OANDO, SNEPCO, Chevron demand fiscal terms, debt settlement, market-driven pricing to unlock Nigeria’s gas potential

Major investors in the Nigerian gas industry have urged the Nigerian Government to implement the right fiscal terms, settle gas legacy debts, and adopt market-driven commercial gas pricing, as a measure to unlock the country’s vast gas potential, which according to them will not only boost the country’s economy but also contribute to the global energy market.

This was one of the major highlight of the just concluded Nigeria Oil and Gas (NOG) Energy Week Conference & Exhibition 2023, held in Abuja last week.

According to investors major decision that must be taken by the present administration in order to unlock the country’s gas potential include right fiscal terms for gas production, settlement of over $1 billion gas legacy debts owed by the power sector, and market-driven commercial gas pricing. 

They noted that gas producers in the country needs the right fiscal terms to be put in place, including tax incentives or other measures to encourage investment in the gas sector.

The producers also called for the settlement of over $1 billion gas legacy debts owed by the power sector. According to them settlement of the gas legacy debts will improve the financial health of the sector.

The Nigerian government was also encouraged to entrench market-driven commercial gas pricing. This according to the investors would allow prices to be set based on supply and demand, rather than being set by the government. 

EnergyDay’s check stated that the government has over the years regulated gas prices, thereby disrupting the market, discentivising gas production in the country and ruining business assumptions of investors. Ironically, improving energy access is the government’s argument against a liberalised gas-pricing regime.

Further findings showed that despite the implementation of the Petroleum Industry Act(2021), which aims to facilitate the development of more gas for commercialization within Nigeria, the government compelled the gas producers in the country to a domestic gas supply obligation by lowering gas prices from $2.50 per Million British Thermal Units (MMBtu) to $1.50/MMBtu.  This was done as a way of cushioning the effect of higher electricity tariffs.

The gas producers in the country however called for liberations of market to entrench the willing buyer-willing seller market in order to enable gas producers recover their cost on production.  They recommended that natural gas should be traded in the international market based on investment-friendly terms.

Elohor Aiboni, the Managing Director of Shell Nigeria Exploration and Production Company (SNEPCO), stated that Nigeria’s gas industry is unattractive to foreign investors and offshore financing due to unfriendly fiscal and commercial terms

She made this known in her comment as a panelist speaking on the topic: Assessing the Attractiveness of Nigeria’s Energy Sector, during the just concluded Nigeria Oil and Gas Week in Abuja.

According to her “Capital has no emotions. If projects are not attractive, the capital will be directed somewhere else”.

She noted that the uncertainty around the price of gas and price control has reduced investors’ appetite for the development of gas assets in Nigeria, causing funds to be diverted to other African countries that provide the right incentives for gas development

Elohor noted that the SNEPCo has been unable develop the OMLs 74 and 77, two large shallow water licences in the eastern part of the Niger Delta, due to funding challenges partly cause by unattractive and unfriendly business environment in the country especially due to the lack of commercial gas pricing.

She noted that one of the major barriers to the development of the two gas-riched assets is the funding constraints which has severely impacted the development of the fields.

The MD SNEPCo emphasised that the only way to make Nigeria great again is to remove the uncertainties around the price of gas for private players, this according to her will unlock most of stranded gas assets in the country.

Omamofe Boyo, the Deputy Group Chief Executive of Oando PLC, while highlighting the untapped opportunities in Nigeria’s gas sector, on his part, emphasised the need for the country to address the fiscal and regulatory regime inhibiting investment in the gas sector.

Boyo further said that the gas sector in Nigeria has not grown in recent years due to the government’s refusal to provide a level playing field for the private sector to thrive in the gas market.

He said, “The lack of certainty for investors from a policy standpoint has hindered the development of the country’s gas resources.  It is time for the government to unlock the stranded gas assets across the country, including the Escravos pipeline project that was commissioned in 1989 but is yet to be completed.

“The delay in delivering these projects is not due to a lack of manpower or technical capacity but rather because the economics has never been right.

Boyo also attributed the irregularity and unreliability in gas supply to theft and vandalism of pipelines, which according to him has affected  the gas distribution system.

He therefore emphasised that another major hindrance to gas development is the government’s failure to allow pricing to come from market-driven activity.

Boyo noted that this was caused by too much regulation on the amount that gas molecules should be priced. He therefore charged the government to allow the commercial and economic factors to drive Nigeria’s gas industry while the regulators play the role of business enablers.

The OANDO Deputy Group Chief Executive further suggested that the government needs to provide an enabling environment and opportunities that are clearly defined to allow the private sector to fund and function as partners to deliver on harnessing the full potential of all the stranded gas assets in Nigeria.

Boyo also noted that deliberate investment in Nigeria’s gas infrastructure is the only medium to longer-term strategy for the country, which requires between 15 to 20 billion dollars in funding in the next few year to unlock its gas potential.

Mr. Richard Kennedy, Chairman/MD, Chevron, on his part revealed that the debts have to be paid to create confidence in the sector.

He said that “The Government can only re-establish investors’ confidence in the production of the natural gas if it is committed to ensuring that all the legacy debts owed to the industry operators are paid and also ensuring that we have a cost reflective gas pricing.