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Concern over Nigeria’s gas industry as shortfall persists November 21, 2019
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Early this month, the country saw a sharp increase in the price of Liquefied Petroleum Gas, popularly known as cooking gas, on the back of the drop in the supply of the commodity to Lagos.

The Liquefied Petroleum Gas Retailers branch of the Nigeria Union of Petroleum and Natural Gas Workers noted that the situation was forcing many LPG users to abandon their cylinders and opt for other sources of cooking energy such as firewood and sawdust.

The major share of the natural gas produced in the country is exported by the Nigeria LNG Limited, a joint venture incorporated in 1989 to produce Liquefied Natural Gas and natural gas liquids for export.

The NLNG, which commenced supply of the LPG to the Nigerian market in 2007, reiterated last month that it was committed to delivering up to 350,000 tonnes of the LPG into the domestic market annually.

The Nigerian Association of Liquefied Petroleum Gas Marketers, in a recent statement, urged the government and the NLNG to urgently increase the quantity of the LPG earmarked for domestic consumption as the present allocation could not sustain demand.

“We cannot suffer in the face of abundance of a product we are blessed with in Nigeria,” NALPGAM’s Executive Secretary, Mr Bassey Essien, said.

Apart from the shortage of cooking gas in the country, many power plants are operating below their installed capacities partly due to gas constraints.

The Nigerian National Petroleum Corporation said in its latest monthly report that national gas production in July increased by 13.11 per cent at 253.35 billion cubic feet compared to output in June.

“The daily average natural gas supply to gas power plants decreased by 2.84 per cent to 729.84 million standard cubic feet per day, equivalent to power generation of 2,864MW,” it added.

The IEA, in its new Africa Energy Outlook 2019 World Energy Outlook Special Report, noted that Nigeria and Algeria “are exporting around half of their gas production to global markets.”

 

It said, “The policy priority for these countries is to sustain production levels and stay competitive in export markets. Unlike Algeria, where gas plays a significant role in the energy mix, the penetration of gas in Nigeria is low compared to its population and resources.

“Nigeria therefore faces the longstanding question of whether it can develop domestic gas demand.”

According to the report, Nigeria has an estimated 15 trillion cubic metres of natural gas resources, which is more than any other African country except for Algeria.

It said, “Gas accounts for around 10 per cent of total primary energy demand today, mostly for power generation and own use in the oil and gas industry.

“However, the current outlook for Nigeria’s gas industry is far from bright. Rapid production growth after 2000 tailed off due in part to regulatory uncertainties and the country is now struggling to arrest a decline in output.”

The IEA noted that a shortage of domestic gas supply had severely affected the reliability of power supply, leading to load shedding and growing reliance on private (diesel-based) generators.

It said exports via the West African Gas Pipeline had been subject to frequent interruptions, and that had caused difficulties for neighbouring countries such as Ghana, Benin and Togo.

“Meanwhile, almost 15 per cent of gross production is wasted through flaring, incurring both economic and environmental costs,” the agency added.

According to the report, activities in the upstream subsector of the nation’s oil industry are far below a level commensurate with the country’s resource base.

“The slump in investment, related in part to lower oil prices since 2014, is damaging for the medium-term outlook,” the IEA said, forecasting that Nigeria’s gas production would stall through to the mid-2020s.

It added, “One of the key issues is uncertainty over the fiscal conditions, exemplified by nearly two decades of uncertainty around the key provisions of the Petroleum Industry Bill, which is designed to overhaul the legislation governing the operation of the oil and gas industries in Nigeria.”

The agency said without clarity on governance and regulation, many companies would continue to rein in spending on new projects, with implications not only for Nigeria but also for adjacent countries depending on exports from Nigeria for their gas supplies.

It said reducing gas flaring would help to increase production, adding that Nigeria had made notable progress in reducing flaring, with the amount of gas flared falling by 70 per cent since 2000.

“But the country remains the seventh-largest gas flaring country in the world, and the value of the gas flared is estimated to be some $1.8bn in 2018. Despite the government’s goal of eliminating flaring by 2020, the progress has stalled since 2016,” the IEA added.

According to the report, strengthened regulations and adequate gathering, processing and transportation infrastructure to bring associated gas to markets are essential to realise the government’s target.

It said, “The outlook for gas production also depends on reform of the electricity sector. Producers in Nigeria have domestic supply obligations that require them to supply a certain volume of gas to domestic markets. These obligations have typically not been met in full.

“Below-cost power tariffs and the precarious financial situation of electricity generation and distribution companies have led to frequent non-payment.”

The IEA described the poor condition of the gas transmission and distribution system as a major constraint.

“Without reforms to the power sector as well as the upstream, there is no guarantee that higher production would lead to improved supply of gas (and power) to the country,” it said.

By THE PUNCH