gas plant picIsrael’s new status as a gas giant is putting the spotlight on Nigeria’s missed opportunities and untapped potential as corruption and inefficiency hobble its oil and gas industry.

Stakeholders say poor fiscal terms, low prices and lack of infrastructure are the major impediments to new gas investments in Nigeria, while investor-friendly policies have attracted billions of dollars to Israel’s relatively young gas industry.

Israel has turned from an energy importer to a net exporter with the discovery (by a consortium led by United States-based Noble Energy Inc) of the 33-trillion cubic feet Tamar and Leviathan offshore gas fields.

Tamar started production in March. Leviathan, at almost twice the size, is scheduled to come on stream in 2016.

This contrasts with the situation in Nigeria, whose oil and gas industry is in a state of decline as policy inertia feeds a lack of investments by oil majors.

Nigeria holds Africa’s largest gas reserves of more than 187 trillion cubic feet, but flares, or burns, most of the gas it produces along with oil because it lacks the infrastructure to process it.

At least $3 billion in revenue is lost annually due to flaring, according to the Ministry of Petroleum Resources.

The Israeli government’s gas policy puts aside 14 trillion cubic feet of its total 33 trillion cubic feet of reserves for export.

The flow from the gas fields are expected to contribute about 1 percent to Israel’s gross domestic product (GDP), the Bank of Israel said in a March 24 report. This would add as much as $3 billion this year or $60 billion over the next 20 years to Israel’s $300 billion economy, according to the Bank.

If Nigeria were to be fully exploiting its gas resources, it could potentially be adding as much as $17 billion annually or as much as 6 percent to its $270 billion economy, helping to uplift millions of its citizens, 67 percent of whom live in poverty.

Much is, however, lost to the Nigerian economy from the lack of gas to power domestic industries due to investment shortfalls and opaque prices for the gas that manages to get to international markets.

Dangote Cement said gas supply to its Obajana plant fell to 67 percent in its most recent quarterly results, leading to higher cost of production and lost output.

A report released last week by Zurich-based financial watchdog, Berne Declaration, accused the state oil company (Nigerian National Petroleum Corporation) of colluding with Vitol SA and Trafigura Beheer BV to sell its production below the market price.

“It is clear that Swiss traders are contributing to the perpetuation of a corrupt system characterised by suspicions of oil and gas sales at knockdown prices that are unfavourable to the Nigerian State,” Berne Declaration concluded in its report.

“This is in framework of partnerships concluded between NNPC and, respectively, Vitol and Trafigura; and unjustified use of opaque jurisdictions in particular Bermuda.”

The low contribution of gas earning to Nigeria’s GDP and overall FG revenues is difficult to come to terms with considering rising gas prices amid tight supply and surging demand from Asia where spot prices climbed to $18.10 per million British thermal units (Btu) in the week to November 11.

Gas prices in Asia may rise to $20 per Btu during the northern hemisphere winter, Bank of America Corp analysts, including Shin Kim, said in a report released November 13.

“Global LNG markets are heading towards another tight year,” the report said.

That tightness in prices has, however, not reflected on the revenue side in Nigeria’s LNG earnings this year as the FG struggles with revenue shortfalls that may top $12 billion in 2013, according to Finance Minister Ngozi Okonjo-Iweala.

Nigeria’s dollar reserves stood at $44.9 billion (Nov. 13) down 7 percent since June 2013. Israeli foreign exchange reserves were $80.7 billion at the end of October.

For every $1 billion improvement in foreign earnings from gas, the exchange rate should appreciate about 1 percent, the Bank of Israel estimated. The Israeli shekel has appreciated 5.6 percent versus the dollar this year, while the naira has lost 1.5 percent versus the greenback.

On the investment side, stakeholders say with Petroleum Industry Bill (PIB) terms left as they are, 73 percent of new gas production would be uneconomic and up to $23 billion in new investments would be at risk.

“You cannot have low pricing and a high fiscal regime and expect to have gas,” Austin Avuru, MD, Seplat Petroleum Development Ltd, said in a presentation made at the Kuramo conference in Lagos late last year.

Nigeria exported some 19.6 million metric tonnes of LNG in 2012, the fourth-largest output worldwide, according to data compiled by research firm IHS.

Nigeria LNG Limited is jointly owned by NNPC (49 percent), Shell (25.6 percent), Total LNG Nigeria Ltd (15 percent), and Eni (10.4 percent).

Nigeria ranks 139th out of 179 countries in the Transparency International classification for 2012, while the NNPC is categorised as the most opaque national oil company on the planet by Transparency International and Revenue Watch Institute.


[Business Day]