Kelvin Emmanuel: Government Regulation of Gas Prices Impedes Investment and Production

Economist Kelvin Emmanuel has emphasized that the efforts to exploit Nigeria’s substantial gas reserves are being compromised by government-imposed price controls and insufficient infrastructure, which discourage investor engagement in expanding gas supply and constructing essential facilities.

In a recent interview with ARISE NEWS, Emmanuel highlighted that despite Nigeria being home to one of the largest proven gas reserves globally, the domestic gas market is adversely affected by regulatory price caps that lessen the financial viability of investments. He argued that the government's management of gas prices effectively operates as a subsidy, dissuading investors from committing resources to necessary infrastructure like pipelines and processing sites.

"When there is a national price reference established by the government to restrain gas prices, it stems from a fear that if prices were allowed to fluctuate, the resulting increases in electricity costs could trigger political ramifications," Emmanuel stated.

He revealed that a notable 45% of gas supplied within Nigeria is sold at state-regulated prices, rather than through a market-driven approach. "In the domestic sector, 45% of the gas sold adheres to price restrictions set by the government. This means that the market isn’t driven by supply and demand, limiting the incentive for companies to invest in infrastructure development."

Furthermore, Emmanuel pointed out that Nigeria possesses about 210 trillion standard cubic feet of gas, with around half categorized as non-associated gas that necessitates independent wells. "Of this vast amount, 52% is identified as non-associated gas."

Regarding associated gas extraction, he mentioned, "Currently, about 60% remains trapped, with roughly 30% undergoing re-injection to optimize wells, while around 10% is flared off."

He elaborated on the complexity of distributing gas from offshore locations to inland markets, explaining, "The infrastructure required for transporting gas remains costly, needing significant investments in pipelines and central processing units to convert wet gas into a usable form for power generation, liquefied natural gas exports, or compressed natural gas."

"Prospective investors lack a clear picture of future market conditions, which deters them from investing in the necessary pipeline systems. The need for central processing facilities is particularly evident. Companies like Chevron and UTM are working on floating LNG (FLNG) projects, yet these initiatives require substantial investment."

Emmanuel also correlated Nigeria’s gas infrastructure challenges with systemic issues within its electricity sector, noting that many generation companies struggle to meet their payment obligations to gas suppliers. He illustrated that the current tariff rates remain unsustainably low, resulting in widespread liquidity crises across various power sector entities.

Government price interventions, he argued, are motivated by concerns that increased gas costs would elevate electricity rates, potentially leading to public dissent. "The administration fears that floating gas prices could raise electricity tariffs, prompting political pushback," he added.

Emmanuel expressed skepticism about the Nigerian National Petroleum Company Limited's (NNPC) abilities to finance the outlined infrastructure within its gas strategy. He raised concerns about the NNPC's financial health and suggested that the board seems reluctant to enter more forward sale agreements, which pose risks without tangible returns. "What strategies does the NNPC have for capital generation to support its plans, either via joint ventures or independently? The path to securing necessary financing appears unclear," he said.

Without addressing pricing issues, establishing accessible pipeline models, and devising credible financing strategies, Nigeria's aspirations to develop its gas sector may remain unfulfilled. "Without reform in pricing, trapped gas resources, and current investment models, we risk stagnation in realizing our gas potential," he concluded.

He advocated for a transition from a closed pipeline system to an open-access framework, which would allow operational entities to participate in pipeline ownership. "The challenge for NNPC has consistently been aligning its strategic plans with actual implementation. That's a persistent hurdle."