NGA President: Nigeria Needs To Grow Domestic Gas Consumption For Economic Development

Mrs Audrey Joe-Ezigbo is the president of the Nigerian Gas Association (NGA) and the first woman to hold the office. she says the Federal Government needs to fast-track investments in gas infrastructure, to support increased power generation as stable power is the bedrock of economic and industrialisation growth.

What is your assessment of Nigeria’s gas policy and infrastructure?

Infrastructure, or I should say the inadequacy thereof, is one of the key constraints mitigating against the growth of the gas industry. We know that gas is a key propellant for industrialisation of any economy. We have been more focused on our export gas market over the years and this is a contributory factor to the infrastructure dearth. When we export gas, it really goes out to support the industrialisation of other economies at our expense. At this time, therefore, we need to aggressively grow our domestic gas consumption, as there is a correlation between the level of gas consumption and that of economic development, with an estimation that for every $1 invested in gas, there is a resultant $3 increase in GDP. We must, as a country, work in a determined manner to bring more gas-to-power projects, gas-based industries, such as fertiliser plants, methanol and other petrochemical plants, and other heavy industries that require gas as feedstock, to the fore. We cannot, however, achieve this without a robust gas infrastructure backbone.

A close examination of our the Economic Recovery and Growth Plan (ERGP) priorities, which speak of expanding power sector infrastructure,driving industrialisation through small and medium enterprises (SMEs), acceleration of non-oil revenue, achieving agriculture and food security; ensuring energy sufficiency in power and petroleum products, and others makes it clear that power underpins the objectives. Given how bad the power situation is, it i becomes imperative to fast-track investments in gas infrastructure to support increased power generation.

The Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, has spoken severally of an infrastructure gap which he estimates requires an investment of over $50 billion over the next five years. We need to develop central processing facilities, pipelines for transmission and distribution of gas, power plants, pipe mills, fabrication yards, virtual pipeline technologies, etc. We must also not lose sight of the fact that we have a critical need to see more direct gas exploration and production projects materialise.  Data from NNPC says we have 202 Trillion standard cubic feet (Tscf) of proven gas reserves. We, however, need to deliberately invest in exploration, production and monetisation of our estimated 600Tscf of unproven reserves.

From a policy viewpoint, there is a clear infrastructure focus, yes. The Gas Revolution agenda as embedded with the 7Big Wins speak to gas infrastructure development, gas revolution projects, deepening domestic utilisation of liquefied petroleum gas (LPG) & compressed natural gas (CNG), reduction of gas flaring, and gas-to-power as focal areas. This is clearly in alignment with the vision of our National Gas Policy to grow Nigeria into an attractive gas-based industrial nation with strong focus on domestic gas demand and consumption, while developing a significant presence in international markets.

The recognition of gas as a stand-alone product and industry as distinct from oil, and the intention to create a distinct midstream sector of industry speaks to an infrastructure focus so policy-wise, we are on the right track. Our gas revolution will be greatly enabled by profitable stand-alone dry gas projects with supporting processing and transportation infrastructure in place.

Let me say also that we must give kudos where it is due. The government, through the NNPC, is gaining traction on the seven critical gas projects identified as being imperative to gas development and industrialisation in Nigeria. We are seeing progress on the AKK project, the ELPS II expansion pipeline, the OB3 East-West interconnect pipeline, the Assa North-Ohaji South project, the Odidi-Warri Gas Pipeline Expansion Project, among others. That said, there are other critical projects from gas supply and gas off-take perspectives that need to commence, and it is clear that only the private sector can deliver on these directly or through PPP arrangements. Therefore, we are very disappointed that the President refused to assent to the PIGB. As an association we were pushing not only for the PIGB, as well as the Petroleum Industry Fiscal Bill, which we consider the most critical in the sense that it will determine whether lenders have a clearer line of sight on the economics of any proposed gas development projects in Nigeria, enough so as to finance such projects.

What are the major challenges of investors in the gas subsector?

Unfortunately, there are too many challenges and uncertainties facing existing and would be investors in the gas industry. There are issues surrounding pricing and appropriate tariff structures to incentivise investments along the value chain; regulatory inconsistencies relating to foreign exchange (forex) in terms of the investment/income currency mismatch; there are constraints around the timing and quantum of payments of invoices; issues of sanctity of contracts which has been a long-standing challenge, among others.

It has been over 14 years and we have still not been able to pass any part of the Petroleum Industry Bill. There are uncertainties around the proposed fiscal policy which impinge on the potential for aggressive development of gas infrastructure. Financing is a key challenge investors face because of the structure of funding available within our domestic financial markets, and the fact that global investors are looking at more investor-friendly and less risky climes to channel their funds. Bankability of projects is a concern and admittedly the quality of guarantees available in the export markets is much stronger than for the domestic market. There are issues of securitisation and payment assurance, security of assets and so many other factors impact on ability to raise funds.

What other challenges exist?

There are challenges with bureaucratic delays and extended procurement processes, corruption and rent-seeking, multiplicity of agencies and attendant costs and approval overlaps. There are also very significant security budgets that have to be attached to projects in the industry. These and many more serve to increase the cost profiles of projects. Time is lost trying to get projects past the approval stage, off the ground during the construction phase, as well as once operationalised. All these add up to significant time lost and value erosion. It is difficult terrain indeed, so the operating philosophy of the investor is centred around strategies for hedging, de-risking, efficiencies, optimisation, and the like. We are very pleased that a lot of the industry restructuring is looking at the reduction of contracting cycles, removing bureaucratic bottlenecks, streamlining agencies and driving efficiencies within the public sector.

NGA has been in the vanguard of willing buyer-seller system. How would this improve the gas subsector?

We are interested in seeing the evolution of a fully deregulated gas market, where commercial transactions are market-driven. We will not see the kind of levels of investments we need to see if the economics do not pan out for every investor along the value chain who must be able to make appreciable returns on his investments. We understand the anxieties of the government and the concern that a willing buyer-willing seller market will lead to increased prices of gas-dependent production output, including and, especially, power. The reality however, is that in a market-driven environment, whilst there may be a short-term spike in prices, as more investors come in and the competitive landscape heats up, competition will necessarily drive down the margins and the market will become more focused on cost-competitiveness, differentiation and efficiencies which ultimately benefit the end consumers. We constrain our gas development by over-regulation in a situation where we do not have a robust enough gas infrastructure backbone.

There is a drive to attain parity of domestic gas price to export as a means of encouraging investors to come into the gas sector. Our concern, however, is that export parity pricing to NLNG is for unprocessed gas, whereas the requirement for domestic gas supply is for processed gas which requires significant additional capital investment.This must be factored into any domestic gas pricing framework since it is investments on the domestic front that the nation seeks. This is the space that must be attractive to investment capital.

Poor gas supply has been the major challenge to Nigeria’s power sector efficiency. How would this problem be solved and what is NGA doing about it?

I don’t agree that gas supply is the greatest challenge, it is one but certainly not the greatest. The biggest issue plaguing the gas-to-power sector is the illiquidity problem. Indeed, the gas producers and suppliers should rather be commended for continuing to make gas available despite the huge debts which they are owed. There is just not enough cash flowing along the gas-to-power value chain and the issues surrounding this, which we are familiar with, go beyond gas supply. We are talking today of a debt profile of over a trillion Naira, and it is the gas producers who are the last mile in terms of payment backflows, who are owed the bulk of this money. So, ultimately, we are approaching a situation where the ability of gas producers and suppliers to continue to supply the power sector is challenged and the chain may breakdown.

In addition to the illiquidity issue, there are infrastructure limitations that create redundancies and wastages from generation to transmission and distribution. There are issues around tariffs that are not market-reflective. Collection efficiency on the part of the Discos is lower today than ever before and this has liquidity implications for the value chain. Considering that the power sector accounts for about 80 per cent of domestic gas offtake, we can then see how this impacts on the gas supply end. This is one sector where we see the full effect of challenges with bankability, securitisation of gas supply agreements, and investment value erosion issues arising from the mismatch between the currencies mismatch situation. Insecurity is a factor that comes with its own significant cost profiles.

That said, we are facing an energy crisis and we really need our government to declare a state of emergency in our power sector. We need to see specific new interventions by the government targeted at significantly de-risking the power sector. It would be good to know for instance what the government plans to do regarding the N701billion Payment Assurance Guarantee scheme, which ends this December. We are aware that even as of today, about four months’worth of invoices under this scheme are yet to be paid. What is in place to address the debts in the power sector from January 2019?

It is our strong position that government’s intervention to resolve the illiquidity issue, including providing additional payment guarantees, is required. This will help to minimise this risk and re-establish the viability of the gas to power value chain. I need to reemphasise that power is an imperative for Nigeria if we are to achieve our aspirations for rapid industrialisation, and our reality is that gas-to-power presents the vehicle through which we can attain quantum leaps in our power generation capacity at this time. We produce less than five gigawatts (GW) of power in a nation of about 200million people. Working with the United Nations rule of thumb of generating 1GW of power for every one million people, Nigeria should be generating at least 200GW. The gap is huge gap and we must urgently take steps to ensure we see it beginning to close.  We must address the pricing issue and establish market-reflective tariffs. We must put payment assurances in place, and we must deal with identified structural, regulatory and legislative issues that deter investors from the sector.

We have a specific statement in our National Gas Policy that speaks to ensuring gas supply to the country’s power sector is a number one priority. This will be very hard to achieve if it is premised on what is currently a very dysfunctional power value chain with less than 20 per cent of the revenues flowing across the value chain.

Nigeria reportedly is one of the lowest LPG consuming nations, despite its huge gas resources. How can LPG consumption be enhanced?

For a country that has the kind of volumes of gas reserves that we have, Nigeria indeed has not done well with LPG consumption. Again, a major bottleneck has been infrastructure. It makes no sense that we produce a product in the Niger Delta region, move it to Lagos on vessels and then truck it right back to the region from which it was sourced in the first place, and this has been the situation for years. We have come full circle to where we have distinct policy provisions targeted at deepening LPG penetration and utilisation in the country and this is a very welcome development. Nigeria has the potential to consume significantly more than current levels which are in the region of about 450,000 metric tons a year, most of which is supplied by NLNG. Enhancing consumption will need us to expand our storage capabilities and we see this is already happening with investments by companies like Falcon, Dozzy, Techno and some other newcomers. We are seeing added investments in LPG vessels to increase shipping capacity. We must necessarily also make investments in LPG cylinder production and look at the use of our rail lines to transport LPG across the nation. There is also a need for massive education, orientation and re-orientation of Nigerians to increase the adoption of LPG. Given our teeming population, rapid adoption of LPG utilisation will ramp up domestic consumption significantly. That said, we must also encourage the use of LPG for various industrial and commercial applications, as well as applications in the transportation sector, all of which will combine to deepen the offtake levels within our domestic market. Lastly, government must make good on its commitment to address the removal of VAT on LPG which is produced domestically, whereas imported LPG does not attract VAT. It is a gross disincentive to the growth of the domestic LPG market when imported products are cheaper than those produced locally.

Gas flaring is a challenge in Nigeria. How can it be stopped or reduced to barest minimum?

I believe we have to first and foremost acknowledge that we have done quite well in bringing down the volume of gas being flared in Nigeria from about 2Bscf/d ten years ago to its current levels of about 0.7Bscf/d. The reduction has been on the back of several policy interventions such as AGFA/NAGFA, the DSO, the NLNG Act, among others. That said, 700mscf/d of flare gas is still a colossal waste of resources, translating to over a loss of N860million per day of gas which could otherwise have been channeled towards the production of approximately 5GW of electricity per day. I believe however that we are very much on the right track in terms of our flares out initiatives. The government is on the right track with the National Gas Flare Commercialisation Programme which seeks to create an avenue for interested investors to take on flare sites and deploy various technologies to monetise the flares. This has been given legal backing with the presidential assent and gazetting of the Flare Gas (Prevention of Waste and Pollution) Regulations 2018, which also addresses the issue of penalties for gas flaring. As an industry we have our own sets of concerns about the workability of some of the provisions of this piece of regulation, and we are engaging with government in this regard in hope of getting these addressed from a practical standpoint. Again, we also feel a consideration, by way of fiscal incentives, could be given on measured flare gas that has been monetised, as this could serve to further stimulate investments in various flare-elimination projects.

Do you have a programmefor deepening domestic gas utilisation?

As an association, NGA’s role in this regard is to facilitate the conversations, interactions, interfaces, and shaping of policy thrusts that serve to encourage our members to expand their footprints, as well as to attract new investors into the sector. Among other things, we have an NGA Investment Promotions and Export Relations committee that works with other regional and global gas associations, embassies, trade missions and chambers of commerce to facilitate access to information, conversations and partnerships around investment opportunities in the Nigerian gas sector. We were in Washington in June of this year to showcase achievements in gas in Nigeria as well as available opportunities for investment. At that outing we had several high-level meetings with different groups who are now looking at Nigeria with keen interest. As an association, we are also very mindful of the important of capacity-building in an industry that needs to constantly upskill itself in the face of various emergent technologies and the evolving dynamics of new gas projects and markets. We do this through our trademarked Learning Solutions programs which we hold up as a model for competency development in the gas industry.

What is your advice to the government on effective gas pricing?

As I said earlier, pricing will play a significant role in our ability to draw in and lock down investments within the gas industry, particularly regarding gas exploration and production, as well as infrastructure development within the midstream and downstream segments of the industry. As the NGA, we have been speaking consistently to the fact that there is need for a market-reflective pricing structure, underpinned by a Willing Buyer-Willing- Seller framework that allows investors to put their money down and be certain of reasonable returns for their investments. The government needs to step out of the pricing mechanisms and allow investments to flow, so that over the medium to long term, various economies of scale as well as enhanced competition mechanics will lead to benefits along the entire value chain, up to and in particular for the ultimate end beneficiaries – the man on the street. The government also needs to articulate a clear and consistent position regarding the currency of investments, investments flows, as well as any exchange windows that might be needed to be put in place to address currency mismatch issues as exist today. No investor wants to put dollars down and have to be paid in Naira at a differential rate which is less than that at which they are able to recover and/or repatriate their investment capital.

Indeed, this brings us to the issue of incentivising the gas sector. As NGA we have continued to push the position that the government needs to look at gas as an enabling resource from which it will achieve twin objectives. First, we need to put in place the much-needed infrastructure and enablement for industries to grow and thrive.  This will then ultimately create a multiplier effect that addresses unemployment and social welfare, as well as internally generated revenues by way of the significant taxes government will then earn from such enabled industries. As a nation, the weight of our infrastructure gap and the necessary investment that must come in to bridge that gap must underpin the decisions we take if we are to move forward. Regarding gas, government must see it first as a resource platform for industrial development before it begins to look at gas as a resource for direct revenue generation.

In light of the above also and as I said earlier, the time is beyond ripe for the government to begin to solicit actively for private investors to come into gas exploration and production. We have been too dependent and focused on our Associated Gas reserves and export markets over the past few decades. We are well behind in terms of active E&P of our NAG reserves, whereas we must do this if we are to utilize gas effectively to transform the industrial landscape of our economy. Again, this will call for the kind of investment capital that the government does not have at its disposal and private sector investments are key.

As the first woman president, what do you plan to do for the association to leave your name in the hall of fame?

I said at my inaugural speech at our recently-concluded flagship event, the 11th NGA Biennial International Conference and Exhibition, that there has justifiably been a lot of excitement about the fact that the NGA has a female President for the first time in its near 20 years of existence; and that I choose to own that narrative. It has not been an easy feat, and it has been a long journey on my part of tenacity, consistency and unwavering commitment to the very ideals for which the NGA was formed. I have been a very active member of the NGA for over 13 years, and a member of the NGA Executive Council for 11 years serving in various capacities on different committees, moving over the years from an Ex-Officio position to second Vice President, first Vice President, and now President. It has been a lot of hard work and sacrifice, but certainly a very rewarding and enriching journey of working with various Councils to bring the NGA fully into its own as voice of the gas industry in Nigeria, and the premier non-partisan interface between the government and participants within the gas industry.

NGA has a robust framework of continuity and we are clear that changes in our leadership must not translate to a deviation from our ideals. As an Association, our four core pillars are Advocacy – the anticipation and driving of policy and legislation; investment promotions – being the leading promoter of investment opportunities in the Nigerian gas industry to both local and international investors; standing as the authoritative resource for industry data; and encouraging industry best practices/standards for safety and quality.

My primary goal is to elevate our engagement with the various arms of government and our members, enhancing the platform NGA provides for alignment of the expectations and objectives of these two key stakeholders.

Source: The nation