Energy: Gas to Power Hitches Leave GenCos Comatose

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That Nigeria, with proven gas potential of 192TCF (Trillion Cubic Feet), cannot meet its electricity needs is not only a national embarrassment but an indication of a country on the brink of collapse.
This is worrisome because the first three weeks of July, the country’s power sector lost over N36 billion to militant attacks on gas pipelines throwing her over 170 million citizens into darkness.

More disturbing was the disclosure by Vice President Yemi Osinbajo, that the country does not have sufficient gas to fire its power plants to generate up to 7,000 megawatts of electricity.
Osinbajo dropped the news at the Nigerian Association for Energy Economics (NAEE) Annual International Conference 2016 in Abuja held recently.
He expressed disappointment in the fact that despite her enormous natural gas reserves of over 192tcf, the country is still faced with huge energy supply problems.
Osinbajo blamed the development on inadequate investment on gas facilities, gas flaring, inadequate gas infrastructure and vandalism, among others.

But beyond the constraints listed by Osinbajo, other bottlenecks confronting operators in the power sector value chain include outstanding debts from Nigerian Bulk Electricity Trader (NBET), weak transmission infrastructure, cost reflective tariff and foreign exchange impact.

Recently, electricity generating companies (Gencos) threatened to shut down operations over gas shortages over a debt profile of about N140 billion owed it by NBET.
The six power generation firms in Egbin Power Limited, Transcorp Power, Shiroro, Geregu, Sapele and Kainji/Jebba. NBET is a wholly owned agency of the Federal Government, which purchases electricity from the generating companies through Power Purchase Agreements (PPAs) and sells to the distribution companies through vesting contracts.

Impact of pipeline vandalism
The persistent attacks on the country’s gas pipeline assets have left most power generation plants comatose, with virtually all the six plants operating far below installed capacity.
Whenever an attack occurs on a gas pipeline, the effect is total blackout for a couple of days/weeks, depending on the impact of the attack.

For instance after an attack by militants on Bonny-Okrika crude supply line, Minister of Power, Works and Housing, Mr. Babatunde Raji Fashola, said that the sabotaged gas pipeline, which contributes to the Escravos Lagos Pipeline System (ELPS) led to a loss of 160 metres standard cubic feet per day (MMSCD) of gas daily. At a cost of $2.50 per thousand standard cubic foot (scf), this loss means about $400,000 loss to the country on a daily basis (N78,800,000 daily) in gas volume.
The supply of electricity across the country worsened at that period with the loss of about 800mw of power as a result of the blasting of the Escravos Lagos gas pipeline.

According to Federal Ministry of Power, the immediate impact of the sabotage on the gas facility has been the disruption in the sale and supply of 160 million metres standard cubic feet per day (MMSCD) of gas to operators of electricity generation facilities and a cut in electricity supply from the affected power plants.

A separate disruption on gas pipelines forced power supply across the country to dip by 4,446mw, following attacks on gas pipelines by various militant groups in the Niger Delta region.
The System Operator (SO) of the Transmission Company of Nigeria (TCN) had noted then that were there no constraints, the electricity market would have supplied 7,562mw to distribution companies (Discos) but the gas and line challenges keep holding down the power sector.
As a result, the Nigeria SO could only send out 2,902mw to the 11 electricity distribution companies.
Other constraints

According to Partner and Leader, Power and Utilities, PwC Nigeria, Mr. Pedro Omontuemhen, Nigeria’s potential to become one of the world’s largest economies will remain just an aspiration without the electricity required to pursue aggressive industrialisation, including the revitalisation of moribund local industries.
A document on PwC’s Annual Power and Utilities Roundtable for 2015 said, ‘‘gas consumption, rather than reserve base, is fundamental to economic growth and development. Therefore, domestic use should be the priority while the Liquefied Natural Gas (LNG) and export ambitions should be limited.

“Nigeria consumes 15 per cent of her gas production domestically; exports one third while almost a half of the total production is wasted. The electricity sector provides the natural edge for the demand-supply imbalance and there should be sites that can support the embedded generation goals of the Distribution Companies (Discos). In Nigeria, there are approximately equal volumes of both associated and non-associated gas, with the latter appearing in small-to-medium and sometimes, stranded fields.”

According to the Managing Director of Frontier Oil Limited, Mr. Dada Thomas, the challenges of pricing and payment have made the entire gas-to-power value chain in Nigeria risky and unattractive to investors.
He said the crisis of acute power shortage in the country was the culmination of a number of challenges, some of which had lingered for more than 40 years and others of a more recent nature, which were allowed to fester unchecked.

Thomas said gas prices in Nigeria had been relatively low compared to markets around the world for more than 40 years, making the gas business unattractive compared to the oil business especially for International Oil Companies (IOCs).

“Now, the situation is only marginally better. Gas prices are still below the levels that will make gas projects attractive and readily bankable and gas off-takers are still not paying for gas consumed as and when due,’’ he lamented.

On her part, the Managing Director of Benin Electricity Distribution Company, Mrs. Funke Osibodu, said funding gap remains a major constraint, adding that both the working capital needed for day-to-day expenses and the Capital Expenditure (CapEx) are in shortfall.

According to her, the approved CapEx to the industry is grossly inadequate to meet anticipated improvements, maintaining that revenue shortfall was equally a major hurdle. She explained that across the industry, the accumulated shortfall was N290 billion between November 2013 and December 2014.
‘‘However, it was mitigated by the N213 billion Central Bank of Nigeria (CBN) loan, which has only been partly disbursed. By October 2015, the shortfall had risen to N478 billion and will continue to increase at the rate of N20 billion per month unless the current tariff is reviewed.”

Recommendations for closing the gas-to-power gap
On measures aimed at breaking up the country’s large dependence on power generation from gas-fired plants, Fashola said the government had started working on hydro power plants, adding that in future, it would be impossible to hold Nigeria to ransom as a result of vandalism of gas pipelines.
“We have seen from events that started around February 14 this year, repeated acts of vandalism of our gas pipelines that render us clearly vulnerable to one source of fuel for our energy development. That has challenged us to develop options and alternatives like solar in particular, and of course, hydro power plants in more quantitative response. So, we will be accelerating work on projects like Gurara Hydro Power Plant – phases 1 and 2; work has started on Zungeru Hydro Power Plant.

“We will also be accelerating work on Mambila Power Plant, which will give us the biggest single electrification source over a period of seven years that it is estimated to have it concluded. So, for us, this is a journey of diversification, a journey of electricity security for Nigeria and it is a journey that will ensure that in future it will be impossible to hold this country to ransom by controlling any particular source of fuel for electricity.” On her part, Osibodu said CapEx’s spending has to increase to improve power supply, especially for transmission.
Managing Director, Oando Gas and Power, Mr. Bolaji Osunsanya, said a new commercial structure, which will guide key gas and electricity transmission infrastructure has to be promoted; it must be a PPP model that will encourage entrants into the fold.
On the other hand, he disclosed that gas specific bid rounds to develop and produce marginal discoveries for the domestic market have to be embarked upon.
Osunsanya maintained that the National Electricity Regulatory Commission (NERC), which regulates the industry must refrain from policy somersaults while the government should further strengthen the commission to perform the role of a competent and firm overseer.

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