Funding, Pricing seen as hurdles to Gas Devt

Oil and gas industry operators have said that the nation’s gas development would remain stunted for as long as issues of right pricing, funding and inadequate gas supply infrastructure were not addressed holistically.

 

They also spotted absence of institutional and regulatory framework, low level industrialisation and inadequate consumption capacities as hurdles.

Current gas production in Nigeria is about 4.6bcfd. The gas currently produced for utilisation goes to power generation, domestic uses and export projects. Over 55 percent or close to 2.5bcfd of gas produced is currently flared.

The oil and gas industry stakeholders, who spoke to BusinessDay at the sideline of the ongoing Offshore Technology Conference (OTC) in Houston, Texas, United States of America, said that for investors to be attracted to develop gas in the country the price of gas should be between $4 and $5 per a thousand standard cubic feet.

Osagie Okunbor, managing director, Shell Petroleum Development Company (SPDC) and country chair, Shell Companies in Nigeria, said that although there was sufficient resource base in the country to satisfy gas export and domestic use, the issue of price was central.

Okunbor stated that efforts at getting the right price for gas had been a journey which stakeholders had to continue with until an acceptable price was reached for the industry.

The Shell boss, who also delivered a paper at the forum with the theme, ‘Natural Gas Development in Nigeria: A Compelling Investment Frontier in a Turbulent Oil and Gas Industry,’ said: “The issue of pricing has been a long journey. Few years ago, it was a bit of struggle, but this is central to the gas development in the country.”

He observed that in terms of policy and getting the price right, effective implementation of the Nigerian Gas Master Plan needed to be carried out, adding that “gas master plan is the answer to all these issues of pricing and infrastructure deficiency in the industry.”

The Nigerian Gas Master Plan was approved on February 13, 2008. This is part of Nigeria’s resolve to become a major international player in the international gas market as well as to lay a solid framework for gas infrastructure expansion within the domestic market. The Nigerian Gas Master Plan is a guide for the commercial exploitation and management of Nigeria’s gas sector.

It aims at growing the Nigerian economy with gas by pursuing three key strategies: stimulate the multiplier effect of gas in the domestic economy; position Nigeria competitively in high value export markets, and guarantee the long term energy security of Nigeria.

Dada Thomas, managing director, Frontier Oil Limited, was more emphatic as he said that price base line of $4-$5 per a thousand standard cubic feet would be more attractive to investors in the gas business in the country.

The Frontier Oil boss, who went down memory lane, said the gas price graduated from 50 cent per standard cubic feet to $1.50 and now $2.50.

He, however, observed that while the gas price base of $2.50 could be easier for new entrants to the gas business to raise funds to finance new projects now, it was difficult for a company like Frontier Oil Limited when it started in 2006/2007.

He explained that because the price of gas was low funding gas projects had remained a major challenge to the operators.

“Without any shadow of doubt, funding the gas development has been the most difficult challenge. This is so because the price does not add up,” he said.

In his own contribution, Emeka Okwuosa, chairman and chief executive, Oilserv Limited, said fiscal policies that were associated with gas production, transportation and utilisation made a lot of difference. So pricing was very important in gas development.

According to Okwuosa, “Whether $2.50 is the price now or not, what is important now is that we have moved up from the price regime where we were talking of 50 cent per scf to a situation where we are talking about $2.50 per scf. This will give the stakeholders the ability to respond to funding of projects promptly.”

He reasoned that the issue that should be discussed should be that of infrastructure that had been associated with gas, explaining that unlike crude oil that could be produced and stored, there was no way of storing gas and then using it later because after production it had to be transported immediately for utilisation and off take. “If stakeholders fail to do this, it becomes a problem for the producer of gas to have a bankable project. So pricing is very important in gas development,” he added

Analysts believe that there are some ambiguities as to the precise volume of gas resources in Nigeria. They said it was generally believed that Nigeria was a gas-rich country. According to them, current estimates put the proven reserves at about 187tcf and NNPC estimated that probable gas reserves might be over 600tcf. This eventually makes Nigeria the country with the highest gas reserves in Africa and the 7th in the world.