Page 5 - AfrOil Week 42

AfrOil COMMENTARY AfrOil

Additionally, it said, gas-based industrial con- Many oil operators working at Nigerian fields
sumers will be able to pay less than the floor have made a practice of treating associated gas
price. Nigerian authorities will calculate rates for as waste and burning it off. But Nigeria’s govern-
these users in accordance with a special formula ment is now looking to eliminate flaring, partly
that may bring prices down to as little as $1.5 per because it does not wish to discard potentially
mmBtu, it stated. useful resources and partly because it hopes to
The PIB also provides for raising domestic reduce emissions. As such, it has an incentive to
base prices over time. It calls for increasing rates make gas development a more attractive invest-
by $0.05 per mmBtu per year until the year 2037, ment target.
at which point the price floor will be fixed at $4
per mmBtu. Maintaining the incentive
The legislation assigns responsibility for gas Even so, maintaining this incentive will take
pricing to the Nigerian Midstream and Down- some effort.
stream Petroleum Regulatory Authority (NMD- As noted above, TPPs are slated to pay some-
PRA), one of the new state agencies that is being what less for fuel than other consumers, while
established to replace Nigerian National Petro- gas-based industrial consumers may pay much
leum Corp. (NNPC). It states that NMDPRA less. As a result, gas developers may show less “
“may, by regulations, change the domestic base interest in sales to TPPs and gas-based indus- Power plants
price and the yearly increase) to reflect changed tries – unless the government makes a point
market conditions and supply frameworks.” of managing demand through such measures are slatedto pay
as mandating deliveries to such users and con-
Higher returns from domestic sales structing transportation and distribution pipe- somewhat less
The new gas pricing regime is designed to lines according to schedules that prioritise such for fuel than
encourage domestic gas consumption, in line users.
with the government’s previously stated goals. It There is an argument to be made in favour other consumers,
aims to achieve this goal by making the domestic of such measures. After all, TPPs will use gas
market profitable enough to attract more direct to produce electricity, thereby increasing the while gas-based
investment. domestic supply of a commodity that will bene-
Timipre Sylva, Nigeria’s Minister of State for fit all sectors of the economy, as well as residen- industrial
Petroleum Resources, hinted at the outlines of tial consumers. Likewise, gas-based industries consumers may
this strategy during a meeting with members of will help maximise profits from gas production
the Nigerian Association of Petroleum Explo- by turning out value-added products, while also pay much less
rationists (NAPE) in August. He stated that the creating many new jobs.
PIB – which had not, at that point, been submit- If Abuja follows this course, though, it will
ted to the National Assembly – would “establish be performing a balancing act. It will have to
a gas base price that is higher than current lev- uphold its new commitment to “establish a
els.” He did not give a specific figure but indi- fully functioning free market in natural gas for
cated that the higher price was anticipated to domestic supplies,” as spelled out in the PIB,
make gas projects more lucrative and less vul- while also imposing some controls on prices
nerable to fluctuations in world oil markets. in order to ensure the profitability of domestic
“This price level should be sufficiently attrac- sales.
tive to increase gas production significantly, Additionally, it will have to do these things
since this gas price will be comparable with while trying to make gas look economical
gas prices in other emerging economies with enough to attract the private investment that
considerable gas production,” he said. “The has typically gone to the oil sector. The PIB states
price will be independent of all gas prices for that the NMDPRA must “monitor the gas prices
LNG export and is therefore a stable basis for in other major emerging countries and ensure
enhanced domestic gas development, regard- that Nigeria [continues] to have a price level for
less of international oil or energy development.” natural gas that is less than the average of these
Sylva’s statements seem logical, especially emerging countries in order to promote the
in light of the fact that a significant portion of non-oil sectors in the Nigerian economy.”
Nigeria’s gas reserves take the form of associated This is likely to prove a complicated task. In
gas that cannot be used unless it is first separated order to pull it off, Nigeria may have to work
from oil production streams. harder to ensure good governance.. ™

Week 42 21•October•2020 www. NEWSBASE .com P5