In this interview with Business Day, Oga Adejo-Ogiri talks about issues leading to the formation of the association, opportunities in the natural gas sector and ALDG’s plan to achieving the association’s objectives.
There are so many associations within the gas value chain, what informed the formation of your own {ALDG}?
The Association for Local Distributors of Gas (ALDG) was borne out of the need to have a distinct platform to cater specifically to issues affecting the players in the downstream natural gas distribution space. These are the players supplying natural gas to commercial and industrial end users in the Nigerian domestic market either via physical distribution pipelines or virtual pipelines, such as CNG and LNG, enabling a switch to a cheaper and more environmentally friendly energy source. The establishment of the ALDG was also instigated by the declaration of the Honourable Minister of State for Petroleum Resources’ indicating 2020 as the ‘Year of Gas’, and his drive to expand gas supply to the domestic market which is the space our members operate. At the moment, there is no association that caters specifically to target this sub sector.
What gap(s) have you noticed that you want close?
The non-existence of an association specifically targeted at players in this segment until the establishment of the ALDG, meant that issues peculiar to the downstream natural gas distribution was not getting the necessary attention and focus. For our members supplying natural gas to the quasi-regulated domestic market, there was a need for regular engagement with the various stakeholders responsible for policy formulation, implementation, legislation and regulation specifically affecting the gas distribution sub sector of the Nigerian Gas Industry. This is one of the gaps we intend to close and a key objective of the ALDG.
Other objectives of the ALDG include promoting best practices in the operations and management of gas distribution, particularly exploring and promoting new technologies , promoting knowledge sharing and local capacity building—with an emphasis on local content development, deepening natural gas utilisation and gas-based industrialisation in our domestic market, as well as being a platform to resolve sector issues and disputes amongst members which may arise.
What are the deficiencies of other existing gas associations that you want rectified?
The ALDG was not set up to rectify a deficiency in any of the existing gas associations, but rather to focus specifically on the gas distribution part of the value chain which the existing associations may not be able to achieve. Within the industry, we have the Nigerian Gas Association (NGA) as the umbrella body for all players in the gas value chain across upstream, midstream and downstream. The NGA champions issues affecting the overall development of the gas industry, while the ALDG focuses on the downstream part of the value chain. There are also other associations focused on other specific areas, for instance the Nigerian LPG Association (NLPGA) which focuses on promoting the use of LPG in Nigeria. We complement each other in the drive to promote the holistic development of the gas industry.
How does your association intend to improve on the current gas distribution network that would deepen domestic gas penetration in the country?
ALDG members are mainly private sector players who have made significant investments in developing the gas distribution network we currently have in the country. Over the last 10 years, we have seen a three-fold increase in the expansion of the distribution pipeline network by the Local Distribution Companies (LDCs), and witnessed the birth of several CNG projects to expand gas supply to off-grid markets. The expansion of this gas distribution infrastructure has led to a corresponding increase in gas supply to the commercial sector over the same period. As an Association, we will engage in regulatory, legislative and policy advocacy to ensure a conducive business environment is in place to encourage our members make further investments to drive economic growth.
Do you think that the current drive for gas utilisation is good enough and if it is not, what do you think should be done?
There has been some progress in the drive to deepen gas utilisation in Nigeria compared to where we were a decade ago, especially before the Nigeria Gas Master Plan (NGMP) era. We now consume about 1.2bscf/d of gas in the domestic market compared to barely 0.3bscf/d, pre-NGMP. However, when you consider where we are now relative to the potential, there is still a lot of work to be done, as the NGMP forecasted a 4–5 bscf/d present consumption rate. We definitely need the government to formulate inclusive fiscal policies to attract private sector investments to build out critical gas infrastructure required to deepen gas utilisation. It is also important that the government resolve the commercial and regulatory challenges in the power sector, which is a key driver of consumption for the domestic gas market. Additionally, stable government policies, regulatory and policy environment are essential frameworks to attract long-term investments.
Talking about the Gas Master Plan, what is your position on this initiative of the government which seems to have stalled?
The Nigerian Gas Master Plan was a great initiative, which consisted of a series of policy interventions with the objective of developing the nascent gas sector at the time and transitioning it to a fully-fledged competitive market with willing buyer and willing sellers. Some of the interventions include the introduction of the Domestic Supply Obligation (DSO) and establishment of the Gas Aggregator, the Gas Pricing Framework and the Gas Infrastructure Blueprint identifying critical gas infrastructure like the OB3 pipeline, the Ajaokuta – Kaduna – Kano pipeline (AKK) and the QIT – Umuahia – Enugu – Ajaokuta pipeline. The National Gas Policy, which was released in 2017, built further on the foundations laid by the NGMP and improves on the institutional, legal, regulatory and commercial frameworks for the development of the gas sector. These initiatives haven’t completely stalled, because we are progressing, although a bit slower than initially anticipated, with the various policy recommendations already in place or ongoing. Just recently, President Muhammadu Buhari commissioned the construction of the AKK pipeline project, one of the critical projects identified under the infrastructure blueprint of the NGMP.
Some have said that the Ajaokuta – Kaduna – Kano gas pipeline is not viable because there are no off-takers. Do you agree and if you do not agree, why?
We have to commend the Federal Government’s efforts in progressing this project, as it is one of the critical gas infrastructure already identified under the NGMP to bridge the gas infrastructure deficit and deepen gas utilisation in the country. Projects of this nature are strategic, require government support due to the multiplier effects on the larger economy, and its potential to stimulate gas demand. I belong to the school of thought that there is suppressed offtake which will eventually manifest once the gas infrastructure is built. Kaduna and Kano were once highly productive Northern industrial hubs, and the availability of a cheaper energy source has the potential to revive moribund industries and also attract new ones. The NNPC is also looking at building 3600MW of gas-fired power plants on the back of this pipeline. This alone will consume about 0.9bscf/d of gas at full capacity which is already over 40 percent of the pipeline capacity. The pipeline also provides opportunity for gas-based industries such as fertilizer plants to be located within this corridor, which is critical to support its prevalent agricultural activities. When the first major gas pipeline, the Escravos – Lagos Pipeline System (ELPS) commenced construction in the early 80s, offtake was not significant except for the 1320MW Egbin power plant. Today, we have leveraged on that gas infrastructure to build other power plants like the Olorunsogo, Papalanto and Omotosho power plants in Ogun and Ondo states, opened the South West corridor for gas-based industrialisation and even built an export pipeline; the West African Gas Pipeline (WAGP) to supply gas to Benin, Togo and Ghana.
Can you comment generally on various gas distribution projects being developed by players in the gas distribution sub sector?
There has been significant activity in the gas distribution sub sector as players in this space have continued to expand the footprint of the distribution network from where it was a few years ago. I will mention just a few of the projects completed or under development within the last twelve months. These include the expansion of the gas distribution network in Ikorodu by Falcon Corporation Limited, the development of the Sagamu Gas Distribution Zone by Transit Gas Nigeria Limited, the 20km gas pipeline recently completed by Shell Nigeria Gas (SNG) to take gas to commercial and industrial hubs in Aba, the gas distribution facility being developed by SNG in partnership with the Nigerian Content Development Monitoring Board (NCDMB) in Polaku, Bayelsa State, the expansion of the gas infrastructure to Ibadan axis by ENTEC Power & Utilities, the completion and commissioning of the gas distribution facility to connect the 55MW Ossiomo IPP and other industrial concerns in Edo state by QSL Gas & Power Ltd and the Nigerian Gas Marketing Company (NGMC). These projects are in addition to the over 500 kilometres of pipeline infrastructure which our members have developed over the years to bridge the gas infrastructure deficit.
Finally, what can be done to achieve domestic pricing parity that favors distributors and end-users reflective of other climes?
Let’s address the required understanding for pricing origination and comparisons between African and Western markets. A recent article I read compared the Henry Hub price in the United States to the retail price of gas for the commercial sector in Nigeria. It is important to note that Henry Hub is not the end-user price of gas in the US, but the price of natural gas purchased at a hub which then interconnects to several interstate and intrastate transmission pipelines. It is similar to the commodity cost of natural gas. Next, you add the transmission and distribution costs to take the gas to the end user. So, when local markets across the US price natural gas, they tend to do so based off a differential to the Henry Hub to account for the associated transmission and distribution infrastructure required and also reflecting regional market conditions. For instance, according to the US Energy Information Administration (EIA), average Henry Hub price for 2020 was $1.81/mscf, while the average retail price for the commercial sector was $7.35/mscf, with average residential prices going as high as $10.23/mscf. For commercial industries in Nigeria that are situated further down the value chain, and require local distribution infrastructure development, natural gas is currently priced at aggregate tariff of $7.89/mscf.
It is also important to state the other challenges investors face in our environment which adds to the cost of providing services. We have a much higher cost of financing than in other climes, shorter tenors for infrastructure, which requires long term cost recovery, issues around payment assurance which poses a significant risk to the business and low capacity utilisation of the built pipeline infrastructure because of the nascent phase of the gas industry we are in. However, we are also mindful of the challenges facing the commercial sector like the increase in the exchange rate, which has implications on industries’ energy costs, and the decline in crude oil prices, which has significantly eroded the cost competitiveness of natural gas relative to alternative fuels. These are amongst several factors, which have led the government to thoroughly review the domestic gas pricing framework. The ALDG is part of the ongoing discourse, and we continue to provide input that will be beneficial for all parties involved.
