A Review of the Nigerian Energy Industry

No incentive to stop gas flaring in Nigeria – Bukar

22 August 2015, Lagos – The Vice President, Regulatory Affairs and Project Director for the Uquo Gas Field Development, a joint venture project by Frontier Oil Limited and Seven Energy, Alhaji Abdullahi Bukar, tells Femi Asu why the Nigerian gas master plan needs to be revised.

Shell gas flare at Kolo Creek - surrounded by agricultural fields.
Shell gas flare at Kolo Creek – surrounded by agricultural fields.

The Department of Petroleum Resources has put the country’s gas reserves at 188 trillion cubic feet as at January 2015; does it mean we have seen an increase in gas exploration?

I think reserves figures are always re-evaluated on an annual basis. But reserves are largely forecasts because the only way you can know what is in there is when you produce it. But you are able to use certain parameters that are known in the industry to say, “I think this reservoir is this big”. So when you review some of them, you find that the reservoirs are actually much bigger than you thought and then you adjust your figure.

What is important is that we must ensure that we have a diversified way of generating power for this country. We have solar, coal, nuclear and hydro. We must use all of them, not just gas. The important thing is that Nigeria has to stop being a country that exports raw materials; we should be exporting value added goods that will actually make our economy grow bigger. And we need to use our own natural resources to grow our economy, grow our own people.

With the current price of $2.50 per 1,000 standard cubic feet for gas to power, do you think gas producers are more willing to supply to the power sector and do further development?

They are willing. But what you need is an overall set of incentives to allow you bring the gas to the market. The government should not tax it such that it kills the goose before it even starts to lay eggs. If you look at the current provisions that were under consideration in the PIB, fiscal terms are not conducive to people developing gas with all the risks that it entails. For oil, you can bring it, put it in a ship and sell it, and in two to three weeks, you get your money. In gas, it is a long-term agreement. So when you make it difficult by saying the terms will be set by the minister, and I don’t know what the minister will think tomorrow or what the government will say, how can I make a 20-year investment? If you say I will tax you CITA and hydrocarbon tax, where does that put me?

If my gas field is offshore and the government is reversing the PSC (production sharing contract) terms because it wants to take more, I will be very reluctant to invest until I have clarity on what will be the fiscal regime because getting rigs to drill well and produce offshore and the pipelines to bring it onshore are going to be extremely expensive. There are so many things that can be done together and this is one of them. We should sit down with the industry and the government policy makers to talk and work out a compromise so that we have government take and industry take to pay for their capex, and you also have a social premium that allows industry to grow to provide employment and the money to build the social infrastructure that this country needs. That really is the point that needs to come out very clearly from all the discussions that are going on and when this government tries to set up its policies for moving this country forward.

Gas flaring is still high in the country, what is your take on this?

Gas flaring is a consequence of the lack of incentive to do something about it. The point that has been raised is: give incentives for people to stop gas flaring. Let me give you an example. If you tell me, ‘You are flaring gas. Instead of flaring, I will give you an incentive to put a power plant there and transmit the power’, will I not do it? Or you tell me to compress it and you would give me money to make sure I have enough cylinders to take CNG (compressed natural gas) to people who will pay for it.

There are solutions available, but we are looking at narrow avenues. There are many other avenues we should explore. That’s why I say the gas master plan should be revised. For example, all the development that is taking place in the South East, the Seven Energy pipeline system that supplies gas to Ibom power station and Calabar NIPP, are not in the gas master plan. The master plan was promulgated in 2007 and all these things happen since then. So let us be real: the gas master plan has served its purpose of kickstarting the conversation. But we should revise it to be able to address what we see now and whatever new policy we would like to bring on stream so that we can move on with gas.

What should be done to encourage more investment in gas development in the country to bridge supply gaps, especially in the power sector?

Gas, as it is being said by many people, is the most important thing for developing the Nigerian economy. There are people who are willing to invest in gas, but they have no access to reserves. There has been no licensing round that has been consummated since 2007. So when the willing buyer, willing seller concept is being put forward, people are willing to come and talk, but they have no access to reserves. All the known gas is either in fields that are owned by somebody who is waiting for some other things in order to develop them or they are stranded.

Now, if the codification that the DPR is talking about is to be essential, we need to sit down and ask, ‘Where is the gas; which is the best way to collect it, where are the customers and what do we do to take it to them?” When you have a prescriptive system, which is what the gas master plan has done, you defeat the purpose. Let the system grow organically because that’s the only way it will make sense.

When Seven Energy, Accugas built the pipeline from Uquo to Ibom power station, Ibom power station had capacity for 43 million scf and yet they built a pipeline that can carry 250 million. Why? They were thinking ahead. Today, Accugas and Seven Energy is delivering gas to Notore and Alaoji power plant from Uquo all the way through the NGC system and the Accugas pipeline. Also, the East Gas Horizon Pipeline, which Seven Energy bought, is now delivering gas to Unicem and Calabar NIPP. Those were not envisaged before. That system will do with additional reserves, if there is access to it because we have got a system of almost 230km which can carry 600 million scf, but it has only a gas supply of 200 million scf. So anything that will allow reserves to come in, to be brought to the market will be very much in the interest of everybody. So that is why we are saying we need access to new reserves.

Prior to the privatisation of the power sector, payment for gas supply was a big challenge. Are gas producers still having issues with payment from the sector?

Yes. The issue is that there are signed contracts with terms for payment, supply and non-supply. It is absolutely essential that any business is bankable and the only way you can make a business bankable is that the people who invest in it should have money that will allow them to pay for the current operation as well as pay for investment they have made and settle their loans. It is absolutely essential that they get paid in time and in accordance with the contracts.

This is what happened before, with the initial supply of gas to NEPA (National Electric Power Authority), and this is now happening with the NGC. When gas is supplied, it should be paid for so that investment will continue. Huge amount of money is needed to develop gas, and it usually requires that you take big long-term loan.

As we go forward with the Nigerian gas industry, we have to make sure there is a guarantee for the people who invest to be able to get their money back. If the government is going to give some incentives, one of the incentives should be to guarantee some levels of payment to gas producers to keep them in business. The World Bank was to provide partial risk guarantee. I don’t know what happened, it never materialised.

With the growing realisation of the importance of gas to the economy, what should the new government do for us to fully harness and monetise our vast reserves?

Oil is still important to this country because it provides instant cash which we need to provide the basics for the future. But what I will say is just as they are looking at what the rules of the game for ministerial appointments are, they should do the same with the oil and gas industry. Don’t promulgate any new policy; sit down and have meaningful discussion that is not going to be long, but should be finishing in two to three weeks, and come out with policies that will work. Then you nominate and put people who will address things and you declare a state of emergency, if you like, in the industry. There are many low-hanging fruits that you can address, but they need to look at it from a totally different perspective and put in place enablers to make the industry work.



– Punch

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