High Expectation, Concerns over FG’s Autogas Scheme
-By Gideon Osaka
The much-awaited National Gas Expansion Programme (NGEP) and National Autogas Roll-out Initiative, a scheme with the ultimate target of replacing the use of petrol on cars, was recently launched by President Muhammadu Buhari to the commendation of Nigerians.
The event which also heralded the formal dispensing of Autogas which is mainly Compressed Natural Gas(CNG) and Liquefied Petroleum Gas (LPG) at two NNPC filling stations in Abuja, was part of the government’s strategy to gradually wean the nation off the costly petrol Nigerians normally run their cars with.
The programme, expected to lead to the conversion of one million vehicles from petrol to CNG by the end of 2021, has set the foundation for the clean energy transition for Nigeria as well as the delivery of cheap transportation fuel.
To assist interested motorists to switch from PMS to gas, NNPC disclosed that it was going to provide free conversion services in some selected NNPC retail filling stations especially in areas with existing Autogas service stations in Abuja, Kaduna, Kano, Kogi, Kwara, Ogun, Ondo, Oyo, Lagos, Edo, Delta, Rivers and Bayelsa States.
“The Muhammadu Buhari administration is focused on developing the country’s natural gas resources, as part of the government bid to key into the global shift from crude oil to gas,” the Minister of State for Petroleum Resources Chief Timipre Sylva said, adding that “The plan to develop CNG into alternative automobile fuel will also afford Nigerians cheaper, cleaner and additional fuel.”
Valuechain reports that this move is much needed for Nigeria which is Africa’s 2nd largest gas producer, but still lags behind many of its continental peers in domestic gas utilisation.
“The need to switch from petrol to gas was necessitated by the deregulation of petrol by the government, which has led to increment in the domestic pump prices in recent times,” Mohammed Ibrahim, head of the government committee in charge of the NGEP, said.
To demonstrate the seriousness of the initiative to the government, Sylva handed over the keys to five buses running on CNG to the Nigeria Labour Congress (NLC) to mark the first instalment of government commitments to the NLC agreement not to embark on a strike in September this year. In total, the federal government will provide 133 buses to the NLC and the next phase would involve the delivery of another 100 buses to the NLC.
End of the road for PMS?
Analysts expect the Autogas programme to displace some volumes of PMS in the near to long term.
Premium Motor Spirit (PMS), as it is known in Nigeria, accounts for a large chunk of Nigeria’s transportation demand and substantial part for electricity. The country is one of the leading consumers of road fuels in Africa, typically using around 1 million-1.25 million metric tons of PMS per month.
Platts Analytics in one of its reports, noted the success of this program will depend on the low cost of installation of conversion units, the cost competitiveness of Autogas/CNG fuel against PMS and easy accessibility of refueling stations.
“Since Autogas and CNG are price-competitive versus gasoline, this could provide a sufficient incentive to kickstart conversion efforts,” it added.
This programme is also part of the government’s policy to drive LPG demand and reduce demand for kerosene and wood as a cooking fuel.
Nigeria depends on imports for almost all its oil products to meet its oil demand of around 450,000 b/d.
Nigeria has four refineries with a combined nameplate capacity of 445,000 b/d but years of neglect have meant they are all offline and set to undergo major repairs.
Anticipated challenges
Nigeria has a proven gas reserve of about 203 trillion cubic feet (tcf) and the additional upside of 600 TCF ranking the country as the 9th in the world currently.
However, it is no longer news that the vast Natural Gas resources, which Nigeria is endowed with, have hitherto been used sub-optimally as a result of a dearth of gas processing facilities and infrastructure connectivity for effective and optimal domestic utilization.
Following the launch of the Autogas initiative several concerns have continued to be expressed over the sustainability of the programme.
Valuechain have identified concerns such as gas shortage, pricing and downstream infrastructure deficit as the major issues and they are optimistic of the government’s ability to solve them.
For instance, the domestic gas market intermittently experiences gas shortage for power plants and household cooking and this often creates a major energy security challenge for the nation. Gas supply to the domestic market through the NPDC/NNPC currently stands about 1.5 billion cubic feet (BCF) compared to domestic demand of about 4.5 to 5 BCF.
According to Valuechain findings, the country’s gas sector is export-oriented and with plans to expand the country’s export foot prints following the execution of the Final Investment Decision (FID) for the expansion of the NLNG trains to Train 7, exports of the country’s gas is set to witness an upsurge. While export market thrives, there is a domestic market that currently suffers huge energy crisis and shortages. This then raises the questions about the sources of the gas that will be used for the Autogas programme.
Added to this challenge is the fact that the recent spike in the exchange rate of the naira to the dollar induced by the corona virus pandemic is triggering concerns of increase in domestic prices of natural gas.
This is coupled with the existing disparity in the export and domestic prices of natural gas. Domestic users of gas (power sector, fertiliser and other gas-based industries) pay significantly more for gas than international customers (export). A lot of factors including the absence of a market-reflective tariff, have disincentivised gas producers from allocating greater molecules of gas to the domestic market, which is dominated by the electricity industry and now, possibly the Autogas market. Therefore, the widening gap between domestic and export gas parity prices may have inevitable impact by the time more car owners opt for gas instead of PMS.
Keen watchers told Valuechain that the greatest challenge that could face this otherwise laudable initiative is the question of implementation.
“The campaign to promote natural gas usage in Nigeria as alternative fuel is a good step, only that there are fears concerning implementation. Substituting traditional white products with gas will definitely cushion the effects of deregulation and create enormous opportunities for the citizenry”, said one respondent.
