How poor regulatory framework impedes gas sector-Experts

THE PUNCH Newspaper- Stanley Opara

Globally, there is over 9,000 trillion cubic feet of gas in place in coalbed methane, 16,000Tcf of gas in place in shale gas and 7,400Tcf of gas in place in tight gas sands. Advancement in technology and recovery efficiency, however, lead one to conclude that there is an ample opportunity in the future to develop unconventional gas worldwide.

Tight gas sands, gas shales, and coalbed methane will be an important energy source worldwide during the 21st Century, experts say.

New technologies are rapidly becoming worldwide commodities through efforts of major service companies, while the technology developed in the United States in the past decades is to be made available for application around the world.

Nigeria has the seventh largest proven gas reserves in the world -187 Tcf, comprising of (associated gas, 98Tcf; and natural gas, 89Tcf) Experts, however, say that its proven, probable and possible reserves could add up to 600Tcf.

Gas consumption in Nigeria is expected to increase sevenfold by the end of 2010 as the country‘s domestic market demand is growing at a projected annual rate of 25 per cent, one of the fastest demand growths in the world.

The export market is also growing. The growth of the domestic demand is being fuelled by the power sector reform and the attendant government-funded gas power plants that are expected to generate 10 gigawatts.

According to the Senior Business Performance Officer (Technical), Nigeria LNG Limited, Mr. Ezekiel Adesina, with the train 6 of the Nigerian Liquefied Natural Gas Project now operational, its capacity has reached 22 million metric tonnes per annum. Train 7, he says, is on course and other LNG plants (Olokola and Brass) are under evaluation.

The West African Gas Pipeline Project is gathering pace and there is evidence of increased demand. Gas exploration has not commenced, but 15 companies have been selected by Government as core investor. Government is the dominant gas resource owner but has limited operation.

Adesina maintains that most of the production is by major oil companies, which are about 60 per cent owned by the Nigerian National Petroleum Corporation, but are commercially driven.

He, however, admits that the gas sub-sector in Nigeria is faced with many challenges, among which is the focus on exports as the most promising source of demand. This has resulted in the birth of an export-oriented gas sector. Proliferation of fiscal incentives and absence of gas legal framework are also issues to be addressed as far as gas exploration in Nigeria is concerned.

This, therefore, brings to bear the need for a Nigerian Gas Master Plan. With a key focus on the gas market, experts say the key objectives of the NGMP should be to maximise the multiplier effect of gas on the Nigerian domestic market, consolidate Nigeria‘s position in high value export markets, and also manage the gas asset for national energy security, among many other objectives.

But Adesina maintains that the current challenges facing the sub-sector include: pricing issues, market structure, export oriented International Oil Companies, bias towards export, lack of confidence in domestic market by IOCs, limited infrastructure, gas supply constraints, regulatory and policy issues and funding.

”The capital outlay required to deliver both export and domestic opportunities is intensive. A radical and proactive approach of private sector participation is needed to finance these opportunities,” he adds.

Between 2005 and 2008, investment level for the gas sub-sector read $12.4bn for natural gas (upstream) and $20.3bn (downstream), amounting to $32.7bn in total gas investment.

Sustainable supply growth can only be possible when all these constraints are addressed, Adesina stresses, noting that the domestic sector has a rich mix of project opportunities with significantly higher gas pricing thresholds.

Speaking on government‘s aspiration, Adesina says fiscal linkages are the revenue, which can be captured by government from production and sale of oil and gas, and that there is a parallel set of linkages to the balance of payments from export revenues.

According to him, the strength of the link will be a function of the net value of the output and the fiscal terms, which govern the gas sector as forward linkages refer to the provision of oil products or gas to the rest of the economy, either as energy or feedstock.

Adesina says, ”Backward linkages cover the factor inputs in the supply chain, from the domestic economy into the oil and gas sector, in the form of labour or local content, which will not otherwise be employed or will be employed at lower productivity.

”When these linkages are taken together, they provide a ‘multiplier effect‘ from the oil and gas sector to the rest of the economy. The multiplier effect depends partly on how the government allocates its revenues between consumption and investment, and partly on the capacity of the economy to benefit from the output and input linkages.”

The NNPC has admitted that the rapid delivery of gas infrastructure is crucial in Nigeria‘s quest to fully realise its huge gas aspirations, considering the fact that the resource base and the market potentials are great and mutually complimentary.

The former Group Managing Director of the corporation, Mr. Mohammed Barkindo, during the Gas Infrastructure Investor Briefing Session, jointly organised by the Ministry of Petroleum Resources and NNPC, said, ”NNPC‘s ability to consolidate these market opportunities is critically dependent on the availability, scalability and connectivity of the gas infrastructure.”

He also pointed out that NNPC had the most diverse and widespread source of gas in Nigeria and its ability to effectively leverage the various supply sources would determine its competitive position. He added that with the NGMP in place, the corporation had a solid platform to realise these aspirations, since the plan provided a pragmatic approach to the development of gas infrastructure by leveraging competent third party investors.

However, the country Chair, Shell Nigeria, Mr. Mutiu Sunmonu, says with the prediction by the Federal Government that domestic demand for gas would rise fivefold to some billion standard cubic feet a day by 2013, government should be committed to addressing the challenges confronting the gas industry and implementing the NGMP.

”Lack of government funding has stalled many projects designed to capture associated gas - gas that is produced along with oil - and to reduce flaring. Security concerns continue to delay gas and other projects onshore in the Niger Delta. Also the investment climate in Nigeria needs to become clear,” he notes.

According to him, ”The large investments required to develop the Nigerian gas industry will only be forthcoming once an attractive investment climate is firmly established. The gas-pricing framework in the NGMP, for instance, must be revised to ensure investors earn a fair profit, otherwise investment along the gas and power value chain will remain stunted.”

But for Adesina, the current issues, like un-integrated pipeline system due to un-coordinated evolution of supply and market concentration in western and northern regions far away from South-South/East supply region should be addressed. He says these further constrain gas demand due to inadequate interconnecting infrastructure linking the zones.

Collective development of infrastructure and integrated pipeline networks to provide the required cross-country penetration needed is necessary, he says, while explaining that funding remains a challenge.

According to him, other challenges include: inadequate infrastructure (existing gas pipeline infrastructure is inadequate and lack capacity to meet the current and projected demand growth); lack of third-party access to existing infrastructure and poor collaboration across IOCs, which reduces sub-optimal pipeline configurations optimisation, among others.


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