[NGW Magazine] Nigeria Finds Ways to Generate More Power

This article is featured in NGW Magazine Volume 2, Issue 19

By Omono Okonkwo

A recent Lagos conference heard its usual litany about debts and despondency, and yet one producer told how a partial guarantee of payment for its gas supplies may lead to more regular power generation in Nigeria.

Debts owed to power generators and pipeline problems have curtailed electricity generation, a senior manager from Shell told delegates at a recent conference. Also a shortfall of gas for Nigeria’s own use seems to be holding back the westward expansion of the West African Gas Pipeline.

Yet the Lagos event heard from a top executive at independent Seven Energy how a partial guarantee of payment for gas supplied to a Nigerian power plant has enabled Seven to triple its sales volume to that customer, in turn enabling the latter to generate much more power and more consistently. The Nigeria Gas Summit conference on September 26-28 heard from several delegates about how important it is to maintain and upgrade gas and power infrastructure, and to foster an investor-friendly climate in order to assure a steady flow of local and inward capital flows to achieve this. 

Shell Petroleum Development Company’s gas integration and planning manager Vincent Chukwueke told the event that the Shell-run Afam VI power plant was being run on one turbine, instead of all four that were installed, because distribution companies (known as ‘discos’ locally) were refusing to purchase power due to debts owed them by ministries, departments, and agencies (MDAs) of the government. 

James Odiase, senior manager for midstream commercial matters at Seven Energy confirmed to the conference that it had secured a partial guarantee from the World Bank, which took effect September 22 2017, on its gas supplies to the Calabar NIPP - a power plant. (An NIPP, or Nigerian Independent Power Project, is a power plant originally under full state control that has been privatised, with investors committing to modernise the unit and buy fuel)

According to him, the plant will secure 131mn  ft³ per day (1.35bn m³/yr) of natural gas, triple the gas volume previously supplied by Seven, enabling it to generate up to 561 MW of electricity for supply to the national grid, representing about 15% of current power generation in Nigeria. West African Gas Pipeline’s head of operations Austine Ebekozien meanwhile said there are ongoing plans to expand the pipeline: with proposed new entry points at Takoradi and Tema, both in Ghana, and at Lagos Beach Compression Station (LBCS); plus planned new exit points at LBCS and Itoki (both in Nigeria). Although some of the plans are ongoing, he still placed calls for investments in the sector to aid growth. 

Despite state Nigerian National Petroleum Corporation’s public call for WAGP to be extended west from Ghana to Cote d’Ivoire, and amid little evident backing for that position from WAGP’s two other major shareholders Shell and Chevron, the view from the Lagos conference was that more needs to be achieved with Nigeria’s own gas and power infrastructure first.Inconsistent policies and ageing infrastructure could prove a continuing impediment to the steady growth of Nigeria’s gas sector, delegates argued. Several gas stakeholders analysed the problems facing the sector and reached the conclusion that investments will come only when infrastructure is maintained and upgraded.

Dayo Adeshina, managing director of Nigerian oil products  trader Strategic Energy, said the country missed maximising opportunities in gas over the last six years, because there had been too much focus on oil. He conceded though that President Muhammadu Buhari’s administration has shown commitment towards gas, especially with the launch of the National Gas Policy (NGP).

However Nigerian law firm Streamsowers and Kohn’s energy partner Chiagozie Hilary Nwokonko told delegates that the NGP is a wishlist, and greater attention is needed from policymakers on how to encourage local, and not just foreign, investment. He said the current framework needs to be changed and issues of governance, financial, fiscal, regulatory, security and political challenges need to be addressed. A new framework based on primary legislation is required, he added, to dispel the uncertainty that is holding back the sector’s growth.

Gas to Power

Frontier Oil CEO Dada Thomas suggested that pricing has to lead the availability of power. Speaking as head of an independent gas producer during a panel discussion on the gas to power chain, he said that problems in Nigeria’s power generation sector will be resolved only if the government addresses power tariffs, honours the sanctity of contracts with investors, and imposes sanctions against defaulters of contracts. 

Thomas said the government needs to ensure it draws up a fiscal policy that allows investors in thermal power plants to be able to get their money in and out in the currency in which they invested. He said that the Nigerian government had led the bad behaviour of flouting contract agreements with gas producers by owing them, while they are expected to keep supplying gas based on ‘trust’. He also called on the government to avoid allowing electioneering to distract them from properly reviewing tariff rates in the power sector and from implementing a proper scheme to ensure fair guarantees for all investors in the sector.

Shell’s Vincent Chukwueke noted that, although the government is a big player in the gas to power chain, it cannot resolve all the issues bedeviling the sector and that therefore, regardless of who is in power, there must be a commitment towards unshackling the power sector. 

Challenges Today, Opportunities Tomorrow

In an attempt to offer solutions in closing the deficit gap in the gas to power chain, Chukwueke said the government can enable maximum opportunities in the sector if only they can lift the many bureaucratic and political hold-ups. Also, he encouraged the building of more gas pipelines in the country, especially in northern Nigeria to increase geographic reach as well as the adjusting of gas prices to ensure return on investment (ROI) and the modernisation of electricity transmission system.

In all, representatives of Nigeria’s federal government, international oil companies, and power distributors (Discos) attending the conference seemed to agree that a robust power sector is central to achieving economic diversity, a core concern of the Buhari administration, so cannot be neglected.