Gas Policy

Gas Policy: Between Power Emergency And FG’s Blurred Domestic Agenda

Ifeanyi Izeze

When the Nigerian Gas Company (NGC), a strategic business unit of the Nigerian National Petroleum Corporation (NNPC), recently adjusted the price of its natural gas supplies from N21.05 per cubic unit to N67.63 per cubic unit, the immediate reaction that followed it from some aggrieved members of the Manufacturers Association of Nigeria (MAN), Power Holding Company of Nigeria (PHCN) and other customers clearly showed how uninformed or rather misinformed some of the groups were on the core issues involved.

If the comments ascribed to the Petroleum Products Price Regulation and Monitoring Agency (PPPRA) and even the Pipelines and Products Marketing Company (PPMC) on the issue of price jack up by NGC were true, then it would be apt to describe the position of the two government-owned organizations as very unfortunate.

First, it should be clearly stated that neither the PPRA nor the PPMC has any iota of business defining price regime for the NGC. Natural gas which the NGC sells is not a petroleum product by any definition.

The PPRA was supposed to be dealing with petroleum products pricing, while the PPMC was saddled with the responsibility of distributing and marketing refined petroleum products. In the both assignments, natural gas is completely out of it because the resource is not a petroleum product- locally produced or imported.

Returning to our main issue of the NGC’s upward review of prices for natural gas at the domestic arena, there is a great need to place the argument in a proper context.

When the nation’s four refineries managed, in a very distant past, to put up an appearance that looked like meaningful production performance, the price of natural gas used to be 30 percent less than the cheapest available fuel alternative.

The cheapest available alternative in our domestic arena was the Low Pour Fuel Oil (LPFO) which was cheaper than diesel (Automotive Gas Oil), the second alternative fuel for energy generation.

With the total collapse of the nation’s refineries and the huge increase in the prices of crude oil at the international market, the price of the next alternative fuel, L PFO skyrocketed from N26 per litre to about N107 per litre because almost all the refined petroleum products used in the country were imported under the supposedly liberalized petroleum marketing sub-sector of the nation’s downstream oil sector. So the prices of imported fuel products were determined by the vagaries of the international oil market.

Although painful to the few surviving manufacturers whose businesses would be heavily affected by the new NGC price regime, there was nothing wrong with the NGC using the PPRA’s template to ascertain the current price of the next alternative fuel to help it appropriately peg the price of the natural gas supplied to its customers.

After all, the arrangement before now had been that natural gas be priced at 30 percent discount to the least priced fuel alternative. So the organisation’s recent upward adjustment of the price from N21.05 per cubic unit to N67.63 per cubic unit which represented a 221 percent increase was very much in line with the acceptable pricing mechanism used in the sub-sector.

The question however, is whether the previously acceptable practice by the NGC in its gas business had any iota of statutory backing or it was just fashioned by somebody who claimed to be an expert and delivered to ‘whom it may concern.’

The protest by members of the Manufacturers Association of Nigeria and other gas consumers was unarguably justified, however it was wrongly targeted. The right place to take such protests was the Presidency since the entire business of administering Nigeria’s oil and gas including price fixing, subsidy addition and removal was carried out at the office of the president since the reign of Chief Olusegun Obasanjo.

Suffice it to state that the NGC is just a name- plate gas company. The NGC has never drilled a single well nor bought a single well for the purpose of producing gas for sales to its customers. The organization merely collects gas from the foreign multinational oil producers most times under coercion and sells for local/domestic utilization.

NGC as an organization has very little or zero leverage over pricing issues of produced natural gas. It would be recalled that disagreements between the organization and Shell Petroleum Development Company of Nigeria coupled with the Ogoni (Niger Delta) crisis, heavily contributed to cripple the operations of NAFCON and ALSCON in Rivers and Akwa Ibom states respectively.

Also, the problem between Shell (the producer) and NGC (the supplier) on accessibility to gas supply for Afam Power station was almost getting into a blackmail situation until the timely introduction of the privately –owned independent power projects by the federal government which saw Shell deciding to delve into power generation business by taking over controlling stake in the Afam Plant.

Industrial natural gas users (if any still remains) in Aba had to close their doors to NGC following unavailability of the resource to NGC from Shell oil fields in Obigbo North, Nkali and Owaza for sale to the industries.

Also natural gas users in Lagos especially on the Egbin- Ikorodu- Ilupeju axis have also been suffering the NGC’s handicap to supply needed natural gas fuel for power generation and domestic use.

Apart from Shell, Nigerian Agip Oil Company, Exxon/Mobil amongst other foreign oil operators have expressed serious reservations on the role of NGC in the sale of produced gas to the Nigerian local markets.

The NGC is just a natural gas buying and selling (trading) subsidiary of the NNPC. When the producers of the gas – the foreign multinational oil companies decide, to appropriately price the produced natural gas in line with international market standards, the NGC has no option other than to just ‘maintain’.

These are all fallouts of the nation’s terribly blurred gas policy especially ingredients for the domestic gas agenda.

It was not enough for President Yar’Adua to threaten the “big stick” punishment for oil companies he alleged were sabotaging his declaration of emergency in the nation’s power sector. What is Nigeria’s gas policy especially as it affects domestic supplies and utilization for industrial and home users? Do we have anything that can be described as pricing policy (statutory) for natural gas that is clearly targeted towards encouraging industrial (power generation) and domestic users?

The question of a domestic ingredient in a focused gas policy has become very pertinent especially in the raging controversy between the federal government and multinational oil and gas producers operating in the country especially those that are participating in the Nigerian Liquefied Natural Gas Project. The foreign operators clearly have their own idea on what to do with the country’s produced natural gas. The federal government also has its own ideas on the domestic utilization of the resource for its emergency power generation, industrial and home uses. Interestingly however, the two sets of ideas run discordantly against each other.

To the operators, fulfillment of their contractual obligation in the NLNG project takes priority to whatever idea the federal government has on power generation and other areas. So there is an urgent need to harmonize the divergent views on this issue because from obvious indications, the current crop of political administrators of the nation’s oil issues, at the presidency seem not to fully appreciate the precarious situation of the producing companies in the NLNG project.

As it is today, there is no clearly defined or rather focused policy agenda for production and utilization of natural gas for domestic use by industries and other consumers. The participating oil companies in the NLNG project have claimed that it is technically impossible for them to produce and free gas for domestic use because of their commitment to supply the natural gas feedstock to the Bonny Project.

So where is the gas for domestic use going to come from? This is why the current handicap of the NNPC- NGC is not only lamentable but disgraceful. Over all these years of existence of the NNPC, it did not occur to any of the so called technocrats to develop in-house capacity for the NGC to explore and produce its gas resource.

Another problem is that majority if not all the nation’s produced gas as at today are associated with crude oil (they occur in the same geologic structures with the crude oil) so the oil companies will for a very long time continue to determine where the produce gas will go and how the gas will used.

It is very important for the federal government to address the issues of local industrial and domestic utilization of the resource especially now that President Yar’Adua is talking of restructuring the NNPC. A clear agenda should be set in the proposed restructuring for domestic utilization of the nation’s abundant gas resources (at least while we grapple with the Niger Delta problem where the gas come or rather should come from).

Who should be responsible for the distribution and marketing of natural gas for the local utilization- the foreign multinational producers or a structure in the proposed Nigerian National Oil Company? Who determines the price regime- federal government or the vagaries of international gas markets? Should we be talking of subsidy also as applicable to the petroleum products sub- sector? These are all crucial questions that should be answered in the proposed repackaging of the NNPC.

IFEANYI IZEZE, ABUJA (iizeze@yahoo.com)