A very peculiar Nigerian gas price surge and COP26            

Nigeria is known to be a fossil fuel nation since 1956 when the first crude oil well was discovered and put into exploitation at Oloibiri community in the present day Bayelsa State.

Over the years the quantum of crude oil and gas reserves discovered to be available (i.e. proven reserves) have been estimated to be over 30 billion barrels of crude (including condensate) and gas reserve, according to Worldometers.info, is estimated to be about 186,610,000 million cubic Ft (MMcf), ranked 9th in the world, and accounting for about 3% of the world’s total natural gas reserves of 6,923 Tcf.

Also, gas production is estimated to be 3,009,650 Million Cubic Ft (MMcf). Nigeria has proven gas reserves equivalent to 306.3 times its annual consumption.

This means it has about 306 years of gas left (at current consumption levels and excluding unproven reserves) and ranked 12th in the world.

Gas consumption is put at 664,628 Million Cubic Ft (MMcf). That is to say, Nigeria consumes 3,192 cubic feet of natural gas per capita every year (based on the 2017 population of 190,873,244 people), or 9 cubic feet per capita per day and ranked 38th in the world, accounting for about 0.5% of the world’s total consumption of 132,290,211 MMcf.

Also, Nigeria is said to have a yearly surplus of +2,345,022 Million Cubic Ft (MMcf), with zero gas import and high annual flare volumes of over two million tonnes of Liquid Petroleum Gas (LPG).

Nigeria exports 31 percent of its natural gas production (929,844 MMcf in 2015 or 0.5% of Net exports), given net gas exports of 929,844 Million Cubic Ft (MMcf) and a proven reserve left of 99.2 percent.

These historic figures changed on June 4, 2020, when the Director of Nigeria’s Department of Petroleum Resources (the oil and gas industry upstream regulatory authority), Mr. Sarki Auwalu, put Nigeria’s Proven Gas Reserve at 203.16tcf.

Mr. Auwalu said the new figures represented a marginal increase of 1.16tcf in proven natural gas reserves representing 0.57 percentage increase from previous 202tcf recorded on January 1, 2019.

Paradoxically, however, almost 40 percent of these reserves are not available in the short term as they are stranded in gas caps and not accessible until much after the production of oil.

The remaining available reserves fall far short of the required reserves base to meet the domestic demand for the product. Thus, one would imagine with these impressive figures of Nigeria’s  gas endowment, the country is facing a gas price surge at the same time as most of the European countries are facing severe energy prices surge; especially gas prices.

For instance, in January 2021, the price of a 12.5kg cylinder of Liquid Petroleum Gas (LPG) in Sokoto was N3, 500. The price steadily increased to N5, 000 by June 2021 and it is N7, 300 in the month of October 2021; more than doubled in the space of 10 months!

What explains this sky-rocketing price rise of LPG?

Some of the likely explanatory variables may include firstly, a deliberate price gouging by the LPG marketers due largely to the oligopolistic structure of the domestic gas market; controlled by few major players.

Secondly, inadequate investment  by the federal government and the private sector in gas gathering, essential distribution and marketing infrastructural facilities, such as gas processing, primary storage plants and pipelines shipping, secondary storage, cylinder bottling and retail marketing value chains which are mostly controlled by the largest players and, thereby, constraining supply in time of the rising demand by consumers.

Thus, with these prevailing two current structures or factors of the Nigerian gas sector, it is not robust enough to cope with the sudden rise in demand for the product.

For example, one of the negative consequences of the current gas price hike is an increase in the felling of trees for use as fuel wood and charcoal for cooking and heating. This goes against the past and present policy measures put in place to fight climate change, desertification and transition to green and clean renewable energy and power sources.

For instance, a Nigerian Gas Master Plan (NGMP) was approved on February 13, 2008 laying a solid framework for gas infrastructure expansion within the domestic market. It is a guide for the commercial exploitation and management of Nigeria’s gas sector.

NGMP aims at growing the Nigerian economy with gas by pursuing three key strategies: 1) Stimulate the multiplier effect of gas in the domestic economy, 2) Position Nigeria competitively in high value export markets and 3) Guarantee the long term energy security of Nigeria.

Furthermore, on Monday, 29th March 2021, President Muhammadu Buhari at the 2021 NNPC Flagship Nigeria International Petroleum Summit (N.I.P.S) officially declared January 1, 2021 to December 31, 2030 as “Decade of Gas Development in Nigeria.”

In addition, the surge in gas price is likely to negatively affect the National Gas Expansion Programme (NGEP) rolled out in December 2020 by the Minister of State for Petroleum Resources, Chief Timipre Sylva.

The programme, according to the minister, is to systematically convert vehicles that are fueled with petrol/gasoline and diesel fuel to use Compressed Natural Gas (CNG), and that the conversion will be free for motorists in the country.

Also, at the international level, the rising gas price surge goes against Nigeria’s commitment to the Paris Multilateral Agreement on Climate Change and the forthcoming United Nations Climate Change Conference of Parties number 26 (COP26) to the United Nations Framework Convention on Climate Change (UNFCCC).

The 2021 COP26 is scheduled to be held in the city of Glasgow, Scotland, between 31 October and 12 November 2021, under the presidency of the United Kingdom. Nigeria is surely attending COP26 with a large delegation as usual.

High gas price in the domestic market and its attendant negative backlash on Climate Change adaptation and desertification abatement measures, isn’t going to help matters for Nigeria at the COP26, indeed!