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Ajumogobia explains GECF, deregulation, gas supply constraints

MR. Odein Ajumogobia, the Minister of State for Petroleum Resources led the Nigerian delegation to the 9th ministerial meeting of the Gas Exporting Countries Forum (GECF) which took place in Doha, Qatar last month to determine the establishment of a secretariat and election of a secretary general for the organisation.

 Mr. Odein Ajumogobia (r) receiving copies of Sweet crude from the editor, Hector Igbikiowubo on the sidelines of the 9th ministerial meeting of  Gas Exporting Countries Forum (GECF) in Doha, Qatar.
Mr. Odein Ajumogobia (r) receiving copies of Sweet crude from the editor, Hector Igbikiowubo on the sidelines of the 9th ministerial meeting of Gas Exporting Countries Forum (GECF) in Doha, Qatar.

He spoke with Hector Igbikiowubo, Editor, Sweet crude on shortly after the meeting addressing Nigeria’s involvement in the establishment of the body, why the country lost out to Russia in the election of the Secretary General, while also addressing other pertinent issues.

Excerpts:
We are in Doha, Qatar for the 9th ministerial meeting of the Gas Exporting Countries Forum (GECF) and I understand Nigeria has played a pivotal role in the establishment of the organisation. Can you tell us why Nigeria has joined this Forum and what our aspirations are really?

Nigeria is a large gas exporter and the Forum is for gas exporting countries to come together in their collective interest to promote their interest and one of the challenges we face as gas exporting countries is the same challenge that oil exporting countries faced many years ago in trying to create a stable market for the product.

Recently we’ve seen the collapse of gas prices and that affects us as gas producing countries. So, this Forum will help us share information and collaborate to try and understand the gas market better for our collective good.

But Nigeria hasn’t ratified the agreement and indications are that the country may do that next year. Do you see that coming to pass?

Definitely, I think it’s in our interest. I was privileged to sign the charter in December 2008 and it’s just going through the formal ratification process with the federal executive council (FEC) and the national assembly which I think will be done as a matter of course.

Talking about the development of Nigeria’s gas resources, I am well aware that projects such as the Brass LNG, the Olokola LNG have all been stalled for one reason or the other. What exactly is government doing to move those projects along?

Projects have to take their turn in terms of the final investment decision that has to be taken before they probably go ahead. But I think if there was any reason there was a slow down was the fact the federal government decided  and I think we should really give credit to the former minister of gas who supervised the gas processes at that time of improving domestic gas obligations of companies at that time.

So the focus moved away from gas exports to domestic gas supply prompting companies to move attention to gas supply for the domestic consumption-power industry and so on. We will only be promoting further exports if the minimum obligations to the domestic gas market were met.

Those projects are still very important; we are still committed to them, especially the Brass LNG which will provide a lot of employment in the Niger Delta area. So it is still a priority.

Regarding domestic supply of gas, I spoke with Dr. Lanre Babalola, the minister of power regarding meeting the December target of generating 6000 MW and he said there were issues with gas supply. Is it fair then to assume that all the efforts of the past to focus some effort in ensuring that the domestic gas market is adequately supplied may not have yielded the desired result after all?

Well I think there is a misconception here. The 6000MW was made up of about a quarter of hydro, that is 1500MW, another 1500MW was made up of existing supplies from the thermal fired power stations and then there was another approximately 1500MW that was to be brought about through rehabilitation of existing facilities which is the Power Holding Company of Nigeria and then there was another 1500MW that was related to gas supplies that had not been delivered. Of that 1500MW we in the petroleum ministry were responsible for we’ve delivered probably about half of that and of the balance thereof, the shortfall is as a result of the vandalism we have experienced over the chevron operated Escravos pipeline which is about 300 mmscf per day which is responsible for about 1000MW.

We are working hard to bring that back into production. So in real terms we are not very far away from the target. If there is any shortfalls it may be due to water levels for example that might reduce the amount of power being generated from hydro. By and large, I think we are on target for the December deadline that the president gave us.

But really, talking about gas supply is there any effort on the part of government to come up with an independent grid for domestic use outside of what the power sector gets from the joint venture operations?

When we talk about 6000MW and existing facilities, we are including the IPPs (independent Power Programmes) of the oil companies  Okpai 1 for example the Nigeria Agip Oil Company (NAOC) that put that up and Afam 1X which is also now producing. But the entire gas master plan that’s been developed is to address that, is to create a nationwide grid that allows the movement of gas from east to west, from west to east, from east to north, etc.

Because essentially what you had was an infrastructure that was built by the oil companies to support export gas as part of their oil installations. We are now trying to create a framework to develop gas independent of oil. That is associated and non-associated gas. Of course associated gas is critical because we are flaring it  to take that gas and be able to utilise it for industry and so on.

But also to develop our gas resources, that again is also the reason why this forum is important because it is one thing to develop your gas and have it to be able to export it, it is another thing to have a market that will receive it whether it is the domestic market or the international market.

And it is important for us to exchange ideas to exchange programmes, do research and I think that will be the first phase of this Forum  to be able to understand the market dynamics, to understand for example why is the oil price recovering, rebounding, we hear it is now hovering around $80 per barrel which is where the Organisation of Petroleum Exporting Countries (OPEC) have always felt it should be, that is, a fair equilibrium  prices that were not too high for consumers or too low for producers.

But why hasn’t gas prices rebounded in the same way? I mean the ratio between oil and gas has not made that same movement. These are some of the issues we would be grappling with in the Gas Exporting Countries Forum. It is therefore very timely that we should have appointed our first secretary general and the organisation is now about to take off.

Did Nigeria indicate any interest in running the secretariat? Did the country put forth any candidate?
Nigeria put up a very strong candidate, our former minister of gas, Chief Emmanuel Odusina. He was competing with five other very prominent candidates including former ministers of gas  like the candidate from Trinidad and Tobago was a former minister.

All the candidates were very well qualified. The ministers felt we should try and find unanimity especially at this very early stage of the organisation, a baby had just been born and we needed to give it strength and it wouldn’t help if there was division through a rancorous voting process. It turned out that at the end of the process of dialogue, at the ministers’ meeting, the Russian candidate came out as the consensus candidate and there was unanimous agreement in spite of the fact that every one acknowledged the qualities of all the candidates especially the Nigerian candidate.

Gas pricing has remained an issue especially as it affects the use of gas for electricity generation as well as other domestic uses. What is government doing about this?

I know there has been talk about sorting this out in the gas master plan, but considering the state of power generation and distribution in the country and the need to attract private sector participation, obviously there is some urgency. What exactly is government doing to tackle this issue?

The biggest challenge I think is price and we are seeing this in the international for as well. The least able to pay for gas is power. For many reasons  the history of subsidies that we’ve lived with

That is in Nigeria?
Yes in Nigeria. And at the other end of the spectrum, you have export gas which has an international market and an international price. What the gas master plan seeks to do is to create an interface between supplier and market. To create if you like, an average price that would satisfy the suppliers to ensure that in Nigeria the supplier is indifferent to where his gas goes to because he’s going to get paid a good price for his gas.

So it is that average between the high export price and the low domestic price that we will be looking at in the short term through the gas aggregator. In the long term we are expectant that we will achieve parity between domestic prices and international price. Again this is one of the things that we are looking at in the Forum  how we can stabilise gas prices across the globe.

Let’s shift from gas matters to downstream petroleum products pricing. What’s happening to government plans for deregulation?

When you say what’s happening to deregulation, what exactly….
I am talking about the policy of the government, am talking about…
We are in the process of continuing our interaction and dialogue with stakeholders. I think the debate has moved from deregulation per se to if we accept as I have constantly said that we would expects a certain degree of sacrifice from our people because when we deregulate there is likely to be a tendency initially of the product following the price.

So there will be business people who are in there to try and make the best return they can and will exploit the fact that there is no ceiling on the price. But very quickly, very, very quickly market forces will intervene to ensure that price equilibrium is arrived at. Now people are asking what the government is going to do to alleviate some of that difficulty.

That is where the debate is right now, we are talking to the labour unions, we are talking to marketers, we are talking to other stakeholders including civil society groups to see where government can intervene in the short term until the situation stabilises.

How soon do we expect all of these to be wrapped up to have full blown deregulation?
I am reluctant to indicate a date. The last time a date was indicated, I think it was through the usual Nigerian rumour mill, speculators immediately took over and you saw long fuel queues.

I hear there are fuel queues again because now people anticipate perhaps we are going to get to the end of the year and perhaps there is going to be a new date. I think everybody expects that we are going to deregulate the downstream and people are speculating about the timing of it and positioning themselves to take advantage of their fellow citizens to try and make a quick profit beyond, over and above what the reasonable margin on petroleum products should be.

That is the reason and I said it before and will say it again. When we build that reasonable level of consent Nigerians will be informed in the usual way about the decision of government.

Can you gauge organised Labour’s predisposition towards ongoing discussions at the moment?
My sense is that we are engaged in an intellectual debate about the timing of deregulation. I haven’t heard anyone; even the most ardent critics of the policies of deregulation say that it should not be done and that we should continue to incur the huge subsidy on petroleum products.

I think most people say that the price of the subsidy is influenced by a lot of inefficiencies in the system  pipelines not working, refineries not working and so on, and that we should fix those things before we can take this step.

So it seems that we have an agreement and there is a desirable end but the critics feel we should sort out these inefficiencies and areas of rent seeking.

But we on the other hand feel if you wait for perfection then you will never make progress. And so let’s start now and use those resources as part of the means by which we fix these problems.

Recently, we were made to understand that there has been a clear cut delineation of roles in the ministry of petroleum resources. Can you enlighten us as to what roles fall under your purview?

Essentially, there is only one ministry of petroleum resources headed by the minister of petroleum resources, Dr. Rilwanu Lukman. I think it was decided that was decided that for greater efficiency and for ease of administration, certain functions should be delineated for each of the ministers in terms of primary responsibilities.

I am responsible for the Department of Petroleum Resources and the gas master plan (that’s what brought me here as part of the gas Forum), there is also the Petroleum Products, Pricing Regulatory Agency and acreage matters, lease awards, renewals, assignments and so on. These are the areas that I have been asked to superintend.


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