NERC on New Gas Price Regime

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Amadi

Nigeria’s electricity regulatory commission believes that with the upward commercial review of gas-to-power price, gas producers in the country would have no valid excuses to continue with gas flaring anymore

By Anayo Ezugwu  |  Sep. 15, 2014 @ 01:00 GMT  |

THE Nigerian Electricity Regulatory Commission, NERC, has reviewed upwards the gas-to-power price from $1.50 to $2.50. With this commercial price, the NERC says gas producers in the country would no longer have tangible excuses to flare gas in the country. The NERC said by implication, its upward review of gas-to-power price from $1.50 to $2.50 per million cubic feet per day, mcf/d, in addition to $0.80 per mcf/d as transportation costs, is expected to punctuate whatever existing commercial excuses gas producers in the country have.

Sam Amadi, chairman, NERC, said in a recent interview in Abuja that the commission’s review of the commercial framework of gas-to-power is expected to tidy up the sub-sector and engender competitive commercial operation as regards gas production and supply to the electricity sector. He said gas producers have no reason not to supply gas thermal generation plants in the country.

Amadi explained that the commission would, as a matter of necessity, request the commitment of industry players to the new regime. He said that the NERC would insist on performance-backed implementation of the new price regime. “The implication is that there is no longer commercial reason why flare should continue, the second one is that we are going to demand that this price is contingent on improved commitment from the gas players. We had meetings with some of the gas players and the Central Bank of Nigeria, CBN, and this was made clear. We expect improvement; the last domestic supply obligation showed that these gas suppliers had failed woefully. The oil majors failed woefully to live up to their commitments and so they treated the domestic supply obligation cavalierly and without any sense of commitment.

“All that the NERC is doing is to take away the excuses first; we want to make sure the price is good; we want to make sure that we create for them securitised guarantee in the value-chain of gas so that they will not say that they are dealing with delinquent buyers. We will get a contract that is enforceable with some security and build confidence. We will commit to timely payment for gas supplied and the converse of that is that unlike before, they will commit to volume that is certain and they will commit to financial and legal liability for failure to perform,” he said.

According to Amadi, the commission cannot give the gas suppliers the kind of leeway that they had where they are not bound by their commitment to supply gas and where the supply of gas was based on best endeavour and so they had legal rooms big enough to, at the shortest inconvenience, refuse to supply gas according to their commitment.

Proust
Proust

“We are looking for a new regime entirely; we consider the crisis as a good thing because it should lead to a revision of the gas-to-power framework in terms of policy, regulation and commercial. Yes, we will not accept best endeavour. What is best endeavour? It has got us stuck where we are today. Because of the joint venture nature of operation in the petroleum sector, gas has been a side-look for the petroleum industry, but the petroleum minister and everybody do not want gas-to-power in particular to be a side-look but a major focus because that will help if we really care about putting Nigeria off the generator economy.”

Meanwhile, Total Plc has said that it has built a $900 million worth of pipeline infrastructure to supply gas from the company’s Oil Mining Lease, OML, 58 to the 964 megawatt-capacity at Alaoji Power Station in Abia State. Elisabeth Proust, managing director, Total Upstream Companies in Nigeria, who confirmed this investment, stated that for an investment of such magnitude to be economic in Nigeria, the price of domestic gas should be increased from its current level of $2.5 to $7 per million British thermal unit, BTU.

“We have invested in very huge pipeline onshore – 50 kilometres of 24-inch pipeline, starting from OML 58 to go to Imo River and to Alaoji. Here, we are already in contract with the power plant at Alaoji. This is our first customer. We will be ready to deliver the gas by 2015. So, we are now in negotiation with other industries, not power plants, to provide them with gas. My plan is that in 2017, we should produce and supply the gas through the pipeline,” she said.

Proust said it was a huge pipeline that transverse several communities, adding that the company has spent $900 million on the project. She, however, said to ensure that such project was economic, domestic gas price should be increased to between $5 and $7 per million British thermal unit. According to her, the recent improvement in domestic gas price cannot make such project economic. “To get the economy of such project, we need to have a good price. The improvement in gas price is good. But we can say that it cannot provide the economy of such pipeline project. I hope that we will achieve a better price so that we can have the economy of such investment.”

The Total boss further disclosed that her company would supply gas to Alaoji at a price of $2.5, adding, however, that that the price was not adequate to guarantee adequate returns on the investment. “So, we have made calculations on that and we can say that for the fiscal terms in the joint venture and production sharing contracts, we need between $5 and $7 per million BTU for the development of such facilities. If the fiscal terms change, may be, we will need more. It depends on how they change,” she said. Proust said Total had taken the risk, adding that “when you take risk, you take the reward. The reward is to maintain a big affiliate in Nigeria and create employment opportunities.”

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