“The laws and penalties on gas flaring forms part of the weak legal and policy framework in Nigeria” …… PROF. ADEOLA ADENIKINJU
Professor Adeola Adenikinju is a Major Figure in the Global Community of Energy Economists. In this interview with Iyanuoluwa Ajayi of FINMAGAINE, the former President of the Nigeria Association for Energy Economics and Director of the Center for Petroleum, Energy, Economics and Law (CPEEL) University of Ibadan, who was recently appointed by President Buhari as a member of the apex monetary policy body of the Central Bank of Nigeria speaks on the continued incidence of Gas Flaring in Nigeria as well as other topical issues.
FIN – The amount of gas being flared in Nigeria alone contributes a significant percentage of global flaring and the country loses approximately 2.5 billion dollars annually through flaring, what do you think has allowed this to continue even as the country has laws and penalties against the action?
Ans: The laws and penalties on gas flaring themselves form part of the weak legal and policy framework in Nigeria which hitherto makes provision for less or no incentive for gas investment in Nigeria. The laws governing the gas sector are largely not harmonized thereby resulting in no specific direction to reduce gas flaring. Typical examples are the fiscal PPTA and CITA which have lesser provisions for gas revenue to the government.
- Substantial oil and gas contracts in the country are in form of joint ventures with government ownership of 60%. This contract arrangement in Nigeria has been grossly mismanaged making the government a liable party in resultant gas flaring from the venture production activities. Hence realistic implementation of the available laws and penalties on gas flaring on operators becomes complicated for the Nigerian government.
- Gas utilization for economic growth requires extensive investment in gathering infrastructure and transport pipelines for distribution. These form the bedrock for which gas can penetrate the stratum of the economy. Take the case of the USA and UK with extensive gas pipeline infrastructures. The inadequate infrastructures plus rigid accessibility to the few available ones provides lesser motivation to harness many of the flare gas streams that are uneconomic for the export markets.
- Mature gas infrastructures for wheeling gas into the economy would ordinarily make many of the flare sites economic and would further act as a motivation for flaring out.
- Finally, is that the government has also not demonstrated enough resolve to force oil companies to commit to gas development.
FIN – Also, still on the gas, The United States Gas Roadmap for sub-Saharan Africa initiative that seeks to add some 16,000MW of gas-fired power in nine countries by 2030 launched in 2016. How well would you say this initiative has been successful?
Ans: In my view, there has been very limited success with respect to the United States Gas Roadmap initiative. Inadequate Power supply continues to pose a major challenge to rapid economic growth in Africa. Moreover, more resources – financial and human to drive the success of the initiative have to be committed by the United States to support the initiative. In addition, I support the deliberate selection of winners (companies with the demonstrated capability) to drive the initiative and offer necessary support that may be very helpful.
FIN – The West African Gas Pipeline Project has failed to meet targets due to some hindrances; crisis in the Niger Delta region and disruption in gas supply to name a few. What would be your recommendations to regulators and stakeholders to properly harness and improve the efficiency of the pipeline?
Ans: The absence of a regional energy integration system is considered to be a major drawback in trading Nigerian gas in the West African region and this hampers economies of scale that should permit lower costs when gas is transported and exchanged in the region. Hence a regional collaboration permitting robust regional policy strategy and regulatory framework must be put in place to allow boom in the West African region gas market with Nigeria as the hub. The policy must be guarded to be transparent and competitive enough to encourage investment in gas development and supply.
In addition, the following recommendations can be considered: First, all stakeholders including pipeline communities should be brought to the table to discuss the issues and address any legitimate communities’ concerns. Second, the use of technology is also very important to detect and rapidly respond to threats and actual vandalism. Third, is to consider loops and alternative routes for areas with a high incidence of vandalism. Fourth, consideration for virtual pipelines should be a viable consideration by putting in place the relevant infrastructure to support it.
FIN – Why is the domestic market for gas still at its nascent stage in Nigeria even though the demand for gas locally is very high with very good potentials?
Ans: There is a need for capacity-building initiatives to expose potential investors, existing operators in the sector to the various options for gas monetization. Several independent companies and indigenous companies have shown interest and are putting in place alternative options such as mini-LNG, CNG, LPG, etc for delivering gas. Inadequate and poor gas infrastructure interconnectedness and limited access to wheel gas to the breadth and width of the domestic market
- Poor or lack of real wholesale gas markets for domestic end-users such as households and commercial sectors making access more difficult. Hence you will find a very hungry domestic market sitting on top of an abundant commodity but cannot access it.
- Weak and un-harmonized legal and regulatory framework for domestic gas utilization
- There also exists a strong portfolio interest that is gas export biased. This stems from the fact that gas commodities would tend to flow to where the market is mature and profit-oriented than the domestic market that is largely undeveloped.
- Significant support is still required – access to attractive credit, legal, regulatory and institutional frameworks to support the domestic market and granting ‘third-party access to NGC pipelines may reduce some of the current challenges.
FIN – Looking at the high production cost per barrel of Oil in Nigeria, what are some strategies you think Nigeria should employ to corner major investment from the global market looking at the cost factor and competition?
Ans: The passage of the PIGB is very important to allow reducing uncertainty in the sector and promoting efficiency of institutions that will reduce transaction and related costs. Second, the passage of other bills that make up the PIB such as the Host communities Bill, the Fiscal Bill, will ensure that high risks in operating in the Niger Delta are reduced as communities become legal stakeholders, while the fiscal bill can provide competitive incentive structure for oil producers. Incentives to promote the common use of dedicated infrastructures would also bring down costs and improve competition.
FIN – How would you describe the relationship between Petroleum and Nigeria’s Economic Development?
Ans: Nigeria has produced oil for over six decades and earns in excess of US$1.3 trillion from oil revenues. Petroleum provides extensive fiscal linkage to the economy through its contribution to government revenue and therefore funding of public expenditures (current and capital) and its contributions to foreign exchange earnings which is the major source of funding all categories of imports into the country
However, the petroleum sector is seriously disconnected from the rest of the economy. Its share of GDP is currently under 9%, while the country currently imports most of its refined products. In addition, Nigeria’s global ranking on key socio-economic and governance indicators is quite disheartening. While Nigeria’s global ranking in indicators of oil and gas production is very high, it’s ranking in energy consumption (which is more important for economic development) is low, Nigeria’s global ranking on social indicators like education, health, poverty, unemployment, infrastructure, are low. Hence, Nigeria has not fully succeeded in linking petroleum with Nigeria’s economic development.
FIN – What are ways the Government can use to encourage greater indigenous participation in the energy sector?
Ans: The government has put in place an Act that among other things established an agency to supervise national content development in the petroleum sector. The agency and the Act have led to impressive indigenous participation in the petroleum sector, unlike the situation that existed before the passage of the Act. Presently, many indigenous companies are participating in the provision of services – technical and non-technical, across various aspects of the oil production value chain. The International Oil Companies (IOC) now offer indigenous companies some contracts that in the past were reserved for foreign companies. This has led to cost savings, deepen indigenous participation and improve integration of the local economy.
FIN – Over the years, the Petroleum Sector has been the major revenue earner in Nigeria, What can be done to make the Sector a development enabler and how can we improve inter-sectorial relationships?
Ans: The passage of the PIB is very critical for petroleum sector development. Implementation of appropriate the right policies would no doubt improve the inter-sectorial linkage between the petroleum sector and the rest of the economy. The implementation of an appropriate pricing policy for refined products would encourage the development of refineries that would process locally produced crude oil instead of the current reliance on imports. If we are able to locally process half of our crude production locally, this will create employment and significant multiplier effects on the economy. It will make Nigerian an exporter of refined products and reduce the impact of crude oil price volatilities on our economy.
Similarly, appropriating pricing of gas, development of gas infrastructure, appropriate incentives for local investors, and enforcement of the gas flare out would boost domestic utilization of gas and the emergence of a lot of gas-based industries that would boost the local economy, and job creation.