FG mulls offering gas fields to power sector investors

Against the backdrop of gas supply shortfalls hurting the nascent private sector-led power sector, the Federal Government is considering offering upstream assets with considerable gas deposits to investors in the power sector in a bid to attract much-needed investment that will boost electricity generation and end chronic power shortages in the country.

Nigeria, which is home to the world’s ninth biggest gas reserves, with about 187 trillion cubic feet (Tcf) of proven gas with current
production estimated at 8.24 billion cubic feet per day of gas, has seen drastic drop in power supply in many parts of the country as it grapples with gas supply shortfalls.

“This time, the Ministry of Petroleum Resources, through the Department of Petroleum Resources, is looking at the possibility of
making available acreages that are of gas, which can be developed and targeted for owners and operators of some of the country’s
independent power plants,” Platts quoted an oil ministry spokesman as saying.

The DPR plans to auction 31 marginal fields in the next marginal fields programme, while several oil majors, including Shell and Chevron, are also divesting multiple assets onshore and in the shallow waters of the Niger Delta, which Nigeria could target for power investors, industry sources said.

This is not the first time Nigeria would deploy the strategy to improve its infrastructure by securing foreign investment in return
for promising oil and gas blocks.

In 2006, the Federal Government awarded oil concessions tied to downstream refinery development to Asian energy companies.
As for the power sector, the government has transferred most of the country’s power generation and distribution plants to private
investors in November 2013.

It also wants to sell 10 additional state-owned gas-fired power plants under the National Integrated Power Projects (NIPP) in the bid to raise electricity generation to 40,000 megawatts by 2020 from the current 4,000MW.

As part of measures to ensure availability of gas supply to the power plants, the government has increased the domestic gas price to $2.50/1,000 Mcf, from $1.50/1,000 Mcf, over the weekend.

Diezani Alison-Madueke, minister of petroleum resources, who announced the new gas price, said the government also approved
$0.80/Mcf as transportation costs for new pipeline capacity, adding that the new prices reflect the current market value, which would now be benchmarked against US inflation annually.

According to Alison-Madueke, gas supply challenges reduced supply to the power sector to about 750,000 Mcf/d, which could only provide 4,000 of electricity as against the government’s target of 6,000MW.

“It is expected that barring unforeseen developments these interventions will add at least 370,000 Mcf/d of gas and assure a generation capacity of at least 5,000 MW within four to five months,” Alison-Madueke said.

The new pricing regime – a key demand by investors in the gas supply chain according to the minister- would help to accelerate
the completion of new gas projects.