Gas Reform: Stakeholders Advocate Willing Buyer-seller Model

• 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.”