IHENACHO: NIGERIA’S GAS SECTOR MUST LEVERAGE ON INVESTMENT OPTIONS

importance is the long-term relationships that you develop with the communities where you operate. We focus a lot of our time on building these partnerships and we employ as many people as we can locally.

We also focus a lot of attention on education around the dangers of tampering with a gas pipeline. The gas pipelines that are vandalised quite often are vandalised out of error. We have been successful in protecting our infrastructure but not through around-the-clock security but through the support of our right-of-way communities and community education programmes.

We have the Eastern Gas pipeline that has been on for a while now. Has this in some ways affected the way you operate? No, I believe that this is the plan to take gas from Calabar further north, as outlined in the Gas Master Plan. The Gas Master Plan outlined the government’s wish to encourage investment in the gas sector and we have aimed to dovetail our investment in line with this, but also to build gas infrastructure that makes commercial sense.

Our money is either from banks who are lending us money or shareholders who are looking for a return on their investment and therefore we can only construct a pipeline network where we are connecting gas supply with demand. In general, you will find that most of the aspirations of the Gas Master Plan are consistent with commercialisation. What dictates most of Seven Energy’s day to day work is where our bankable domestic customers are and how we can get gas to commercial customers.

There is the gas-prolific Anambra Basin. What is your company’s stake there? In the 70’s, a few wells were drilled in the Anambra basin and were subsequently abandoned. In the 70’s the last thing you wanted to find was gas, so the wells were sealed and left. The Basin sits effectively underneath Onitsha, Nnewi, Aba and Owerri all the way up to Enugu which are all areas with substantial light industry, using diesel fuel.

We have recently farmed into three blocks in the Basin and our plan is to invest in developing gas in that area in order to supply gas to these locations. This will take time, as there has not been that much sub-surface work done in the area to date.

This is a long-term plan and we hope to use a combination of pipelines and compressed natural gas that can be delivered by road in the interim.

We are exploring near-term ways of monetising gas such as compressed natural gas and liquefied natural gas. There are CNG players in the market today and Lagos and Port Harcourt are being supplied already. This presents a big opportunity for Seven Energy to assist with the industrialisation in these areas, but also to support power and industry further afield in large cities in the North such as Kaduna and Kano, which can be reached by road deliveries of CNG or LNG.

There is also this delay in the Brass LNG developments. As an operator, how do you view the delay in taking the final investment decision? Large-scale LNG projects require substantial investment and are more focused on the export market. The challenge is to align all players such as super majors, NNPC and gas sourcing companies. In my opinion, some of these LNG projects such as Brass and others on the Eastern Coast of Africa are going to suffer substantial delays because of the volatility around LNG pricing.

Our view at Seven Energy is that there is substantial demand for energy in Nigeria and our focus is to satisfy that demand. Our involvement with the upstream development, the processing and delivery through pipelines or compression and liquefaction of gas will be to supply the domestic market.

For Nigeria, a balance is needed. The country needs a balance between exportled gas projects such as LNG to generate much-needed foreign exchange earnings and reserves and investment in gas for the domestic market as well.

What do you think the Nigerian gas market will look like in 10 to 20 years from now? There is a high demand for energy, power and gas as fuel sources in Nigeria and I believe demand will continue to grow throughout our lifetime. The government target is to meet 40 gigawatts (GW) of generating capacity by 2020 and most of this is expected to come from new gas fired power stations. However, Nigeria’s domestic gas supply is currently inadequate for this power generation target. Thus, the development of gas supply for the domestic market is a priority for the Nigerian government, as demonstrated by a number of reforms and initiatives, including the Gas Master Plan.

What incentives can the government give to scale up investments in the gas sector? There are a few key things they can do. Firstly, the Production Sharing Contract (PSC) terms for gas need to be made clear. Favourable fiscal terms are important to encourage investors and detail and incentives are required here.

Secondly, to make the gas industry successful, the power sector needs to be bankable and commercial.

The government needs to make sure that the power sector is financially viable and that the power generating companies have sufficient revenue to pay for gas supply. That is fundamental.

The government is moving in this direction but it needs to be a key focus and the entire value chain needs to be critically assessed. For instance, when some of the new power projects and grid expansion work is completed and delivering electricity, are the distribution companies willing and able to distribute? Have the necessary expansions been made to take advantage of increased electricity generation?

The third thing the government could do is to try to encourage the sale of assets and the redistribution of held assets that are not being developed, to companies that are willing to invest. For example, in the Gulf of Mexico there is licensing round once every six months or at least annually. The development of an open and transparent bidding and licensing process that happens on a regular basis would make a big difference.

Earlier, you spoke of the fiscal terms for gas. You also said that they were embedded in the Petroleum Industry Bill (PIB). Is it possible that the government is able to remove them from the PIB and pass them separately? The PIB was incredibly ambitious and it was criticised from many angles due to its scope. It might be a solution to take out elements and deliver them as standalone pieces of legislation. I believe that the new government is looking at ways of doing that. I think there is a real sense of pragmatism going forward and I hope that is the way things go.