Podcast transcript: Unlocking opportunities in a gas-powered economy

Host: Good day, our Dear listeners. Welcome to the PwC Nigeria quarterly Energy podcast called “Let's Talk Energy”, where we discuss energy topics across the world. My name is Akinyemi Akinbade, a partner in our energy utilities and resources unit. I have keen interest in writing and speaking on industry issues. Today we'll be discussing unlocking opportunities in a gas powered economy. Natural gas described as the new oil has potential to catalyse industrial growth and development. In addition to its role as a key revenue earner to the government. Nigeria is endowed with abundant gas resources and has the largest gas reserves in Africa. Currently, we have a gas reserve of 206 trillion cubic feet, valued at over $800 trillion and only about 25% of the reserve has been produced. The federal government has made it a priority to unlock and harness the potential of the nation's gas resources to increase domestic and industrial power supply, raise living standards and support sustainable economic growth and diversification. To discuss this important topic, I have here with me Mrs. Audrey Joe-Ezigbo. Mrs. Audrey Joe Ezigbo is the deputy managing director and co-founder of Falcon Corporation Limited, a leading only indigenous midstream and downstream oil and gas company founded in 1994. Since 1994, she has been instrumental to successfully grow the company from minor oil services contracting to being a major player in the Nigeria oil and gas industry as a licensed distributor of natural gas and liquefied petroleum gas in dedicated distribution zones with annual revenue of several billions of Naira. She is also the managing director of Optimera Energy LSZE, which is a special purpose vehicle focused on enabling gas distribution and energy optimization within Nigeria. She is an accomplished professional, with several degrees and certifications from notable institutions such as Lagos Business School, University of Nigeria, Nnamdi Azikwe University, IE Business School, Harvard Business School, and the Winboard Institute. She is a speaker on several international platforms, including TED-X. She's the immediate past president of the Nigerian Gas Association, and the first woman to have occupied the President's position in the association's 22 year history. She is a member of the 2022 to 2025 Executive Committee of the International Gas Union, the global voice of gas, sitting in as Nigeria's representative responsible for the Exploration and Production Committee. She is the first African woman to occupy this position. She has won several awards and recognitions for her contributions to building entrepreneurial capacity in the industry, and Nigeria at large. Welcome Mrs. Audrey Joe Ezigbo. It is a great honour to have you here.

Mrs. Audrey Joe Ezigbo: Thank you Akinyemi, my pleasure to be here.

Host: Thank you, madam. Now let's get down to the discussion. So just to set the concepts, can you give us a brief overview of the Nigerian gas sector?

Mrs. Audrey Joe-Ezigbo: Alright, that's actually an excellent place to start. As you rightly pointed out, in the course of the introductions, Nigeria is a gas rich country more so than oil. Current data is actually that we have about 209 trillion cubic feet of proven gas reserves, and another about 600 TCF that is unproven. The sad part about this, however, is that despite being such a resource rich country, our production levels have actually stagnated around plus or minus eight BS, billion standard cubic feet a day. And out of this, like you pointed out the bulk of it is an export product, we do a lot of export, and then even for what is utilized on the domestic front, what we see is that the bulk of that is going to the power sector, and that's a very troubled sector on its own right. So Nigeria has journeyed over several decades from the point where natural gas was being treated as basically a nuisance byproduct of oil exploration, and we are flaring gas without realizing that we're literally burning millions of dollars on a daily consistent basis to where we have recognized the value that Natural gas can bring to the nation. Unfortunately, however, we can't really tap our chest and say we've done very well. And I'll give some examples to put some context to this. You see, we say, within the gas industry, that it's not so much about how much of a resource that you have is how you've been able to deploy it for your economic advancement in country. And if we look at countries like the United States, for instance, where their gas production levels are at about 88 billion standard cubic feet per day, and they're using about 80 Bcf per day in country, we look at countries like Russia, where it's about 65 Bcf per day production, and they're using about 40. We look at even smaller countries, for instance, if you look at the UK, India, China, we see that they're literally importing to support their domestic consumption, because domestic production levels are lower than consumption. Why is this important? It's important because there's a proven correlation between the amount of gas that is utilized in country and your economic advancement. So the ratio is more like $1. Investment in gas, don't Gas Utilization, creating a $3 report GDP impact, and that, for us is a missing link. So we focused a lot on the export markets. But of course, over the last few years, we've seen a bit more in country focus and COVID literally showed us where those gaps are. Now the gas market is the gas industry, as you say has been developing. So we see upstream, midstream, downstream, and the midstream. Part, for me, is one of the most critical levers to the growth and advancement of Nigeria's gas industry. But only in 2017 Did we for the first time pass our own dedicated national gas policy that clearly delineated the industry from upstream, midstream and downstream, creating the impetus for that midstream sector, which is where there is a huge infrastructure play to support gas expansion across the country. So that's been a good one leading Of course, into the enactment of the PIA that now creates that legislative backing to the bill. So for Nigeria, we're in a place now where oil is threatened, oil is dwindling. And the imperative is for us to then leverage gas fully for economic advancement. But there are a lot of challenges. And I'm sure we'll get into the conversation. But the biggest of them, I would say, would be the infrastructure depth, because we haven't really done great with the infrastructure over the years. Of course, we've seen a lot of work coming out between the government regulators, industry associations, such as the NGA, Nigerian Gas Association, and the OPCs. And the like, where we've been pushing for years for a lot of developments in the industry. And out of that we've seen Nigeria, for the first time pass our own national gas transportation network code, which is a beautiful development for the industry in the sense that it creates Open Access colocation and sharing of facilities, the ability for us to get into gas swaps, gas trading, and literally setting the pace for Nigeria to begin to build itself as a domestic and continental gas hub. So that's been good. We've also seen a lot of work the government moving forward in terms of regulations to move the industry forward in terms of some critical interconnector projects like the AKK. As we know, a lot of advancement on the OB-three pipeline projects, we've seen projects like this SEPLAT Annual projects coming to the fore. And of course companies like myself, Falcon, we're doing a lot of investment in midstream infrastructure. So whether it's for CNG, or LPG, or PNG, which is pipeline gas, a lot of things are happening despite the constraint. So Nigeria is well poised to do more with gas, from the declaration of gas into all the other activities that have been happening with the National Gas expansion plan and the like, we just need to make sure that there is a concerted push at this point in time because a lot of other economic fundamentals really are like screaming at us. So use this resources properly, for the benefit of today. And then of course, the Nigeria to come we must be thinking about this huge burgeoning population of young people and the need to set up adequate industrial and entrepreneurial outlets through which they can channel their energies and of course, increase the standard of welfare of the people.

Host: Thank you very much, Madam, for that brief overview of the Nigeria gas sector. There was something that you mentioned around industrialization and in country utilization of gas. I would like you to expatiate a little bit more on that, as we take this next question. Recently, the Minister of petroleum resources, Minister of State for petroleum resources to be specific came up with a national program with he declared gas as a major economic driver for Nigeria over the next 10 years. And he called this particular decade, a decade of gas. So what do you think? Are the structures that we need to put in place to be able to harness the potential that gas resources has to offer?

Mrs. Audrey Joe-Ezigbo: That is actually an excellent question. So the decade of gas declaration was, of course, coming off of the year of gas Declaration, which was literally Nigeria saying that the time for business on usual when it comes to gas was at hand, and we want to be very focused in driving the use of gas in some specific sectors. So there are conversations and programs around deepening the utilization of liquefied petroleum gas, LPG, what we commonly known as cooking gas, leveraging that for use in transportation and other applications, deepening the use of virtual technologies like compressed natural gas within the transportation sector sector, and also to create a bridge, because one of the challenges, as I pointed out is the death of infrastructure. So we don't have a lot of connectivity between east west, north and south and regions of Nigeria, when it comes to the issue of gas availability for industrial applications. We see a lot of those situated in the West. And there's a reason for that the primary delivery pipeline infrastructure is the Escravos Lagos pipeline that comes into the West. But now like I said, we're talking akk to take to the north, the OB-three interconnector, which is an East West interconnector pipeline has been progressed and the rest. So the decade of gas was, as I should say, that concerted program the government has put in place to see how we leverage gas for power, gas for industry, gas for transportation, looking at the opportunities that are available within the commercial space as well, and seeing how Nigeria can, you know, progress, the advancements of utilizing gas across various sectors of the economy, and of course, across the entire nation, in terms of the things that have to be put in place, a lot of work is already going on. So as you understand at this point in time, the policy frameworks are being put in place, there's new regulations that are coming up out of that. A lot of private sector, stakeholder engagements have been going on a lot of partnerships in the process, because this, it is clear, the government does not have the resources to finance the kinds of projects that are required. So we're seeing a whole lot more JV and IJV type relationships coming up between governments and the private sector funding arrangements and the like. And I think that it's just the question of how, how rapidly can we advance the objectives of the decade of gas agenda. So when we look, for instance, at the National Gas expansion program and the focus on LPG, now, obviously, Nigeria, we're doing a fraction, our LPG capital consumption is much lower than even smaller countries around us. And we have the population to support a much deeper level of LPG utilization, even just from a cooking gas perspective. So whether it's in terms of looking for how to enable more storage facilities, the production of cylinders, more LPG, LPG production in country so that we can reduce the level of imports, that has its own add on costs, to the end product to the consumer, a lot of work is happening around that challenges, however, continue to remain in terms of that infrastructure for delivery for storage for the cost to the end user for cylinder production, because there are huge Forex exposures. Anyway, with that we look across this. For the transportation sector, we also see a lot of work being done on the auto gas program. But of course, as you know, you can't divorce the developments in any one particular sector or industry from the broader macro. So when you look at the level of inflation, the difficulties around raising Forex funding constraints in security, all these many, many baskets of items have their own knock-on effects on the ability for us to progress.

Mrs. Audrey Joe-Ezigbo: A useful of gas in the transportation sector, for instance, our road networks are challenged, and so on and so forth. So But that said, we are forging ahead. We have a lot of private sector players who have pitched the attempt in trying to make sure that the auto gas program is successful and enabled, whether we can scale it within the decade of gas really remains to be questioned. But it's good that the focus is there at this point in time, LPG. I think there's a lot of advancement there but at the same time, we do see that in the same vein, much as we're pushing an LPG expansion program, we're also taking some steps that in themselves are deterrents to the success of the programs. So some of the administrative fees and levies on the product, the issue of VAT on imported products, and so on and so forth. So we're literally kind of speaking through two sides of amount if we're not careful. And we see what is happening currently with the price of LPG, because these are commodities that are benchmarked in dollars with the global pricing benchmark, because we're not importing about 52% of the LPG we use in country. So what this means is that until we can ramp up domestic production, until we can back that up with the storage facilities and the distribution networks to ensure that it gets to the end user, as efficiently and cost effectively as possible. That dollar exposure, the vagaries and the international markets continue to impact or not, they're an impact on our ability to, you know, attain those objectives. But there is work going on, I just keep saying that. I hope that in the context of an upcoming election, and the changes we know we always see at the governmental levels within the MDS and things that we can actually sustain the advancements that have been made so far on the decade of gas.

Host: Thank you, Madam. So for someone that wants to go into gas business, what will you advice,

Mrs. Audrey Joe-Ezigbo: Right, I actually get this question quite a lot. And my first response is usually, where exactly in gas Do you want to play? So when people think about gas, I don't see that they really understand how broad that word can be. When we talk about gas, you could be talking about pipeline gas, you could be talking about natural gas, which is the gas that you know, it occurs either as associated gas in while you're doing oil production or non-associated gas, where you have actually pure gas wells. Or you could be talking about liquefied petroleum gas, which is another product entirely, like I said, that's what we call cooking gas, you might be talking about compressed natural gas, right, which is where we come in with virtual technologies, being able to compress gas and move by trucks, or you could be talking about LNG, which is a much higher level of compression that needs you to then go further into regasification and so on and so forth. And you have to ask yourself, when you say I want to go into gas, is it upstream exploration and production? Is it midstream? Where we start talking about the transportation and processing facilities, storage facilities? Or is it downstream where you want to start looking at the distribution pipelines or the end user elements? Or do you want to come in as a consultant in the gas sector, or a producer, some kind of OEM manufacturing components for the gas industry? It's very broad. So the first thing is that anyone who is interested in gas, generally speaking, has to find that part that they feel is where there is a gap. At this point in time, I will say that there are gaps across the entire sector of industry. So we have upstream, for instance, supply constraints, we need to see more exploration and production activities happening at that end. And more importantly, we want to see more exploration on production on non-associated gas fields. Because most of what we're doing is gas that has been discovered, we're using gas discovered in the process of drilling for oil. We want to have people that come and invest in dedicated projects to just bring out gas from the ground, right from pure gas wells, that's very important. We need a lot of infrastructure in terms of the midstream storage, processing, plants, there's a lot of investment opportunities there, whether you want to come in as an OEM or if you actually go into the projects, construction EPC themselves, that's an opportunity, right? If you want to go into virtual technologies, that's a huge opportunity. Because right now, the infrastructure death also means that virtual technology is one of the ways we can get gas to other regions that are currently not served, at least within a radius of about 200 meters, right. So as we look at the evolving major pipelines, like the AKK, the OB-three, the opportunity to identify packets of industrial developments, and use virtual technologies to serve them off of those lines, also then comes to the fore, and so on and so forth. So anyone looking at gas has to not just look at it from that one word perspective, but do a bit of a deeper dive. And the information is out there to dimension the industry for you to look at the opportunities. Even things like pipe milling facilities, there's so much that is needed to support the workings of the gas industry. So you must not always be in the technical molecule dealing with the molecules themselves, but you could just be providing support, right, but it's a huge opportunity, even when you take it into the next leg of the conversation, which I think is really important. And I will tie this in to what I said earlier, the fact that the level of gas that we use in country about 80% of it goes to the Power sector and the past sector is a huge problem for us now, whether it's in terms of tariffs or in terms of structure or the extent of illiquidity that is, in that sector, there's a lot of problems, they are trying to detangle. But the problems exist, nonetheless, what we want to see is other heavy users of gas, right, so that we can diversify a bit away from power being the dominant sector taking the bulk of the molecules. So there's also room for someone to decide that I want to play in gas from the off taker perspective. I want to set up a ceramic plant, a fertilizer plant, a methanol plant, an agri based, a pharmaceutical, and therefore you can use gas in so many places. And then in doing that, you're also contributing because for what we need for Nigeria to thrive, from the domestic gas perspective, we want to be looking both at the supply side elements as well as the demand side, and credible demand has been a bit of a problem back and forth. Sometimes people will tell if I spend all this money, usually hundreds of millions of dollars, and put this infrastructure in place, am I even guaranteed of credible offtake. So there's a lot of opportunity, and people just need to do the work. There are a lot of associations like the Nigerian Gas Association where you can actually sit down and get information around the opportunities in the industry, the government has put a lot of information out on their own pages, right for you can look at what the government is trying to do in terms of gas and find where to pitch your tent, this and I'll wrap up by saying this is also a great time for us to be looking at this conversation around

Mrs. Audrey Joe-Ezigbo: Partnerships, mergers and acquisitions, colocation of facilities to bring down the economies of scale, the economics of any project and just gain and economies of scale by partnering with someone, so everybody's not trying to do their own unique projects. Well, we're having people come together as a consortium. So my other company Optimera Energy, for instance, is a consortium of midstream and upstream players that have come together to do a dedicated gas project. And that's the way to go forward, everybody bringing their competencies to the table so that we can move Nigeria's gas narrative forward.

Host: Thank you very much. Well, you know, that was quite enlightening. It's an indication that we”d have probably hold the solutions in country, you know, talking about high unemployment rate amongst our youth, you know, abundant gas resources, and, you know, opportunities for financing, you know, they are all there, but it seems as if, as a nation, we are not taking full advantage of all these opportunities. So that takes me to the next question, which affects everybody. Or let me say most Nigerians, and this is concerning the high cost of LPG. LPG lately has skyrocketed in price, I mean, from an average cost of maybe 4000 plus for 12.5 kg LPG gas to almost 12,000-13,000 Depending on where you're living in the country. So what do you think the players and the government could do to bring down the price or make it more affordable? More importantly, as we're encouraging a lot of Nigerians to move from Kerosene, a high carbon energy source to gas, What do you think we can do as a nation to make it more affordable?

Mrs. Audrey Joe-Ezigbo: That's an excellent question. Unfortunately, there's really just no magic bullets that I can offer at this point in time. Our reality is that our domestic consumption is supported by about 52% of imports. And this means that we have not done sufficiently well in terms of LPG production. But more especially We also haven't done well in terms of the supporting infrastructure to ensure the products gets to the end consumers. Taking away some of the add on logistics costs. Many people don't realize that in country LPG is produced in the Niger Delta, we ship it to Lagos, and then it has to wait because PMS takes priority of loading, then that’s demurrage being added on? Then we put it in trucks and those trucks go all the way back to the Niger Delta and further up north, I mean, it's like a circle that does not need to be happening, and that is adding on costs. So the fact that we're also bringing in the product means that there is an export exposure, and it's sorry, a Forex exposure, I should say, because we're importing and the pricing is also a $40 benchmark. As long as we are subject to the vagaries of the dollar and foreign exchange, it will be hard to bring that price down, especially because more than half of what you use in country is being imported. Now, what can happen? So you begin to ask yourself questions like if we see the benefits of LPG to the nation, and this is beyond the cost to the man on the street for cooking, LPG also finds application in industry, for cooling for heating and different things. So we can do so much with that, you begin to ask yourself, why are we able to throw all these subsidies at fuel?

Mrs. Audrey Joe-Ezigbo: How are we spending so much on refineries that don't work and we’re not able to find a way to support LPG developments in country. And I know the era of subsidies really should be phased out completely. But it's a question to ask. When we look at the add on costs to LPG that end cost to the consumer, there's a lot of add on costs that come from government fees and levies, administrative charges, all these things add up. And so you as an investor, you have to still make your margins. So maybe the government also needs to go back and look at its own cost profile, maybe take off a lot of these charges and things for a season, so that the end price begins to come down and the man on the street gets the benefits. Also, we want to look at the regime of permitting of LPG projects, I can tell you that on a good day, if you want to set up an LPG tank farm, you're going to be faced with about 32 or 33 different licenses and permits you have to get from a plethora of government agencies, every single one of them is a significant add on costs. So when we go back and say to ourselves that we want to deepen LPG penetration, perhaps we also want to try to create a one stop shop where you go in, a lot of things are checked in the same place and you get that one license, you pay that one fee that allows you to deliver your project, a lot of the what's it called the provisions within the PIA that creates incentives on the rest. What we have seen over time is that many times some of the government agencies who aren't supposed to implement those things have no clue, or they frustrate the process, it takes so long that ultimately, your costs are still rising. So there is a role to do in streamlining our institutional and regulatory processes to create efficiencies for the investors in that space. There is a role for government to play in channeling some of the foreign exchange resources, which unfortunately, as you know, we're very constrained with right now. So what's that sector so that investors find it easy to import the components, they need to develop added domestic production capacity for LPG. So like I said, there is no magic bullet, nobody's going to sell at a loss, right? Everybody's going to sell at some kind of profit margin, we don't make our own cylinders, the people who have set up cylinder manufacturing plants, they are crying, because even they have to import components. So it's just difficult. That said, private sector players are really not just sitting back and complaining about everything. And I hope he doesn't stand like that, I can tell you that my company, we are currently running a project where we're spending several billions of Naira to put an infrastructure in place to support the LPG market. And several other companies are doing that. Even though it's difficult to operate in terrain, we recognize that ultimately, the more of us that come in, as difficult as it is we help to recreate the landscape, and ultimately the man on the street to benefit from it. But there is no magic bullet there is nothing that is going to turn it around right away, government doesn't even have the resources. If they threw a subsidy at it. Now it's going to pinch at some other parts of the economy. So it's really a wake up call. And a gong that has been sounding for a long time to say Nigeria, we have to do some things and do them quickly, and do the right things and put a lot of incentivisation around the investment landscape so that we have more people coming in, we have competitive forces at play. And the end result is a drop in prices, more options to the man on the streets and a higher standard of living for the average Nigerian citizen.

Host: Thank you, madam. That was quite enlightening. I don't know if you have any closing remarks on a look in the opportunities in a gas powered economy, which is the topic of the discourse.

Mrs. Audrey Joe-Ezigbo: Most certainly, I think that as a nation, the imperative for us to accelerate the pace at which we're doing some of the things we're doing is really critical. At this point in time, when we think about gas, gas has the potential to be that tool for major economic development, industrialization and transformation which Nigeria very much needs at this point in time. Gas is something that can help us to attain energy efficiency, energy independence, take us away from the dependency on imported fuels and all that. And when we think about gas, it also we should also come to our mind is jobs. Because we're thinking about infrastructure projects, we're thinking about a situation where we have sufficient gas to power so that we light up our country, and entrepreneurs and business people are able to go into productive activity and employ more people, upskill the operations on the rest. And you know, I talked about the demand side, setting up of Heavy Industries, every heavy industry is also a heavy employer of labour, and creates a multiplier effect across a very extensive value chain that needs to support the operations. So we must be thinking about gas from the perspective of employment, and taking Nigerians off the streets and out of poverty. Gas is also food. I've talked about this before that and I'll explain to say that when we get into gas as a nation, apart from the fact that we can generate more than enough fertilizer to support our own domestic in country agricultural base, but we then also position to feed the world better and to export both the products as the fertilizer as well as the agri products. Mind you, when we have more gas, and more power, it means that we can do better about the losses that we see on the RB value chain, because we can now have dedicated storage and processing facilities. When we think gas as a nation, we think value addition, every time we take a raw product in Nigeria and apply gas as a fuel as a feedstock, we come out with a value added project product that is now export worthy, and helps to diversify the revenue base of the nation. So these are things to put on the front burner. When we think about transportation, the opportunities to have a more efficient, more diversified and elaborate domestic integrated transportation system, whether we're talking about auto gas for vehicles, whether we're talking about gas, for rail lines, and so on and so forth, it's a huge opportunity that the country cannot afford to miss. The time is now for the government to do the things they need to do. And for private sector players to also pitch their tent in recreating the gas narrative for Nigeria, as we saw, just a few years, a couple of years ago, there was a defunding of gas projects because of the whole clean energy transition. But we now have all the main bodies internationally from the EU and so on declaring that gas is that transition fuel is a clean energy fuel is green fuel. And that is an opportunity for us. But the window is very short. The Russia Ukraine war has created this distortion in the whole push for green energy the way it was been done before. And now with the recognition of gas and the world looking back into us, Nigeria has to ask ourselves, what can we do to take advantage and take position. So make sure that as we're building domestic capacity in country, leveraging on gas, we don't also miss this huge opportunities in the global markets, that also creates revenue opportunities for the nation, and help us to build capacity to do more in other industries. So I think it's just a very auspicious time. The window is open now, but we can't be carefree. There's a very short timeline within which we need to do a few things right. But I think that Nigeria, if we leverage our resources properly, in by the time we’re getting to the end of the decade of gas. This will be a very different country, you know, but not a magic bullet. We have to do the work. And the work will be done both by the government and by the private sector in partnership, of course with the global investing world.

Host: Fantastic, thank you for taking the time to join us on this episode of the podcast, we look forward to having you  in the future for further discussion on topical issues within the Energy sector.

Mrs. Audrey Joe-Ezigbo: Thank you, it was my utmost pleasure to be here.

Host: You’re welcome.