Experts call for gas monetisation

Nigeria has proven reserves of 184 trillion standard cubic feet of natural gas, and accounts for 10 percent of global supply, but virtually none is available to the people in the domestic market. Petroleum experts believe that gas will be the fuel of the 21st century, even predicting that it will overtake oil by 2025.

"Gas is the future, and the future is already here with us," President of the Nigerian Gas Association, Charles Osezua said, at the group's quarterly meeting last week.

The federal government has set out to restructure the oil and gas industry with the aim of "delivering and sustaining significant capacity additions with the ultimate goal of delivering broad economic growth," according to the group managing director of the Nigerian National Petroleum Corporation, Mohammed Sanusi Barkindo.

In simple terms, the government's objective for gas development is threefold: generate as much revenue from gas as oil, develop the domestic market and address environmental issues, and carve out a new industry from the existing petroleum industry.

Despite the rhetoric, none of the objectives have been met, largely due to inadequate funding, the dearth of gas infrastructure, conflicting policies, and a poor link to the larger econonmy.

The reforms

Rilwan Lukman was appointed as a government minister, again, in 2009 to drive the reform agenda. Mr. Lukman's appointment was received with caution by the media and some players in the oil and gas sector.

Having headed the Oil and Gas Sector Reform Implementation Committee whose recommendations are now being executed and form part of the Petroleum Industry Bill before the National Assembly, Mr. Lukman swung into action.

In broad terms, the oil industry reform will span four principal areas; fiscal reviews, incorporating the joint ventures, consolidating petroleum laws, and outlining the role of the new agencies that will run the industry when the reform is completed. For gas, the Gas Master Plan is aimed at developing the domestic gas sector. The plan is also divided into four stages.

Stage one is an interventionist step by government to start the viable domestic market while stage two is aimed at attaining a full commercial domestic market. It is envisaged that by the third stage, the Nigerian gas sector will have reached full liquidity, which will jumpstart the final stage where the gas sector will have attained full market-driven status.

Government's rationale is that the reform will impact on the gas sector by improving upstream growth, bring in new players into gas gathering and processing, transmission and distribution, and lastly, increase Liquefied Natural Gas export projects.

Mr. Barkindo argues that "despite an aggressive timeline for the implementation of the master plan, significant progress is being made in the critical building blocks."

Domestic and export gas

Until recently, domestic gas supply has been largely ignored in favour of the export market, where price is much higher as gas increasingly became the preferred and cheaper alternative fuel.

The success of Liquefied Natural Gas, which started with the debut of the Nigerian Liquefied Natural Gas Train 1 in October 1999, made gas monetisation an imperative, especially as government needed the additional revenue to run its operations.

Liquefied Natural Gas is natural gas that has been converted temporarily to liquid form for ease of storage or transport in vessels to very long distances. The Nigerian Liquefied Natural Gas has had six trains since 1999.

The seventh train that would supply 8 million tonnes per annum to North American markets, is awaiting a final investment decision. Other Liquefied Natural Gas projects, including Brass, Bayelsa State and Olokola in Ogun and Ondo states are also awaiting final decisions, which are being delayed in the wake of the economic recession.

There are also two major gas projects that involve transporting gas in Nigeria to external markets via pipeline. The West African Gas Pipeline Project is a 681km gas pipeline, which runs from Nigeria's Escravos in the Niger Delta through Benin, Togo and terminates in Ghana.

The Trans Saharan Gas Pipeline aims to pipe gas from Nigeria and Algeria and transport the gas to Europe. More so, increasing gas utilisation for domestic and commercial and industrial purposes, as a means of increasing government revenues and ending flaring and attendant environmental effects saw a sharp increase in domestic gas demand, particularly for gas-to-power purposes.

These gave a lift to the domestic gas supply policy.

Main Contentions

Speaking at the first quarter business forum of the Nigerian Gas Association, ‘Gbite Adeniji, a lawyer and gas expert, argues that "three basic issues still remain contentious. Firstly, retention of the current status of commanding heights. This implies government control as against a move toward an ultimate private sector driven domestic market.

Secondly, the need to send clear signals that will encourage new entrants, and thirdly, the gas to power linkage.

Gas Issues

Everyone with a stake in gas has concerns they want addressed. For the major explorers and producers of gas, the International Oil Companies, these concerns include funding, security of investment, fiscal incentives, and security of their gas gathering assets.

Power producers want guarantees on security of gas supplies and gas prices. New entrants want access to gas. And average Nigerians just want electricity and cooking gas in their homes.

Unfortunately, government has continued to send mixed signals. And the National Assembly, according to Mr. Adeniji is "a lot of noise but no result."The challenges of gas development rest on a tripod of funding (fiscal incentives), price issues and security of gas supply."

The group managing director of National Petroleum Investments Management Services, the NNPC subsidiary in charge of oil and gas investments, Maikanti Baru, remarked, "the Niger Delta insecurity is a very serious issue for us. Everybody understands that it has to be addressed for gas development to be fully realised."

Mutiu Summonu, Managing Director of the Shell Petroleum Development Company of Nigeria agrees as he says that "government should work at implementing the appropriate commercial, fiscal, legal and regulatory gas enablers as well as security."

Gas insiders say the reform does not take care of an independent sector regulator and did not replace government ownership with free entry.

Mr. Adeniji said, "There has not been a move away from the current mind set of strategic national asset for gas infrastructure under central control." He adds that aggregated provisions have not been put into consideration, which he says are important to attract foreign gas players.

Conclusion

With 11 proposed agencies to administer the oil and gas sector reform, there's bound to be possible overlap of roles. It has taken 10 years for the industry to reach a limited consensus to achieving security of supply in the domestic market, with talks still underway between government and the oil majors.

The outcome is anybody's guess. But experts all agree that a model of gas infrastructure held under government's control is outdated. For domestic gas to get off the ground, "an institutional arrangement, different from that which government is an investor, regulator, and participant is necessary if very scarce and sensitive capital is to be attracted into the Nigerian gas sector," said Mr. Adeniji.