…Losses to hit $9trn in 10 years
…Experts call for appropriate pricing
By Udeme Akpan
Despite efforts of the Federal Government and operators, Nigeria is currently losing $2.5 billion yearly because of severe gas flaring from 178 flare sites nationwide, a development expected to hit $9 trillion in the next 10 years.
The relatively high flaring has been attributed to many factors, including lack of infrastructure at some oil fields, limited number of reservoirs suitable for gas re-injection, expensive nature of developing and installing of pipeline network, limited local, regional and international market and difficult terrain of the Niger Delta, which hinder the harnessing of the product for positive uses.
Consultant (Oil and Gas), Private Design Engineering, Dr Wisdom Patrick Enang, who made the disclosure in his presentation – Natural Gas: Nigeria’s Next Big Thing – at the just concluded Nigeria International Petroleum Summit, NIPS, in Abuja, said many investment opportunities exist in the different sub-sectors, especially Compressed Natural Gas, Liquefied Petroleum Gas and Liquefied Natural Gas.
He noted that the Federal Government has already provided some incentives – Tax rate under petroleum profit tax (PPT) act to be at the same rate as company tax which is currently at 30 per cent, Capital allowance at the rate of 20 per cent yearly in the first 4 years, 19 per cent in the 5th year and the remaining 1 per cent in the books, Investment tax credit at the current rate of 50 per cent; Royalty at the rate of 7 per cent onshore and 5per cent offshore – as incentives to attract and retain serious investors in the sector.
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He called for the development of central gas gathering and processing facilities in Delta, Rivers and Akwa Ibom State, for treating wet gas, extracting Liquefied Petroleum Gas/Natural Gas Liquids, and exporting lean gas into transmission systems.
Dr Enang further called for the establishment of pipeline infrastructures to tie-in most shallow to medium depth offshore gas resources to efficiently distribute gas to areas of need in-country, the use of scalable containerised skid-mounted barge, establishment of virtual pipeline, compressed natural gas (CNG) trucks and functional Gas Aggregators with storage facilities where oil and gas companies can send their gas directly to users.
However, Nigeria’s plans to end its long era of gas flaring has received a boost as the Department of Petroleum Resources, DPR is set to host the Nigeria gas flare commercialisation program bidders conference on 17th February 2020 in Lagos.
He added: “Most of the gas produced in Nigeria are associated and derived whilst in the conscious pursuit of oil exploration and production. Nonetheless, the produced volumes are very competitive.
“Good fiscals alone cannot attract the much-needed investments into the country’s gas sector (specifically as regards Gas-to-power, where the general consensus indicates limited investment potentials). More markets and policy reforms are required to promote bankable investment opportunities for Investors.”
In his recent presentation, ‘Disincentives in Current Gas Pricing Strategies, obtained by Vanguard, managing director, Lopacoil Limited, Dr Lawrence Ijebor, had stated:
“There are underlying problems in the industry, particularly gaps in the price of both export and local gas. There is no significant change in the relationship between the export and local gas and this means that suppliers or producers will tend towards exportation because that is where maximum returns are made. This is why the Federal Government made it an obligation to forcefully withhold some gas in the local market.
“About 60 per cent of the gas left in the local market is used for power generation and the balance for industrialization and this has a significant impact on the economy.
“Some industry commentators focus on flared gas and believed that converting flared gas into products will eliminate the problems. The actual gas needed for power and industrialization cannot be generated through flared gas but through Non Associated Gas. There is a need to invest in reducing Non Associated Gas to achieve the goals and plans of the nation.
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“From the findings, one of the shortcomings identified is sector-based pricing. The government’s decision to conclude that the easiest way to deliver gas to the market is by breaking industries into various sectors.
“The problem, however, with this decision is that gas will only be provided to sectors that pay the most.
“Investment is structured in a way that investors don’t get returns from their investments and this will discourage current and intending investors. The implication of this is that it will slow down development. There is the absence of formal consultation with the gas industry. This element is critical in ensuring that all stakeholders work collaboratively to achieve a common goal.”
In his submission, managing director, Lopacoil Limited, Lawrence Ijebor, had also said: “The goal of the FGN must be to release the industry from the shackles of pricing controls which have inhibited the growth of the industry in Nigeria. Government cannot afford to flinch in the task of deregulation because the long-term consequences of price control in the sectors will subvert the rise of Nigeria in the 21st century.
The net rise of the electricity tariff will be ameliorated by improving the transmission efficiency and metering coverage.
“Policy changes will need to be proposed in enough time to engage all stakeholders and for legislative considerations. The price of gas leaving any processing plant into the National Transmission pipelines will be fixed at an ex-facility price without regard for its source.
“Federal Government, with its partners (in the JVs and PSCs), will utilise the model already in place and established for the NLNG supply price to the domestic market.
“The Grid will not include any pipeline connecting the Gas Field to the facility for processing gas or any pipeline used for the purposes of transporting “wet gas”. It will not include pipelines used for local distribution and for transfer to storage facilities.”
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