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Gas Reform: Stakeholders Advocate Willing Buyer-seller Model

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  • Stakeholders Advocate Willing Buyer-seller Model

Industry stakeholders have highlighted the need to reform the domestic gas market by allowing gas suppliers and buyers to determine the price of the commodity.

The Managing Director/Chief Executive Officer, Total E&P Nigeria Limited, Mr. Nicolas Terraz, who described the development of the gas sector as critical, said several key enablers had been identified to unlock gas resources in the country.

He stressed the need to establish Production Sharing Contracts gas terms that would be clearly defined and globally competitive, with sufficient returns to attract the required investments.

Terraz, in his presentation at the conference of the Nigerian Association of Petroleum Explorationists, said, “Reform the domestic gas market by moving to a balanced ‘willing-buyer/willing-seller’ model that stimulates development and ensures all segments of the gas value chain are economically viable. Extend credit support to gas buyers to provide assurance in the gas supply arrangements.

“Increased domestic utilisation of gas, the development of a robust petrochemical industry with export of finished products, improvement in generation and transmission of electricity and introduction of renewables, particularly solar power, into the energy mix will have a multiplier effect on all industries and eventually the Nigerian economy.”

On its part, the Nigerian Gas Association said that the Domestic Supply Obligation on gas producers should be predicated on willing buyer-willing seller basis.

“While we support the allocation of the Domestic Supply Obligation to producing companies; we believe that the national objective of guaranteeing sufficient gas volume to the domestic market can be better achieved if such DSO policy is implemented on a willing buyer, willing seller basis,” the President, NGA, Mr. Dada Thomas, said.

The association said it should then be obvious that relying on the Gas Aggregation Company of Nigeria Limited process could not guarantee the desired volume to the domestic market irrespective of the assignment of the DSO to operators as the aggregation process could not support bankable transactions because “it introduces an undue layer of uncertainty to the income stream of projects.”

On gas pricing, Thomas noted that the 2008 Domestic Gas Supply Pricing and Regulation had contemplated a five-year transition period from 2008 to 2013.

He said, “Rolling out a new policy with an indeterminate transition period of eight years after is far from encouraging particularly as the triggers for the wholesale market regime and end of regulated pricing suggested in section 4.3.8 of the draft policy seem to be very far fetched and mostly unachievable within the short to medium term.

“We strongly support a move towards deregulated pricing on a willing buyer willing seller basis while retaining the existing regulatory approvals by NERC of prices for gas to power transactions,” said Thomas.

The association described the new draft gas policy as “too detailed and prescriptive and runs the risk of ultimately conflicting with supporting regulations when put in place.”

Thomas said, “The policy’s objective to incentivise investment in midstream sector may be hampered by forcing a legal separation between upstream and midstream companies. The policy should encourage all types of partnerships between upstream producers and midstream participants including vertical integration down the value chain. New entrants who choose to play in a single part of the chain should be adequately protected by legislation/regulation.”

The association said the National Gas Policy should make specific pronouncements to address payments and other issues in the gas-to-power value chain, adding, “This is essential for the sustainability of the gas industry as the power sector accounts for about 80 per cent of the domestic gas market.”

According to the NGA, the draft National Gas Policy currently contains no detail on the key principles surrounding the proposed Gas Network Code and third party access.

It said, “Any potential investor will be very interested in these details before making a commitment to invest in gas infrastructure as the code in effect regulates the participants’ return on investment.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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