Driving Gas Reforms for Economic Growth
With proven natural gas reserves of about 186Tcf, Nigeria has the potential to be one of the world’s leading gas producers. However, 80 per cent of gas-fired power plants remain partially or perpetually offline owing to the non-availability of gas.
Though Nigeria’s LPG market has witnessed massive growth from less than 70,000 metric tonnes consumed in 2007 to the current 400,000MT (471.4 percent increase within 10 years), Nigeria’s per capita consumption of LPG is about 2kg or 350,000 metric tons a year. It ranks very low especially when compared to some African countries like Ghana (4.7kg), Senegal (9kg), Egypt (60kg) and Morocco (68kg)
Indeed, no deliberate efforts are being made to explore for non-associated gas on the scale that will catalyze growth in the production of sufficient gas volumes to power the plants.
Analysts are ever concerned about the need to strategically drive economic growth from this sub-sector. “The more important question is how we monetise these reserves, either through the power sector or LNG or even gas-to-Liquids plants. The key advantage is that with pockets of gas reserves across the country, we can distribute power generation around the country more and reduce dependence on the grid”, said Dolapo Oni, Energy Research Analyst at Ecobank.
In the last quarter of 2016, the federal government through the Ministry of Petroleum Resources unveiled a new draft National Gas Policy, which articulates the vision of the government to set goals, strategies and implementation plans for the introduction of an appropriate institutional legal, regulatory and commercial framework for the gas sector.
The draft policy captures government’s intent to focus on gas with the stated mission of “moving Nigeria from a crude oil export-based economy to an attractive gas-based industrial economy”.
The key features of the draft policy include identifying gas as a stand-alone commodity; establishing a midstream for the gas sector; putting emphasis on industry structure for sustainable development and growth; focusing on developing gas resources, infrastructure, as well as building new gas markets. Other features are proposing fundamental reforms to improve efficiency of gas operation companies; setting basis for transparency in regulation, policy, procurement, licence awards/renewals, and placing emphasis on domestic gas supply to strategic sectors.
“The release of the draft National Gas Policy is a signal that the nation is finally taking a bold step to create room for gas as a specific resource and distinct resource from oil. This is actually the only way forward”, said Audrey Joe-Ezigbo, Co-Founder/Executive Director, Falcon Corporation Limited and 1st Vice President, Nigerian Gas Association (NGA).
Under the draft National Gas Policy, the private sector is expected to be the pivot with a new legislative and commercial framework in place.
“Government will set targets for market development, monitor progress and take appropriate actions to ensure market development takes place. However, gas utilisation in Nigeria is ultimately down to the private sector to deliver,” states the draft gas policy.
Liquefied Petroleum Gas (LPG), commonly called cooking gas, is an integral part of the gas policy. Government sources say there is need to encourage gas supply for smaller scale project and also take steps to ensure rapid growth of the LPG markets.
“The government policy for LPG in Nigeria is to ensure the development of a strong and rapidly growing LPG market in Nigeria” said Adegbite Adeniji, Senior Technical Adviser to the Minister of State for Petroleum Resources speaking earlier this year at a breakfast forum organised by the Nigeria-South Africa Chamber of Commerce.
Already, Falcon Corporation, an indigenous midstream oil services operator that provides services in Natural Gas distribution, engineering, procurement and construction is strongly positioned to successfully drive the Nigerian government’s LPG and gas infrastructure aspiration.
“We have remained steadfast in developing our existing gas business, taking strategic steps towards developing new markets beyond our franchise zone and looking at replicating our gas distribution successes in other parts of the country where gas utilisation would boost economic development.
We are currently making an investment in developing LPG tank farms to address the infrastructure gap that has constrained the adoption and utilisation of LPG in various sectors and across the country”, said Prof. Joe Ezigbo, Chief Executive, Falcon Corporation Limited.
Though Nigeria’s LPG market has witnessed massive growth from less than 70,000 metric tonnes consumed in 2007 to the current 400,000MT (471.4 percent increase within 10 years), Nigeria’s per capita consumption of LPG is about 2kg or 350,000 metric tons a year. It ranks very low especially when compared to some African countries like Ghana (4.7kg), Senegal (9kg), Egypt (60kg) and Morocco (68kg).
There is, however, potential to grow Nigeria’s LPG consumption to over 1 million metric tons in the near term. This will throw up investment opportunities in the LPG value chain especially in-country cylinder manufacturing which was previously the case for Nigeria. Thus, Falcon Corporation’s foray into the LPG play fits into the emerging government agenda.
Nigeria’s LPG sector is however riddled with impediments. Nigeria’s gas cylinder manufacturing capacity is still low largely due to the high cost of steel, power challenges and currency mismatch that have led to gross escalations in production costs. Raw materials for gas cylinders are imported and they suffer 40 per cent duties and tariffs. The consequence of this situation is increased importation of finished gas cylinders and the use of expired gas cylinders which pose risks of leakage and endangerment of life and property.
Industry analysts say the federal government should put in place intervention funds to encourage the manufacture of cylinders in the country to stem the loss of about $10m being spent annually to import them.
There is also an urgent need for an LPG road-map in Nigeria that would drive the development and growth in the market, otherwise there would be limitations to the attainment of the desired position that should be seen.
According to Prof. Ezigbo, “there is need for more sensitization of the importance and relevance of the usage of LPG, which is a factor for the pursuit of a cleaner and affordable energy. In addition, the government must as a matter of urgency remove the VAT charge imposed on LPG produced on the domestic front as this serves as a disincentive to investors that would otherwise be interested in domestic LPG production. It does not augur well from a local content, nation development and industrialisation view point, that LPG imports do not suffer the same tax as domestic LPG”.
Falcon Corporation is a privately held, wholly indigenous company and member of the Falcon conglomerate which today holds a diverse portfolio of prime investments in oil and gas, energy and infrastructure, real estate and construction.
As one of the Nigeria’s growing number of domestic independent operators working in line with government’s agenda of driving gas utilisation, Falcon Corporation operator of the Ikorodu Natural Gas franchise zone, supplies an estimated 12 million standard cubic feet per day (mmscfpd); about 3,650 million scfpd per year and roughly 25 bscf since its inception.
According to Ezigbo, “While the terrain has been difficult, we continue to forge ahead to increase our reach and impact. We have always been focused on optimizing available resources, through tactical cost discipline and strategic cost reduction initiatives that do not compromise value delivery and stakeholder benefits. In this period, we launched our OneFalcon-OneFocus initiative which is targeted at consolidating our existing lines of revenue while synergistically mobilising to ensure our new initiatives take off”, said Ezigbo.
Natural Gas demand in Nigeria has continued to present a challenge to the nations’ power and industrialization objectives, in the face of overwhelming inadequacies in supply. There is currently a shortfall of 4bcf/d of gas supply due to the dearth of investment in gas infrastructure which is required to support rising demand.