There are indications that gas prices may go up very soon or investors in the sub sector may close shops.
This is based on the fact that gas users chose to pay for services in naira which is currently at its lowest market value while all their investments are in foreign currency.
Managing Director, Frontier Oil Limited, Mr. Dada Thomas, in an interview said the inability of heavy gas users such as industries and power generation companies to pay for the commodity in dollar, as agreed in gas contracts, has made it impossible for investors to put money in the sector.
Thomas noted that “We in Frontier with our partners, Seven Energy and Acugas, have invested in the largest indigenous gas plant in Nigeria and installed gas processing capacity of 200 billion standard cubic feet a day.
“So, I can tell you that it is not easy to invest in gas in Nigeria today. One of the reasons is that gas investments are dollar investments and so we have to go and find a lender to give us dollars; we put that into the business to generate more funds. But guess what, in today’s Nigeria, our revenue is now paid in naira. And when I go looking for the dollar to repay my investors, I cannot get it.
“So there is a problem with paying for gas in naira when the gas contracts were made in dollars. Gas producers are paid in naira at the prevailing Central Bank of Nigeria’s rate at the date you
are paid. So, you generate naira at 320 and supposing you are selling your gas at $2, you get N640.
“But if you take N640 to the market to buy dollars, what are you going to get? Of course, you won’t get $2; you may get $1.5 if you are lucky because they are going to sell to you at about N440 to a dollar. Therefore, I cannot meet my loan obligation and that is what we call an investment income currency mismatch.
“That singular fact alone means that nobody is going to invest in gas in Nigeria in the foreseeable future until this issue is resolved.”
According to him, the scenario remains another big challenge after the illiquidity in the power sector.
