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Market Digest Nigeria

Economy

Gas constraints keep Nigerians in darkness

Gas constraints keep Nigerians in darkness amid 203tcf reserves.

Notwithstanding the peak-wheeling performance recorded by the Transmission Company of Nigeria (TCN) a month ago and huge gas reserves of 203 trillion cubic feet (tcf), constraints, including limited gas supply, poor infrastructure and recent challenges with the national grid system has continued to keep many Nigerians in darkness.

According to the Department of Petroleum Resources (DPR), Nigeria with 203tcf proven gas reserve and 600tcf unproven gas reserve is the highest in Africa, but has shortage of gas for domestic use.

In the last three weeks, some distribution companies announced load shedding from partners, while average energy constraints for the first quarter stood at 1,897MW, as against the average current capacity of between 3,500MW to 5,000MW. Power distribution companies rejected a total of 5,452.96 megawatts of electricity in one week causing blackout in various locations across the country.

In February, the Odukpani (NIPP), Geregu I, Afam IV&V, Geregu II (NIPP), and Rivers IPP were also affected by load rejection, with up to as high as 1952.5MW generation capacity unused. The Shiroro and Jebba hydropower plants also suffered this fate.

Nigeria’s electricity challenge is not a new phenomenon. According to a 2019 World Bank data on countries with most electricity outages in Africa, showing average annual duration of outages on the continent, Nigeria led the chart with a long shot of 4,600 hours. This means approximately, there was outage for full 191 days out of 365 days of the year. Other countries that made up the top five were Niger, 1,400 hours; DR Congo, 830 hours; Cameroon, 790 hours; and Ghana, 790 hours.

LATEST figures from the Advisory Power Team (APT) in the office of the Vice President, Prof. Yemi Osinbajo, showed that gas constraints cost the country N85.6 billion in revenue leakages in the first quarter.

Although Nigeria boasts of 203 trillion cubic feet of gas with nearly 80 per cent of power generating plants relying on gas, electricity supply rationing persists across the country.

While the perennial challenge remains despite the increase in electricity tariff about six months ago, latest load shedding comes as financial liquidity cripples the ability of power generation companies to fund government-controlled gas pricing system.

With gas-to-power key to the country’s gas utilisation agenda, there are equally concerns about fiscal and pricing regime and ability of the country to attract funding for gas projects as environmentalists and members of the Organisation Economic Cooperation and Development (OECD), the World Bank and its affiliate lenders plan to maintain a lean funding opportunity for fossil energy development.

The Guardian gathered that remittances to the generation companies still remained below 30 per cent despite tariff increase, as over 6,000 megawatts of electricity is currently stalled due to gas constraints.

The situation to most stakeholders, is not only shameful but scandalous, as they decry impacts on ramping down of generation machines and dispatch shortages linked to the Transmission Company of Nigeria.

A top player in power generating sector, who had no authority to publicly comment on the issue, said a lot of Nigerians don’t understand the payment obligations among stakeholders, stressing that over 6,000MW generating capacity has been stranded due to gas.

“Do we know that gas is not free? The quantity so far is enough to power over 6,000MW, but without payment, no gas. Do you know that even with the tariff reviews, remittances are still below 30 per cent?”, the source said.

Already, attempts by the Federal Government to harness the country’s 203 trillion cubic feet of gas resources may remain an aspiration without addressing the nation’s poor fiscal and regulatory framework undermining private sector investment in the sector.

The African Energy Chamber (AEC), had in its outlook noted that out of the $80 billion loss of investments in the continent’s oil and gas sector, Nigeria is by far the most adversely impacted country with about $24 billion moving out of the 2020-2025 windows due to uncertainty and fiscal reforms.

Presently, the vast majority of gas produced in the country is exported while the country depends on importation for its cooking gas, in sharp contrast to claims by the Federal Government that it was striving to promote increased utilization of Nigeria’s huge gas resources, in a bid to cushion the effect of rising PMS prices, preserve the environment, improve power supply and also conserve Nigeria’s foreign exchange reserves.

Available data from the PricewaterhouseCoopers (PwC) show that Nigeria produces 49.3bcm of gas, with 24.8bcm or 50.3 per cent exported to Europe and Asia.

Pricing challenges in the local manufacturing industry, power generating companies and downstream retail consumption undermine gas utilisation in the country.

ALTHOUGH President Muhammadu Buhari and notable global energy experts at the Pre-Summit Conference of the Nigeria International Petroleum Summit (NIPS) tagged

‘‘Decade of Gas,’’ in Abuja, expressed optimism as Nigeria announced a 10-year plan aimed at harnessing the resources, uncertainties facing investors due to continued delay in the passage of the Petroleum Industry Bill (PIB), other growing business risks, including gas pricing and lack of incentives are bottlenecks that may dampen the optimism unless the country acts urgently.

Considered as a gas nation, Nigeria has over 203tcf of proven gas reserves and potentially over 600tcf but the country’s domestic gas obligations and pricing framework, deepwater terms, gas settlement terms and investors’ confidence according to stakeholders may continue to undermine the country’s ability to harness the resources.

Indeed, some stakeholders insisted that while a common purpose was needed to drive government plans, only a market-led model anchored on willing buyer, willing seller, as well as a Petroleum Industry Bill that specifically addresses the gloomy outlook of the nation’s upstream remained the key options to unlocking opportunities in the sector.

While Nigeria currently has a few gas projects, especially the $2.8 billion Ajaokuta, Kaduna, Kano pipeline and the Nigeria LNG Limited train seven, most gas projects in the country are supported by the Federal Government instead of a private sector led industry.

Buhari, who doubles as the Minister of Petroleum Resources, speaking at the event sees gas as solution to the country’s wobbled power supply with gas to power, enhancing energy mix for security, attracting investment and creating jobs using available gas resources.

‘’Before the declaration of Year 2020 as The Year of Gas, this Administration had shown commitment to the development of Nigeria’s vast gas resources and strengthening of the gas value chain by reviewing and gazetting policies and regulations to enhance operations in the sector as encapsulated in the National Gas Policy of 2017,” Buhari said.

Secretary General of OPEC, Sanusi Barkindo, noted that with the world needing more energy based on projections, global primary energy demand is set to increase by 25 per cent in the period to 2045. He said Nigeria, as a reliable and dependable supplier of hydrocarbons to global markets, has a key role to play to make the goal achievable.

Barkindo, however, warned of the need to utilise all resources efficiently due to energy transition challenge, saying “ensuring there is enough energy supply to meet future demand growth, and achieving this in a sustainable way, balancing the needs of people in relation to their social welfare, the economy, and the environment”.

Minister of State for Petroleum Resources, Timipre Sylva said although Nigeria’s gas resources remained the most extensive in Africa and in the top 10 globally, there was a chronic shortage.

“This is the narrative we intend to change over the next decade. It is no longer acceptable that despite the country’s vast natural resources, the gap between electricity supply and demand is huge, access unreliable, and cost expensive.

“We must deal with the energy poverty in this country. We must find a way to unlock the naturalgas potential of this great nation and drag over 120 million of our people out of energy poverty,” Sylva said.

Managing Director of NLNG, Tony Attah, who spoke on the depleting nature of crude and the mounting pressure from renewable energy, noted that gas would become the fastest growing transition fuel into the future, adding that the global natural gas consumption has been projected to increase by more than 40 per cent by 2050.

To him, the next decades should ensure sustained operations research, and elimination of gas flaring as well as a decade when there would be more domestic LPG in Nigeria.

Group Managing Director of NNPC, Mele Kyari noted that while technology and innovation were facilitating a new energy transition aimed at decarbonizing the world and safeguarding the climate, renewable energy sources of solar and wind, would remained a key component of the new energy mix.

Kyari, who said NNPC would invest more in gas, noted that as part of the clean energy drive, NaturalGas and by extension Blue Hydrogen would be heavily dependent upon to provide significant proportion of global energy mix as well as guaranteed feedstock to gas-based industries.

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