Abuja goes for gas, again
Nigeria has long tried to develop a domestic gas market. The Buhari administration is trying again
Nigeria's cabinet has approved a new National Gas Policy—news that, to many observers, might prompt a shrug. Successive governments have promise, and failed, to stimulate investment in the country's under-exploited gas resources for nearly as long as its hydrocarbons industry has been in existence. This time, it might just lead to more than empty rhetoric.
Nigeria has gas reserves of around 187 trillion cubic feet—the world's ninth-largest endowment—but produces only around 1.7 trillion cf annually, most of which goes to the 22m-tonnes-a-year Nigeria LNG export plant. Failure to incentivise gas exploration, invest in infrastructure and botched efforts by previous administrations to privatise generation and distribution networks, which caused more problems than they solved, have stymied the domestic sector's development and frustrated firms wanting to supply it.
A Gas Master Plan published in 2008 by the government of Umaru Yar'Adua with much fanfare marked a shift towards boosting supply to the domestic market rather than merely incentivising more production for exports. It called for $20bn of investment in the downstream—plus another $10bn in upstream—and set targets to boost electricity generating capacity by building gas-fired power plants.
Back then, the government was claiming more than 20 plants were under construction or "evaluation" with potential to provide 16 gigawatts of capacity by 2010. Domestic gas pipeline infrastructure has indeed expanded since then—but very slowly: today, the usable generation from power stations typically hovers around 4GW, a pitiful amount for country of more than 180m people and not much different to a decade ago.
Many Nigerians endure blackouts and resort to generators powered by expensive and mainly imported diesel to keep the lights on and the economy running.
The Gas Master Plan was largely left to fester through the presidency of Goodluck Jonathan, though his government did implement electricity price rises with the aim of incentivising power providers. But it is only now, under the administration of Muhammadu Buhari that the sector is getting the attention it merits.
One of the main thrusts of the new policy is to make the operating structure of the gas sector less murky, removing potential conflicts of interest and improving the working of gas markets. The 100-page document describes the government's strategy in depth, though hard figures relating to fiscal terms and so forth are largely missing.
An independent petroleum sector regulator will be established; there will be a clear legal division between public and private sector involvement in the gas sector; and a legal separation between ownership of gas infrastructure and gas-trading entities will be created. The Nigeria Gas Company is to be split into separate transport and gas-marketing companies.
The focus is to be on project-based developments, rather than central planning, and to ensure gas demand is generated across all economic sectors from power to petrochemicals to transport. Fiscal terms for the gas sector will be distinct from those for oil, as will terms for upstream and midstream activities. The latter will receive greater incentives to enter midstream projects.
Relevant oil and gas projects are to be vetted to make sure they have an integrated plan to cut out flaring—Nigeria has already been making some headway with that. Efforts are to be made to boost the production of gas cylinders, of which there is a shortage, and other measures are designed to stimulate greater LPG use in Nigerian homes.
More incentives for gas exploration and production are also reportedly included in the policy, which would benefit gas exporters, as well as domestic supply. But anyone thinking of building more LNG capacity, to add to the six trains at Nigeria LNG, will want to know more about how a new planned tolling arrangement will work.
In fact, investors in upstream, midstream and downstream sectors are likely to sit on their hands until they get a better idea of how reality matches the ambitious scope of the policy document, given the patchy implementation in the past.
Nigeria has said it wants to triple gas supply for domestic consumption within three years, taking it from 1.3bn cf a day now to 5bn cf/d by 2020. That might look like yet another unattainable target plucked from the air—but at least this government has some track record of delivering on its pledges.
Abuja has already embarked on a structural overhaul of the upstream oil and gas industry and made progress settling some of the unrest that disrupted oil output in the Delta last year.
So, there is more optimism about these proposals for the gas sector. They need to start moving quickly though—presidential elections are due in 2019. Buhari is eligible to stand again, but has been in London receiving treatment for an undisclosed illness for long periods of his presidency, so may not be a candidate. His vice president, Yemi Osinbajo, has been a capable stand in who has overseen the introduction of legislation designed to boost the economy. The gas sector needs reform, but the plans to reform it need some longevity too.