Shift to Gas Economy

Ernest Azudialu-Obiejesi

Distinguished guests, ladies and Gentlemen, I am always pleased to be part of any conversation aimed at improving the Energy sector in Nigeria. This is not only because I am a major player in this sector but because I hold the very strong view that this sector still represents the pivot on which dreams of Nigeria’s economic transformation lie.

The theme of this year’s Nigeria Gas Conference – “Shift to Gas Economy: Pace and Scale of Innovation” could not have come at a better time. Indeed, this sector despite its very well documented potentials is in dire need of innovation from public and private sector players. Over the years, there have been no shortage of policies from the Federal Government to strengthen the gas sector and make it a major contributor to Nigeria’s GDP growth. In fact this was the thinking behind the Domestic Gas Supply Pricing and Regulatory Policy of 2008. Sadly, the audacious goal of having the gas sector contribute up to 10% to Nigeria’s annual GDP has yet to materialize. Inadequate investment in upstream gas development, pipeline and other related infrastructure has resulted in both inadequate aggregate gas supply and several stranded gas assets across the country.

The well-intentioned plan to set up Central Processing Facilities (CPF) in 3 franchise areas has also not worked because of the obvious limitations in the commercial arrangements driven by government and International Oil Companies (IOCs). Government may need to review the existing CPF franchise arrangement and invite indigenous companies to drive the gas processing infrastructure that will serve as the building block of a re-loaded Nigerian Gas Master Plan (NGMP).

Furthermore, the thinking behind the Domestic Gas Obligation (DSO) in the present policy framework is commendable as it shows Government truly wants to stimulate growth of the domestic gas market. Has this worked? The answer is a resounding NO if you are on the gas supply end of the value chain.

Distinguished ladies and gentlemen, as you well know, the Power sector accounts for over 80% of the domestic gas off take market. Liquidity issues in the Power sector means that gas producers are owed huge sums of money for gas they have supplied. Furthermore, they cannot get the required financial securitization to invest in additional supply of gas to power generating companies (Gencos) even if the infrastructure were in place. As a player in the power sector, I am very conversant with the liquidity issues bedeviling that sector. I am of the very firm belief that if the liquidity issues in the Power sector are resolved, the gas supply industry in Nigeria will experience a boom and the need for price regulation and other forms of government interventions would diminish.

Gas Flaring is the result of these obvious gaps in the gas industry. Despite the best efforts of Government, the menace of gas flaring continues to linger. The recent Gas Flaring Regulation embedded in the 2017 Gas Policy is an audacious and innovative step by Government to discourage gas flaring. Apart from increasing the penalty for flared gas to $2/mscf, the policy seeks to commercialize the utilization of flare gas through 3rd party investors. This is quite commendable but I doubt that it is far reaching enough. This is still akin to treating the symptoms rather than the root cause. A permanent solution would be to address the liquidity issues in the downstream and power sectors to encourage much needed investments in gas gathering infrastructure that would eliminate gas flaring.

Distinguished ladies and gentlemen, everyone agrees that a willing-buyer-willing seller arrangement is what will ultimately unbundle the Gas industry in Nigeria and across the West Coast but Government must be ready to make the right seed-investments and take the tough decisions that will enable the gas supply market grow into maturity. Price regulation cannot stimulate the right investments in the gas sector.

Finally I must call on Government to continue to encourage indigenous players in the Oil and Gas industry. OML 42, which we acquired in 2011 was fraught with a lot of challenges at the time it was sold by the IOCs. We are proud to announce however that Gas production of 40MMScf per day is set to be introduced to the domestic gas supply network by the end of this week with another 40MMScf per day being targeted for end-November 2018 for a total of 80MMScf per day by the end of this year. Furthermore, the NPDC/Neconde JV is working on projects that will supply 280MMScf/d by 2021. Examples of similar feats by indigenous companies abound in the industry. We can do it.

Azudialu-Obiejesi, Group Managing Director, Nestoil Group, gave the speech at the Nigeria Gas Summit 2018 Abuja, Nigeria recently