Page 5 - DMEA Week 42

DMEA COMMENTARY DMEA

pricing to the Nigerian Midstream and Down- reduce emissions. As such, it has an incentive to
stream Petroleum Regulatory Authority (NMD- make gas development a more attractive invest-
PRA), one of the new state agencies that is being ment target.
established to replace Nigerian National Petro-
leum Corp. (NNPC). It states that NMDPRA Maintaining the incentive
“may, by regulations, change the domestic base Even so, maintaining this incentive will take
price and the yearly increase) to reflect changed some effort.
market conditions and supply frameworks.” As noted above, TPPs are slated to pay some-
what less for fuel than other consumers, while
Higher returns from domestic sales gas-based industrial consumers may pay much
The new gas pricing regime is designed to less. As a result, gas developers may show less
encourage domestic gas consumption, in line interest in sales to TPPs and gas-based indus-
with the government’s previously stated goals. It tries – unless the government makes a point
aims to achieve this goal by making the domestic of managing demand through such measures
market profitable enough to attract more direct as mandating deliveries to such users and con-
investment. structing transportation and distribution pipe-
Timipre Sylva, Nigeria’s Minister of State for lines according to schedules that prioritise such
Petroleum Resources, hinted at the outlines of users.
this strategy during a meeting with members of There is an argument to be made in favour
the Nigerian Association of Petroleum Explora- of such measures. After all, TPPs will use gas
tionists (NAPE) in August. He stated that the PIB to produce electricity, thereby increasing the
– which had not, at that point, been submitted to domestic supply of a commodity that will benefit
the National Assembly – would “establish a gas all sectors of the economy, as well as residential
base price that is higher than current levels.” He consumers. Likewise, gas-based industries will
did not give a specific figure but indicated that help maximise profits from gas production by
the higher price was anticipated to make gas turning out value-added products, while also
projects more lucrative and less vulnerable to creating many new jobs.
fluctuations in world oil markets. If Abuja follows this course, though, it will be
“This price level should be sufficiently attrac- performing a balancing act. It will have to uphold
tive to increase gas production significantly, its new commitment to “establish a fully func-
since this gas price will be comparable with gas tioning free market in natural gas for domestic
prices in other emerging economies with consid- supplies,” as spelled out in the PIB, while also
erable gas production,” he said. “The price will be imposing some controls on prices in order to
independent of all gas prices for LNG export and ensure the profitability of domestic sales.
is therefore a stable basis for enhanced domestic Additionally, it will have to do these things
gas development, regardless of international oil while trying to make gas look economical
or energy development.” enough to attract the private investment that
Sylva’s statements seem logical, especially has typically gone to the oil sector. The PIB
in light of the fact that a significant portion of states that the NMDPRA must “monitor the
Nigeria’s gas reserves take the form of associated gas prices in other major emerging countries
gas that cannot be used unless it is first separated and ensure that Nigeria [continues] to have a
from oil production streams. price level for natural gas that is less than the
Many oil operators working at Nigerian fields average of these emerging countries in order
have made a practice of treating associated gas to promote the non-oil sectors in the Nigerian
as waste and burning it off. But Nigeria’s govern- economy.”
ment is now looking to eliminate flaring, partly This is likely to prove a complicated task. In
because it does not wish to discard potentially order to pull it off, Nigeria may have to work
useful resources and partly because it hopes to harder to ensure good governance. ™

The extra gas captured
could be used as
feedstock in the
petrochemicals sector.

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