CHIJIOKE MAMA: PIA’s Midstream and Downstream Gas Infrastructure Fund is a Game Changer

BUSINESS Interview

Nigeria may have created a critical foundation for the much-desired industrialisation and economic development with the recent enactment of the Petroleum Industry Act. With 206.53 trillion cubic feet of proven gas reserves, the country’s appalling poor gas utilisation rate may be a thing of the past, following the birth of the PIA, which has provided the impetus for participation in the gas sector, given the new and attractive terms embedded in it. In this interview with Kunle Aderinokun, Managing Director, Meiracopp Nigeria Limited, Dr. Chijioke Mama, believes the new provisions are supply-side enablers, capable of provoking commercial interests and investments in gas utilisation. Mama, who is one of the leading voices in Africa’s energy, infrastructure and development discourse, also speaks on the importance of the CBN N250billion gas sector intervention fund, giving a beacon of hope that, in a decade, Nigeria’s gas sector would have been optimally developed

Nigeria has launched a decade-long initiative for gas development, is there a real promise?

Evidently, there are inherent promises in Nigeria’s decade-long initiative to develop natural gas. However, their materialization or full realisation will depend largely on a number of factors, including government’s commitment to policy implementation, which in this case, primarily refers to the National Gas Policy approved in June, 2017. Equally important, in my opinion, is the quality of commercial participation that the decade of gas initiative is able to elicit. I think the latter is more critical compared to the former, because the twin challenge of creating bankable gas utilisation projects and rallying sufficient private capital for its implementation are arguably the most critical hurdles facing the initiative. Nevertheless, I firmly believe that the core objectives of the decade of gas initiative are attainable within the next ten years, if, as I said earlier on, the policy implementation mechanism; the commercial frameworks and the investment appetite are optimally aligned. The National Gas Policy makes it clear, that growing the gas sector as an industry in its own right (i.e. properly decoupled from oil) and driving gas-based industrialisation in Nigeria are its fundamental aspirations. Thus the 206.53 tcf of proven gas reserves in Nigeria could become the critical foundation for the much-desired industrialisation and economic development.

How can the initiative be positioned to elicit quality commercial participation?

The gas utilisation value chain in Nigeria is nascent and largely underdeveloped. Beyond a handful of companies, specifically Nigeria Liquefied Natural Gas, Indorama-Eleme Petrochemical, Notore and most recently Greenville LNG & Dangote Group’s urea plant; there aren’t many other existing gas-based industries that consume greater than 70 mmscf/d, within chemical process plants. That’s a poor rate of domestic utilisation for Africa’s largest gas reserves holder. However, the Federal Government is currently providing a number of enablers, which are needed to realise the full potential of the gas sector. This includes the development of critical infrastructures and systems such as the on-going OB3 pipeline, AKK pipeline and the Nigerian Gas Transportation Network Code. The NGTNC for instance, provides streamlined operational and fiscal terms for third-party use of gas distribution and transmission infrastructures. The recently enacted Petroleum Industry Act further provides new and attractive terms for participation in the Nigeria gas sector. These are supply-side enablers, which are capable of eliciting commercial interests and investments in gas utilisation.

What is the suitability and adequacy of the CBN’s N250 billion gas sector intervention fund?

Well, you need to understand the capital requirements of projects within the gas value chain, in order to appreciate the usefulness and suitability of this facility. So, let me provide some insights in gas financing and project development cost profiles. Firstly, the N250 billion gas intervention fund is a very good initiative, because it provides comparatively more affordable capital for certain categories of gas projects, particularly the medium to small scale gas projects. However, because the facility is designed to accommodate multiple obligors, it cannot be suitable for large Capex projects. Different gas-utilisation technologies have differing cost profiles, including, LNG, Methanol, Power Generation, Ammonia-Urea, Compressed Natural Gas, Olefins plants and Natural Gas Liquids. To set up a one million tonnes per annum LNG plant you need about $1.25 billion in capex, using dollar per tonne per annum (US$TPA) values of about $1,250. This covers the full cost of equipment and facilities for gas treatment, liquefaction, storage, export and marine infrastructures. Similarly to build a one million tonnes per annum Ammonia-Urea plant you will require more than $1 billion in capex, covering cost of ammonia & urea plants, as well as, utilities and facilities. For this category of projects, financing will typically come from a club of lenders. Therefore, the candidate projects and candidate technologies for the N250 billion facilities include: flare gas utilisation projects that cost $10 – 20 million, CNG production and distribution projects that may cost less than $10 million, small-scale gas-to-liquid projects, natural gas liquid projects, captive power generation projects for commercial off grid, LPG import terminals and other similar-sized project.

Talking of the PIA, how does this new legislation encourage gas investments?

Broadly speaking, the PIA provides more attractive terms for gas-based investments. Firstly, there are now sufficient incentives for upstream gas development, as the gas pricing regime has been upwardly reviewed. Pre-PIA gas pricing structure was $2.5 per mmbtu for the power sector and $1.5 per mmbtu for gas-based industries. However, the new PIA now specifies a base price of $3.2 for the power sector with provision for yearly reviews. Similarly, gas-based industries will purchase gas within a price band that is capped at $3.2 with a floor price of about $0.9. The new price regime offers a better incentive, for the development of Non-Associated Gas, which may in turn encourage more gas commercialisation projects. The Act goes further to enhance the existing incentives for gas companies, including exemption from the new Hydrocarbon Tax for both Associated Gas and Non-Associated Gas projects among other fiscal incentives. One of the most important provisions of the PIA for the gas sector is the establishment of the Midstream and Downstream Gas Infrastructure Fund, which shall have the power to make equity investments into relevant gas infrastructure projects and consequently encourage private sector investment through participation and risk sharing.

Where should Nigeria be at the end of this decade of gas initiative?

For me, there is that desire to have an optimally developed gas sector, which takes the credit of being the force behind Nigeria’s already attained industrialisation – in retrospect of course. It will be nice to know that Nigeria’s LNG export capacity has surpassed that of Qatar at 110 MTPA. It will be nice to read that Nigeria has the highest petrochemical production capacity in the world, being the largest exporter of polypropylene, polyethylene and other olefins. I hope that the decade of gas will catalyse sufficient changes that will position Nigeria as the largest urea manufacturing hub in the world. In the local utilisation front, it will be nice to see sufficient gas distribution pipelines in gas stifled regions, delivering huge volumes of gas daily to industrial demand centers and commercial clusters and buoyed by a vibrant and cost effective virtual pipeline delivery system that enables flexible, remote and micro-volume delivery to gas consumers in all parts of this country.