Delays in Gas Projects Hinder Addition of 2,000MW to National Grid

Ejiofor Alike

Efforts to boost gas supply for power generation under the Domestic Gas Supply Obligations (DSOs) imposed on the international oil companies (IOCs) are being hampered by delays in the execution of some key gas projects initiated by the oil multinationals to power over 2,000 megawatt-capacity thermal power plants in the country, THISDAY has learnt.

At its meeting on February 13, 2008, the Federal Executive Council (FEC) under the administration of the late President Umaru Musa Yar’Adua had approved a gas infrastructure blueprint to develop the domestic gas market through the expansion of gas supply infrastructure with projected inflow of at least $30 billion investment.

Under the DSO regulation in the blueprint, oil companies were required to set aside a pre-determined amount of gas for the domestic market, or risk a penalty of $3.5 per million cubic feet of gas under-supplied, restricted exports, or both, as the then Ministry of Energy (Gas), which was created by the administration might decide.

The Yar’Adua administration had also approved the short-term gas supply strategy proposed by the Gas Master Plan to double domestic gas availability from about 700 million standard cubic feet per day to 1,400 mmcf/d by end of 2008, and triple it to 2,050 mmcf/d by end of 2009.
With this plan, power generation was projected to hit 4,500MW, excluding hydro, by the end of 2008 and 6,200MW, excluding hydro, by the end of 2009.

However, investigations have revealed that with the scrapping of the Ministry of Energy (Gas) by Yar’Adua’s successor, Goodluck Jonathan, and the lack of commitment by the IOCs to the DSOs, coupled with their preference for the export market, power generation as of Monday stood at 3,500MW.
In fact, according to the data released by the Nigerian Electricity System Operator, an arm of TCN, power generation at 6.am Monday was 2,982.50MW.

On Sunday, peak generation to the National Grid was 3,903.70MW, while the lowest generation was 3,108.6MW, compared to the 6,200MW targeted for 2009, as many power plants were still idle due to lack of gas to fire their turbines.
THISDAY’s investigation revealed that the delays in the execution of many gas projects initiated by the IOCs have hindered the delivery of many projects that could have added 2,000MW to the national grid.
For instance, the 107km Calabar-Adanga gas pipeline project awarded since 2007 to supply gas from the Addax platform offshore to the 561MW-capacity Calabar power plant at Ikot Nyong, near Calabar in Cross River State, is yet to deliver gas to the power station.

Similarly, the Escravos-Lagos gas pipeline expansion project, which was initiated by the Nigerian National Petroleum Corporation (NNPC) to boost gas supply to Egbin, Olorunsogo 1 & 2, as well as Omotosho 1 & 2 power stations in Lagos, Ogun and Ondo States, was due for completion four years ago, but has not yet been completed.

Also Shell, which pioneered domestic gas supply to boost power generation in Nigeria, is currently lagging behind with many of its gas projects missing their delivery targets.
The company’s Bonga diversification project, it was learnt, was initiated to provide 120mmscf/d, equivalent of 650 megawatts of electricity when completed, but it is yet to be completed several years after it was supposed to have come on stream.

It was projected that gas supply from the project would have gone a long way to boosting power especially at a time the attack on the Forcados subsea pipeline wiped off 40 per cent of gas available for the domestic market.
Also, the Forcados/Yokri gas project, which was designed to provide 80mmscf/d on completion, is still behind schedule.
Shell and Borkir International Company Limited, a subsidiary of Dangote Group, had also initiated the ambitious $3.6 billion Assa North/Ohaji South gas project in Imo State to provide 500mmscf/d, but the pace appears to be slow in the implementation of the project, despite several assurances.
When contacted by THISDAY, Shell Nigeria’s spokespersons declined to speak on the issues hampering the completion of the company’s gas projects.

However, the Chairman of Shell Companies in Nigeria and Managing Director of Shell Petroleum Development Company (SPDC), Mr. Osagie Okunbor, said at the weekend that the company was “on the verge of making a final investment decision” on the new gas project in Assa.

Okunbor added that Shell was putting more emphasis on gas and reducing the oil portion of its footprint in Nigeria, adding, however, that the company was “still a significant player in onshore (oil)”.
Investigations also revealed that even Total’s gas project to feed the Alaoji power plant and the NPDC-Pan Ocean project were completed behind schedule.

THISDAY gathered that though NNPC’s E&P subsidiary, the Nigerian Petroleum Development Company (NPDC), Total, Chevron, Seplat, Shell, and Pan Ocean have since completed new projects to boost gas supply to the domestic market to meet the 2009 target of about 2 billion cubic feet of gas per day, a large chunk of the gas goes to the manufacturing and industrial sectors in the Lagos area that pay as much as $8 per thousand cubic feet.
The gas producers, it was learnt, are starving the power sector, which pays only between $2.50 and $3 per thousand cubic of gas.

Speaking on the discrepancies in gas pricing, the former Minister of Power and Chairman of Geometric Power, Prof. Bart Nnaji, told THISDAY that the solution was for the federal government to liberalise gas supply.
“We have to have a situation where gas supply is liberalised so that producers can be free to produce and charge the correct market price. I do not think that people are unwilling to pay for gas.

“Of course, this is passed on to the consumers but it is reasonable that a reasonable price gets charged for gas because actually in the Lagos area, you will find a commercial consumer of gas paying up to $8.
“This is outrageous for gas but at the low end of it, the price is between $2.00 and $2.50. So, there must be a solution,” Nnaji explained.