It would not be an exaggeration to say that Nigeria’s economy is in danger of collapsing. The fall in oil prices have landed our coffers a heavy and devastating blow. The Minister of Finance/Coordinating Minister of the Economy in an interview with The Wall Street Journal recently revealed that Value Added Tax (VAT), which presently stands at 5 – 10 percent, may be doubled if oil prices continue to slide. Our currency, the naira, has been devalued, taxes are now being imposed on luxury goods, and our oil-price-benchmark-hinged budget has been revised.
Brent crude oil price which peaked at $115 a barrel in June last year, declined to about $45 per barrel by January this year before rallying to $60 per barrel last month. Crude oil accounts for about 90 per cent of Nigeria’s export earnings and 70 per cent of total revenue. As such, any drop in the price of oil has a significantly negative impact on the Nigerian economy.
Nigeria’s over reliance on oil has finally come home to roost and it behooves us to raise posers, reflect soberly and proffer solutions – short, mid, and long term as to why gas, which has been ignored for so long needs to come to the fore.
First, some key questions to ask are; is this not the nation whose Liquefied Natural Gas company (NLNG) once had the fastest growing facility and on whom the alternate lot fell on as the third largest exporter of liquefied natural gas (LNG) in the world? How did a nation whose gas reserves not only out sizes its oil reserves in alarming metrics, but ranks amongst the largest in the world make oil its big story? What utility has giving too much attention to oil, at the detriment of gas, served? Considering the quantity of energy literally flowing under our feet – a proven gas reserve of 188 trillion cubic feet (tcf) and potential gas reserves of 600 trillion cubic feet (tcf), how do we explain one of our biggest headaches; power generation? Did the Nigeria Infrastructure Advisory Facility (NIAF), a DfID funded program, not assert through its website that considering our reserve, we can power all of our states and neighboring countries for the next 50 years? How did we then get it all wrong?
How we got it wrong was succinctly captured by Mr. Abiye Membere, a former Executive Director (Exploration and Production) in NNPC in his speech at a National Oil and Gas Conference and Exhibition hosted in Abuja: “The oil and gas industry did not start well. We started the oil and gas industry only looking for oil as if the gas aspect was not important.” This chiefly explains the current lack of investment in adequate gas infrastructure in Nigeria.
From the foregoing coupled with the growing competition from neighboring African countries, the several stalled LNG projects – Olokola LNG, Brass LNG and NLNG Train 7 – and the trillions of standard cubic feet of gas we lose to flaring, is there still a need to make gas top priority? Furthermore, considering the extraordinary discoveries of natural gas in the Rovuma Basin, East Africa, and its close proximity to Asian gas importing markets as well as the fact that traditional importers of LNG such as the US are also becoming not only self sufficient, but also exporters, is there a chance we can reclaim our rightful place in the global LNG supply chain?
The answer to all of the above is…yes. Regardless of LNG project developments across the continent, and the loss of certain markets across the globe, there is still the fact that natural gas remains the world’s fastest growing energy source and is set to outstrip coal and occupy the number two position, after crude oil by 2035, according to BP’s Energy Outlook for 2035. Furthermore, there are still available emerging markets across the globe as well as a growing West African market to cater to. For instance, the Republic of Cote D’ Ivoire recently signaled its intention to procure Liquefied Natural Gas (LNG) supplies from Nigeria in support of its growing power needs.
If nothing at all, the Nigerian domestic market serves as enough reason for the imperativeness of gas development and utilization. With the availability of cheap natural gas; more private owned factories, power plants, oil refineries, petrochemical plants and fertilizer complexes, such as that of Africa’s richest man, Aliko Dangote- which is currently underway- will be commonplace.
Energy is a pillar of wealth creation and is currently at the core of human existence. With sufficient gas, our energy and feedstock needs will be met, power generation will improve and the knock on effect for Africa’s largest economy would be enormous. Clearly, gas is of national strategic importance. With its potential of prompting an industrial revolution as is presently the case in Qatar and China, a Nigerian manufacturing renaissance is bound to happen which would mop up tons of unemployed youths.
Thus, this is not a time for the government to trade in bland rhetoric such as “the gas sector will be revamped” or ”more attention will be given to gas.” Neither is it a time to formulate policies that will not be implemented or laws that will not be enforced. This essentially means that more attention needs to be given to the adequate and practical implementation of the Gas Master Plan and also the Nigeria Gas Transportation Network Code. Furthermore, the passage of the Petroleum Industry Bill (PIB) is also imperative from a fiscal perspective.
Also from a fiscal perspective, is the need to review domestic gas prices to ensure that they are in line with gas producers expectations and to ensure that they remain competitive enough to guarantee sufficient gas supply to the domestic market. Furthermore, the stakeholders of stalled LNG projects such as, Olokola LNG, Brass LNG and NLNG Train 7 need to accelerate the decision making process and come up with Final Investment Decisions (FID) on the various projects, if Nigeria is not to be left behind in the LNG space for good.
Finally, with the recently launched gas flare tracker, and by enforcing Regulation 43 (Petroleum Drilling & Production Regulations) of the Petroleum Act (Cap 350 Laws of the Federation of Nigeria) and the Associated Gas Reinjection Act (Cap 26 Laws of the Federation of Nigeria 1990 as amended), it is hoped that gas flaring would also be reduced to the barest minimum.
The opportunity for us to shelve our priorities and salvage our nation from economic straits by seriously looking at gas has presented itself. Now is the time to summon the courage and urgently pledge the reversal of our nation’s menacing present by backing the Gas Revolution Agenda launched in March 2011 with significant actions.
Written by Noma Garrick and Joel Pereyi for Energy Mix Report