Gas Aggregation Company Nigeria Limited (GACN)

“Strategic Aggregator”

Roles and Functions

In the

Nigerian Domestic Gas Market

By

Dr. David Ige

Source: Oil & Gas Journal, (December 18, 2006)

OVERVIEW OF THE GAS SECTOR The Gas Resource Base

The gas sector holds significant economic potential for the nation – huge high quality

gas reserves.

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Unprecedented growth opportunity available to the domestic, regional and export LNG markets.

If adequately harnessed, gas offers potential for a huge economic transformation for Nigeria

Demand Growth

THE GAS MASTER-PLAN

4 Challenges Facing Nigerian Gas Sector

1. Gas Availability - Unprecedented pace of growth in demand –

domestic, regional and export.

2. Gas Affordability - Unprecedented rise in global gas price vis-à-vis the

varying capacity of gas buyers to pay.

3. Gas Deliverability - Inadequate gas transportation and processing

infrastructure

4. Commerciality of Supply - History of commercial poor performance of

the domestic gas sector – low price, unpaid bills, weak and

unenforceable GSPAs’

4 Factors have combined to create a near impossible gas supply situation in Nigeria. This is most

evident in the number of power plants idle for lack of gas. GMP was initiated to address these

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The Nigerian Gas Sector - Existing Gas Infrastructure

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THE GAS MASTER-PLAN

4 Step Plan

Despite an aggressive timeline for the implementation of the master-plan, significant progress

is being made in the critical building blocks

THE GAS MASTER-PLAN

4 Step Plan

THE GAS MASTERPLAN

Key Focus Areas

Focus Areas of the

Gas Master-Plan

Short/Medium Term

Gas Availability

(Domestic

Obligations)

Sustainable

Commercial

Framework for

Domestic Market

Scalable & Cost

Effective Gas

Infrastructure

Demand Stimulation

Gas for Power and

non-power industries

Collaborative effort

with E&P, G&P, IOCs

etc.

Develop and entrench

a commercial

framework that will

enable investment in

supply

Infrastructure

Blueprint adopted

CPF investor bid

under evaluation

Pipeline contract s to

be awarded

Identify and contract

anchor gas based

industries to utilize

DSO supplies

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Domestic Supply

Obligations (DSO) Excess IOC Gas Unutilized Gas Flares

3 Sources of Gas

in Nigeria

THE GAS MASTER-PLAN Sources of Gas in Domestic Market

FGN Imposed obligation, backed by

Regulation

Most significant planned source of

gas for evolving domestic market

Plan is to use the DSO specifically

to drive development of market and

structures

Managed centrally by the Strategic

Aggregator

Gas in excess of the DSO

available to monetize

Managed bilaterally on a

willing buyer, willing seller

basis i.e. negotiated terms

Likely to be a limited volume in

the short term, particularly

from IOCs. Most typical of

small operators who have very

small DSO

Gas being flared and for

which no utilization plan is in

place

Usually small volumes –

utilizable on a discrete

project basis

Ideally on bilateral term, but

may involve MPR

intervention for access

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THE GAS MASTER-PLAN

Domestic Gas Pricing – Roadmap to Export Parity

$2 by 2014

$3 by 2014

Index to

Product

Price

THE GAS MASTER-PLAN

Revised Gas to Power Pricing Framework

0

0.5

1

1.5

2

2.5

3

3.5

4

2012 2013 2014

Price/mscf

Price/mscf

THE GAS MASTER-PLAN

Revised Gas to Commercial Sector

THE GAS MASTER-PLAN

Gas Infrastructure Blueprint

CASE FOR STRATEGIC AGGREGATOR

Evolving Gas Sector

Demand growth, particularly in the domestic market is characterized by a more numerous and

diverse group of buyers, necessitating supply from a much wider group of suppliers than is

currently the case. The evolving sector is inevitably more complex than the existing one

Egypt has experienced phenomenal

growth of its gas sector

Introduced a sector based gas

pricing structure

Suppliers get a single pre-determined

aggregate price

EGAS is single buyer of gas from

suppliers

The introduction of the intermediary EGAS institution enabled the Egyptian government to balance

the affordability challenge of customers with commerciality of supply concern of suppliers. We have

adapted this model for Nigeria

CASE FOR STRATEGIC AGGREGATOR

How the Egyptians Handled Complexity

EGAS is single domestic buyer in Egypt

GASCO does all transmission

Gas pricing arrangement; All suppliers get paid $2.5/mscf

Industrial and Power stations pay @$1.01/Mscf

Residential / Commercial customers via LDC pay $1.5/Mscf

EGAS pays commission to LDC @~$0.7-$1.2/Mscf

EGAS pays service fee to GASCO @ $0.03/Mscf

Govt of Egypt subsidizes residential customers sales @~$2.5-$3.2/Mscf

CASE FOR STRATEGIC AGGREGATOR

How the Egyptians Handled Complexity

GAS AGGREGATION COMPANY NIGERIA LIMITED

The Strategic Aggregator

The concept of a ‘Strategic Aggregator’ was introduced and approved by the Federal

Government as part of the Gas Pricing Policy in February, 2008.

GACN

Strategic

Aggregator

Gas Demand

Management

Aggregate Price/

Securitization / Escrow

Management

Network/System

Administration

Trading Platform

GACN (THE STRATEGIC AGGREGATOR)

4 Roles of the Aggregator

There are 4 distinct roles for the SA

1. Demand Management

2. Aggregate Price / Securitization / Escrow

Management

3. Network / System Administration

4. Trading Platform

Each of the roles has a different life span – in

essence the SA’s focus will shift over time

Span of Roles

1. Demand management will continue until

the end of FGN intervention through the DSO

2. Aggregate Price / Securitization / Escrow

Management will continue until the expiry

of the foundation GSPAs

3. Network/system administration will be a

core and life-long activity

4. Trading platform will commence in the

future when the market is fully mature

commercially

4 ROLES OF GACN

4 ROLES OF GACN (contd.)

KEY INTERFACES

3 Key Interfaces to be Managed by GACN

The SA is not a Regulator, but

a regulated entity

Will interface with the Regulator 1. Due diligence, demand

rationing criteria etc. 2. Domestic Supply

Obligations management

Will interface with PIC on 1. Metering related issues 2. Reconciliations of

readings, energy

content issues etc

Regulatory

Interface with potential

buyers, suppliers and transporter on GSPA and GTA

Interface with buyers and suppliers on volume and $ reconciliation issues

Interface with buyer,

supplier and transporter on daily gas nomination and swing deployment issues

Interface with the CPF for periodic reconciliation of volume supplied for billing purposes

Operational

Interface with Regulator

on broad regulatory controls

Governance interface with shareholders through a duly constituted board

Governance

KEY INTERFACES

Strategic Aggregator is a Regulated Entity

Strategic

Aggregator

PIC PPRA

Pricing Supply demand

allocation approaches

Disputes Profit of SA Any other commercial

issues

Measurement issues Energy value

reconciliation

Gas quality and specifications

Other technical issues

THE AGGREGATOR

Options for Ownership of SA

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GAS AGGREGATION COMPANY NIGERIA LIMITED

1B, Malcolm Fraser Street, Asokoro District, Abuja, Nigeria

Telephone: 098759045

THANKS