Mounting Debts, Not Pricing Is The Challenge In Gas Supply – Ige | Independent Newspapers Limited
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Mounting Debts, Not Pricing Is The Challenge In Gas Supply – Ige

Posted: May 18, 2015 at 12:10 am   /   by   /   comments (0)

How would assess the participation of Nigerian companies at the 2015 OTC?

We have gone round the Nigerian stand and I think it has been quite impressive despite what appears to be a very low morale in the industry broadly; you have a very strong presence of Nigeria’s service companies here on exhibition. I think the continued growth of the service sector shows the vibrancy of the Nigerian oil industry.

There are quite a number of service companies from Nigeria on display here, always getting more and more over the years.  I think overall there is a lot here to be proud of as Nigerians in terms of our presence.

Given the high level of competition in the sector globally for capital, how prepared is the petroleum sector in Nigeria to attract investments?

First of all, Nigeria is country that is blessed with a lot of resources in terms of oil and gas, and that is a natural location to attract investments in the oil and gas industry. Over the years we have consistently seen capital investments coming to Nigeria and there has been an aggregate increase of investments coming to Nigeria.

Clearly, there is a lot of competition globally for capital especially as there have been new discoveries in other locations, but we have found out that still Nigeria has the potential to be one of the most competitive locations globally.

There is still a lot of work to be done to maintain that competitive position and I think all the different stakeholders engagements we have been having at PETAN, the Nigerian Content intervention, we will continue to reposition such that Nigeria continue to an attractive place for investors to come in.

The resources are there, the baseline infrastructure has been on for a few years and so it is easy for people to come here. We have to make sure that competition comes on we still maintain our position in a manner that we can compete favourably with locations.

What is the progress of work on the east/west gas pipeline and when will it be completed?

Construction has started on the east-west pipeline and we are beginning to make a lot of progress in terms of construction on both sides. Our expectation is that by December 2016, we would have mechanical completion of the pipelines and early 2017 we start to flow gas on the pipeline.

There is also the Lagos-Escravos gas pipeline project, how far has it progressed?

Lagos pipeline is almost completed and we expect that within the next three months that project is done.

We have completed and commissioned Lagos all the way to Oben, we have completed Emore all the way to Itoke in Lagos, and so the bit that is still left is Benin to Emore and that is progressing very well and the expectation is that before August this year the ELPS pipelines would have been completed and we would have doubled the capacity to two billion cubic feet per day, virtually, it should be the biggest pipeline in Africa in terms of triple.

Gas is expected to play a majorl role in Nigeria’s immediate future both in terms of export product and local consumption. What is the current level of gas production?

At the moment gas supply to the power sector has grown to over a billion cubic feet per day and I think that before the end of this year we will see a significant increase as well in that. Cumulatively in the entire country we are producing about two billioncubic feet of gas now. Some of the gas that we are producing that are available is probably stranded because maybe some of the power plants are not ready.

So over the next couple of months, you should see an increase in off-take. For example, we have got gas at Gbaranuvie gas plant which hopefully should be commissioned very shortly; we got gas at Omoku which is awaiting the power plant.

We have got gas for Egbema too. And when you bring all these gas volumes together, we have close to two billion cubic feet per day but not all of it is in active generation today either because the power plant is not ready or power evacuation is not ready.

But also on the western side of Nigeria where the power plants are ready, we have a shortage of gas. We have a shortage that amounts to about 400million cubic feet per day which we expect that before the end of the year we would have reduce that significantly as some of our projects come on stream.

So by and large, if you look over the next 12-18months we looking at almost leveling up of gas to power supply.

Despite the increase in the price of gas, it is like the producers are still not happy. What is position on this sir?

I am not exactly sure why gas price is an issue for producers and consumers because gas price has been increased to export parity in Nigeria. So the issue today is not pricing, what has remained a challenge in Nigeria is the mounting debts because gas price is not being paid by consumers at the rate at which it is supposed to be paid.

In the last couple of months, the Central Bank put some programme in place to extinguish some of the legacy debts but we have got to make sure that the new volumes that are being supplied are actually paid by the end consumers through the power operators back to the gas suppliers. I believe that right now the issue is not the price but about the collection and the payment of that price.

I don’t say anybody should have an issue with pricing because our price right now is at par with prices at Henry Hub. So our gas price domestically is reasonably competitive and of course we have room now for willing-buyer, willing-seller arrangement and you can see that on the fringes. So people will negotiate their prices and they can get whatever the buyer can pay for.

So over all I think there might be a miss communication about pricing, pricing is optimum or close to optimum now and more importantly there is willing seller, willing buyer arrangement so the market is free. It is just for the market to stabilize where people pay for the gas they take.

Even with increase in volume of gas produced, the power plants are still without the product and this has led to drastic drop in power supply, why?

We are having quite a lot of issues that are interlinked in the power sector. For the past two months, the Escravos-Lagos pipeline between Escravos and Warri, one leg of it is down after the vandalisation. It has taken us this long to repair that pipeline because the elections meant that the JTF could not provide security for our people to go in there and asses. It was only after the elections that people went there to assess and work is going on there to effect that repairs.

So with the loss of the pipeline, at the moment we are losing 120-150millionperday which has been the case for the last week or so. In addition to that, the trans-forcados pipelines was attacked about four weeks ago. There was an attempt to repair it but when we tried to bring that back on line there was further leakage which is being fixed right now.

With trans-forcados pipeline out, we are losing gas supply from Oben, Sapele and from NPDC which is a significant chunk. So right now we are losing gas from Escravos and we are losing gas from Oben axis and that is significant amount of our supply capacity that is down on the western axis. On the eastern side, we have largely evacuation issues so even though we are able to supply Okpai power plant, the power sector challenges do not make them able to evacuate all of that power. So Okpai is not able to generate at full capacity.

We are able to supply gas to Ibom power but Ibom power has been operating at about 50 percent capacity for quite a few months now. So although the gas is there the power plant is not working at full capacity. We are able to supply gas to Alaoji, but Alaoji power plant is not able to evacuate power because when Alaoji is on, you cannot evacuate Alaoji, Calabar and some others.

So it is a combination of issues and off course this is the time hydro is at the lowest. We have lost about 300mw at Shiroro as a result of the hydro going down.

So bringing all these together, is almost like a perfect storm for a very reduced generation. I believe that in coming couple of months, as we repair the pipelines and we also start to see the rains come, and some of our new projects that have been commissioned that you are not able to see the benefits because of the outages, you will see that. So you should be able to see some improvements in the next couple of weeks going forward.

But all the problems we are facing right now are actually short term induced problems.