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September 24, 2004

Nigeria targets $6.5 billion revenue
from gas

* Draft policy goes to National Assembly

By Yakubu Lawal, Asst. Energy Editor

THE draft National Gas Policy would soon be
presented to the National Assembly for consolidation and approval. About $6.5
billion revenue has been projected for year 2008/2010.

Special Assistant on Petroleum Matters to the President, Alhaji Ja’afaru
Paki, who stated this in Abuja, said the policy will encourage Liquefied
Petroleum Gas (LPG) or cooling gas producers to participate actively in the
supply of LPG to the domestic market.

Ja’afaru said although the current LPG demand has not been matched with the
commodity’s potentials, the draft policy continued clauses that would encourage
the private sector to produce and supply cooking gas to consumers.

The Special Assistant, who spoke at the National Gas Conference held in
Abuja, noted that, the main objective of the policy is to ensure that the
private sector plays a leading role in the production and distribution of
cooking gas to all parts of the country.

He stated that, government has already initiated the process of gas supply as
household fuel for the country, with the approval by President Olusegun Obasanjo
at 300,000 tonnes of LPG for domestic market.

According to him, 15,000 tonnes of gas had been distributed and delivered out
of the 300,000 tonnes approved by the President for the domestic market.

He stated that, the quantity was sourced from the equity of Nigerian National
Petroleum Corporation (NNPC) in its National Gas Liquid (NGL) joint venture with
Mobil Producing Nigeria Unlimited.

He noted that, by the time the approved quantity is released fully into the
market, retail prices of LPG, which currently hovers around N1,500 to N2000 per
12.5-kg cylinder would decline substantially.

“The delivery has led to the reduction of some 40 per cent in the retail
price of LPG in some parts of the country” he said.

According to Paki, with the receiving facilities now being rehabilitated
nationwide, Consumption would rise to an estimated 100,000 tonnes by the end of
this year.

Paki said the rise would represent 60 per cent increase when compared to
local consumption currently estimated at 40,000 tonnes for last year.

Nigeria is the largest producer of LPG in Sub-Saharan Africa with an output
of some two million tonnes per annum.

The World Bank had also shown greater interest in the development of
Nigeria’s LPG sector.

Meanwhile, the NNPC Group Managing Director, Mr. Funso Kapolokun said the
corporation and its joint venture operators would spend about $14 billion in
projects that would enhance the commercial utilization of gas resources.

Kupolokun stated that, given the various gas projects identified for
execution, NNPC and its partners would generate about $6.5 billion revenues for
the government.

Some of the projects listed for development include the Bonny NGL expansion
to six trains, the West African Gas Pipeline (WAGP), the Chevron Texaco’s
Escravos Gas project (EGP) and the Brass LNG project involving the consortium of
NNPC, Conocophilips, Agip and ChevronTexaco.

“These projects are expected to raise gas utilization levels in the country
to some 1.4 trillion standard cubic feet per day by 2010, up from the present
level of a little above 600 million standard cubic feet per day,” Kupolokun

According to him, some 800 billion standard cubic feet of gas or almost 45
per cent of the gas produced last year, were flared, resulting in a loss of $1.7
billion (about N226.1 billion).

Based on the strategy to be put in place especially with the coming of
national gas policy, the NNPC boss said by 2008/2010, government should be
earning some N6.5 billion from gas resources.

He put the nation’s gas reserve level at 186 trillion standard cubic feet.



August 17, 2004

Govt okays lower prices for industrial

By Yakubu Lawal,
Asst. Energy Editor

INDUSTRIAL gas users are to
henceforth get the product at relatively lower prices, The Guardian has

This follows the rejection of the controversial benchmark
recommended for the product by the Petroleum Products Pricing Regulatory Agency
(PPPRA), which the suppliers had adopted.

In its place, the Nigerian Gas Company (NGC) Limited has
approved the ex-depot price for Low Pour Fuel Oil (LPFO) recommended by the`
Pipeline Products Marketing Company Limited (PPMC).

The PPPRA derived price is N703.36, while that of the PPMC is
between N328.72 and N438.29 per 1,000 standard cubic feet (scf) of gas.

The NGC is the subsidiary of the Nigerian National Petroleum
Corporation (NNPC) that takes industrial gas from the oil producers and
distributes to suppliers. It serves as the middleman between the producers and
the distributors.

LPFO is generally known as industrial fuel.

According to the NGC, the PPPRA structure is not good enough
for the country’s industrial sector, as the local economy may not be able to
absorb its effects.

A letter to that effect was recently written by the
subsidiary’s Managing Director, Mr. S. Ladi Fadayomi, to the two major gas
firms, namely: Gaslink Nigeria Limited and Shell Nigeria Gas Limited.

The letter gave five reasons for the adoption of the PPMC
structure. These are:

  • The derived price, which is a reflection of
    PPPRA’s marketing cost, is high when bench-marked against international gas
    prices, including the net-back prices of Nigeria’s natural gas exported as


  • Given the low capacity utilisation in the
    country’s industrial sector, it would be difficult for the end users to bear
    high prices at this stage;


  • The power generation sector, which is just
    developing, will need to be encouraged to grow through a pricing mechanism
    that is not a disincentive to the investors in the gas chain and at the same
    time not inhibitive to the power sector;


  • In the present situation of a deregulated
    market and the absence of an official pump price for LPFO as anticipated by
    the government;


  • the product needs to be sold to the buyers. It
    is much easier for the buyers to accept the lower prices than those indicated
    by a derived LPFO pump price; and


  • It will be beneficial to all the investors in the gas chain
    if the pricing mechanism encourages the growth of the power, industrial and
    the domestic sectors. The survival and prosperity of the buyers will translate
    into sustained higher sales and long-term economic benefits for all actors in
    the gas chain.

    According to the NGC, using the market costs indicators of
    the PPPRA would raise the price of LPFO from N21 to N26.96 per litre, which
    translates to a gas price of N703.36 in energy equivalent.

    This is made up of N1.80 per litre transportation cost,
    bridging allowance of N1.00 per litre, road tax of N0.10 per litre, and
    marketers/dealers margins of N3.58 per litre.

    Based on the PPMC advice, the NGC resolved to use the
    ex-depot LPFO benchmark in deriving its price for the domestic gas, “to
    cushion the effects of the substantial change in the prices of petroleum
    products as a result of the deregulated policy of the government.”

    Fadayomi said: “We have derived gas prices ranging between
    N328.72 mscf (at 60 per cent LPFO price) and N438.29 /mscf (at 80 per cent
    LPFO price), which we shall apply in invoicing our commercial end consumers
    with effect from January 2004.”

    The gas suppliers have, following the PPPRA advice, raised
    the prices of the product by between 80 per cent and 100 per cent.

    The Manufacturers Association of Nigeria (MAN), has declared
    the increases as arbitrary and directed its members to reject the products
    from the suppliers. The manufacturers are considering dropping industrial gas
    for LPFO or electricity. The suppliers consequently disconnected the companies
    that obeyed the MAN directive, causing uproar in the sub-sector.

    But, to Gaslink’s Managing Director, Alhaji Ibrahim Boyi,
    MAN’s position is “unfortunate and inconsistent with good business

    Boyi, in an interview with The Guardian, defended the
    increase which he said came after due consultations with the end users.

    He said: “A call by a credible body such as MAN for its
    members to disregard agreements mutually, validly and wilfully entered into by
    two business parties will certainly send wrong signals to the investing

    Boyi said that as far as its franchise area was concerned,
    it is only consumers who defaulted in payment terms that were disconnected.

    He disclosed that a proposal had been submitted to the NGC
    to harmonise the pricing issues within the two franchise areas of Gaslink and
    Shell Gas Nigeria (SNG), to which the NGC was yet to respond.

    But an official of SNG said that the company had not
    suspended gas supply to any of its customers in Ogun and Abia states, where it
    currently distributes gas to industrial establishments.

    The official said: “SNG gas supply is guided by Gas Sale and
    Purchase Agreement (GSPA) with the individual consumers. The GSPAs are
    exhaustive and have guidelines for resolving all issues on the gas supply
    including price review, hardship, termination of supply e.t.c.”

    The SNG increased gas price in January 2004 to correspond to
    the October 2003 rise in the depot price of LPFO, stating that the increase
    was not up to 100 per cent.

    While SNG adopted ex-depot price which put the adjustment to
    between 60 and 80 per cent, Gaslink uses pump price for its increase which saw
    their levels going up by as much as 100 per cent.


New Age

August 17, 2004

Gas firms bemoan 15 per cent utilisation of


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