Eroton E&P MD highlights issues with Nigeria’s gas-to-power market

Managing Director/ CEO of Eroton E&P, Ebiaho Emafo, in an interview with BusinessDay, speaks about the dynamics of Nigeria’s gas sector and Eroton’s plans to grow its gas reserves. Eroton E&P won the bid for the 45% total interest in OML 18 previously held by Shell Petroleum Development Company, Total E&P Nigeria Limited and Nigerian Agip Oil Company Limited. Eroton E&P consequently became operator of OML 18 Asset in October of 2014 in the joint venture between Eroton and the Federal Government of Nigeria, represented by NAPIMS.

He said; “At the moment we have 2P reserves of circa 4.7 Tcf, so our primary goal at the moment is to develop those reserves and monetise them via either supplies to the domestic market or mid-stream opportunities. Naturally, as we develop the reserves, our replacement strategy would be to at a minimum, replace what we produce (i.e. 1:1) and we are of the firm opinion that the asset has significant upsides in the exploration space.

The gas to power market in Nigeria can be tough for a few reasons. First of all, you have a situation where the Disco’s are not able to collect all their revenues from their customers due to metering and collection issues that have plagued the industry for a long time. This fact now has a knock-on effect on the entire value chain. The Genco’s don’t receive full payment and as thus cannot pay the producers for the gas supplied.

The second major issue is in the area of billing currency and attendant FX rates applied. Gas supplies are invoiced in naira, whereas the industry primarily spends in USD. This would be alright if the FX rates applied were what was obtainable for the producers to utilise, but unfortunately the CBN rate of 305 is applied when the reality is that most producers are sourcing USD at 360.

This leaves a disparity of N55 on every dollar billed, which will naturally impact any producer’s financials. Finally, I will raise the issue of fixed / regulated pricing, this policy impedes the level of investment into the gas industry due to the less than desirable returns on investment. There is a need to review the policy to make it more appealing to investors, we hope the PIB would be able to address these issues but in summary those are the major challenges we face today.”

Source: Business Day

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