With more countries discovering oil and natural gas in commercial quantities, Nigeria needs to step up domestic gas utilization by taking advantage of its abundant liquefied natural gas (LPG) resources and maintaining the mechanisms that have supported the rapid growth of Africa’s most populous countries. the country’s local LPG market and buyer contract cycles.

The LPG market in Nigeria has grown in the last five to 10 years since the Nigerian Liquefied Natural Gas (NLNG) Domestic Gas Scheme (DOMGAS) began in 2007. Until 2015 there was moderate growth until 2021. LPG grew by 15 – 20 percent in this period, making it one of the fastest growing markets in the world.

This was achieved through collaboration between NLNG, the private sector, the Nigerian Liquefied Petroleum Gas Association (NLPGA) and a consortium of local buyers. It was a private sector driven initiative with the NLNG catalyst on the back of government policy that mandated that some volumes of LPG leaving Nigeria should be routed back to the domestic market.

An oil and gas expert and Senior Partner at Ecocity Project Limited, Norbert Shialsuk, speaking at the Nigerian Local Gas Extraction Media Roundtable, a virtual gathering hosted by Precise Platform, recently said Nigeria passed 50,000 tons in 2007 to approximately one million tons in 2020 and 1.30 million tons in 2021.

“But things seem to have changed as it is now 846,000 tonnes in 2022 YTD terms. We have lost around 500,000 tonnes. We need to ask the hard question at this point and fix this broken market,” Shialsuk said, adding that making cooking gas accessible, affordable and available to consumers in the country is critical because it is cleaner, promotes health and is environmental friendly. and abundant in Nigeria.

This is what you get in other liquefied gas producing countries, there is a need for the federal government to provide infrastructure in this regard. Significantly, Nigeria appears to have prepared for the future, having declared a ‘Gas Decade’ that has defined the next frontier of Nigeria’s oil and gas sector.

nigerian preparation

According to Shialsuk, there are basically two objectives that the government wants to achieve: to make Nigeria a leading producer and consumer of gas. Nigeria has more than 206 trillion cubic feet (Tcf) of gas and another 600 Tcf in probable reserves, indicating that Nigeria is a major gas country.

One of the government’s policy axes is the introduction of natural gas vehicles. But the domestic gas supply must be guaranteed for this to work. This also applies to the supply of gas to Nigerian households and the drive for the conversion of firewood and charcoal to gas as a household fuel.

“This is the direction the world is heading because by 2050, natural gas and renewables are expected to drive more than 50 to 60 percent of the world’s primary energy consumption. So the future is gas and renewables, which means Nigeria is heading in the right direction.

“However, we have a major problem on our hands in the sense that one of the political axes of the government is suffering a setback. If you look at the targets, the government has talked about introducing natural gas vehicles, but for me this is a medium to long-term target because Nigeria still lacks the necessary infrastructure,” Shialsuk said.

challenges

Currently, half of the country is not connected to the gas network. Many experts believe that if you are introducing natural gas vehicles, you should make sure natural gas is available since most of the natural gas grid is in the south and if you have to convert compressed natural gas (CNG) for vehicles , then you have to get the gas in the north.

“There have been many problems with LPG. In the last one to a year and a half; there have been high prices for the merchandise in the market. This has been the result of many things, importers at some point stopped importing LPG, which led to a prolonged period of shortages and along the way the devaluation of the naira occurred and this exacerbated the problems,” Shialsuk said. .

There is a lack of coordination on the part of the government. All politics must be progressive. This means that if you put a policy in today, there is a period of implementation and impact of the policy.

“There are not enough cylinders on the market. Part of the program that the government plans to implement under the gas expansion program was to address the issue of cylinders and I think that’s where the government should have focused attention. But the reintroduction of taxes on importers basically stops them from importing LPG, since the taxes on LPG equipment mean that no one will import LPG equipment to implement retail outlets in the country. This is the wrong policy,” Shialsuk said.

The way to follow

Beyond the impact period, you should introduce newer policies to take advantage of the impact of the old policy. But if you start a policy and 10 to 15 years from now you introduce a new policy that reverses the positive impact of the old one, then you are working against it.

Shialsuk said: “The government must support the sector by ensuring a constant supply of the product in the market, and this will address the problem of shortages and sustained supply. Having addressed the issue of availability, the government should have taken advantage of this impact to deepen penetration in a market estimated at 3.6 million tons per year by KPMG in 2015. To date, the NLPGA estimates the market at 5 to 6 million tons per year. and we also believe that the market is within that range.”

Gas revenues replace oil revenues

The largest buyer of gas in Nigeria in terms of natural gas is the electricity sector. The electricity sector is dealing with the problem of a lack of liquidity because the electricity distribution companies (DISCOS) are not paying their bills. The government will always step in by bringing in money to cover unpaid bills.

DISCOS usually pays about 30 percent of their bills, and that’s what they have to pay gas producers. And so gas producers are not encouraged to come in and drill for more gas and get it out because they’re not going to find a buyer except the power sector.

Even when they sell to the electricity sector, they don’t get their money back. Again, there are a lot of issues in terms of what the government needs to do to attract investment into the gas sector, get the gas out and even boost the local market.

Without cost-reflective tariffs, illiquidity in the electricity sector will persist and destroy that sector’s viability as a profitable buyer of gas. The federal government estimates that its electricity tariff subsidy was around N1.0 trillion between 2019 and 2021. The amount represents the gap between the Cost Reflected Tariff (CRT) and the Allowable Tariff (AT), which reached a maximum of N28 per unit of electricity supplied to consumers. .

Similarly, for autogas policy to boost demand for gas, conversion kits must be available and affordable and the gasoline subsidy must be removed. A recent report by the Financial Derivatives Company Limited (FDC) estimates that the gasoline subsidy for 2022 would exceed the total spending of all the states of the federation in 2021, which was 9.8 billion dollars.

Meanwhile, Nigeria’s midstream and downstream gas infrastructure fund is set to appropriate the 0.5 percent excise tax on oil and gas products. This means that people are already paying for the gas infrastructure. “So, I don’t see why the government can’t provide these conversion kits to people because the mechanism to recover the cost is provided in the Petroleum Industry Law,” Shialsuk said.

To restart and sustain the 15-year growth that has been seen in the domestic LPG market, the government must enable the sector rather than sabotage it through the introduction of taxes and miscoordination in terms of policy and contract cycles.