Gas Producers Seek Better Pricing, Improved Regulation

Amid growing demand for natural gas in the country, especially for power generation, gas producers have said that the current gas pricing in the country remains a significant drawback to investment.

The gas producers including Shell, Frontier Oil Limited, Seven Energy and Oando Plc also stressed the need for stable regulatory, legal and fiscal framework to encourage more gas projects in the country.

Nigeria is estimated to have at least 188 trillion cubic feet in natural gas reserves, making it the most endowed African country in terms of gas reserves. But a significant amount of the country’s gross natural gas production is flared because of lack of adequate infrastructure to capture the gas produced with oil, known as associated gas.

The country requires investments of between $1bn and $2bn annually in gas pipelines and processing plants, especially as it looks to drive monetisation of its gas reserves through the production of power or fuel, according to the United States’ Energy Information Administration.

The Managing Director, Oando Gas and Power, and President of the Nigerian Gas Association, Mr. Bolaji Osunsanya, said, “We should move into willing buyer, willing seller commercially as quickly as possible.”

He said regulation must be the forerunner in dealing with the supply gaps, adding, “We need to be a bit more integrated in our regulation.”

Osunsanya, who spoke at a panel session at this year’s Nigeria Annual International Conference and Exhibition of the Society of Petroleum Engineers, which focused on ‘Natural Gas Development and exploration in an Emerging Economy’, noted that the inability of the Nigerian National Petroleum Corporation to meet its part of the joint venture cash call had affected the development of gas projects in the country.

The Federal Government had recently increased the price of domestic gas for power generation from $1.5 per thousand cubic feet to $2.5 per mcf and $0.80 per mcf as transportation costs for new capacity.

The Chief Executive Officer and Managing Director, Frontier Oil Limited, Mr. Dada Thomas, who believes domestic gas development would be driven by indigenous independent, said, “Willing buyer-willing seller market pricing mechanism should prevail. Gas projects must be bankable otherwise new projects will not be undertaken.

“The huge reserves potential of Nigeria is highly underdeveloped owing to a historic focus on oil. Of these reserves, only 15 per cent are owned by indigenous companies while in terms of production only an average of 15 per cent reaches the domestic market.

“Nigeria’s gas consumption is significantly low in comparison with other developing countries. This has contributed in some way to Nigeria’s economic misfortune and resulted in its low GDP per capita. 66 per cent of natural gas produced in Nigeria is exported in the form of LNG, with smaller volumes exported regionally via the West African Gas Pipeline.”

Thomas said the government must collaborate with indigenous companies to realise the true potential of gas for the development of the Nigerian economy.

He recommended a swift passage of the Petroleum Industry Bill with clear long-term vision for domestic gas development to meet the potentially huge domestic requirement for gas in the future.

He said the government should increase access to assets by awarding marginal fields via a licensing round to proven indigenous operators with the primary purpose of producing gas for power plants.

Thomas said, “The government should incentivise gas investment by reducing or retaining taxation at 30 per cent rather than an increase to 80 per cent as proposed in the PIB and pioneer status for the entire gas to market value chain.”

International Oil Companies had recently raised concerns that the gas provisions in the PIB put an already challenged Nigeria’s gas potential further at risk.

The IOCs, under the aegis of Oil Producers’ Trade Section, said the PIB gas fiscals would make Nigerian gas sector extremely uncompetitive and could significantly reduce the number of viable gas projects.

The Country Chair, Shell Companies in Nigeria and the Managing Director, Shell Petroleum Development Company of Nigeria, Mr. Osagie Okunbor, said, “Regulatory framework is important to the future of gas development. We need a stable regulatory, legal and fiscal framework. A stable, predictable and market-based regulation will make it easier for people to invest.

“We need to expand our gas infrastructure. Going forward, what we need is long-term investment, sustained over the value chain in a conducive environment. What we require is partnership, cooperation among the government, industry and civil societies.”