New Gas Price Regime And Inauguration Of N90bn Uquo Facility

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rp_Jonathan_Diezani1_0.jpgIn this analysis, Chika Izuora looks at the inherent challenges facing indigenous gas producers and the politics of NERC’s new gas price regime.

Recently, the Nigerian Electricity Regulatory Commission (NERC) announced an increase in the price gas.

The chairman of NERC, Dr. Sam Amadi, who gave made this announcement in Abuja noted that the price review was done to reflect the current cost of gas production.

NERC explained that the approval of a new benchmark price of $2.50/mcf for gas supply, and $0.80/mcf as transportation cost for new capacity, from 2014.

Amadi noted that the new gas price and the Central Bank of Nigeria, CBN, expected intervention in gas supply in the power sector are contingent on and have been captured in the Multi-Year Tariff Order (MYTO).

The MYTO is a five-year tariff recovery plan, which is based on capturing the real cost of power production.

He argued that the $2.50/mcf for gas was based on the real cost of production of gas or other sources of power, which is benchmarked against the prevailing global market rate.

“The price of $2.50/mcf is deemed to be a reasonable price when you consider the cost of gas processing and what other industries pay for gas. The price was arrived at through consultation with both the gas producers and the generators, and the power people are prepared to pay a cost that will ensure a much more sustainable supply of gas,” Amadi stated.

But before the announcement, gas producers have adopted a survival strategy by initiating the “Willing Buyer” option.

It is against this background that we situate the recent inauguration of Seven Energy International Limited an indigenous Nigerian integrated oil and gas development, production and gas Distribution Company alongside its joint venture (JV) partner Frontier Oil Ltd. The N90 billion Uquo Gas Processing facility is located in Esit Ekit, Akwa Ibom State and was commissioned amid fanfare by President Goodluck Jonathan, bringing a major boost to Nigeria’s quest for a stable power supply.

Speaking at the commissioning, President Jonathan commended Seven Energy and its Joint Venture partner, Frontier Oil Limited for the project and the impact it will have on Nigeria’s aspiration for sustainable power supply.

According to President Jonathan ‘We are happy with what we have seen today. Seven Energy and Frontier Oil deserve commendation for combining their individual capacities to deliver this project which will have multiplier effect on the economy such as increasing national power output, employment opportunities for the host communities and Nigerians and additional revenue for both the Federal Government & Akwa Ibom State.

Philip Ihenacho, chief executive officer of Seven Energy said the Uquo gas project is a reflection of the company’s unique focus on the emerging Nigerian domestic gas market. He stated that Nigeria has immense gas potential which remains untapped both for power generation and industrial use.

According to Mr Ihenacho Seven Energy, through its wholly owned subsidiary, Accugas, has developed a midstream gas processing and transportation infrastructure, and with our partner in the Uquo Field we have combined our expertise to make this project a reality to unlock the huge opportunities we see in the Nigerian gas market.

We are happy to see our investment culminate in the commissioning of this facility which will support Government’s effort to improve power supply, create job opportunities for Nigerians and impact other sectors of the economy.’

Concerning the impact of the project on the power generation, Ihenacho said ‘First commercial gas deliveries commenced in early 2014 to the 190 MW Ibom Power station. With the addition of deliveries to the 560 MW Calabar NIPP power station, we will be supplying gas to more than 10 percent of Nigeria’s power generation capacity. In total, we have 1.3 trillion cubic feet (“Tcf”) of long-term gas sales agreements, within a duration of between 10 and 20 years, in place.

 

Culled from Leadership