Unlocking Flexibility through Distributed Gas Systems

Protocol

I wish to thank the Organising Committee of this year’s Nigerian Energy Forum (NEF) for the opportunity to share with you my perspectives on ‘Unlocking Flexibility through Distributed Gas Systems’. This is an apt topic for the current realities in Nigeria, given the developments in the Gas Market.

Gas is well known to be the ‘King’ of fossil fuels in terms of competitiveness and value for industry on one hand and its cleanliness for the environment on the other. 

In today’s world, care for the environment is top on the global agenda and companies do well to place premium on environmental best practices

It is in recognition of these that the Federal Government of Nigeria has sought to leverage on its vast reservoir of Gas, to enable the nation’s economic development, that it initiated the Gas Master Plan which recently transformed into the Nigerian Gas Policy.

Central to both the plan and the policy was the need to encourage competition, competitive prices, flexibility of gas supply and investments in infrastructure. 

It is not news that the Gas Master Plan is a ‘Work in Progress.’ Issues exists which we shall delve into in more detail.

For example, the pricing goal of the Gas Policy/Master Plan is to achieve Export Price Parity (EPP) and an unbiased gas market. However, having a three-price structure of Power, Gas Based Industries (GBI) and Local Distribution Companies (LDC) creates confusion. Customers are not fully aware in which market they operate which makes negotiations difficult and creates a perception of distrust. 

There is also a perception that the goal to a market determined price has become an ‘eternal’ journey. In general, any system of ‘planned pricing and planned market structure’ cannot entertain flexibility as its delays to market dynamism results in demand/supply distortion and poor investment decisions.

Other issues that lock gas distribution flexibility is the Governance around the gas transmission lines. The Escravos Lagos Pipeline System (ELPS) is a 1 billion Standard Cubic Feet per day capacity line which is a brilliant cost-effective solution in bringing gas from energy rich regions to the industrial heartlands of the South - West. 

However, it has a weakness in not having a transparent protocol that allows all stakeholders know the position of the gas supply and delivery at any point in time. 

This transparency should not be ‘nice to have.’ Rather, it should be pursued vigorously to give credibility to the pipeline system and allow greater number of players and greater flexibility in terms of the gas market in Nigeria. 

For example, balancing gas supply will be much easier when it is apparent there is undersupply in a node and oversupply in another node.

Another issue which has also been widely documented is the lack of robust infrastructure. In Nigeria, we could develop interconnectivity among specific LDCs to bring added flexibility into the system and encourage greater trading across networks. Of course, this must be done under the right contract framework. We are already achieving this at the national level with the construction of the Obiafu/Obrikom-Oben (OB3) line which, when completed, will balance the gas supply in the richer east with the poorer west. The ELPS II, East-West Offshore Gas Gathering System (EWOGGS) being designed by Dangote Industries Limited and the Ajaokuta-Abuja-Kaduna-Kano (AKK) gas pipeline are all good initiatives which must be encouraged and seen to commissioning and operational stages.

Let us not forget our communities. Uniquely, in the gas distribution business, we take hydrocarbons to where people live. The classic case of the woman who struggles to make a living frying bean balls (Akara) next to a pressurized gas line is one which brings worry to several people. 

Managing communities’ realities and expectations is important to engender flexibility in Gas Systems because it is key to preventing disruptions in the gas supply. Only a credible, predictable network can become flexible. Disruptions from communities and stakeholders is a huge risk which needs to be in view and mitigated to create flexible Gas Networks. 

Gas Networks need to see stakeholders as neighbours whilst bringing the catalyst of economic growth and well-being. Our cities need to be planned with dedicated utility corridors to ensure all stakeholders are adequately managed in the journey to economic freedom. 

According to Nigerian Bureau of Statistics Report 2018, Ogun State (where Shell Nigeria Gas has its biggest business today) achieved 3^rd Highest Internal Generated Revenue (IGR) in Nigeria with some of these problems mentioned.

Imagine a scenario without such problems and the potential increase in IGR.

What then is the vision of unlocking flexibility through Distributed Gas Distribution Systems?

• It is a network with benchmarked prices at the designated offtakes nodes that is transparent to all members of the market. 
• It is a network with Transmission Lines that has transparent and effective governance system, allowing all users to have access to relevant information regarding gas volumes injected and delivered.
• A network dominated by exchange traded market prices and standardised contracts with an assortment of products such as call options, put options, flexible contracts, swaps, collars to mention a few.
• A gas market that puts customers’ needs at the centre and gets gas to customers if, when, how and where they want it.

With the above, Nigeria will truly achieve flexibility in its Gas Networks and take its place as one of the best markets for Gas in Africa and, indeed, the World.

Thank you for your attention.