- Raise concern over cancellation of AGFA
Petroleum engineers under the aegis of the Nigeria Council of the Society of Engineers (SPE) have urged the federal government to provide the terms for investors to develop gas in deep offshore terrain.
The engineers have also raised concern over ongoing plans by the federal government to cancel the 1992 Associated Gas Framework Agreement (AGFA).
AGFA, which was introduced in 1992, but has never been fully implemented, contains a package of fiscal incentives for utilisation of gas.
Speaking to journalists in Lagos ahead of 2017 Oloibiri Lecture Series & Energy Forum (OLEF 2017), scheduled for Abuja next month, the Chairman of SPE, Nigeria Council, Dr. Saka Matemilola said a favourable gas terms would incentive investors to develop gas in the deep offshore.
He said huge undeveloped gas resources were locked up in the offshore terrain as a result of lack of terms for the development of gas in this challenging environment.
Matemilola argued that the current policy where oil producers in the deep offshore do not have right over the gas resources do not encourage investment.
“But the question is what gas terms will make it profitable? Don’t forget that operating in deep offshore is a lot more expensive than onshore and some offshore. So, you have to give the right terms,” he said
According to him, the issue of gas pricing is a major issue, adding that the current policy where the government directs the gas producers to sell at a particular price does not encourage investment in gas infrastructure.
“But there are small companies in some other areas where it is a willing-buyer, willing-seller agreement. And you see that that is where a lot of companies are interested because I cannot go and look for funds and you tell me that I can’t sell above this particular price when someone is willing to buy at that price because the person who is buying it at the market rate knows that it is profitable. That is why he is buying it at that rate, anyway. But if a company is forced to sell at a particular rate, which the company thinks will not make economic sense, it will be very tough,” Matemilola explained.
He also raised concern on government’s plan to stop the implementation of the Associated Gas Framework Agreement (AGFA), adding that the government should find alternative policy to AGFA.
“It has not been replaced yet, but that is something government needs to think about a replacement because the policy is still going round through stakeholders’ engagement. The government needs to be careful about the implication because if with AGFA in place currently, what that means is that if you have oil infrastructure and gas is there, you can then net off the cost of the gas infrastructure from the whole. I understand the government trying to say that it favours companies that have oil and gas. How about the companies that have only gas? These companies won’t have oil profit to use to net off gas infrastructure when they want to start the gas,” he added.
He insisted that the government should work out incentives that will make it easy for investors to be willing to invest in gas infrastructure.
According to him, the gas industry needs to diversify from just exporting through Nigeria LNG and make sure that domestic gas is profitable as well for those who want to invest, so as to also to spur gas-based industries for the benefit of the economy.
He noted that in The Netherlands and Western Europe where the oil and gas industry is mature, the requirements for incentivising investors in the gas sector are quite different.
Also speaking at the event, a member of SPE, Nigeria Council, Mr. Rotimi Adefarasin identified specific incentives that could spur investment in gas sector.
“I will just like to reiterate the need for enabling environment; the enabling environment goes beyond fixing the price. It also involves the issue of ensuring there is security of investments; security in the country and investors are able to repatriate their money when necessary. The enabling environment is for those who want to build infrastructure to do it. That is why in some countries, you may find investors enjoy tax holidays for certain period of years to enable them recoup their investment and plough that back into the industry to make sure that the industry keeps improving by the day,” Adefarasin explained.