The Federal Government, the NERC and the Department of Petroleum Resources have set out an agenda to boost gas supply and increase the Mega Watts per hour (MWh) delivered to Nigerian consumers. However, as the investments in infrastructure to supply power plants with gas catches up, the financial structure is still lacking, which could slow down or cripple gas reform expectations.
This is as a result of how the Multi Year Tariff Order (MYTO) rates are set up. The rates were set up to accommodate feed-in gas prices at $1.80 per Million Btu, and not the present rate, $2.50 per Million Btu and 80 cents for transportation, which rates have been increased to.
Ian Brown, Managing Director of Navgas Limited, said at the 2014 OTL Africa Downstream Expo, “To improve power supply with gas, it is not a case of gas availability, a lot of it is due to financing and guarantees.”
“The price given previously was $1.80 per Million Btu; it is now $2.50 plus 80 cents for transportation. However, the MYTO tariff that was put in place was not set up at the $2.50 price for gas”, he continues, pointing out a structural weakness that has remained unaddressed.
READ ALSO: AXA Mansard emerges as Top 50 Brand Of Nigeria In 2020
Sam Amadi, Chairman, NERC had in the past explained that the new tariff regime, Multi-Year Tariff Order (MYTO), was introduced based on the assessment of the cost of production projection of 9061 Mega Watts (MW).
“We look at the quantity expected and the cost of generating power, distributing and supplying power, and put it together to arrive at the price for 2014. So, this year, because of good economic base from the Federal Government, the price drops slightly to 7.8 per cent. We projected 13 per cent inflation rate, N178 foreign exchange to a dollar. Gas prices about $1.80, so we put all together and get about 11 to 15 per cent”.
The Henry Hub Natural Gas Spot Price, the global benchmark price for gas, is $3.60 per Million Btu.
In the short term, however, gas supply to the private power plant operators can be expected with financial guarantees in place. This is, however, a short fix to a structural problem.
“So a financial structure has to be put in place, where guarantees can be given, it can take off pretty quickly in the short term”, Brown concludes.
Nigeria has approximately 187 tcf (Trillion Cubic Feet) of proven gas reserves and 300,600 tcf of unproven gas reserves. However, not much of it has been harnessed, as crude oil production has been the primary focus of the government.
To spur gas reforms, the Nigeria government introduced the Nigerian Gas Master Plan (NGMP) in 2008.
The plan outlines the immediate infrastructure required, such as 3 domestic central processing facilities at the Warri/Forcados area, Akwa Ibom/Calabar area and Obiafu area (north of Port Harcourt).
These central processing facilities will be the major gas hubs where wet gas from gas fields will be treated and processed. LPG and condensate will be extracted at these facilities and the dry gas fed into a network of gas transmission lines.
Also, the plan requires the development of 3 major domestic gas transmission systems, namely, the western system, the first South-North gas transmission line and an inter-connector that links the Eastern gas reserves with the two transmission systems.
The western pipeline system will comprise the existing Escravos Lagos Pipeline System (ELPS) and a new offshore extension to Lagos with provisions for an extension to the OK LNG plant.
The South-North gas transmission line will transport dry gas from the Akwa Ibom/Calabar processing facility to Ajaokuta, Abuja, Kano and Katsina. The line will serve the Eastern States of Anambra, Abia, Ebonyi, Enugu and Imo and also convey gas for the proposed Trans-Sahara gas project.
Nigeria has approximately 4,045 km of gas pipelines according to the CIA Factbook. According to the CEO of General Electric (GE) Nigeria, Lazarus Angbazo, Nigeria requires 10,000 kilometres of gas pipelines to power the country’s electricity sector.
Yinka Abraham
