Sustaining Growth of Nigeria’s Gas-to-power Framework

11 Dec 2012

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Vice President Namadi Sambo

Chineme Okafor writes on the need for Nigeria to take proactive measures tomaximise her natural gas resources for power generation

Nigeria with its abundant gas deposit has yet to advance sustainable strategies to make the most of her natural gas deposits, unlike the United Kingdom (UK) that has over time set up a framework that sees the Office of the Gas and Electricity Markets (Ofgem) regulates competition and as well manages gas and electricity networks in the UK.

Ofgem’s sole responsibilities include, taking absolute care of the interests of gas and electricity consumers; ensures the security of gas and electricity supply to consumers; helps to secure Britain’s energy supplies by promoting competitive gas and electricity markets as well as regulating them to ensure adequate investment in the networks.

The Ofgem is governed by an authority, which comprises non-executive and executive members and a non-executive chair. Accordingly, its non-executive members bring experience and expertise from a range of areas including industry, social policy, environmental work and finance.

The Ofgem authority also determines strategy, sets policy priorities and takes decisions on a range of matters within its jurisdictions, including price controls and enforcement and its powers are provided for under the Gas Act 1986, the Electricity Act 1989, the Utilities Act 2000, the Competition Act 1998 and the Enterprise Act 2002.

Operationally, Ofgem considers gas and electricity licence applications and decides whether or not to grant a licence in accordance with its published objectives and non-discriminatory criteria and procedures to intending investors in the sector it regulates.

Its schedule of responsibilities could be akin to the functions of the Nigerian Electricity Regulatory Commission (NERC), the regulator of operations in Nigeria’s electricity sector and the Department of Petroleum Resources (DPR), which regulates operations in Nigeria’s petroleum.

While the UK through Ofgem seems to have seamlessly worked out a sustainable operation for its gas and electricity sector administration and making both sectors work side by side, Nigeria on its part, has found it quite challenging to efficiently synchronise operations of its gas and electricity sector. The country has also failed in this regard to utilise her natural gas resources as fuel for thermal gas plants. It has though been discovered that there is a huge planning disconnect between gas producers and users in the country, which is yet to be filled.

With a proven natural gas reserve of 187 trillion cubic feet, Nigeria is ranked eighth in terms of global quantity in gas reserve, but this has however not translated to proportionate improvement in her natural gas utilisation.

The Nigerian gas market is structurally characterised by few buyers and sellers, who engage in bilateral agreements, pseudo marketer, regulator and transporter in the Nigerian Gas Company (NGC), Gas Aggregation Company of Nigeria (GACN), DPR and Petroleum Products Pricing Regulatory Agency (PPPRA).

The market is also made up of indistinct regulatory framework and a relatively disjointed commercial framework and all of which add in different ways to frustrate efforts by the Federal Government to keep up adequate supply of gas to thermal power plants in line with its gas-to-power programme.

The federal government’s gas-to-power initiative may have taken off with various short-term, medium-term and long-term measures to bridge obvious shortage of gas supply to power plants. These efforts may have yielded results in the short-term, but experts however feel that Nigeria is yet to actually take concrete steps to address concerns in the sector. Some of the experts who expressed these views at a recent workshop organised by NERC to promote private investment in natural gas-fired electricity generation in Nigeria noted that until these manifest challenges are adequately addressed, the sector may still have to tarry in providing the much-needed gas to increase power generation to 30,000MW in 2020, as contained in Nigeria’s economic blueprint.

In their review of challenges in Nigeria’s downstream gas market, these experts noted that with all its potentials, the Nigerian gas market has its peculiar features that contributed in holding it down this long. Hindrances to the overall objective of the Nigerian gas-to-power initiative as highlighted include; gas availability, affordability and deliverability;commerciality of supply and absence of legal and regulatory framework.

Gas availability, affordability and deliverability

An unprecedented pace of growth in demand for gas at the domestic, regional and export fronts as well as the growing international price of gas, which could affect the capacity of buyers to pay for gas supplied to them were identified as some of the challenges to Nigeria’s gas-to-power initiative. Also mentioned was the inadequate gas processing and transportation infrastructure in Nigeria.

Accordingly, indication that unprecedented rise in global gas prices could limit investment in local gas production, thus making the export front a preferred investment option,  was similarly considered a challenge to the natural gas-to-power drive.

Commerciality of Supply

History of commercial poor performance of the domestic gas sector where price of gas is low yet bills for supplied consignments are left unpaid by buyers is also a strong impediment to investment in the sector. The Gas Supply and Purchase Agreement (GSPA), which is equally in existence has been unenforceable amongst parties to it, the GSPA does not also include a transportation agreement in its content, it is thus open to some level of breach going by its structure.

Legal and regulatory framework

Also, the absence of clear institutional and independent regulatory framework to promote certainty in investment in local gas production and supply was heavily criticised by experts at the workshop.

Accordingly, the seeming lack of a political will to constitute a new body with the responsibility for gas administration and the delay in passage of the Petroleum Industry Bill (PIB) were two major legal and regulatory talking-points that require attention for reform in the power and gas sector to complement each other and leverage on opportunities from both sectors just the way the Ofgem of the UK has been able to manage the two key sectors to the benefit of stakeholders.

Tags: Business, Nigeria, Featured, Growth, Gas-to-power Framework

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