NNPC’s National Gas Expansion: Pricing as a deterrent

By Ifeanyi Izeze

When the Minister of State for Petroleum Resources, Timipre Sylva at a fringe meeting of the Ministerial Mandate Performance Scorecard Review Session, listed some anticipated benefits of the implementation of the National Gas Expansion Programme (NGEP), he failed to actually hit the nail on the head as pertains to the pricing controversy that has continued to bedevil the domestic use of our abundant natural gas resource.

Beyond the Minister’s rhetoric of 2020 being Nigeria’s year of unlocking gas investments, the truth remains that without concrete plans to review regulatory and failed policies, progress will be at best, dawdling.

Without doubt, natural gas has a leading role as a key enabler to the diversification and growth of Nigeria’s broader economy through adequate power generation, provision of feedstock for value-adding manufacturing, and increased government revenue but not until we thoroughly address the issue of acceptable pricing template that would benefit both producers and end users.

Nigeria lacks a comprehensive legal and fiscal regime for the gas subsector of its petroleum industry especially domestic use of natural gas. What passes as strategy is the Nigerian Gas Master Plan fashioned in 2008 to create a framework for gas infrastructure development. Its goal was to serve as a blueprint for infrastructure, guarantee domestic supply obligation, and a commercial framework.

In 2017, The Federal Executive Council passed the Nigerian National Gas Policy intended to remove the barriers affecting investment and development of the subsector and transit Nigeria from an oil-base to an oil and gas-based economy. But like the Gas Master Plan, it was a mere policy directive that also lacked legal framework.

Up till now, what we have is an arrangement where producers and consumers of natural gas can agree on gas prices on a willing -seller willing- buyer basis particularly the wholesale customers in strategic sectors which are the power sector, gas-based industries and commercial sectors with significant off-take possibilities.

Gas pricing controversy started in 2008 when one of the franchisers increased gas price from N21.05 per SCF to N67.63 on the basis that the company was benchmarking its price with the Petroleum Products Price Regulation and Monitoring Agency’s template for fixing petroleum products.  Over the years, the companies kept increasing the prices to what has been described by several end users as unbearable levels.

How do you explain that while the average price of gas globally is $2.5 per SCF, in Nigeria, it is $7.54 per SCF or even more? And the government has been trumpeting on encouraging domestic use of gas for industries and organised estates.

Benchmarking of the price of gas to the United States dollars is another major problem responsible for the series of increase in the prices of gas for domestic consumption.  Agreed that the accounting standard in the oil and gas industry is dollar-based, that does not stop the government from working out a purely Naira-based pricing template as incentive to end users in the economy.

The challenge has always been primarily determining an appropriate gas pricing framework that encourages both production and consumption.

The complexity of this challenge is worsened by the widely divergent interests of major players in the industry. While the growth of the economy through new gas based industries and consequent employment generation would be attractive to government, other industrial players particularly the International Oil Companies (IOCs) are driven mostly by profit maximization.

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As disclosed by the Minister, the version of the PIB currently at the National Assembly awaiting debate “establishes an attractive fiscal framework for gas that allows low royalty and corporate income tax and a variety of small taxes and levies.” But this is just for the producers and not to benefit of the domestic end users.

All he said concerning the end users as pertains to the pricing issue was that “special protections” are built in to ensure supply to wholesale customers in strategic sectors which are the power sector, gas-based industries and commercial sectors with significant offtake possibilities. This is another ambiguous statement that’s neither here nor there.

It cannot be overemphasised that the scope and space of domestic gas market development in in the country depend significantly on the signals the underlying pricing mechanism sends to both prospective suppliers and consumers. The need for a pricing strategy that recognizes the diversity in the ability of the various industrial sub-sectors to bear gas price cannot be overstated.

As indicated in the latest version of the Petroleum Industry Bill (PIB) presently at the National Assembly, government will price control natural gas for domestic consumption. Whatever that means!

Learning from the scam in the ongoing fuel subsidy scheme, most Nigerians would agree that the idea of price control may yet be another policy misstep that will obviously create more problems than it is meant to palliate. Preferably, government should do all it can to dialogue with the producers to sell at prices independent of what obtains at the global market.

There is still time to work out an acceptable balance in the willing seller-willing buyer framework because full regulation (price control) and attendant payment of subsidies for locally consumed gas will be counterproductive to the essence of the National Gas Expansion Programme.

• IFEANYI IZEZE: [email protected]; sms only +234-8033043009