What gas can do for Nigeria’s economy if given priority

Gas
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Very often the importance of gas to the nation’s economic growth is being harped upon by experts who feel Nigeria should wake up and seize the advantage of having the resource in abundance and maximize it optimally.

The world is gradually turning away from crude oil to gas to drive their economies.  Countries  like  Norway and Saudi  Arabia just  to mention a few  are doing  well  because they have  made  gas  a critical  catalyst  to their economic  development .

In  recent  times  the  Oil  Producers  Trade  Section  (OPTS) of the Lagos   Chambers  of  Commerce and  industries (LCCI ) has become  an  advocate of   the need   for  the  country  to optimse  it  gas  resource

Gas has a leading role as a key enabler to the diversification and growth of Nigeria’s broader economy through adequate power generation, provision of feedstock for value-adding manufacturing, and increased  government revenue from LNG. Therefore,the development of Nigeria’s vast gas resources and strengthening of the gas value chain should be a national priority.

Nigeria is endowed with vast natural gas resources, which can play a leading role in diversifying the economy by stimulating the development of various sectors. For example, gas can be used for electricity generation, to provide feedstock for value-adding manufacturing, and to increase FGN revenue from LNG sold in international markets. Iwill briefly examine these key uses to which Nigeria’s natural gas reserves could be deployed.

According to Paul  McGrath,   the  managing director of ExxonMobil who is  also the chairman of OPTS,  for Nigeria, gas provides a unique opportunity to provide steady, widely-available, cost-effective and generally affordable power to everyone.

A shift to gas-fueled power generation would represent significant savings opportunities over sources such as diesel which is multiple times more expensive than gas at the current price of USD 2.5 /mmbtu. This saving can then be redeployed by power consumers (individuals and businesses) to other goods & services and to new investments.

Additional opportunity exists in leveraging gas to develop industries that use gas as feedstock, to produce methanol and ammonia used in fertilizer production. Trinidad and Tobago is a good example of a country that has accomplished much with its gas resources. With a small population of 1.4 million and only 11 TCF of proven gas reserves, the country has developed a globally competitive petrochemicals industry. Today, Trinidad and Tobago is the world’s largest exporter of ammonia and second largest exporter of methanol leading to this industry contributingsignificantly to thecountry’s GDP. Nigeria, with significantly larger gas reserves, has the potential to achieve even bigger success.

The Nigerian agricultural sector, the largest GDP contributor to our economy, would benefit immensely from greater availability of fertilizer. Considering the low nitrate concentration in our soil and gas being the key feedstock for nitrate-based fertilizer, developing the gas industry could contribute to enhancing food security.

The Nigeria LNG (NLNG) maintains 70-80 thousand jobs in the economyand contributes ~USD 1.3 billion each year in revenue to the Federal Government, providing much needed revenue for the government to deploy for the benefit of Nigeria, such as development of infrastructure and diversifying the economy.

Other areas where gas can benefit the economy include alternative fuel for transportation, residential and commercial utilization etc.

To realize the full benefits of gas as a catalyst for economic growth and diversification, several challenges across the entire gas value chain need to be resolved. I will focus on only four of these challenges related to the development and production of gas, these are; inadequate infrastructure along the value chain; regulated low prices;legacy debt related to gas and power supply and thechallenging business environment.

It is no longer news that infrastructure along the gas and power value chain remains inadequate. Particularly, Nigeria lacks sufficient pipelines to deliver gas from the fields where it is produced to the current and potential off-takers (e.g., power plants, manufacturers, etc.). In addition, the transmission and distribution systems lack the capacity to deliver the generated electricity to businesses and other consumers.

Building infrastructure requires a sustained joint effort of the stakeholders led by government. Active government support will help enable a stable investment climate, acceptable commercial terms and contractual risks. The above elements will help in attracting the required private investments which would strengthen existing off-takers and ultimately lead to emergence of new buyers and suppliers.

To date, Nigeria’s domestic gas prices are kept at a regulated low price, which does not cover the cost required to fully develop its gas resources.  Of the 162 TCF reported gas reserves, about 75% will require the building of new infrastructure to deliver these gas resources to the domestic market.The current regulated gas price of USD 2.50/mmbtu falls short of the price required to attract investment for these new gas developments. The gas sector should transition into a liberalized market based on the ‘willing buyer, willing seller’ principle and ensure the existence of a competitive fiscal regime to support upstream gas development.

The commercial and financial structures of the gas-to-power commercial value chainremain weak with growing arrears and uncertainty in the payment system which disincentivizes gas investors.

A conducive business environment is essential towards achieving a diversified economy. Critical elements of a conducive business environment include: security of life and property, improved efficiency of regulatory bodies and stability of laws and policies. OPTS believes that improving the regulatory, judicial and legislative framework in line with global standards (dispute resolution, contract sanctity) would promote investor confidence and significantly improve Nigeria’s ease of doing business towards growing and diversifying the economy.

To fast-track the development of these resources, government policy needs to focus on developing adequate infrastructure, providing enabling commercial terms, settling and preventing future debts related to gas and power supply, and improving the business environment.

 

Olusola Bello

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