A Review of the Nigerian Energy Industry

Resolving the gas-to-power conundrum

Gas-lineOscarline Onwuemenyi

07 July 2013, Sweetcrude, Abuja – The government recognizes the importance of the power sector in the socio-economic development of the people, hence the establishment of the Power Sector Reforms Act. The Power Sector Reform had its origins in the National Electric Power Policy of 2001, which culminated in the Electric Power Sector Reform Act of 2005, and paved way for the privatization of the sector.

Despite the laudable efforts of the Reform Act, Gas-to-Power still poses enormous challenges traceable to commercial failures, infrastructural decay, and poor and effective regulations. In addition, lack of contract commitments with securitization, equipment availability and sustainability, debt repayments, inadequate pricing methodology, and implementation of a functional system for payment collections based on approved gas price also contribute to the challenges faced by the gas-to-power project. The huge unpaid gas debts of over N30 billion accumulated over the years, and owed to the IOCs is not encouraging or attractive to any new investors willing to invest in gas production.

Only recently, the Federal Government announced a series of emergency interventions to address the challenge of gas supply to power plants across the country, in its bid to ensure an efficient power generation and supply system. The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, who made the announcements at a briefing in Abuja, stated that the short-term interventions will result in almost 90 percent of the outstanding shortfall to power being addressed over the next 12 months.

She noted that since 2005, when the National Integrated Power Projects (NIPP) projects were kicked off, there had been no alignment between the planned NIPPs and the necessary gas supply to power them. “Today, the challenge of gas supply is essentially localized around the Western axis, as we currently have a situation of excess gas availability in the Eastern axis. As we speak, there is over 300mmcf/d (equivalent of about 1000 mega watts) worth of gas available in the Eastern axis but currently not utilized.

“This is due mainly to the aforementioned misalignment and also the underperformance of existing PHCN power plants. As we develop the East-West pipeline, we will be able to leverage this gas in the West,” she stated.

The Minister pointed out that in total, 800mmcf/d of gas is being produced in the Western axis of which 520mmcf/ is deployed tot eh power sector (an equivalent of about 1800MW on average). The balance is supplied to domestic manufacturing industries such as the cement plants, etc, and the West African Gas Pipeline project.

She said, “In total, over the next 12 months, we will be adding 500mmcf/d (equivalent to 2000MW) to the grid. This will have a direct major impact on the overall power situation in the country. Specifically, about 180mmcf/d (about 700MW) of this additional 500mmcf/d is due within a few weeks, by June 2012. This will come from Escravos, Utorogu, Ughelli and Oredo. Ongoing activities such as laying of the Olorunsogo pipeline, the completion of the ELPS A pipeline and the completion of the NIPP pipeline around Oredo are key elements of this addition.”

According to her, these projects are all in very advanced stages and should be completed within the timeframe, adding that with the addition, the immediately identified shortfall in supply to Sapele, Geregu and Olorunsogo power plants will be addressed.

She added that, “Beyond the immediate timeframe, the balance of about 320mmcf/d (about 1300MW) will be delivered through the next 12 months. New power plants are continually coming on stream, therefore, in addition to the 180mmcf/d, a further 320mmcf/d will be delivered and deployed to these plants over the next 12 months.”

She said to achieve the 320mmcf/d, a few critical projects will be deployed by the intervention team, including leveraging the excess processing capacity in PanOcean to process gas that will be re-routed from Oredo by NPDC, as well as accessing additional gas at Escravos and major expansion of the Utorogu hub. “These are the projects that will collectively add 320mmcf/d (1300MW) over the 12-month period. I am confident that the steps we are taking will have a visible impact on gas sustainability and supply, and therefore will positively impact on the power aspiration of the nation,” Alison-Madueke noted.

Government records show that over the last three years, gas supply has grown assiduously at a rate of about 20 percent per annum, effectively reaching a new peak of 1500mmcf/d from less than 500mmcf/d. a significant amount of this new supply is dedicated to the power sector, even as non-power sector supply continues to grow.

The growth in NIPP demand represents a major area of focus for the gas sector. Current demand by the NIPPs is about 260mmcf/d in the Western area. Much of this demand is being met by the gas sector. However, many new NIPP units are being installed and commissioned. It is estimated that by the end of 2013, demand by NIPP will grow by about 340mmcf/d coming notably from Geregu and Ihovor.

Government officials have assured that efforts are being taken to assure gas supply growth in line with the new demand. The Minister of Power, Prof. Chinedu Nebo, said that in the short term to end 2013, about 130mmcf/d is expected in the West. “However, between 2014 and 2015, almost 1000mmcf/d is forecast to be added. This will bridge the gap in demand by the NIPP,” he noted.

He added that in the East, the short term objective will be to utilize already available gas for which either delays in completion of the power plants or other infrastructural projects prevent gas usage. “The important point to note about the supply plan is the holistic approach that is being taken. Major reforms of the commercial framework are being undertaken. The price of gas to power has been increased to more commercial levels and gas supply agreements are being executed,” Nebo explained.

According to Nebo, good progress is being made in gas infrastructure. He stressed that all the NIPP power plants are being fed with permanent gas supply pipelines. “The pipelines to Geregu, Olorunshogo, Alaoji and Omotosho have all been completed providing permanent supply arteries to these power plants for both their current and future demand requirements,” he noted. Supporting these spurlines are major gas backbone pipelines like the expansion of ELPS, the East-West OB3 and the proposed Calabar-Ajaokuta –Kano line, all of which are progressing steadily. These, he explained, are all designed to provide a flexible and dependable supply to the NIPP and other power plants.

But it is worth noting that given the scale of infrastructure and related project activities going on, the sector is still vulnerable to the usual challenges of project slippages and contractor related issues. These, the Minister said, are being addressed to ensure minimal Impact on the supply agenda.

Another key challenge to supply growth identified by stakeholders is the payment performance of the power sector broadly. Whilst NIPP has had a relatively better performance in terms of paying for gas, the power sector still owes about N30 billion for gas supplied. Indeed, for sustained growth in supply, there is need for improved payment performance.

The Minister further stressed that the government had directed the deployment of a pragmatic contracting strategy to enable expedited procurement of critical items such as the line pipes and related accessories. “These interventions will require additional funding which is being sourced through governemnt’s public-private funding initiative, she added.

Alison-Madueke said appropriate steps are being taken by the Power sector to address all outstanding debts and commit to payment for future gas supply as well as other terms stipulated in the gas supply agreements (GSA).

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