Plans by the government to fix a special price for natural gas consumers, especially the Manufacturing Association of Nigeria (MAN) and other industrial concerns in a bid to be able to purchase the commodity and maintain their operations, has been described as a welcome development, provided it will ensure sustainability of gas supply without any member of the supply chain being weakened.
The move indicates that government intends to keep the manufacturing companies afloat and also boost the economy through job creation. However, whatever price government would fix, it is expected, must benefit all members of the chain. Industry experts, however observed that if any member of the chain (transporters {the Nigerian Gas Company (NGC)}, distributors-Gaslink, Falcon and Shell and consumers) is weakened by such policy, it would make nonsense of the good intention of government
For instance, if the price regime is such that would benefit the distributors and the consumers while the NGC is put at a disadvantage, it would not be able to expand its facilities or generate enough revenue to make necessary investment in infrastructure that would enable it convey the commodity to the distributors.
On the other hand, if NGC and the consumers are favoured, while the distributors are not given the price that would enable them to make returns to expand their investments, they would then be unable to pick the commodity.
This implication, then begs the question, in whose interest is the new price regime? If the Federal Government decides to favour the consumers (manufacturers), what happens to those that invest on infrastructure? It is expected that price-fixing should address interests of all stakeholders. Government should avoid a situation where the development would be a burden on some, while others are grossly affected. Operators in the sector have advised government to take into consideration investors who invested heavily when the climate was not favourable for any economic returns.
BusinessDay gathered that government is considering the need to prune the price of 1000 standard cubic feet (Scf) of gas from the current N37 to about N30. Analysts have also predicted that the price may now be graduated until it gets to about N38 in the year 2013. Or that the government would allow the current price to remain at N37 for the next four years and then add N1 to make N38 per one scf.
The ideal price for now, when compared to the price of Low Pour Fuel Oil (LPFO), which is the benchmark for the gas price, is about N50 per scf. Meanwhile, the price at which gas is purchased from the producers such as – Chevron, Shell, Total, Nigerian Agip Oil Company (NAOC) is $2 per mmbtu (a price the operators said they are comfortable with, for now, given the fact that NGC was paying almost nothing before now).
The total cost of the gas is to be within the range of $5. While the producers have taken $2, the remaining $3 is expected to be shared among the distributing companies. An industry analyst, who spoke on condition of anonymity, said, “If the distributing companies are paid $2 per 1000scf, they would be comfortable for now, but what happens to the transporter that might be left with $1to play with. This amount would certainly be a disincentive to NGC because it would not be able to make investment and this would adversely affect the other members of the chain. The $5 is still not up to the Henry hub price of gas which is put at $6 per 1000scf.”
Stakeholders have expressed fears that more industries might close down very soon because of the high cost of gas. According to them, this would automatically worsen the unemployment situation in the country if those who hold the franchise to supply gas to industry insist on their position on the appropriate price of the commodity.
For some time now, price of gas has been a major problem between the industrial concerns and those who have the franchise to supply gas on behalf of the Nigerian Gas Company.
The major challenge at the moment for both the supplier and consumers is the gas pricing. The N37 per 1000scf is an interim measure to reduce tension. While those who have the franchise say the cost of steel is on the high side and that they can no longer sustain their investment on the infrastructure to supply the product to consumers; consumers on the other hand also complain that if the cost of supplying gas is too high, there will be a serious problem.
Industry operators have consequently urged government to ensure that all the parties are met halfway.