Development of Domestic Gas Supply and Utilisation Prices for Effective Gas Distribution in Nigeria

Abstract

Every resource produced by a country should by necessity satisfy the needs and demands of its populace before consideration is made for export. This will ensure that a country is sufficient in production and allocation of its resources. While Nigeria is regarded internationally as a major gas producer in the world, her local consumption of natural gas is limited due to unavailability of gas for domestic utilisations fuelled by large margins between domestic and international pricing of natural gas. At the international markets, the gas attracts higher price due to market conditions while the prices are relatively lower at the domestic level probably due to limited routes of utilisation of the resource. Because of this, gas producers prefer to sell their commodity at the international market creating scarcity at the local levels. This has heralded underdevelopment of the manufacturing sector and indigenous companies in Nigeria that thrive on natural gas. This situation can be ameliorated by developing a gas price model for effective utilization and distribution of gas in Nigeria. The model will determine the optimum price that producers should sale their gas to make profit and also make gas available locally. In this study, emphasis is made on the development of a domestic gas supply and utilisation price model for effective gas distribution in Nigeria. The model incorporates the cost of producing a unit volume of gas by the gas producer, the energy value of the gas and the quantity of the gas demanded locally. The model is based on the gas produced, utilised, flared, domestic gas requirement and the aggregate price of gas produced for the various companies. Results show that the total revenue accruable from flare is $1.877B/yr which is higher than the total revenue accruable from DGSO deficit which is $0.595B/Yr. Thus, it is better that companies resort not to flaring. Analysis of the results also shows that companies are provided incentive by the model which closes gas deficit gap through a reduction in gas penalty price. Therefore, it serves as direct incentives to companies who meet with their DGSO. The results show that the gas deficit and flare penalty price has a direct impact on the flare penalty.