gas industry; of which despite the best efforts of government, the menace of gas flaring continues to linger.
The recent Gas Flaring Regulation embedded in the 2017 Gas Policy is an audacious and innovative step by Government to discourage gas flaring. Apart from increasing the penalty for flared gas to $2/mscf, the policy seeks to commercialise the utilisation of flare gas through third party investors.
This, he noted, was quite commendable but “I doubt that it is far reaching enough. This is still akin to treating the symptoms rather than the root cause. A permanent solution would be to address the liquidity issues in the downstream and power sectors to encourage much needed investments in gas gathering infrastructure that would eliminate gas flaring.
“Everyone agrees that a willing-buyer-willing seller arrangement is what will ultimately unbundle the gas industry in Nigeria and across the West Coast but government must be ready to make the right seed-investments and take the tough decisions that will enable the gas supply market grow into maturity. Price regulation cannot stimulate the right investments in the gas sector.”
The mogul called on government to continue to encourage indigenous players in the oil and gas industry. “OML 42, which we acquired in 2011 was fraught with a lot of challenges at the time it was sold by the IOCs. We are proud to announce however that gas production of 40mmscf per day is set to be introduced to the domestic gas supply network by the end of this week with another 40MMScf per day being targeted for end-November 2018 for a total of 80mmscf per day by the end of this year.
According to the Nestoil boss, the NPDC/Neconde JV is working on projects that will supply 280mmscf/d by 2021, adding that: “Examples of similar feats by indigenous companies abound in the industry. We can do it. “