Power Sector Owes Gas Firms N100 Billion

Clay-Neff

Power sector gas invoice arrears increased to N100bn from N40bn as of September 2014, the Chairman, Oil Producers Trade Section and Managing Director, Chevron Nigeria, Mr. Clay Neff, said on Wednesday.

He stressed the need to immediately implement the gas supply aggregation agreements and put a stop to the build-up of arrears under the legacy Nigeria Gas Company contracts regime.

Neff spoke at the Nigerian Gas Association’s Business Forum 2016 in Lagos through the Managing Director, Shell Petroleum Development Company and Country Chair, Shell Companies in Nigeria, Mr. Osagie Okunbor.

He said, “We certainly have the largest proven gas resources in Africa, and ninth in the world. However, only about 25 per cent of these reserves are being produced or under development today.

“There is virtually no active exploration in search of any gas reserves. The total power potential of these discovered but undeveloped gas reserves present some 68 years of 40,000 megawatts compared to today’s power generation of about 4,000MW.”

Neff noted that Nigeria had taken important steps towards accelerating gas development, adding that the government’s gas master plan provided a road map for developing the gas industry.

He said, “Nigeria’s total gas production has increased significantly, growing from 415 million cubic feet in 2000 to 1780 million cubic feet, while flared volumes have reduced by 60 per cent through investments in gas flare out projects. But there is still a need for improvement.

“Even though Nigeria’s total gas has grown substantially, domestic gas supply is essentially unchanged since 2000. Nigeria has one of the lowest power generation levels per person in the world.”

The OPTS chairman described gas development as critical to the realisation of the government’s aspiration of increasing power generation to 40,000MW, saying a seven-fold increase in domestic gas supply would be required for power generation alone.

“This represents a huge development opportunity for Nigeria’s gas industry. Nigeria has been held back by several challenges that need to be addressed.”

He said repaying outstanding gas invoice arrears would help to build confidence in the sector.

Other necessary steps, according to Neff, are to develop adequate infrastructure; ensure sufficient funding for gas development; provide enabling commercial and fiscal terms, and providing a secure operating environment.

He said the CBN had taken a commendable step of providing a mechanism for partial repayment of gas invoice arrears.

“However, since this mechanism was announced in August 2014, power sector gas invoice arrears has actually grown from the reconciled N40bn figure of undisputed arrears in September 2014 to about N100bn, according to the NNPC estimates of May 2016.

“The current system, laudable as it is, is simply not working. It is important to settle the outstanding debts and establish bankable credit support facilities for future gas sales. Without these assurances, I think it will be unreasonable to expect investors to commit additional investments to grow long-lasting power.”

According to the OPTS chairman, Nigeria’s inadequate gas infrastructure has contributed to the inability to meet domestic gas demands.

He said although some progress had been made recently, major additional investments in infrastructure would be required to meet the demand.

Neff said, “To develop adequate infrastructure, Nigeria should focus on two key elements, attract investment in gas infrastructure development through appropriate incentives, public private partnerships, strategic long-term planning and operationalisation of the network code, thereby creating more robust pipeline network to improve reliability and security of supply.

“Secondly, to complete the critical national integrated power project transmission lines for the NIPP plants to secure gas supply to enable dispatch of power to the high-voltage grid.”

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