Bolaji Osunsanya Gas Supply Disruptions Must Be Countered

Nigeria, despite its position as the world’s ninth-largest gas reservoir, is burdened by wide-spread gas shortages. Geopolitical challenges, insufficient infrastructure and the lack of a suitable fiscal and regulatory framework combine to make the gas sec

Active private sector participation would ensure the mobilization of the much needed funding for infrastructure development. In addition, private enterprise promotes operational efficiencies which is required to ensure value add in the sector. Bridging the infrastructure gaps facing the industry would require extensive capital, creatively structured to meet the long-term requirements of all stakeholders

Could you provide an overview of Nigeria’s current gas demand and supply situation?

The demand for gas in Nigeria is estimated at about 6.6 billion standard cubic feet per day (bscf/d). This number includes about 3bscf/d for domestic utilisation (gas-to-power, industrial and commercial consumers), and about 3.6bscf/d for export to international markets via Liquefied Natural Gas (LNG) and to the West African region via the West African Gas Pipeline. Total supply into the market has been about 4.3bscf/d with most of this going to meet the export demand, particularly LNG. This has meant that the domestic market only receives about 1.3bscf/d leaving a supply gap of 1.7bscf/d. This supply situation has been further worsened by the supply disruptions caused by the recurring acts of sabotage on the gas pipeline infrastructure.

The continued government focus on gas is generating a lot of excitement and creates a unique opportunity to capitalize on the gas monetisation agenda to propel the economic growth of the country.

How has the shortfall affected suppliers and domestic users?

Prior to the recent reduction in gas supply, we were making steady progress, as the private sector was implementing workable solutions to counter the gas supply imbalance. Unfortunately, due to lower gas supply, marketers have been forced to adopt a more pragmatic approach by rationing the available supply. This has had a direct effect on Industrial users who have had to scale back production and endure low capacity utilization. In addition, the limited supply has affected power generation leading to a severe curtailment of power supply to the national grid. This has led to increased use of more expensive alternative fuels by manufacturing industries across the country, which in many cases has resulted in downsizing to reduce overheads. Now, we require an industry-wide concerted effort to address the lingering challenges.

Pragmatic pricing, the ingenuity of indigenous firms to ramp up supply from varied sources to provide assurance of reliability will quickly position gas as the long term solution to our energy concerns.

What’s your assessment of government’s handling of the gas shortage? Should they do more to ensure further disruptions are avoided?

The challenge is man-made, and requires a multifaceted approach to address the key drivers of the disruption. This would include a combination of dialogue, an alignment of interests, applicable sanctions, and fair treatment as needed.

For one, the creation of an appropriately constituted and independently audited Host Community Fund would be a way of further positioning oil & gas communities as key stakeholders. In the interim, the government needs to increase the engagement and involvement of community leaders and influencers to create the necessary awareness regarding the crippling effects of the current disruptions in the Niger Delta on the environment and the local economy. The government must also consider other initiatives to expand the supply of gas into the market. Such an initiative would be a gas specific bid round tailored to ensure that the gas is deliberately developed for supply into the market. On the infrastructure side, the government may need to revisit the gas infrastructure blueprint to actualize processing facilities, and fast track the completion of the back bone infrastructure that ensures supply flexibility and robustness. In addition, we must begin to consider an energy mix comprising renewables, hydro, and certainly nuclear.

Crucially, the current crude oil and gas supply shortage has highlighted the pressing need for the implementation of a long term security monitoring framework which has the buy-in of all key stakeholders. This will, of necessity, include increased round the clock military deployments for effective monitoring of oil & gas installations and the adoption of modern technology to aid the surveillance of pipeline infrastructure by security agencies.

Can the private sector provide better assistance?

Active private sector participation would ensure the mobilization of the much needed funding for infrastructure development. In addition, private enterprise promotes operational efficiencies which is required to ensure value add in the sector. Bridging the infrastructure gaps facing the industry would require extensive capital, creatively structured to meet the long-term requirements of all stakeholders.

The largest gas consumer group in the domestic market is the power generation sector that supplies power to the market. As earlier described, this group, mostly private sector led, has been severely affected by the gas shortages in the domestic market. The embedded generation regulations can be exploited by private sector generators, working with the Discos to creatively securitize their investment, to provide much needed power to the industrial and commercial sectors. By so doing, the market can assure that the investment needed to provide gas infrastructure such as processing facilities, transmission (both onshore and offshore) and distribution pipelines is secure. This will, in addition, support the development of modern alternative gas delivery technology such as CNG and LNG as complementary solutions to ensure reliability of supply to the market. By the same token, the establishment of a viable market will support the development of strategic gas storage solutions such as floating storage and regasification units (FSRU)and onshore LNG storage terminals and ensure gas supply security.

Through self-regulation and oversight functions by the government, the private sector can lead the gas sector away from Government control and management towards full liberalization. Extensive research has shown that gas has the potential to be the fundamental driver for the widespread industrialization of Nigeria and a fully liberalized sector would increase private investments.

As CEO of Oando Gas & Power (OGP), my team has worked diligently to position us to engage early adopters and consumers of gas technologies by understanding the market economics and bridging the gas gap through the development of virtual pipelines. We have developed a CNG solution to make gas available for customers, within a 250km radius, who are not connected to our distribution pipeline network in South Western Nigeria. We are also developing a mini LNG facility which will provide gas fuel supply to off-grid power plants and industrial customers who are up to 1000km away from existing pipeline infrastructure. We have also taken the responsibility to develop a strategic gas storage solution for the country via an FSRU to be located off the Lagos coast to alleviate the current gas supply challenges within the Southern industrial axis.

What can the NGA do to ensure that the industry can advance these suggestions?

A low hanging fruit would be fostering the dialogue between the NGA Executive Council, key gas industry players, and the National Assembly committees on gas resources. The aim of these discussions would be to sensitize the policy makers on the impact of current events to the gas industry, while we would also disseminate follow-up communiques and engage the media to ensure the collective position of the government’s legislative arm and the NGA is fully understood. Driving policies to improve domestic gas supply and utilisation, will also help investors focus on the right areas to ensure sector growth.

As a mid to long term solution, we are investing more in our members through conferences and capacity-building. We also recently inaugurated five NGA Study Groups with applicable deliverables includ- ing industry white papers. The study groups will be responsible for recommending policy changes in their respective areas and have already begun their initial phase of work. These groups will focus on natural gas transmission and distribution; industrial utilisation and power generation; domestic, commercial & transportation environment, health and safety.

By implementing the aforementioned, and creating some synergy between the government and the sector’s key stakeholders, we would be better placed to address the current challenges in the Nigerian gas industry. Understandably, we must view this is an opportune time for us, because if there’s any sector that’s already well set in terms of framework and exploitation, then it’s gas.