In the interview with our Correspondent, Theresa Igata, the duo of Dolapo Oni and Jubril Kareem , both members of ECOBANK Research Team, clearly sets agenda for the Federal Government on how to maximize the nation’s gas resource. Excerpts.

Policy and gas utilisation for the country’s energy supply

Unlike oil you can’t bring gas to the surface until you have need for it. We must first have the infrastructure in place, either to liquefy it into Liquefied Natural Gas, LNG, or to compress it into what we call Compressed Natural Gas, CNG, or to burn it and generate power which is Gas to Power.

The last option that countries usually consider is to liquefy it into petrol and diesel; which is called Gas to Liquids, GTL. But because all these processes are quite significantly huge investments as well as needing capital intensive infrastructure, investors need to be assured that they’ll have good returns if they decide to build gas infrastructure, and all that still boils down to pricing.

No market-driven gas policy

The key policy usually in gas is about pricing and if you notice in Nigeria because we do not have a very strong gas pricing policy in place; we have the Associated Gas Agreement Framework which is what still really currently runs the sector but even under that framework we do not have a very strong market-driven policy. So there isn’t enough incentive for investors to put down infrastructure to utilise the gas. That is why the bulk of our gas has gone into the LNG plant and we’ve exported it, but now we need to use that gas in the domestic economy for power.

Pricing is still a bit of what is holding that sector; if the government allows the gas market to be fully market-driven and gas producers are able to charge what they want for the gas then we might see a lot more investment in infrastructure to bring gas to the surface and there’ll probably be abundant gas supply which will bring the price of gas down eventually.

Gas price determination

At the moment it is the government that determines that. Initially the price was just 1 cent and gradually it moved to $1 per thousand cubic feet, PTCF, and then later they brought out what we call the National Gas Masterplan in which the price was meant to grow from $1 to about $4 over a period of 4-5 years, but that was too slow for a lot of companies; because if you check elsewhere around the world; US, Asia etc, gas price is around $4 at the minimum. That pricing policy was not encouraging enough though there were some investments. The government however decided to raise gas price last year to $2.50 ptcf and then there’s an additional 80 cents if you build a pipeline; so you can charge 80 cents if the gas is going to pass through your pipeline to the company.

Then again, the private sector is growing significantly and there’s a private market for gas between gas companies and industries with gas-powered plants like PZ, Dangote, Notore etc.; in that segment price is driven purely by negotiation but the main users are the power plant and for the power plant the price is set by the government.

Variation in the price of gas

There’s a benchmark for oil which we call the Brent that everyone looks at and it helps us to price our oil. Nigeria markets 20 different kinds of oil and they all sell at different prices. But for gas we have just one type of gas; if anything, I think gas still has similar price. But gas trades in different markets; gas to power trades for $2.50 per thousand cubic feet but gas to industry in the private sector tends to attract $4-$5; this is at the local level. And then internationally, we have the LNG which attracts various prices depending on where it’s headed. If it’s going to Asia you tend to pay between $10-20 because of the distance in nautical miles; this is one factor you have to account for in terms of pricing because it takes a longer time to get your product across and the ship will be on the sea for a longer period of time. It costs a lot more to take things to Asia but Asia has a strong demand for gas.

Policy and Pricing

Policy too has a role to play in terms of pricing. When the whole power sector was structured the government had a plan. The end product of power is what you and I are paying and the government wants a gradual increase because they don’t want the entire burden to fall on the consumer immediately. So a portion of the input that eventually comes down to the final products is regulated and that includes the price of gas. This is why we’re talking about investment in gas facilities because the companies are not getting what they expect, they don’t have the power to price the gas and tend not to invest so much in the facilities to bring them on stream.

Expectation from Government

There are some policies, about 10 of them that we expect the government to look into, to create a little bit of free market though it will still be controlled; to enable gas companies see the value. Now we’re talking about transitional electricity market that was declared recently, to create a situation where gas companies and power companies will be able to decide and determine how much gas they want and how much they’ll pay for it; and if they cannot deliver then they’ll be charged. We’re not there yet but that’s where we’re going. The reason the government is not so keen on that is because you’re trying to attract gas companies to put in place companies to deliver this gas and at the same time you’re declaring a regulation that begins to sanction them for not delivering the gas when the time is not yet right. It is locked now between satisfying the generation companies and the gas producers.

Utilising flared gas

We can use that gas if infrastructure is put in place; infrastructure to liquefy the gas or pipeline that will transfer the gas to power stations while also exploring other opportunities to utilise the gas. Gas flaring is not a solution in itself, it should be the last resort. The problem with gas is that because it is associated; in the sense that it is found while drilling for oil, and because the company’s prime motive is to bring the oil to the surface and not the gas, and the infrastructure in place is not adequate to deal with the gas, so most times what they do is to flare the gas because you cannot bring the gas to the surface like that since it will pollute the atmosphere and cause serious environmental and atmospheric damage.

Gas infrastructure

There are two things; one is pipeline which is primary, and also we have the gas processing plants. The gas plants are meant to process the gas into different forms that can be utilized across industry and domestically. So we need gas processing plants, and then more elaborate infrastructures like pipeline that can deliver the gas to power plant, so the first stage is that you need a processing plant; every oil field that has associated gas should have a gas processing plant to process the gas because the moment you bring the gas to the surface it must go somewhere or get flared. Most oil companies don’t see the need to invest in gas processing plants because the infrastructure to deliver the gas to the consumers are not there and the pricing is not enough incentive to encourage building one so they just flare it or at best compress and export. There must be an understanding between the government and these companies, that if they can send the gas to NLNG or gas processing plant then they’ll allow them to charge a market driven amount, and with this you’ll see development of processing plants.