‘The Nigerian Government’s Chokehold on Gas Pricing Is a Major Disincentive’ - Africa’s premier report on the oil, gas and energy landscape.

‘The Nigerian Government’s Chokehold on Gas Pricing Is a Major Disincentive’

Sunday Okunbor, General Manager, Commercial at NDWestern Ltd, an E&P independent, is concerned about the Nigerian Government’s predilection for arbitrary price control in the domestic gas market.

“As government is prone to abrupt changes in the policies, we find ourselves strenuously adjusting and adapting”, he told Africa Oil+Gas Report ‘s  Akpelu Paul Kelechi in an interview.

Okunbor advanced that his company is concerned about “how to survive the current price reduction that the government passed last year through the minister of petroleum resources, from $2.50 per thousand standard cubic feet (Mscf) to $2.18 per thousand standard cubic feet.

“It’s a been a major one for us plus the lingering debt that Power sector incurs as they offtake our gas. It is hurting to us”.

Allowing that “what is being owed the (NPDC/NDWestern) Joint Venture by the country’s power sector is over ₦100Billion”, he said “it’s a lot of money so and what that means is that we have to source for money elsewhere to continue running the business. it’s a major problem and we’re doing everything at the advocacy level and also trying to get the government to see reasons why this money actually has to be paid….”

 Okunbor said that his company cannot trigger or exercise the terms of the contract because any attempt to do that will be seen as a sabotage against the government because cutting off gas to the thermal power plants “means that there won’t be power, there won’t be light to the populace and that’s what we don’t want to do. So, we find ourselves begging and at the same time, rendering services to these people without getting the necessary payment for the services”.

Below are excerpts of the full interview:

You handle the commercial side of the Natural Gas business for NDWestern. How has it been like?

The company started selling gas mainly to the power sector and then from there we enriched our portfolio, selling to the GBIs that is, the Gas Based Industries. Dangote Industries for example, uses our gas for fertilizer production.

How have government policies encouraged the business? Nigeria’s Minister of state for Petroleum has declared this decade as the decade of gas

It has been a very interesting time. As government is prone to abrupt changes in the policies, we find ourselves adjusting and adapting.

A major cause for concern is how to survive the current price reduction that the government passed last year through the minister from $2.50 per thousand standard cubic feet (Mscf) to $2.18 per thousand standard cubic feet. It’s a been a major one for us plus the lingering debt that Power sector incurs as they offtake our gas. It is hurting to us. What is been owed the (NPDC/NDWestern) Joint Venture is over ₦100Billion, it’s a lot of money so and what that means is that we have to source for money elsewhere to continue running the business. it’s a major problem and we’re doing everything at the advocacy level and also trying to get the government to see reasons why this money actually has to be paid.

Sunday Okunbor (pictured above): “For us, over 60% of our volume goes to power and you can imagine what that price drop would mean to our business. So it’s a major problem and in fact I can say it is a major disincentive for us to want to invest more in this gas business. Interesting enough, the (Oil Mining Lease (OML) 34 in which ND Western owns 45%, is a gas asset. The production that comes from that field is majorly gas and that is where all the investment is. So, if we’re not getting value for that gas, the owners of the business will not be incentivized’

We cannot exercise those terms of the contract because any attempt to do that will be seen as a sabotage against the government, because cutting off gas from the gas fired thermal plants means that there won’t be power, there won’t be light to the populace and that’s what we don’t want to do. So, we find ourselves begging and at the same time, rendering services to these people without getting the necessary payment for the services. So that’s basically my major highlight in the gas space in the industry since I joined.

Many analysts argue that the way to improve the domestic gas market in Nigeria is to fix the broken power sector. But there are other gas-consuming sectors in the economy: methanol plants, urea factories and merchandise centres like the Ariara market…

NDWestern wanted to have a kind of a robust portfolio, as to where our gas goes to, and we’ve been able to capture the three major sectors in the in the gas industry, which is basically the power sector which consumes the highest in terms of volume; the LDCs that’s the Local Distribution Industries or Companies, and then the GBIs as I mentioned. We wanted a situation where we are able to touch all the sectors and that’s why we brought Dangote in. This contract was executed late last year and the contract is operational as I speak. We Supply Dangote gas for their fertilizer plant. Supplying companies like Dangote could actually help us to balance out. Instead of giving gas to the power sector that doesn’t pay us regularly, it’s better to give it to Dangote who, from the information that we have gathered, pays regularly. For us, it is still early days and we cannot judge but we have started supplying since late last year and it’s been good. We believe, based on the information we gathered from Gas Aggregation Company of Nigeria (GACN, that Dangote would pay us promptly.

How many million standard cubic feet per day does Dangote Industries offtake?

I don’t know if this would affect the contractual obligation on our side, to put out the amount that we supply. Some of these are very sensitive in terms of volume, price and then other clauses in the contract because there are confidentiality clauses in the contract. I can only tell you we’re supplying volumes. These things are very sensitive. Once I quote it, it may get into the press and then before, you know, it’s everywhere and the question is how did this get out, because they are confidentiality non-disclosure Clauses in the contract.

The issue of government allowing a willing seller, willing buyer philosophy in the Nigerian gas market has been on the table for a while. And now government suddenly declares that prices should even be less. What other things are gas producers battling with?

The major challenge has been that we actually wanted a higher price based on our cost of producing this gas. The price should actually be higher than the $2.50. We’ve been on the $2.50 for close to 10 years and the expectation was that this price was supposed to go up but as the government would have it, it went down and also the users also, I’m sure they also were using their power to kind of press government for a reduction. I can tell you this has adversely affected the gas producers. Now, the first thing is that we don’t get enough payment. That’s the first problem. We are not getting our payment as and when due and we have this backlog of debts hanging on us.

The announced reduction of price from that $2.50 to $2.18, effective August 2021, means is that, the revenue that you already taught you have, and that have you projected into the future in terms of forecasting, has now been reduced to that price that has been given. And also, that does not change the payments pattern. So it’s a major setback, to all gas producers, mostly to those that are supplying to Power

For us, over 60% of our volume goes to power and you can imagine what that price drop would mean to our business. So it’s a major problem and in fact I can say it is a major disincentive for us to want to invest more in this gas business. Interesting enough, the (Oil Mining Lease (OML) 34 in which ND Western owns 45%, is a gas asset. The production that comes from that field is majorly gas and that is where all the investment is. So if we’re not getting value for that gas, the owners of the business will not be incentivized in any way to want to put in more money, so that’s the major challenge to us.

The industry has associations that can try to help push your case to the government. Are you guys trying to do that in any way right now?

I’m actually part of a team working in IPPG (an association of indigenous Nigerian Exploration and Production (E&P) companies with a current membership of twenty-five(25) companies) to see how we can push our advocacy as regarding gas price. We would do all we can, in terms of talking to those people that can change things or that can make things to happen to see why we should be incentivized. If government is not even willing to change the price, let it give us other things that can cushion the effect of this price and that’s what we’re asking.

We may not be able to act to make them change the price immediately but they should give us other incentives that can help cushion it. About 30 or 40% of those power plants that are heavily indebted to us are owned by government. Government retained about 20 or 30% of those are those power plants as their own when they privatized them. Government should be able to do something about those debts and that’s why we said if they are not able to pay or if there are other ways, they should incentivize the gas suppliers so that they are able to continue doing this business and push in more gas to power this country. We need gas to make this country work.

What other incentives would you want to see?

There are several others that we’ve looked at; it could be the area of us bringing in equipment. So all those others equipment that we use for maybe drilling or for our wellheads, or anything else that has to do with oil and gas equipment coming in, there should be a tax waiver or all they shouldn’t be any import duties on those so that that, alone, you can count on as something that you can hold on to reduce your cost. Two, we can look at it from the area of royalties. We still pay royalties on these invoices that I told you have not been paid. We have actually paid government royalty for those invoices even though we’ve not received payments. I’m sure you’ll be surprised to hear this.

We believe that those debts should actually be used to reduce royalty payments to government and that would be in major a major incentive to us, if the government is able to do that.

Let us talk about the AKK. There are a lot of people who say opportunities abound with the AKK as industries will spring up along with the AKK.  . Are you lining up to be a feedstock supplier into the line?

We see opportunities in the north as regards to this AKK projects. We attended the last summit that was done and we’ve actually started getting enquiries from people that are planning to develop or put their business in those places. So we’re reviewing those opportunities now and the plan is that, at some point, we will start negotiating most of these volumes that will be going there. So for us, as part of our Global plan to kind of you know, put our foot also in the North through the AKK project, we actually started with that and we have plans to grow our volumes. So for you to go that way, definitely you need to increase your volume. So you know that we have about 600MMscf/d capacity. We’re not fully utilizing those capacity. But again, we need to drill more Wells.

Sunday Okunbor oversees the commercial side of the gas business at NDWestern, the Nigerian independent whose Joint Venture with state firm NDPC is the largest indigenous supplier of gas to the country’s domestic market. Okunbor has over 20years of professional working experience in the oil and gas industry, starting with Shell Nigeria Gas Limited, through Pan Ocean Overseas, to NDWestern, which he joined in 2013.

 

 

 

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