Inadequate infrastructure, others hindering gas production in Nigeria – OPTS

Inadequate gas infrastructure, absence of gas-aided businesses, such as power, petrochemicals and fertiliser plant, regulated low prices  and non-payment of legacy debts, are affecting maximum value derivation from gas resources, the Producers Trade Section (OPTS) Chairman, Paul McGrath, has said

He stated this at the National Gas Association (NGA)Business Forum  in Lagos.

The event had as theme: “Evaluating the place of gas as a prioritised enabler of Nigeria’s economic diversification agenda.”

According to McGrath, OPTS represents the key players in the exploration, development and production of Nigeria’s petroleum resources.

This year, OPTS 30 members operate  90 per cent of the oil and gas production, either in partnership with the Nigerian National Petroleum Corporation (NNPC) or with other indigenous and international lease holders.

McGrath, who is the Managing Director of ExxonMobil Nigeria, listed measures that would enable the capturing the benefits of the industry, adding that the implementation of these measures will require deliberate and extensive collaborative effort between government and key stakeholders.

He explained gas potential and what its benefits for the economy. Nigeria is endowed with vast natural gas resources, which can play a leading role in diversifying the economy by stimulating the development of various sectors. For example, gas can be used for electricity generation, to provide feedstock for value-adding manufacturing, and to increase Federal Government’s revenue from liquefied natural gas (LNG) sold in international markets, he said.

On gas to power, the OPTS chief said: “For Nigeria, gas provides a unique opportunity to provide steady, widely-available, cost-effective and generally affordable power to everyone. A shift to gas-fueled power generation would represent significant savings opportunities over sources, such as diesel, which is multiple times more expensive than gas at USD 2.5 /mmbtu (million British thermal unit). This saving can then be redeployed by power consumers (individuals and businesses) to other goods and services and to new investments.

On gas to industry as feedstock, he noted that opportunity exists in leveraging gas to develop industries that use gas as feedstock to produce methanol and ammonia used in fertiliser production. Trinidad and Tobago is a good example of a country that has accomplished much with its gas resources. With a small population of 1.4 million and only 11 trillion cubic feet (TCF) of gas reserves, the country has developed a globally competitive petrochemicals industry. Today, Trinidad and Tobago is the world’s largest exporter of ammonia and second largest exporter of methanol leading to this industry contributing significantly to the country’s GDP. Nigeria, with significantly larger gas reserves of 199TCF, has the potential to achieve even bigger success.

“The agricultural sector, the largest GDP contributor to our economy, would benefit immensely from greater availability of fertiliser. Considering the low nitrate concentration in our soil and gas being the key feedstock for nitrate-based fertiliser, developing the gas industry could contribute to enhancing food security,” he added.

To further buttress the importance gas to economic development, he noted that the Nigeria LNG (NLNG) maintains 70-80,000 jobs in the economy and contributesUSD $1.3 billion yearly in revenue to the Federal Government, providing the much-needed revenue for the government to deploy for the benefit of the country, such as development of infrastructure and diversifying the economy.

Other areas where gas can benefit the economy include alternative fuel for transportation, residential and commercial utilisation, he added.

However, he noted the challenges and solutions to unlocking Nigeria’s gas potential.

McGrath continued: “To realise the full benefits of gas as a catalyst for economic growth and diversification, several challenges across the entire gas value chain need to be resolved. These include challenges related to the development and production of gas, such as inadequate infrastructure along the value chain; regulated low prices; legacy debt related to gas and power supply and the challenging business environment.

“It is no longer news that infrastructure along the gas and power value chain remains inadequate. Particularly, Nigeria lacks sufficient pipelines to deliver gas from the fields where it is produced to the current and potential off-takers (e.g power plants, manufacturers, among others). In addition, the transmission and distribution systems lack the capacity to deliver the generated electricity to businesses and other consumers. Building infrastructure requires a sustained joint effort of the stakeholders led by the government. Active government support will help enable a stable investment climate, acceptable commercial terms and contractual risks. The above elements will help in attracting the required private investments which would strengthen existing off-takers and ultimately lead to emergence of new buyers and suppliers.’’

“Also, Nigeria’s domestic gas prices are kept at a regulated low price, which does not cover the cost required to develop its gas resources.  The regulated gas price of USD $2.50/mmbtu falls short of the price required to attract investment for these new gas developments. The gas sector should transition into a liberalised market based on the ‘willing buyer, willing seller’ principle and ensure the existence of a competitive fiscal regime to support upstream gas development. Besides, the commercial and financial structures of the gas-to-power commercial value chain remain weak with growing arrears and uncertainty in the payment system which disincentivises gas investors.

“A conducive business environment is essential towards achieving a diversified economy. Critical elements of a conducive business environment include security of life and property, improved efficiency of regulatory bodies and stability of laws and policies. OPTS believes that improving the regulatory, judicial and legislative framework in line with global standards (dispute resolution, contract sanctity) would promote investor confidence and significantly improve Nigeria’s ease of doing business towards growing and diversifying the economy,” he added.

 

Source: The Nation

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