Infrastructure Deployment Key To Attract Gas Investment For Energy Transition
Key industry operators are more vocal in making suggestions on how Nigeria can harness her huge gas deposit.
As the world grapples with increasing energy demand and the need to adopt fuels with better environmental qualities, natural gas has become the fuel of choice for alternative energy deployment and the transition fuel in the quest for a future of zero-carbon emission.
According to analysts from Morgan Stanley Research, global demand for liquefied natural gas (LNG) is “expected to rise by 25 to 50 per cent by 2030, making it the fastest growing hydrocarbon over the next decade”. Hence, with Nigeria’s proven reserve for natural gas estimated to be among the world’s top 10, looking at the Morgan Stanley research, the country needs to step up in harnessing its vast gas potential ahead of the increasing global and local demand.
Timothy Ononiwu, Chief Financial Officer, Axxela, however,observed that Nigeria still lacks adequate infrastructure like pipelines (physical and virtual) and gas processing facilities, to transport gas from the producing fields to the processing plants and then last-mile distribution networks to end-users. This infrastructure gap has immensely hindered the development of the natural gas sector in the country, resulting in significant gas flaring, contributing to environmental degradation and loss of revenue.
Nigeria has over 900 billion standard cubic feet (SCF) of gas in the National Gas Flare Commercialisation Programme from about 178 flare sites. This reality has been attributable to the loss of approximately $10 billion of revenue due to the country’s inability to capture and commercialise gas flaring. So, the current efforts to commercialise and get value for the flare sites are commendable.
Ononiwu, Chief Financial Officer (CFO) at Axxela, advocated that other exemplary and critical steps will be the effective implementation of policies and regulations that would promote the use of natural gas for power generation, industrial use, and transportation locally. Timothy cited the country’s well-thought-out policies and regulations, such as the Petroleum Industry Act (PIA), the Decade of Gas initiative, the National Gas Expansion Programme (NGEP), the Gas Master Plan, etc., but opined that effective implementation is required for a game-changing outcome.
“I think it is safe to say that things are gradually converging and pointing in the right direction. The introduction of the Decade of Gas Programme, the Petroleum Industry Act, the Network Code, and other gas industry reforms by the Federal Government are all shepherding a new era for the gas industry. It is a testament that government is aligned with industry stakeholders recognising that the gas industry holds immense potential for economic growth, job creation, and sustainable development”, Timothy said.
“A stable and sustained regulatory framework and policy environment are necessary to provide investors with confidence and certainty. This includes regulations that ensure the safety and reliability of gas infrastructure and promote competition and efficiency in the gas market,” he added.
Mr. Ononiwu also stated that the current regulated price regime drives mixed incentives and impacts across the gas value chain that do not adequately support a growth trajectory for the gas market. He stated that “below-cost tariffs render projects unattractive to investors and players in the sector, hindering new development across the gas value chain. We need to transition the gas market to a cost-reflective, willing buyer-willing seller regime in the near to medium-term to trigger investments across the entire value chain and unlock the potential of Nigeria’s gas resources over the decade of gas.”
A stable policy and regulatory climate will strengthen investment flow into the sector, which is crucially required for developing and expanding gas infrastructure in advancing access to natural gas to industries and commercial entities. Timothy suggested that Nigeria needs investment in critical strategic facilities to enhance and broaden its transportation and distribution infrastructure towards increasing network coverage. About 3000km in transmission lines are required to evacuate gas to stranded regions, while last-mile infrastructure, including virtual pipelines, is required for the demand clusters in many stranded states, especially in Northern Nigeria. Axxela is doing its bit by developing multiple virtual pipeline projects targeted at this important segment of the country’s demand centres.
“Infrastructure development in any country remains the nexus of economic growth, prolific investment, job creation, and poverty reduction. We understand that access to financing is critical for the development and expansion of gas infrastructure in any economy. This includes access to both equity and debt financing, as well as support from development banks and other financial institutions. Given the scale of financing requirements in the gas sector, Nigeria needs to attract foreign investment to provide the capital and expertise required to develop its natural gas resources, as domestic lenders cannot meet the full funding requirements.
However, to attract foreign investments, the government needs to implement a cost-reflective pricing mechanism, ensure a favourable fiscal regime, ease of repatriation of dividends and capital, and stable exchange rate, amongst others. So, it is encouraging to see that the new administration’s policy thrust includes a goal to unify the various exchange rate regimes and focus on ensuring that investors are prioritised in access to foreign exchange.”
One of the major challenges is the lack of adequate funding for gas infrastructure development. The high cost of infrastructure development and the long-term nature of gas projects require significant capital investments, which are often difficult to secure at attractive (single digit) rates.
“As one of the key players in the natural gas space, we at Axxela have over the past two decades, played a leading role in driving gas infrastructure development, and this includes gas distribution and gas-to-power activities. We have also been able to attract strong international investors into Axxela. Helios Investment Partners, an African focused UK-based private equity company, currently owns 75 per cent of the Axxela
Group, and Sojitz Corporation, a Tokyo stock exchange-listed Japanese conglomerate, holds 25 per cent.
“Axxela has been able to access funding through various sources locally, including infrastructure funds, banking networks and capital markets to support infrastructure development. These have not been without their challenges, but it is doable with bankable projects. With over $500 million invested, over 300km of pipeline infrastructure built, and actively progressing access across West Africa, Axxela is at the forefront of building sub-Saharan Africa’s most extensive, efficient and innovative energy solutions leveraging natural gas, which aligns with a global yearning for cleaner fuels in Africa.”
In a similar conversation Oando Plc, said strong collaboration between the private and public sectors is required in order to unlock Nigeria’s gas potential that will guarantee smooth energy transition and sustainable economic development
Deputy group chief executive of Oando Plc, Omamofe Boyo, made the call while delivering a thought-provoking speech on “Realising Nigeria’s Gas Potential: A Private Sector Perspective” at the just concluded NOG Energy Week in Abuja .
Boyo shared his views on the utilisation of gas for domestic consumption in Nigeria, stating that although the country has been down this road for over 30 years, it has yet to utilise gas for domestic consumption for a variety of reasons.
Boyo highlighted that Nigeria started a system whereby competing fuels were subsidised, which prevented the market from growing independently. Additionally, Nigeria emphasised earning foreign currency from gas exportation rather than utilising it domestically.
According to him, ‘The investment and emphasis were put on oil rather than gas, which resulted in the infrastructure carrying oil being prioritised.”
Boyo proposed a holistic approach to increasing local consumption and investment in gas, which requires a level playing field and adequate regulatory capacity.
He stated that building Nigeria’s gas infrastructure would require between $15bn-$20billion, and government alone would be unable to realise this. The private sector would need to work with the government to deliver on this.
Building Nigeria’s gas infrastructure would require between $15billion-$20billion and government alone would be unable to realise this. The private sector would need to work with the government to deliver on this