PROSPECTS FOR RESOLVING THE GAS, POWER CONUNDRUM

One of the key problems in the nation’s oil industry that the new Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Shehu Ladan, said he will use his experience to resolve is in the gas sector, a major factor in electricity generation. In this piece, TUNJI AJIBADE, a Consultant Writer, examines the prospects for a turn-around in this sector in the light of the recent blame game between the corporation and the power ministry for inadequate electricity generation in the country.

"Let me say without any doubt in my mind that I will take this responsibility very seriously and I am not unmindful of the heavy challenge ahead because NNPC is one huge organization that is expected to touch the lives of Nigerians in many positive ways," the new Group Managing Director (GMD) of Nigerian National Petroleum Company (NNPC) said days after he resumed office in April, 2010. Making available natural gas, an essential ingredient for electricity generation, is one of such ways by which his company touches lives of Nigerians.  But gas has been a sore point in the perennial inability of government to generate power.  As it happened, May 2008 was when the nation began to have a general idea of how the link between gas and power generation had been handled by the leadership of the responsible government agencies.

At a hearing organized by the nation’s lawmakers to find out how billions of naira was expended between 2000 and 2007 without commensurate improvement in the supply of electricity, a former minister said one reason a newly-constructed power plant in the South Western part of the country did not become operational was because it became difficult to link gas pipelines to it from the South-South part of the country. Then the president, Umar Yar’adua said in an interview with the BBC in the same month, "It is only now that the nation realizes the critical importance of gas to the national economy."  Of course, by that time, the president added, three finished gas-fuelled power stations were unable to generate electricity because Nigeria has sold all its gas for export. Later, when his administration could not deliver on the promise to make 6,000 megawatts of electricity available by December 2009, the then minister of power, Lanre Babalola, blamed it on non-unavailability of gas. The NNPC was naturally the culprit.  

In March this year however, the immediate past Group Managing Director of the corporation, Mohammed Barkindo, responded to the claim saying, "Of the 240mmcf/d gas produced at the Okoloma Gas Plant, only 140mmcf/d is used for power generation at the Afam VI Power Plant operated by Shell. The remaining 100mmcf/d is stranded because Afam I to IV Power Plants that were supposed to use it are not functional."  He added that that some 400 million standard cubic feet of gas per day (mmcf/d) produced for power generation were not utilised because the power plants were yet to be completed, further insisting that the major challenge to power generation was not lack of gas but the non-availability of power stations to use up gas that is stranded at the site of various gas projects in the country. According to him, the stranded gas that could be used to generate power include, 100mmcf/d out of a total 240mmcf produced from the Shell Okoloma Gas Plant in Rivers State, 120mmcf/d from the Total-operated Obite Gas Plant also in Rivers State, 80mmcf/d from Shell-operated Gbaran-Ubie Gas Plant and the 100mmcf/d from Exxon Mobil swapped with the Nigerian Liquefied Natural Gas (NLNG).

The blame game was on, and it was in the midst of this that Barkindo was replaced with Shehu Ladan of whom the Deputy Governor of Kaduna State, Mr. Patrick Yakowa said, "Alhaji Ladan is eminently qualified to lead the NNPC considering his rich experience in the oil and gas industry.” He believed the new GMD "will do the state and the nation proud during his tenure." That line had been heard before in the course of the lackluster tenures of many past NNPC bosses. However, in the face of the vital link between gas production and power generation, and the blame game between the two government agencies, the question may be asked: what are the prospects of the new NNPC boss correcting the problems in those areas where the corporation touches lives of Nigerians. This is an important question as there is one year left of the tenure of the current administration, and Nigerians are concerned about the possibility of another year wasted without that vital sector of the economy experiencing any meaningful turnaround.

Facts and figures show that Nigeria has natural gas reserves that are well over 100 trillion ft³ (2,800 km³), which are three times as substantial as the crude oil reserves. Now, one major factor that the new NNPC boss has on his hands, observers said, is an oil and gas industry that is not growing. Yet growth is necessary if the corporation must make adequate gas available for domestic consumption, including electricity generation. Though the nation is the sixth largest producer of crude oil in the Organization of Petroleum Exporting Countries (OPEC), it’s oil and gas sector has remained stagnant for a long while. According to Ann Pickard, Shell‘s former Regional Executive Vice-President, Exploration and Production, Africa, “Nigeria’s oil and gas production has not only failed to grow…it has fallen over 30 per cent since 2005. Investment in the industry has stalled.” And in an insight into the serious effect of gas aspect of this on power generation, she added, “Nigerians will have to wait longer for the electricity they need to light their homes at night.” The meaning of this simple: the NNPC boss has a task to grow the industry, one thing that is long term rather than short term.

But the problems are more. Nigeria is the world’s 7th largest natural gas producer with its estimated reserves of 187,000bn cubic feet. But it had flared its gas heavily. This is a problem that analysts said might make any expansion in the oil and gas sector to have no tangible effect on availability of gas for domestic consumption. Lack of political will on the part of the government over the years has been noted out as the reason. It was in 1969 that the Yakubu Gowon military government ordered oil companies, to within five years, bring gas flaring to an end. The target was missed and the administration moved it to 1979. An Associated Gas Re-Injection Act of 1979 No 99 asking oil companies to produce plans that would lead to non-flaring of gas by 1984 did not yield results, as the companies gave their reasons why the date was not feasible. The pattern had continued till date.

In year 2000, a typical year, analysts have estimated that not less 70 percent of gas produced was flared. But this has been reduced to about 30 to 35 percent, or a bit under 2.5bn cubic feet per day with the export of liquefied natural gas and natural gas liquid. Government revenues from this runs into billions of dollars every year, and a huge chunk of it comes in from the project in Bonny Island in the Niger Delta handled by the Nigeria Liquefied Natural Gas (NLNG), a joint venture between Shell, Eni, Total LNG Nigeria Limited, and the NNPC. In spite of the big exports and considerable reserves and reduction in flaring, the domestic aspect of the gas sector remains underdeveloped. Much of what is produced is exported, even while there is need for its uses at home in the power sector. Pricing is an issue here. Government wants companies harvesting gas to sell to local market at prices lower than what they obtain in the international market, a fact that has made supply to local market unattractive.  

Another reason for lack of adequate supply to whatever exits of the local gas market is underdeveloped infrastructure. Lack of investment in development of infrastructure features prominently in this case, and it has continued for years. Few transmission lines connect gas fields in the Niger Delta with the rest of the country, for instance. And the pipelines that are in place lack adequate maintenance. There is also the tenuous situation of militancy in the Niger Delta that may continue to affect production in spite of recent government amnesty. The implication of all of this on power generation, experts noted, becomes obvious considering the fact that some 62 percent of the nation’s electricity generating capacity requires gas-fired power plants. But observers have asked questions on the possibility of tapping for use the estimated 30-35 percent gas that is still being flared. This could be channeled into domestic uses, it has been argued.

And there is also the debate over the fiscal provisions in the Petroleum Industry Bill (PIB) that has reached third reading in the national assembly. This is a bill that will determine how sanitized the industry is as well as guide operations, but controversy has trailed it. Oil communities have their grudges, and the oil companies have stood solidly against it, arguing that it “threatens to make the present bad situation worse. If passed in the form currently proposed its mistakes will take years to correct.”  This view is however countered by an energy consultant, Pedro Van Meurs, at the recently concluded Nigeria Oil and Gas Conference and Exhibition in Abuja. “There is no truth in the allegation that the PIB fiscal system is the harshest in the world or that it will halt investment,” Mr. Van Meurs who is also a consultant to the federal government on the bill, said. And he accused the oil companies: “I have been advising governments all over the world for over 40 years and I know that this is a battle whereby the oil companies will try to get out of the parliament the highest possible share.”

There is no doubt that the nations’ oil and gas industry has become one huge battlefield. The various interests and the challenges each of them poses to the fulfillment of the nation’s desire to provide electricity for its estimated 140 million people is a reality that must to be contended with. However, while the industry has its problems, the power ministry also has its own. But as observers stated, the gas sector is encumbered with its problems, and it is one reason the power ministry has opportunity to blame it for its own inability to meet electricity supply targets.  They pointed out that the claim by NNPC stating that it had gas which the power ministry failed to evacuate because the power plants had not been completed showed a lack of proper data and information flow on either side. This, it is said, accounts for how power ministry’s claim stood for almost three months before NNPC debunked it. Were necessary date available, such misinformation would not have arisen.

Inadequate coordination or cooperation, among the various government agencies in the energy sector is also said to have led to severe losses for the nation, as a result of lack transparency and accountability. Recently, the nation’s lawmakers threatened sanction against the immediate past boss of NNPC, Barkindo, for refusing to make information of the company’s revenue profile available to it.  There are more than one dozen public organizations both in and outside the oil and gas industry concerned in this and analysts have said, one major task for Ladan will be to facilitate proper coordination of their activities with the aid of his minister, if much of the problems leading to lack of full utilization of gas must be dealt with effectively.

While, NNPC is just one agency in the drive to resolve the nation’s power problems, stakeholders have stated that the centrality of the oil sector to economic development of the nation is such that it cannot afford to be fingered for the failure of other sectors. This is where the new NNPC boss will have to sit up and ensure that things do not degenerate any longer. And in any case, as industry watchers have said, he has a task to prove that, his is not, once again, a wrong appointment, as critics have begun to point out about him and his supervising minister.

Ajibade writes from Abuja and is at tunjio@yahoo.com.