29 July 2012

Nigeria: Gas Pricing Still Complicated, Unrealistic, Says AFC Chief

There are fears that the problem of inappropriate pricing of gas coupled with the failure of the Power Holding Company of Nigeria (PHCN's) thermal generation companies to meet their financial obligations to gas suppliers may frustrate federal government's resolve to significantly improve the state of power supply in the country as experts predict a surge in demand for energy especially in urban centres in the country.

Consequently, financial experts are advocating a special financing mechanism for the power sector in order to accelerate the process of power supply in the country.

Blaming the problem of gas scarcity on unrealistic pricing regime in the country, Director, Financial Institutions and Advisory Services, Africa Finance Corporation (AFC), Mr. Taiwo Adeniji, said gas pricing in Nigeria is more complicated and unclear.

Speaking at the recent Bankers Nite, organised by the Lagos branch of Chartered Institute of Bankers of Nigeria (CIBN), Adeniji noted that the federal government's guideline allows lower prices for gas supply to power plants, against the international price. The result, according to him, is the fact that several power plants are sitting idle due to lack of gas supply (despite the chronic power shortages in the country); while on the other hand, Nigerian Liquefied Natural Gas (NLNG) has nearly doubled its gas exports from 11,993 RKT to 21,083 RKT between 2009 and 2011 (about 2.5 times the gas needed of our power plants).

He said similar problem discouraged investments in refineries, particularly with respect to the pricing of gasoline and kerosene.

Statistics reeled out by the AFC chief showed that total gas supply available for power generation was 0.55 bscfpd as at June 2012, compared to the required amount of 1.0 bscfpd although gas requirements are expected to reach 1.78 bcfpd by the end 2012 and 9.15 bscfpd by 2020.

He listed other impediments to timely take-off of government's power projects to include lack of critical point of facility (cpfs) where wet gas from gas fields can be taken to, treated and processed.

According to him, domestic gas treatment facility has no provision for full liquids extraction, while sub-optimisation of treatment facilities (synergies across joint venture firms not fully leveraged), saying there was no mechanism to fully leverage third party merchant participation.

Meanwhile, Chairman of the Lagos Branch of Chartered Institute of Bankers of Nigeria (CIBN), Mr. Bayo Olugbemi, has predicted that over the next decade, largely as a result of economic growth and population explosion, Nigeria will see a surge in the demand for energy.

This, according to him, is already happening especially in urban centres like Lagos, Abuja, Kaduna, Enugu, Kano, Port-Harcourt, Ibadan etc with the number of housing estates, new towns and new industrial sites springing up on daily basis. Olugbemi said, "It has been said that world energy demand will increase by about 47% to 17.7 billion to between now and 2030. Nigeria will definitely have its own share of this volume. Whether we meet the demand from fossil fuels, or nuclear energy, or from hydro-power, gas Turbine plants, or from renewable resources, the need to upgrade and expand our energy infrastructure from generation to transmission and distribution cannot be over emphasised."

The AFC chief said existing gas pipelines are inadequate in capacity and reach. (There is an enormous gas reserve in the east, but the highest demand comes from the west).

He disclosed that Nigeria currently has 14 generating plants, 11 thermal (gas/steam) and three hydro plants, explaining, however, that seven of the 14 plants are over 20 years old.

Out of the total installed capacity of 7,876mw, only 4,000 is said to be available for now while average daily generation is put at 2,700 although the federal ministry of power is committed to increasing available capacity to 6,300 mws by 2012 and 40,000 mws by 2020.

National integrated power projects (NIPPs) are expected to add about 5,000 mws generation capacity to the grid within the next 18 months.

The current price of the commodity, according to industry sources, ranges between $2.50 and $3.50 per million cubic feet.

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