Boosting Domestic Gas Utilisation

In support of Nigeria’s quest to monetise its gas resources, a homegrown natural gas company, Falcon Corporation, has set up a model that could transform the business of domestic gas utilisation, writes Chineme Okafor

The Nigerian gas sector is experiencing a rapid transformation. While that is good news for the gas industry, it is imperative that domestic gas utilisation keeps pace with the development. Given Nigeria’s abundant gas reserves, gas utilisation offers a viable option for possible diversification of her economy.

Economically, successful countries focus on expansive industrial development to achieve self-actuated development, mass production and domestic prosperity generation. This is the path followed by old and new advanced societies.

The Nigerian economy, which is heavily dependent on oil revenue has had a disproportionate low contribution to Gross Domestic Product (GDP) and economic development as the industry has hitherto not catalysed commensurate economic activity. Addressing this disconnect is therefore an imperative.

At the Nigerian Gas Association (NGA) international conference last year, Ibe Kachikwu, Minister of State for Petroleum Resources said that the federal government would, “give more attention to the development of gas as a major revenue earner for Nigeria,” adding that the country was determined to reverse its over-dependence on oil as benchmark for the economy.

To address the over-dependence on oil, government’s aspirations for the gas sector as stated in the newly approved National Gas Policy include, promoting a private sector-led and market driven activities for the orderly and rapid commercialisation of Nigeria’s natural gas resources as key driver for the development and diversification of the domestic economy, developing the domestic gas market aimed at recovering maximum revenue possible from gas utilisation, all of which will lead to ending gas flaring.

At the forefront of this drive for commercialisation of Nigeria’s natural gas is an indigenous firm, Falcon Corporation Limited, which currently distributes gas in Ikorodu, as the Local Distribution Company (LDC) for the Nigerian Gas Marketing Company (NGMC).

Falcon’s commitment to the gas sector of Nigeria involves it being responsible for the build-up, operation, and management of the Ikorodu Natural Gas Franchise delivering natural gas to industries for use as fuel or feedstock in their various applications and processes through their extensive network of pipes and delivery infrastructure.

Similarly, the company has continued to expand its distribution network to benefit other un-served customers and regions.

“Although the focus of the National Gas policy is to provide an enabling environment for the development of natural gas resources across, it is also designed to provide an enabling environment for optimal development and commercialisation of natural gas resources across the value chain.

“The segmentation of the industry into upstream, midstream and downstream operations is critical to the objective of positioning Nigeria as a gas-based industrialised nation,”said Audrey Joe-Ezigbo, who a co-founder and executive director at Falcon.

Joe –Ezigbo said: “The effectiveness of the National Gas Policy is hinged to a large degree on the expectation that Nigeria will be able to draw in significant investment into funding the various infrastructure projects required to be delivered across the gas value chain. On the other side of the table, investors are watching closely to see what supporting fiscal framework the nation will put in place.”

But, according to a survey by the Independent Petroleum Producers Group (IPPG), for Nigeria to bridge the gas sector infrastructure deficit, there is a need for an estimated initial investment of $6 billion annually over a period of four years, which could subsequently drop to $3 billion annually in new gas production, processing and transportation infrastructure.

This, according to experts, is not money that can come from the government, and neither is it money that will come in easily unless private sector investors begin to see that the landscape has been sufficiently de-risked.

As it were, erosion of investors’ confidence and investor apathy are understandable outcomes in the face of more stable economies competing for the same pool of investor funds.

But, in the current dispensation, natural gas is being leveraged as the new economic catalyst for the nation. Thus, domestic gas consumption is now beginning to expand as a result of the ongoing power sector reforms while more local industries are now aware of the advantages and benefits of using gas for their production. These have in return pushed up the demand for gas.

Notwithstanding, there is an ambitious plan inherent in the National Gas Policy for the expansion of natural gas supplies for use in the production of petrochemicals with the hope that this approach will attract private capital, but while the country waits to unlock the long term projects, Falcon, has managed to drive domestic gas utilisation despite challenges.

“We had a 4-inch pipeline. When we noticed it was not enough, we pleaded with the Nigerian National Petroleum Corporation (NNPC) and we invested and developed a 12-inch gas pipeline on our own to increase gas capacity for Ikorodu,” said the Chief Executive Officer of Falcon, Prof. Joe Ezigbo.

Accordingly, Falcon’s successes have not been without challenges, and this is because as ambitious as ramping up domestic utilisation of natural gas may sound, a number of issues need to be addressed.

Appropriate pricing of gas for domestic consumption still sticks out as it is threatening to wipe out gains made in the subsector in recent years, while more worrisome is the menace of the non-payment for gas supplied.

On this, Joe-Ezigbo said: “We cannot reasonably expect gas producers and suppliers to continue to operate where they are owed several billions of naira, with over two years’ worth of unpaid invoices accumulated. Many players are facing bankruptcy arising from inability to service their loans, and a severe liquidity crunch that impacts their day to day operations. It is a very dire situation indeed.”

But despite the government’s N701 billion intervention fund set up by the Central Bank of Nigeria (CBN) to provide a payment assurance guarantee and address the liquidity constraints along the gas-to-power value chain, operators still feel inadequate because the intervention does not address legacy debt, so there remains the question of how to resolve the backlog.

Also, they said that while the announcement was made in March, to date not a single naira has been disbursed, indicating that there is another seven or eight months’ worth of unpaid invoices further accrued.

“It is very troubling for us as a business because one way or the other, we are all feeding from the same gas supply pool and when certain factors have potential to upturn supply security, we must pay attention. Granted, the immediate impact is not at the distribution end of the gas industry value chain, but it is a significant factor nonetheless because we can only distribute what is supplied and if supply is threatened, distribution is inadvertently then also threatened,” Joe-Ezigbo stated.

He added: “As a company we keep our eye on mid and long-term prospects, opportunities, and key risks to our business, so it is of concern because the gas aspects of our operations cannot continue to run smoothly or at optimal capacity outside of our assurance of sustained supply at the volume, pressures and flows which we require.”

Another major industry challenge is vandalism. Both individuals in local communities and companies often cause damages to millions of dollars’ worth of investment in infrastructures particularly pipelines. Often, companies building structures in the process carry out excavations and installations without taking into cognisance the risk implications that can possibly cause colossal loss of lives and properties in the various host communities.

According to officials, Falcon has taken a pragmatic approach to mitigating these risks at community level through innovative and interactive community engagement programmes. It has consistently collaborated with diverse stakeholders to bring enlightenment and education to the communities.

Recently, it organised a stakeholders’ forum on underground infrastructure safety, and from which Joe-Ezigbo said: “We had a successful outing and achieved our objective to engage various stakeholders operating within Ikorodu in order to keep them abreast of the importance of the safety and security of our host communities- human lives, assets and investments.”

She further noted: “We have several kilometers of natural gas pipelines traversing the Ikorodu area. We found that it was imperative to engage the various stakeholders – Telcos, Gencos, Discos, and LASIMRA, as well as other relevant agencies of government at various levels, to work collaboratively and in unison to ensure safety remains the highest priority for continuous sustainable growth and development.”

“We have observed companies building infrastructure, carrying out excavations and installations without taking into cognisance the risk implications that can possibly cause colossal loss of lives and properties to our host communities,” she added.