Amid Shortages, Upstream Gas Operators want Price jump to Between $2.60/Mcf, $5/Mcf

Adebayo Obajemu

Despite the growing anger and frustration of the citizens over the rising cost of gas, especially gas-to-power as well as gas-to-industry prices, upstream operators have implored the federal government to hike the rates to between $2.60/mcf and $5/mcf.

This admonition was contained in a document obtained by EnergyDay acceded to by upstream operators during a meeting with the Minister of State, Petroleum Resources (Gas), Ekperikpe Ekpo in Abuja.

Some of the groups that met with the minister included: The Independent Petroleum Producers Group (IPPG), Oil Producers Trade Section (OPTS), Association of Local Distributors of Gas (ALDG), Nigerian Gas Association (NGA) and the Nigerian Liquefied Petroleum Gas Association (NLPGA).
Others included: Major Energies Marketers Association of Nigeria (MEMAN), the Nigerian Association of Liquefied Petroleum Gas Marketers (NALPGM), Liquefied Petroleum Gas (LPG) retailers and the Independent Petroleum Marketers Association of Nigeria (IPMAN).

On gas pricing specifically, the IPPG, according to the document, insisted that the current domestic gas pricing of gas-to-power at $2.18/mcf and for gas-based industries (GBI) at below $2/mcf is not attractive for new investment.
Up to 80 per cent of electricity generated in Nigeria is powered by gas while many heavy industries in the country like cement manufacturers depend on the commodity to produce.

The IPPG argued that the current price does not reflect the cost borne by the industry and poses a threat to investors’ confidence and ultimately supply.
The group therefore recommended: “Undertaking an upward review of gas price to attract urgent investment into the sector to ‘Domestic Base Price’ setting to consider upstream breakeven costs of $2.60/mcf -$5/mcf”

It also called on the authorities to: “Minimise the Domestic Gas Delivery Obligation (DGDO) to allow more volume under willing buyer; willing seller” and “transition to a fully liberalised and market-led gas sector or a willing buyer; willing seller model.”
However, the DGDO recommendation contradicts current efforts by the federal government to stop export of gas altogether because of rising prices and inadequacy in-country.

On gas flare, it stated that the implementation of the gas flare penalty at $3.5/mscf is a threat to the survival of smaller players across the industry, stressing that the industry regulator commenced implementation of the administrative fine in Q2, 2023 without setting flare threshold and applicable fee for flare within set threshold.
The group therefore called for the suspension of the implementation of increased gas flare penalty, insisting that laid down processes in regulation need to be adhered to prior to implementation.
Speaking on gas supply receivables, the IPPG highlighted an estimated gas supply debt in excess of $1 billion owed to gas producers for supply to the domestic market.

It added that about 50 per cent of domestic gas is for the power sector and about 30 per cent of invoices from 2014 – 2023 remain outstanding.
Lamenting that there is no clear path for recovery, it called for urgent defrayment mechanism for receivables and prevention of future build-up of debt.

On its part, the OPTS said the current base price of gas does not allow for development and monetisation of the non-associated and deepwater gas.
The organisation identified inadequate infrastructure as part of the problem hindering gas supply to numerous off takers and end users nationwide and recommended the fast-tracking of the completion of key gas projects such as the OB3 gas pipeline.

According to the OPTS, the continuous changes in fiscal conditions always results to uncertainty, fiscal instability, and negative impact on portfolio value.
It lamented increased producers cost as a result of duplicate regulatory requirements, stressing that this was affecting the industry negatively and called for a reduction in regulatory fees as well as streamlining the regulatory requirements.
Also, the ALDG lamented the ‘dollarisation, of fees and called for the payment in Naira equivalent for ease of payment, ensuring fairness and alignment with market realities.

On the current License to Operate Fees (LTO) of $10,000, it sought for a review of the fee structure, saying it was imperative to ensure fairness and affordability for all stakeholders.
The group also called for full compliance for fiscal incentives such as duties exemption and Value Added Tax (VAT) on Compressed Natural Gas (CNG) and associated equipment.

On its part, the NGA asked for improved security around pipeline assets to ensure availability of gas as well as explore the possibility of creation of a special unit to coordinate security efforts in the sector to address insecurity and vandalism of assets.
NGA called for the review of PIA to capture the fiscals for gas as a stand-alone commodity and also prayed the minister to prevail on the regulators to review the payment of licenses and taxes in dollars.

Besides, the NLPGA argued that exporting locally produced Liquefied Petroleum Gas (LPG), falling value of Naira necessitating high exchange rates, poor infrastructural financing and opaqueness in existing intervention funds, were some of the issues militating against the LPG business.

The group also said there was the need to simplify regulatory matters, implementation of positive federal government initiatives, for example duty and import duty waiver as well as payment for various permits , about 45 in number for LPG trucks.
In its intervention, MEMAN called for support for private sector investment by creating incentives to encourage the adoption of auto-gas, using CNG, thus creating demand in the Nigerian market.

Among others, it also said that 50 per cent of the federal and state government administrative vehicles and 100 per cent of federal and state government-owned commercial transport vehicles should be converted to run on CNG.

But NALPGM said that it had been observed that local producers of LPG take undue advantage of the currency fluctuation to hike prices even when the products are locally produced as the imported and local products cannot be differentiated.

“The NALPGM advocated for a reduction in the imported LPG as the locally produced one with a little import will serve the needs of the nation which is currently less than 1.3 million MT/day,” it stated.

It requested that Chevron, Mobil and Shell should also be compelled to do same as this would greatly subsidise the import volume, thereby bringing down the price of cooking gas.

IPMAN on its part, sought the intervention of the minister in the release of over N150 billion owed it, which had accrued as a result of bridging, saying it had incapacitated many of its members financially.

Also, LPG retailers urged the minister to look into the issue of soaring price of LPG as it had become unaffordable to the common man, thereby jeopardising the clean cooking initiative.