Abstract
This paper performs cost-benefit analysis of a pipeline infrastructure project based on a given natural gas demand in order to estimate the net present value and payback time for natural gas pipeline investment in Nigeria. The result of the cost-benefit analysis indicates a positive net revenue and net present value (NPV) at the current regulated transport cost and availability factor for gas pipelines in Nigeria. However, with a payback period of 14 years, a natural gas pipeline project in Nigeria is likely to lose-out investment capital to other competing investments within the oil and gas sector. Scenario analysis indicates that by doubling the regulated transport cost with a 50% tax reduction, the pipeline investment results in a much higher NPV and a payback of 4 years, which is more acceptable to investors.
Highlights
The natural gas industry is experiencing increasing competition by suppliers in the international market leading to very low international gas prices
This paper performs cost-benefit analysis of a pipeline infrastructure project based on a given natural gas demand in order to estimate the net present value and payback time for natural gas pipeline investment in Nigeria
Scenario analysis indicates that by doubling the regulated transport cost with a 50% tax reduction, the pipeline investment results in a much higher net present value (NPV) and a payback of 4 years, which is more acceptable to investors
Summary
The natural gas industry is experiencing increasing competition by suppliers in the international market leading to very low international gas prices. In Nigeria, factors such as; militancy in the Niger Delta, inadequacy of transportation infrastructure and delay in completion time for on-going projects leads to inadequate supply of natural gas. Others issues such as governance, legislation and regulatory issues are part of the challenges that affect the growth of the Nigerian natural gas industry. A major player in the Nigerian oil and gas industry have identified absence of pipeline infrastructure, inadequate regulatory, commercial and legal framework and non-adherence to contractual obligations as some of the factors bedeviling the development of natural gas in the country
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