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NIGERIAN CRUDE OIL AND GAS.
Nigeria announces far-reaching reforms of its gas sector
Nigeria announced far-reaching reforms of its gas sector including new
pricing rules and plans to create new infrastructure to improve supplies
to the domestic market.
The country has the seventh-largest proven reserves of gas at about
180tcf, but a lack of infrastructure and investment have constrained gas
supplies for decades. As things stand, Nigeria exports about 3bn cfpd,
burns off about 2.5bn cf for lack of facilities to use it, and supplies
only 0.5bn cf to the domestic power sector even though it could easily
absorb 1.5 to 2bn cf, officials say.
Under plans unveiled at a gas conference in the capital Abuja, producers
would be obliged to sell a portion of their output to the domestic
market at regulated prices.
David Ige, a senior official at the state-owned Nigerian National
Petroleum Corporation, said there would be three separate price bands
for domestic consumers of gas. These are about 10 cents per 1,000 cf for
power and fertilizer plants, 70 cents to $ 1 for factories that use gas
as a raw material, such as methanol plants, and $2-$3 for factories that
use gas as fuel. However, supplies to the domestic market would be
pooled so producers would be paid the same amount -- about 50 cents --
regardless of which type of consumer gets their gas. That is well below
what they could fetch on the export market.
Some gas company executives criticized the plan, arguing that it would
discourage companies from risking large amounts of money on the
necessary exploration and infrastructure.
"The degree of risk for the companies is enormous. You can spend $ 40 or
$ 50 mm on seismic on a single project with no guarantee that you will
find gas. There has to be an incentive," said one executive.
Ige said the proposed pricing structure was a temporary measure, for a
year or two, to boost supplies to the Nigerian power sector. The idea
was that as power generation grew, the sector would be deregulated, make
more money, and be charged market prices for gas, he said.
That is an optimistic scenario, industry executives said. Nigeria
currently generates less than 3,000 MW per day, a tiny fraction of what
is required for a country of 140 mm people. Many Nigerians have no
power, those that do suffer daily blackouts, and businesses rely on
costly diesel generators. It would take massive investments not only in
improving gas supplies to existing power plants, but also in new plants
and transmission lines to revive the moribund sector.
Under the gas reform plans, which are expected to receive final approval
from the president within weeks, three new gas hubs would be created in
the Niger Delta in southern Nigeria. Two new pipelines would connect
those hubs to the south-western industrial heartland around Lagos, while
one would transport gas to the major northern city of Kano via Ajaokuta,
where there is a steel plant.
Ige said private investors would finance the construction of these
pipelines and several companies had expressed interest.
For now, there is only one major gas pipeline between the Niger Delta
and the south-west, and it has not been working properly since it was
attacked by militants in February 2006.
The only profitable outlet for Nigeria's gas production at the moment is
the Nigerian Liquefied Natural Gas (NLNG) export plant.
