Wrestling COVID-19 and Lifting Gas


Friday, March 12 2021   /06:00 AM / By Proshare Research/ Header Image Credit: EcoGraphics

Proshare Nigeria Pvt. Ltd. 


Investors in the gas business are globally on an emotional high as the world becomes increasingly conscious of the need to cut down on carbon-emitting energy sources. The shift of preference to 'greener' energy sources has steadily increased the demand for gas, a trend likely to continue over the next decade.


The COVID-19 global health pandemic led to major supply chain disruptions in 2020 this, in turn, led to a global reset with companies ramping up demand for gas as they try to reestablish pre-COVID-19 levels of output. The incline in gas demand will put upward pressure on gas prices thereby resulting in gas producers increasing supply to temper rising price momentum.


The 'living with COVID' environment will result in a change in how society interacts and how markets calibrate product value along changing value chains. The gas market would grow but the use of gas would depend on pricing, delivery channels, and regulation. High-handed government policies could either increase prices or cut back supply either of which would hurt the consumer.


The key to ensuring that the Nigerian economy moves along the trajectory of global best practices is to allow the principle of a 'willing buyer' and a 'willing seller' to prevail in the price discovery process for domestic LPG, this would require the following:

  • The government allows price-deregulated market operations without the interference of regulatory bodies imposing ambiguous charges.
  • The government preemptively moves against business cartels that potentially create a monopolistic or near-monopolistic pricing structure that allows members to take undue advantage of consumers.
  • Support the building of modern distribution infrastructure using a private-public partnership (PPP) model.
  • Improve domestic security to enable wider gas penetration nationwide. This would improve economies of scale and scope.
  • Upscaling digital integration into the gas production, distribution, and marketing value chain.
  • Weeding out of unlicensed industry operators and monitoring of safety standards and enforcement of standard operating procedures (SOPs) along industry value chains


In the previously referenced Proshare oil and gas (O&G) 2021 report, it was emphasized that "The notion that the oil industry will suddenly disappear is wrong, but so also is the belief that oil-producing countries have time to scrape by as the world pivots to new energy sources. The reality would seem to lie somewhere in-between both outcomes."


The report further noted that "Oil and gas companies will need to change their business models with less dependence on revenues from oil over the next decade while they also would need to ramp up their development of gas and its various uses in both industrial and domestic settings. With companies increasingly concerned about environmental, social, and governance (ESG) matters, the business environment will sashay towards friendlier environmental and social practices with higher emphasis placed on corporate governance and its consistent attention to best corporate practices".


The change in the mix of oil and gas as relevant sources of corporate revenues in years ahead would naturally create a non-statutory sunset period for the dominance of regulatory intervention in price determination in the O&G  sector over the next two decades (see Illustration 15 below).



Illustration 15:  Changing the Energy Mix, A Migration to the Probable (2018-2040)

Proshare Nigeria Pvt. Ltd.

The gas market (particularly the market for LPG) would see a future free from the stifling arms of public sector agencies which analysts believe presently pass avoidable costs to consumers. The desirable outlook would be a situation where the unit cost of gas declines as economies of scale and scope kick in and make cooking gas noticeably cheaper, thereby spurring higher levels of domestic gas consumption and a reduction in the use of "dirty" energy sources such as dual-purpose kerosene (DPK), coal and firewood.


On page 78 of Proshare's January 2021, O&G report the authors insisted that "In muscling forward Nigerian O&G firms must find segments of the new technology-framed energy market to service. In a decade the oil and gas business would be unrecognizable with price determination prised from the fingers of cartels and demand and supply being driven more closely by market forces. Efficiency, effectiveness, and cost-containment will be central to corporate survival. Another major factor would be technical skills and consumer-sensitivity".


The gas market will be a central focus of the Nigerian economy over the next few years but it must come from a place of competitiveness, strategic thinking, and the leveraging of technology that is fit-for-business. If the gains of the resurgent gas market are not going to go up in flames all stakeholders must realize that the mistakes made in the white oil business must be avoided. As much as possible the gas business must be domesticated with strongly integrated value chains built into the industry's future with human capital, engineering, and software infrastructure tethered together in a stack of productivity propositions that would make the Nigerian gas sector a global leader. 


Proper gas pricing is important but mostly within the context of an industry structure and operating framework that lives off the back of world-class standard operating procedures (SOPs) and best-in-class corporate governance practices. 

Proshare Nigeria Pvt. Ltd.


Downloadable Version of Memo to the Market: PPPRA and the Nigerian Gas Market, Avoiding a Robinhood

1.   Full Report: Memo to the Market: PPPRA and the Nigerian Gas Market, Avoiding a Robinhood - Mar 02, 2021

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Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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