Revenue leakages along value chain stifling power sector growth –Tierney



WITH over 118 trillion standard cubic feet (tcf) in gas reserves, Nigeria is now ranked as the seventh most endowed gas nation in the world and number one in Africa. But despite her global ranking, the country has been unable to reap the maximum benefits inherent in it.

In this interview, the Managing Director of Accugas Limited, a subsidiary of Seven Energy, Mr. Stephen Tierney, gave an insight into what the company is doing to grow the gas sector through its long term sales contracts to supply over one tcf of gas for power generation in the South-East and Niger Delta.

Tierney, however, regretted that the loss of revenue along the value chain, involving the distribution and generation companies (Discos) and (Gencos), has further compounded the abysmal low supply of electricity to homes and businesses, suggesting that government should continue to subsidise power.


Gas market

When we started focusing on gas about 10 years ago, it was seen as a waste product of little interest or value, compared to oil. However, we could see that times were changing and the importance of gas as an economic and environmentally attractive fuel was coming to the fore. We knew that gas had a commercial value and believed that it would become strategically important in the region. Seven Energy started to pursue a strategy to develop, commercialise and use Nigeria’s gas resource for the benefit of the country.

The seismic change in recent years has been the transformation of the Nigerian gas master plan. This cemented Nigeria’s resolve to become a major international player in the international gas market as well as providing a solid framework for gas infrastructure expansion within the domestic gas market. Initially, there were issues with implementation but the evolution has been a positive one. We now have a solid platform that allows private companies like Seven Energy to develop gas infrastructure in-country for supply to power and industrial sectors. This has seen Accugas rise to become a leading player in this sector.


Principally, the new administration needs to focus on accelerating the transition of the current gas market into a private market. The Federal Government should provide a strong stimulus for the initiation of large structural changes. Once the Federal Government goes a certain distance, we will see more participation of the private sector in infrastructure investment and gas development. To encourage more private sector participation, there is a need to allow much more freedom around pricing and gas prices should be determined by supply and demand. The government can subsidise where necessary for key strategic sectors like power and let other sectors play out. Prices will always find their own level in the market.

On the power side, there is still a considerable amount of work to be done. What we see today is a shortage of money in the value chain; from the consumer all the way through to the gas provider at the start of the chain. If power distribution companies are not collecting enough money, this has the knock-on effect for power generation companies, infrastructure and pipeline owners, and ultimately the gas suppliers to make it economically viable and attractive for investment. This is the challenge I think we are still grappling with today.

In my opinion, the solution could be for the government to fund and subsidise the sector by injecting cash to correct that shortfall or to raise the price of electricity to bring more money into the stream. Or alternatively, improve the level of collection at the Disco level. If they are only collecting 40 or 50 per cent of the revenue, clearly, this will not provide an environment suitable for investment to proceed.

Any one of these issues or a combination of these, I think, is what the government needs to get right. Power generation represents 70 per cent of the demand for gas. The Federal Government really needs to focus time, effort and resources to addressing these crucial issues.

Exploring CNG

Simply put, CNG is Compressed Natural Gas. We take piped gas from our existing network. That gas is then passed through compressors which effectively reduce its volume by a factor of about 200. This means that the gas can then be moved more efficiently. It can be loaded into trucks, pressurised trailers and also distributed in smaller quantities to the Small and Medium Enterprise (SME) market that requires lower volumes. These are companies that typically cannot afford a large pipeline to be installed all the way to their premises. So CNG is a good option for them. We are also focusing on small clusters of SMEs and it will make sense for us to install small pipelines to that cluster of customers. In these cases with aggregated SMEs, it will make economic sense to use a combination of both approaches.

Advantages of CNG

The first advantage is the price. The fuel of choice in Nigeria is diesel. Those who have bigger companies often use Low Pour Fuel Oils (LPFOs), but either of these options are sold at unsubsidised prices. Switching to CNG takes your cost down significantly as gas is cheaper than liquid fuels. So even with the price of converting generators, plants and equipment to work with CNG, it would typically take a few months to recover the conversion costs and still make substantial savings on your business operational costs.

The second aspect is the environmental benefit. CNG is much cleaner than liquid fuels. Typically, a 95 per cent reduction in carbon monoxide is expected if your business changes from diesel usage to gas. In addition, for every diesel truck or tanker you take off the road, there is a secondary impact; you are reducing traffic and pollution from that traffic.

Power generation

Although we operate in the oil and gas sector, we nonetheless interact with owners of power projects both large and small. CNG has a role to play in power generation but it is a limited one. For a very small generation plant with lots of private industrial users, it makes sense to truck CNG to the base of operations and to generate power for their own use or cluster or geographic area.

However, with power stations sized at around 15 megawatts (MW), which is still relatively small, there is a point where you are almost receiving a constant supply of CNG trucks delivering CNG to your premises. This starts to become a logistical problem. So yes, it makes absolute sense to do that for a 5MW/7MW plant but once you get to the 15MW level, the benefits start to diminish and complexity increases.


Essentially, it comes down to stakeholder management, communication, education and selection of favourable locations. It is a complex puzzle and we have been fortunate as our infrastructure has been largely untargeted. We work closely with the communities long before we start installing any infrastructure; we negotiate in advance as much as possible and as fairly as possible. We invest a lot of time and resources in understanding and engaging all groups that are affected by our work, including families, local communities and local governments. From this, we have established good relationships that have really benefited our license to operate.

We do try to award as many local contracts as we possibly can, up to the point where we feel it may impact on the safety of the operations. This permeates the whole development process and beyond when we move to commercial operations. We have communities involved in surveillance contracts along the pipelines and we regularly drive through all the pipeline routes to look for any signs of interference of our pipelines, which are buried several metres underground. We monitor this carefully, watching for any signs of disturbance.

Future plan

Source : SunOnline

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