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Nation’s power sector caught in web of lies, deceits and sabotage

The current power outages experienced across the country may get worse with the steady decline in the power generation due to the inadequate gas supply to fire the turbine power stations. The nation’s peak generation in December last year was 3,710 megawatts and available capacity was 5,400MW.

As at Friday last week generation has dropped to 2,400MW while available capacity also down to about 4,200MW. There is widespread fear that the situation may get worse if Shell Petroleum Development Company of Nigeria Limited (SPDC) carried through its threat to shut down its Oben, Sapele, Ughelli and Utorogu power stations, which it currently manages.

The multinational oil company had complained about the enormous amount of condensate that needs to be evacuated to enable it carry out supply of gas to the power plants. Last week, Shell, a major supplier of gas to the nation’s thermal generating plants, had written a letter to the Minister of Petroleum Resources and his Power Ministry counterpart alerting them on gas supply situation if wet condensate estimated at 400,000 barrels is not quickly evacuated. Shell suggested that at least NNPC need to evacuate between 50,000 to 100,000 barrels of condensate daily to create room for further production of dry condensate that will go to the power plants.

The Implication of lack of gas supply to the nation’s thermal plants especially in Egbin, Omotosho, Geregu, Olorunsogo, Sapele and Delta is that Nigerians will be starved of electricity. Under the interim arrangement Warri and Kaduna refineries are expected to take some of this (condensate) gas for its operation but information revealed that the management of the refineries  have declined to take condensate.

Gas supply to the nation’s power stations has been on the decline as six major sources are either not supplying or supply at less than 30 per cent of the expected volume to the power plants.

For example Chevron Escravos 1 is expected to deliver about 184million standard Cubic feet of gas per day (Mscf/d) but nothing is coming from this source. Also, Chevron Escravos 2 ought to deliver 300mscf/d as well as Shell’s Sapele gas plant but nothing was delivered. Ughelli Shell gas plant should deliver 90mscf/d but only 30mscf/d was delivered due to rehabilitation work at the Sapele power plant which has limited its intake of gas. The Shell Oben Gas Plant is also expected to make 90mscf/d while Utorogu Shell gas plant billed to supply 360mscf/d could only deliver 300mscf/d.

Oil industry sources explained that security challenges in the delta resulting in incessant pipeline vandalisation has been responsible for diverting the condensate to Warri where it could be used directly by Warri and Kaduna refineries who were due to commence operation after rehabilitation recently.

There is, however, a twist in the tale as regards gas supply needed for power generation in the country. In January a group of investors in the nation’s oil and gas industry had expressed disappointment at the non-cooperative attitude of the Shell Petroleum Development Company and other major oil companies in not allowing them access to gas fields within their areas of operation. The activities of these multinational oil companies, according to the investors, was constituting a major set-back to the effort of federal government at accelerating gas production for domestic power generation.

The Executive Chairman, Petrolog Group, Vincent Ebuh, who spoke at a parley organized by the Ministry of Petroleum, in Abuja , bemoaned the lack of cooperation from the international oil companies which were not allowing the gas investors access to the gas fields.

“We identified about 24 fields but we were only allowed access to four which has only one million scuf of gas. We are having a big road block from the IOCs, wondering why you are in my backyard. Most of the flares that were identified, you go there they say no go area, already engaged, they are going to utilize for something in the nearest future and that future we have seen it in many years has not materialized where we want to be as nation,” he told correspondents.

In December 24, 2009, the Federal government entered into a memorandum of understanding with various companies interested in developing the gas sector with the intention of reaching final production agreement latest by March this year. However, this target date appears to be under threat as the IOCs are alleged to be sitting on some of this gas and are not cooperating with the investors in the industry.

Ebuh further noted that, “In a situation like this, government wants something but don’t how they go about getting it. We identified 21 fields, we were given four and when we run our economics, in the third or four year, the gas in these particular four fields will amount to 1mscuf.

How can anybody from the bank or abroad bring money to invest money in 1mscuf.” He called on federal government to prevail on the Joint Venture oil companies cooperate with the gas investing firms to accelerate the process of production which is of strategic importance to the country’s economy.

According statistics, the country presently has about 189 gas sites and out of this number, 182 are within the oil fields operated by major oil firms with Shell alone having 95.

Also giving vent to the frustrations of the investors, the Chief Executive of Turan Oil, Mr. Chris Akerele, expressed a similar view saying the attitude shown by the oil companies has tended to delay the process of executing the MoU on gas production. He said, “We had hopes to cooperate with Shell, we spent a few hours with them, called them weeks later, was told that Shell had no interest in the project.

Two of the assets were no go areas, also said they were in touch with NAPIMS and they had no interest in our project and as a result, no further basis for discussions. In subsequent attempts to contact Shell, we were not even given the courtesy of replying. We wish that some IOCs who sit on this gas will go along with the desire and request. We had had no joy at all.”

On his own part, the Executive Director, Business Development, COLECHURCH LTD, Mr. Terence Modebe, pointed out that records show that Nigeria has 189 flares and 182 are with IOCs and the rest with smaller companies.

“We went for 31 of these flare sites. Based on the initial due diligence that was done by DPR and they confirmed that the flares sites were uncommitted. In the process, we then signed a MOU with the ministry for 31 sites. Based on that, we went to the market and raised $1bn based on the 31 sites which we had informed our partners that we are going to do in Nigeria . Today, we are not even half way there,” he said

According to him, international oil companies including Chevron, Total and Continental were reluctant to give their support in achieving the target.

He said the projects are not contrary to the master plan, but complimentary. “It is looking for associated gas, flares that need to be extinguished to help the country achieve its objectives. We want to find a way to get these 31 sites or the finance that has been raised will be at risk.

We are almost dealing with all the IOCs, we are not making the kind of process we need to make,” he said.

He adds, “We are willing to progress on these projects, we have financing, but because of the foot dragging, it is becoming difficult to hand in there, it is really unfortunate for the country, because these project are definitely what the country needs and they are not in conflict with gas master plan. Issue in the background is pricing, it is underlying issue that could be the cause of the delay especially for the major customers. We have to come to an understanding of a fair price for the resources for domestic consumption.”

He questioned the seriousness of government about this short term gas supply because of its strategic national imperative. “For more than 60 years we cannot produce power for ourselves. The IOCS have to see that it is of national interest. No body will bring money and we will not make return on investment.

“Our experience with the IOCs has not been good. We approached Shell and we were allowed access to the flow stations, we found that there nothing to invest in. some were flaring less than one million scf,” he said

The Minister of Petroleum, Dr, Rilwanu Lukman, who presided over the meeting expressed the hope that the teething problem confronting the roll-out of gas development plan in the country will soon be overcome. “I hope the meeting will help in the process to accelerate the development of gas in the country. We will try and see what can do especially with the return of peace in the Niger Delta following the amnesty programme to use the opportunity to fast-track the project,” he said.

Lukman lamented the enormous challenge facing the country especially in the power sector, which has been aggravated by the crisis in the domestic gas supply. The idea is that as soon as possible, these projects will be in a position to supply gas to the system and help alleviate some of the challenges that we are having now in the power sector.

Last month, the Federal Government had directed the management of Power Holding Company of Nigeria (PHCN) to accelerate and conclude discussions on the Gas Supply and Purchase Agreement (GSPA) and Gas Transportation Agreement (GTA) with the Nigerian National Petroleum Corporation (NNPC) in a renewed effort to quickly conclude the negotiation and sign the agreement to guarantee supply of gas to the thermal power stations.

The Minister of Power, Dr. Lanre Babalola, who summoned the top management of PHCN to a meeting in his office in Abuja to address the issue, said PHCN as an operator should be concerned about the declining generation as a result of gas challenges and come up with solution adding that the country currently has over 5,000MW generation capacity but lamented that the lack of gas to drive these machines has continued to draw the sector down.

“You have to accelerate and conclude the on-going discussion with NNPC on gas issue and sign the agreement immediately and also finalise the framework for back-up fuel agreement based on LPFO and LPG for other power stations apart from Egbin in order for us to resolve this gas challenges,we cannot continue to fold our arms and wait for manners to fall from heaven” Babalola said.

The Minister also directed the PHCN to come up with a plan that could be implemented immediately on the alternative source of fuel such as Low Pour Fuel Oil (LPFO) and Liquefied Petroleum Gas (LPG) to drive the power stations that are currently idle.

He stated that while issues surrounding availability of gas is being tackled, management of PHCN should look at all the generating stations and assess the units that can be modified to use other forms of fuel such LPFO or LPG as a stop gap measure instead of completely looking helpless in the absence of adequate gas from the NNPC and the gas producers.

According to Babalola, concluding and signing of gas purchase agreement with the NNPC will help to secure commitment to its delivery pointing out that such pact will help all parties to keep to terms and conditions of sale and purchase agreement arguing that penalty clause in such circumstances will allow all the parties to be aware of their obligations to the pact.

He explained further that with the GSPA in place, it will help to instill confidence on the part of gas producers and NNPC as well as reminding PHCN and the generation companies to keep to all the terms including payment for gas supply stressing that the Nigerian Electricity Regulatory Commission (NERC) with the support of the World bank has  provided the framework in the GSPA and Purchase Agreement (PPA) to be able to make operators accountable for their operations.

Babalola revealed that contractors handling the repair works at the Delta power station are concluding the rehabilitation of two generating units which will increase Delta’s capacity by an additional 200MW. This in effect will increase the state’s capability to 520MW. Gas limitation, however, restricts actual generation to about 150MW.

The Managing Director of PHCN, Engr. Hussein Labo, has listed six thermal power stations that are idle as a result of lack of gas to drive the machines for electricity generation.

These plants are Egbin thermal station with available for capacity of 1000Mw but forced down to 400MW,Sapele with all its units intact but produces nothing due to lack of gas. Other power stations with same problem includes Delta, Geregu, Omotosho and Olorunsogo whose output have been  grossly limited with idle capacity of 100MW,130MW,225MW and 300MW respectively as a result of non availability of natural gas.

In December last year out of 945million standard cubic feet of gas(Mscf/d) planned for PHCN power stations only 425.25mscf/d was supplied which translated to 3 780MW and 1,701MW of electricity to the national grid.

Available statistics from the oil and gas sector also indicated that of the 380mscf/d per day expected last month from the gas suppliers the actual volume that gets to power stations was about 180mscf/d.

Officials at PHCN have complained about that they only receive 945mscf/d against actual delivery of 425.25mscf/d. Power equivalent 3,780MW against actual 1,701MW. For instance, Utorogu gas plant is expected to deliver 360mscf/d but has been on average delivery of 300mscf/d; Oben and Sapele Gas plants with 90mscf/d and 50mscf/d deliverable are currently out due to evacuation of wet condensate challenges; Ughelli (90mscf/d), Chevron phase 1 (185mscf/d),and Chevron phase II-300mscf/d),Pan Ocean (60mscf/d),NPDC-(65mscf/d)The implication is loss of about 600MW.,

The Ministry of Petroleum Resources has been accused of not forthcoming in respect of gas to power issues especially with clear cut directives to the IOCs through the NNPC to honor gas obligation to the domestic needs including power. This is especially important when one considers that there is still no commitment established on the part of IOCs and NNPC on gas delivery in most of the meetings held by the gas committee.

Industry experts have suggested some steps to mitigate the problem, including conversion of some units in the nation’s thermal plants to run on LPG/LPFO. The Federal government can raise generation at Egbin thermal station, the only plant designed to run on both gas and LPFO but at a prohibitive cost. They have also called for the establishment of a Ministerial task force on gas to power as another strategic way out of the current energy quagmire.


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