WIEN demands full incentives for gas sector investments

Sopuruchi Onwuka

Gender diversity group in the Nigerian energy industry, Women in Energy network (WIEN), has called on government to consider well focused policies and incentives that would spur the highly needed investments in realizing the nation’s prime economic aspirations in the gas industry.

The group whose members spread across all industries and professions in the energy sector stated that a set of enhancing incentives would enable stakeholders engage the huge opportunity hosted in the Decade of Gas activity time lime conceived by government to make the economy gas driven.

In a webinar titled ‘Gas Value Chain and Investment Opportunities’ hosted by the group, speakers concluded that the right investment setting is required for players to harness gas opportunities in providing Nigerians cheaper, available,  abundant and environmentally acceptable energy.

The WIEN Gas Webinar was designed to provide attendees with a detailed insight into the gas value chain and where the investment opportunities are in the upstream, midstream, and downstream sectors.

The debate began with the current status of Gas Development in Nigeria across the gas value chain, gas utilization in Nigeria, and its role in Nigeria’s energy transition. And invited guest speakers gave a deep dive into the three various segments of the gas sector, including the reserves status and the barriers to investment. 

The webinar also provided insights into critical factors that impact investment decisions, such as government regulations, environmental concerns, and geopolitical risks.

It was designed to provide attendees with a comprehensive understanding of investment opportunities in the Nigerian gas industry and available government programmes driving implementation of existing policies.

In his opening presentation, the General Manager in charge of Production at the Nigerian Liquefied natural Gas (NLNG) Limited, Mr Leye Falade, made it clear that the high capital requirement for midstream investment has proved to be beyond the debt funding capability of the local banking industry.

The situation, according to him, makes it almost imperative that government floats additional incentives in the channel of fiscal instruments that govern commercial operations in the industry. The incentives, he explained, could be in terms of direct funding intervention, import duty waivers on processing facilities and investment tax credits.

He called on players in the gas industry to collaborate in pooling the required level of funding and drive medium to large scale projects  instead of struggling with multiple and individual low scale modular projects.

He pointed out that the future role of gas in the global energy supply remains massive and presents huge commercial opportunity for investors who take early position in the changing energy market.

He explained that despite being a well conceived export focused commercial gas processing and trading company, the NLNG had to modify its operations to enable intervention in domestic supply of liquefied petroleum gas (LPG) also called cooking gas.

He said dedication of the company’s total LPG production and some volume of LNG to the domestic market has provided commercial opportunity to virtual pipeline suppliers in the domestic market and opened new fuel supply channels to industrial consumers of energy.

On LPG supply intervention, Mr Falade declared that offtake arrangements on the company’s butane specification of cooking gas has been overbooked; adding however that local suppliers still have opportunity to participate in domestic supply of propane.

In presenting challenges and opportunities in the domestic gas industry, the Manager in charge of Strategy and Planning at Axxela Limited, Ms Ibiyemi Odufuwa, pointed at a list of funding provisions made in the Decade of Gas programme and urged government to make the funds accessible.

She stressed that domestic demand for natural gas is set to escalate with the devolution of licensing rights to state governments which, according to her, have started rolling out electricity bills in their respective states.

She pointed at opportunity to partner states in minigrid projects that should target at displacing some 14,000 megawatts of power currently generated through diesel and petrol fired micro generators.  She also pointed at immediate opportunity in the captive power niche as gas gets more competitive with the planned deregulation of petrol prices in the country.

While pointing at projected demand escalation by 2040, Ms Odufuwa noted that the dearth of infrastructure in the country remains a major impediment to accelerated development and enhanced supply. She also pointed at the concentration of gas pipeline networks in the southern parts of the country, saying the situation presents commercial opportunities for players in the virtual pipeline gas products: mini-LNG, compressed natural gas (CNG) and LPG.

The virtual pipeline gas, she said, also presents huge commercial investment opportunities in CNG plants and stations; LPG storage and distribution; local manufacturing of gas stoves and accessories; and provision of gas conversion kits for vehicles and sundry plants that currently run on diesel and petrol.

On funding the investments, Ms Odufuwa noted that long gestation period of petroleum industry projects as against high interest short term loans available in the local banking industry has made it unwise to drive gas investments with bank debt facilities.

She advised investors to explore project partnerships and private placements as convenient routes to good funding.

On the challenges hindering realization of the Decade of Gas objectives, Ms Odufuwa pointed at unavailability of the heavy capital required for entry, inaccessibility of existing government’s gas sector intervention funds, activity disruption in the upstream petroleum industry, low demand and low tariff in domestic gas pricing, and forex-Naira mismatch.

In presenting her company’s oil block hosted in Oil Mining Lease (OML) 42 as her sample case, the Head of Gas Ventures at Neconde Energy Limited, Mrs Chichi Emenike, admitted that midstream petroleum industry presents real time opportunities for investors. She however, noted that capital requirement in bridging infrastructure gaps in the industry could be daunting.

The capital crisis is worsened by Nigeria’s weak economic position which, she said, has made it difficult to attract foreign investment due to concerns about ability to repatriate earnings in forex.

Other challenges in the industry, she said, include capital flight associated with gradual exit of major international oil companies, unattractive domestic gas prices, huge gas debts currently quarantined in the gas-to-power programme, multiple regulations and associated multiple taxation, and hidden landmines in the overall incentives package.

To overcome the visible funding challenges in the industry, Mrs Emenike advised indigenous players to forge partnerships that spread risks and share rewards; demonstrate project bankability; and tap into carbon credit financing.

Other sources of funding currently available to local investors, she pointed out, include the intervention funds instituted by the Nigerian Content Development and Monitoring Board (NCDMB) at the Bank of Industry (BOI); public offers at the capital market; bank debt funding and others.

In delivering the concluding presentation on the topic, the Managing Director of ND Western, Mr Eberechukwu Orji, pointed out that Nigeria has remained a global gas utilization laggard due to inefficiencies in flowing gas from production to the market. He pointed at the struggle the NLNG Limited suffers in optimizing its limited liquefaction capacity and blamed the situation on flaws in the operating environment.

Mr Orji whose ND Western holds significant 600 million standard cubic feet of gas processing capacity per day also declared that considerable 250 million standard cubic feet per day (MMscf/d) still lies redundant due to commercial issues in the domestic market.

He listed some of the issues in the market environment to include billions of Naira in power sector legacy debts, accounting gaps in the market transmission lines operated by the Nigerian Gas Company (NGC) and unattractive commercial terms for investments in non associated gas (NAG).

He noted that the only prevailing allure for investments in NAG production is condensate which compensates for huge losses in lean gas production.

In lamenting the distortions and disincentives in the domestic gas value chain, Mr Orji stressed the need for urgency in providing over 100 million Nigerians with clean energy. He made it clear that the huge energy gaps in the economy have become totally inexcusable in the context of the country’s abundance of gas reserves.

He reiterated that government has the responsibility to displace dirty fuels from Nigerian homes and save the women and girls from the health issues related to toxic kitchen fumes. He pointed out that LPG prices in the country must be affordable and available in order to drive the level of penetration canvassed in the Decade of Gas programme.

On legacy debts in the domestic gas market, He called on government to deploy official debt instruments in resolving the huge overhang in the gas-to-power programme where, according to him, many companies are owed hundreds of billion Naira in unpaid supply invoices.

He said the Debt Management Office and other agencies in the Finance Ministry could save the situation by buying off the debts and converting them to government’s bonds. He also suggested the option of engaging international debt merchants and liquidators to address the power sector debt impasse.

To permanently address the debt spiral in the power sector, Mr Orji called on government to commit to ending debt accumulation in the gas-to-power programme and evolve strategies to ensure prompt flow of market returns to the upstream power sector.

In responding to questions on flare gas monetization and possibilities of associated gas gathering across production sites in the country, Mr Orji made it clear that huge cost of pipeline development would render such programmes uneconomic.

Instead, he advised players to explore commercial solution to flare gas by developing onsite monetization programmes like processing for virtual evacuation and power generation for contiguous markets. He cited the Utorogu Industrial Park project developed by ND Western to commercialize onsite AG.

“Commercial solutions should be designed for each flare site,” he said; adding that previous experiments with associated gas gathering (AGG) projects turned to become commercial paradox.

On alternative funding for investments in the industry, Mr Orji called on the domestic capital market to evolve mechanisms for mopping up public investment funds into pools that fund big ticket projects in the critical sectors of the economy, including the energy sector.