A Review of the Nigerian Energy Industry

Nigeria targets full liberalization of gas market – Govt

Dr. David O. Ige, NNPC, GED GasOscarline Onwuemenyi

04 November 2014, Sweetcrude, Abuja –
The Federal Government has disclosed that it is on track to create a fully liberalized market for its gas sector even as it works tirelessly towards establishing an efficient gas infrastructure that would make it easy to move the product across different parts of the country for energy supply and industrial growth.

The Group Executive Director for Gas at the Nigerian National Petroleum Corporation, NNPC, Dr. David O. Ige, who disclosed this in an interview with SweetcrudeReports in Abuja, noted that the government has devised a three-step plan which would enable it to connect the entire gas network, move the price to the appropriate level as well as putting robust gas agreements in place, and create a very diversified uptake including power, industries, among others.

He said, “It is important to state that like every other market, our journey is towards a fully liberalized market. This is because once you have a fully liberalized market, it now provides the support for your strategic aspirations.

According to him, the three points of government’s strategic aspirations to improve the economy of Nigeria include the power sector, gas-based industrialization and high-value export from gas.

“There are two layers we are working on which is like getting the engine ready, because once the engine is ready you can now put that in the car and the car will take you to wherever you want to go. The engine represents our three-point strategic aspirations which, like the car engine, will fire our power sector, stimulate gas-based industrialization (gas revolution), and stimulate high-value gas export (Brass LNG, OKLNG, etc.)

“We believe that once we have created an engine at the bottom that is basically well-tuned, a fully-liberalised market, it will be easy for us to begin to deliver the gas-to-power, the gas-based industrialization and quality export because those are the headlines. It is those three interfaces because the consumer outside does not care about your price, he just wants power; he just wants to see the jobs,” Ige noted.

But to make that happen given where the country was coming from, he said, there is need to get that engine in place. “So, everything we have been doing in the gas sector in this administration has been in those two directions: getting the engine in place and getting the strategic objectives locked in.”

He added that, “Talking about where we are with regards to the engine, we have developed a four-point journey towards attaining the engine at its limit. The first one was that we realized that we needed a quick intervention to jumpstart the market.

“The market was very small but when government started to sell the NIPPs (National Integrated Power Projects) and other projects started coming ahead of us, there needed to be a quick jumpstart to get the market going. We noted that given the way the market is structured (dominated by oil companies such as Shell, Exon Mobil and so on) it was clear that oil would remain the priority of these companies.

“And so, given the growth that we saw, which was not a gradual growth but a steep growth, if we were waiting for the market to adjust itself, we would never be able to bring in any gas in time enough to meet the tsunami that was coming ahead of gas for power. So we needed a massive intervention, and that was why we introduced the Domestic Supply Obligation (DMO).”

Ige further explained that government has also introduced a phased pricing arrangement for gas, just like those advanced countries did.

According to him, “A fully liberalized market essentially means where you have a willing buyer and a willing seller, you go negotiate your price and get your product. But where we were where gas was 10 cents is too far to the point where you can have a willing-buyer-willing seller.

“The reason is for you to have a willing buyer-willing seller scenario, the buyer and seller must have choices, otherwise it is not a fair negotiation. In this case, it is not possible for us right now because they infrastructure is not there.

“So, what we have tried to do is put in place a transitional pricing arrangement which is in a way similar to what you see in the United States, which is a phased pricing system where we try to move our price step by step by step in a structured manner to get to a point where we can now let go and let it be fully liberalized,” he added.

Furthermore, he said, government has put in place a commercial structure for the gas agreement. This he said is because in the past where it was done at the whim of the supplier and buyer, that cannot support the kind of agenda government wants.

“We need to have binding commercial bankable agreements. That was one way we intervened. And, of course, we need to redefined our gas infrastructure and development. That is phase one of our intervention,” he stressed.

He added, “Our plan was that by stage two, we would have reached full commerciality and gas would have reached export parity pricing. We would have reached a point where from that 10 cents which didn’t make any sense, we would have gotten closer to the $2.30 which is roughly the price the export market is paying for gas.

That way you are at export parity, and at that point in time you know now that the price makes sense you can let it go and negotiations can start to take place. Also at this stage, our infrastructure should have progressed and legislation such as the Petroleum Industry Bill (PIB) would have been in place.”

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