A few weeks ago the Gas Aggregation Company of Nigeria (GACN) gathered stakeholders (at least their own version of that) in Kano for what proved to be an epoch event, In point of fact the most significant in the industry post passage of the PIB. Among other things they concluded that the gas prices be reduced from $2.50 to $2.18. It was such a reverberating decision that within 20 mins of the announcement in was on all the big blogs in the country including those who had no idea what the issues were.
To put the issues in perspective, a little over a decade ago, the FG as part of efforts to develop the domestic gas market had initiated a policy that all gas producers must make a certain percentage of gas produced for the local market. That was not all, the amount of gas made available would be determined at the beginning of the year with the priced fixed by government.
The thinking behind such an interruption in the normal flow of the free market system is that the domestic market would be given some kind of subsidy for development. The other side of this is that the gas companies are not given tax breaks or any of such incentives so that they are persuaded to make such supplies to the local market. The largest beneficiaries of the decisions are therefore those who are partakers of the gas, in this case the Power sector.To understand the reasons there is a need to take some steps back. To begin with we are a gas country and the power sector is her greatest beneficiaries for the domestic consumption. In point of fact, one cannot talk about electric power generation and reform in Nigeria without mentioning gas supply in the same breath. Thermal power from gas and steam turbines accounts for 75% of Nigeria’s power generation. What’s more, the current fuel-to-power plan anticipates greater power generation from hydro and coal in the future. Something that should be pursed vigorously the global politics on the issues notwithstanding!
Thus we can say that the Nigerian thermal electric power generation industry is in an enviable position because Nigeria’s gas reserves are vast and natural gas is readily available upstream. It has over 200 TCF of proven gas reserves which accounts for 2.6% of the world’s proven reserves and ranks ninth in the world. Its proven reserves represent 33.1% of Africa’s proven reserves and it ranks first in Africa. These are verifiable facts!
It is widely accepted in the industry that Nigeria has greater potential for gas than it has for oil. First, this is due to the estimated extent of its natural gas reserves. Second, there is the growing global sentiment in favor of using gas rather than crude oil as a source of energy due to gas being less polluting than oil. Moreover, the quality of Nigeria’s gas is classified as high grade as it has minimal levels of sulphur and is rich in natural gas liquids. It should be understood that in technical language the petroleum products with higher sulphur are considered sour while the higher ones are considered sweet. Nigeria has sweet crude and sweet gas!
Moving further, the gas industry estimates that Nigeria’s proven gas reserves could be as high as 600 TCF (which would make it the world’s fourth largest) if more concerted investment and focus were dedicated specifically towards gas exploration. At the moment all of Nigeria’s known/proven reserves are associated with oil exploration. Hence the term Associated Gas (AG). All of Nigeria’s proven commercial gas reserves are located in the south east and delta of the Niger river in the south of the country. There are also gas reserves associated with coal in what is known as the Benue/Enugu belt.
In terms of transportation and the logictics backbone, The Nigerian Gas Company (NGC), (a subsidiary of Nigerian National Petroleum Corporation (NNPC)), is responsible for transporting gas from the gas processing facilities to commercial centers around the country. It does so through two main networks:
- Western Network: Escravos-Lagos Pipeline System (ELPS) and the Oben- Obiafum- Obrikum (OB3) Pipeline System.
- Eastern Network: Obigbo North-Alscon Pipeline System and Imo River-Alaoji Pipeline System.
Currently under construction or consideration are:
- South-North gas transportation line – Ajaokuta-Kaduna-Kano (AKK)
- An interconnector to link the Eastern gas reserve centre with the Western Network and the new South-North line.
- Expansion of the ELPS.
Cabtree’s projections for gas requirements of the power sector indicate that under current projections, there should be enough gas produced to meet power generation targets. The harsh reality is that Nigeria has no excuse for not using its gas supplies more efficiently. To put it in context, Bangladesh, a country of about 155 million people, has natural gas reserves of about 6.5 TCF but generates twice as much power as Nigeria. It would be a case of going from the sublime to the ridiculous if we were to make adjustments for the difference in GDP of both countries.
Upstream availability of gas has never been an issue. The problem is that the gas transportation pipeline infrastructure is inadequate to get the gas to where it is needed, be it for industry, power generation or for export. The Niger Delta Power Holding Company (NDPHC) has power plants that have been built that have no gas supply to it! Cabtree’s research also estimates that between US$1.5-2 billion needs to be invested in the gas infrastructure over the next five years to get the infrastructure to a suitable standard and to keep pace with power generation plans.
Accordingly, the President and CEO of General Electric (GE) Nigeria once said, the country needs 10,000km of gas pipelines to meet its power requirements, which is a long way off from the 1,000km of gas pipelines currently installed. Vandalisation of oil/gas pipelines has been a perennial problem and this is used often as the official reason for the inadequacy of gas supply to where it is needed… but is it really the case? Our research dictates that this amounts to a red herring.
There is the small issue of vandalism. Vandalisation of pipelines for political and/or economic ends is a feature of the industry and numerically-speaking the occurrences outstrip incidents due to infrastructure deterioration. However, in terms of degree of impact, cost of repair and financial loss, vandalism has not been a material contributor to the bottle neck between gas supply and demand over the last few years.
The Nigerian Gas Master Plan (GMP) was launched in 2008 had been replaced by the Nigerian Gas Policy and will all be overtaken by the Petroleum Industry Bill when passed into law. At the root of the gas related laws inherent in the PIB is an ethos that will ensure that the country’s gas production is optimised and flaring of gas is reduced. All of these are central to the plan is to ensure that sufficient gas is made available for certain deemed ‘Strategic Sectors’ that can provide significant benefit to the economy of which the power sector is the most important. Power as we know, manufacturing, it affects the GDP, it affect health care, affects our ability to even be called a civilized nation. As important as these issues are, if the cost of power is not sustainable, the value chain for the power sector will collapse and ultimately the industry itself will collapse. This seems to be the direction that the continued push for the arbitrary reduction in petroleum prices seems to be going..
TO BE CONTINUED…
Olabode Sowunmi III is an Engineer and CEO of Cabtree Limited and an aide to the Senate President of the Federal Republic of Nigeria. He can be reached via [email protected] or 08039600926 (SMS ONLY).
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