The Federal Government in December 2014 announced a new gas price regime to boost investment in the midstream oil sector and ultimately help in stabilizing power supply. In this analysis, Chika Izuora takes a look at the country’s gas deposit, investment initiative and the new drive to enhance electricity supply
Nigeria is endowed with abundant natural gas resources, which in energy terms, is in excess of the nation’s proven crude oil reserve. Nigeria is renowned for its crude oil production and with approximately 187 tcf (Trillion Cubic Feet) of proven gas reserves and a 600 tcf unproven gas reserves, Nigeria can at best be described as a gas province with oil.
Currently, Nigeria is in the 9th position among the countries that have the largest proven gas reserves in the world. Though blessed with abundant gas resources, not much of it has been harnessed with the nation’s primary focus being on crude oil production, a product that accounts for over 90 per cent of its national income.
Current reserved estimate of the Nigerian gas is with about 50/50 distribution ratio between Associated Gas (AG) and Non Associated Gas (NAG) while only a small fraction of this quantity is currently being utilised.
A large fraction, about 63 per cent of the AG produced during the production of crude oil is currently being flared, even then this is a considerable improvement of between seven per cent – 17 per cent from what it used to be some years ago, when it flared between 70 per cent to 80 per cent.
In order to diversify its revenue base and reduce the huge wastage of valuable resource as well as the degradation of the environment as a result of flaring, the Nigerian Government, through the Nigerian National Petroleum Corporation (NNPC) is vigorously pursuing a number of natural gas utilisation projects with its joint venture (JV) partners whereby associated gas would be harnessed to achieve these objectives.
The government is really concerned about the issues of environmental degradation so much so that it initially targeted 2008, then 2010 as deadline year when all gas flares must be extinguished. In line with this target therefore, all the Joint Venture partners have also set their own targets in order to meet this deadline.
However, when all of the targeted time frames failed, there has not been any new time frame but many other initiatives anticipate 2020 as target date.
This means that the gas sector in Nigeria is going to be a beehive of activities, and a lot of room exists for investment in this area. Some of these are: LNG (Liquefied Natural Gas), IPP (Independent Power Plant), GTL (Gas to Liquid Conversion), NGL (Natural Gas Liquids) and Methanol. Gas supply to local industries, is indeed an industry with great potentials and future in the 21st century.
While a number of gas utilisation projects have already been completed, commissioned and in operation, several other projects are at various stages of execution. In addition, local industries have started converting from the use of fuel oil to gas due to increase in awareness.
Government Gas Projects
On the domestic front, NNPC through its subsidiary, Nigerian Gas Company (NGC), currently supplies gas for power generation, either as source of fuel or as feedstock to cement and fertilizer plants, glass, food and beverages, manufacturing industries and so on. More local industries are now aware of the advantages and benefits of using gas, hence the demand for gas is increasing. The Nigerian gas market is a profit oriented market awaiting potential investors.
For the international market, NNPC and its Joint Venture partners are currently embarking on several gas utilisation projects, which include the following:
Escravos Gas Project which is executed by NNPC/Chevron JV. The plant is located in the Southwestern part of the country and it produces mainly LPG for export from its first phase.
NNPC/Mobil joint venture initiative
Nigeria, through NLNG (Nigeria Liquefied Natural Gas) Ltd supplying above 1 billion standard cubic feet of natural gas for feed stock/fuel to the plant from their Obite, Obiafu and Soku fields respectively while the Ekpe Gas Compression Projects an NNPC/MOBIL JV gathers gas that was being flared in this field for enhancement of oil production by gas lifting and gas re-injection.
The Oso 2Y2 Project is also being executed by the NNPC/MOBIL JV with the objective to provide additional gas make-up for the Oso NGL as well as maintain condensate production at the expected plateau.
The Belema Gas Injection Project is also an NNPC/SHELL Joint Venture project with an objective to reduce gas flares in five flow stations by re-injecting some of the gas, some for gas lifting, some for use as fuel by local industries and the excess for backing out NAG that is currently used to meet various existing contractual obligations while the Odigbo Node Gas Project is to gather about 113mmscf/d of AG from about six flow stations in the NNPC/Shell Eastern Nigeria Fields, for supply (about 92mmscf/d) to Aluminum Smelting Company of Nigeria (ALSCON) as feed gas and for gas lifting.
Odidi AGG Project is an NNPC/Shell JV in the South Western part of Nigeria with the objective to gather gas and inject into the ELP (Escravos to Lagos Pipeline), which will eventually form part of the West African Gas Pipeline that will supply gas to some West African Countries.
Also, the Cawthorne Channel Gas Injection Project gathers the gas that is currently being flared in this field for re-injection and for supply to third party for LPG extraction while the West African Gas Pipeline Project supplies gas to some ECOWAS countries, pursuant to Nigeria’s commitment to Article 48 of the ECOWAS Treaty, which encourages member nations to co-operate, consult and co-ordinate their policies regarding energy and mineral resources.
Following deliberations by member-states on improving co-operation on energy, the governments of Nigeria, Ghana, Benin and Togo, through their ministries and departments responsible for energy matters, signed Agreements in 1995, to provide a framework for the constitution of a Ministerial Steering Committee (MSC), and Project Implementation Committee to monitor the development of the project.
In order to achieve the flare-out target date of 2010, NNPC and some of its partners, have drawn up activities and strategic programmes for the utilization of all gas that is currently being flared as well as future gas production resulting from growth in oil production. These programmes include: NNPC/Elf JV has set its flare-out target year at 2006, and some of their planned projects include Amenam/Kpono, Ofon (Phase-2) and 4-bar integrated oil and gas projects.
NNPC/Shell JV’s flare-out target year initially was 2008 and some of their planned projects include Akri/Oguta, S. Forcados, EA, Bonga, Ubie, Bomu among others and gas gathering and utilization projects. NNPC/Chevron JV’s flare-out target year is 2006 and their planned projects are EGP phases 2 and 3.
Government has also provided some fiscal Incentives in the Gas Industry to attract investors, and some of them provide that all capital costs of upstream gas investment up to the custody transfer points are treated as oil investment and the resulting capital allowances are deducted from PPT at a marginal rate of 85 percent.
Gas Master Plan
The Nigeria Gas Master plan was designed by the present administration to turn the enormous gas reserves in the country into a viable economic vehicle and has been described as the key trigger that will revolutionize the economy.
The federal government understanding the value of natural gas, had designed three strategies; Gas-to-power, Gas–based Industrialization, and a robust gas export market under the master plan.
The Nigerian National Petroleum Corporation, NNPC has outlined a comprehensive gas infrastructure development programme projected to attract an industry wide investment outlay of over $16 billion within the next four years.
Providing details of the gas infrastructure development drive recently, Dr David Ige, Group executive director, Gas and Power of the NNPC said the aspiration for gas development is anchored on the three point strategic focus of the Gas Master Plan (GMP).
Under the strategic themes of the GMP, it is envisaged that the plan will deliver gas to power for at least threefold increase in generation capacity by 2015, achieve reasonable level of gas based industrialization by positioning Nigeria as the undisputed regional hub for gas based industries such as fertilizer, petrochemicals and methanol.
Dr Ige said the ongoing work to consolidate the agenda has thrown up investment opportunities in the gas sector to the tune of $16 billion.
“Opportunities for investments exist in the areas of Financial Services, Gas Transmission Pipelines, Pipe Milling and Fabrication Yards, Upstream Gas Development, LNG and LPG Plants and Gas Processing Facility/Gas Based Manufacturing Industries,” he said.
On the proposed Ogidingbe Gas based Industrial Park, the NNPC GED said that investment opportunities are available in the areas of Free Trade Zone Infrastructure, Port Infrastructure and Real Estate Development.
He stated that the park which is designed to emerge as Africa’s largest Gas City ultimately aims to create the largest gas industrial park Sub-Saharan Africa with Fertilizer, Methanol and Power projects.
Dr Ige explained that after initial choice of Koko as site for the project, Ogidingbe emerged as the new site due to the potential high cost of dredging the 90km Koko access route to the Ocean.
“Ogidingbe has some natural features which made it the choice location based on technical consideration. It has the desirable location by the sea hence better draught than Koko, it is also located by the Escravos River for inland access, it has proximity to existing gas infrastructure via the Escravos Lagos Pipeline System thus enabling relatively easy gas access with less pipeline infrastructure development cost,’’ he said.
In January 2015, construction work on the CPFs would begin and in March same year work begins on real estate development of the Ogidinbge area to service the industrial park while the construction work of the petrochemical complex kicks -off in 2016/2017.
According to him, these factors to be considered in Nigeria Gas Master plan include cost effectiveness and competitiveness in supply of all markets. Others are robust and scalable supply infrastructure as well as fully liberalized and market driven sector that stimulates long run supplies.
“The federal government has put down intervention plans to kick start viable domestic markets which include the introduction of Domestic Supply Obligation Regulation and Transitional Gas Pricing Structure,” Dr Ige said.
In an effort to attain full commerciality in domestic market, he stated that “export parity pricing, legislative and structural reforms are already in place while infrastructure development is in progress.
“In attaining full liquidity in the Nigerian Gas Sector, delivery of gas infrastructure would be done in phases, by the end of year 2015, the dots-pipeline spec would be connected so that gas can flow from East to West,” Dr Ige has said.
He explained that by the years 2015 and 2016, consolidation and expansion of infrastructure would be carried out so that gas flows across all the regions in the country.
He listed key projects embarked upon by the government through public-private sector partnerships to include; expansion of the Escravos to Lagos pipeline to 2bl cubic ft capacity by 2015, Oso to QIT, Ibeno project by 2016, the massive Calabar to Kaduna gas pipeline project by 2017/2018, Obiafo to Oben a 120km 2bl cubic ft linking the eastern to western part of Nigeria, QIT-Obigbo and Egbin pipeline.
On attainment of fully market status, he said there would be market led growth, willing buyer, willing seller arrangements, mature regulatory oversight functions and highly diversified gas sector, adding that gas demand is projected to reach 2 billion cubic feet per day by the end of 2015.
According him, the shortlisted core investors for the Nigerian Gas Sector are Gazprom of Russia, British Gas of Britain, Centrica of Britain, EoN Rhugas of German, Statoil Hydro of Norway, Shell-Anglo Dutch and Chevron-USA.
Others include Spanish Gas Natural and UnionFenosa, Gail of India, Thailand’s PTT, Korean Kogas, Oando and Sahara Energy of Nigeria as well as Global Energy/Hanover of Nigeria and USA.
Private Sector Initiative
Prompted by the incentives thrown open by government, the IMW Industries (Clean Energy Compression Corp.) of Chilliwack, British Columbia, Canada, a Clean Energy Company is collaboration with Borkir International Co. Ltd., a member of the Dangote Group of Companies in Nigeria, for the nationwide development of compressed natural gas (CNG) fueling station infrastructure in Nigeria.
The Dangote Group of Companies have approximately 5,000 delivery trucks in their own fleets to convert to CNG operation and will also be supporting CNG fueling and conversions for other companies and their fleets throughout Nigeria.
Mr. Sani Dangote, Chairman of Borkir International commenting said, “Borkir is pleased to implement the latest CNG technologies for vehicles and stations in Nigeria which can be used as a platform to reduce diesel fuel costs with domestic natural gas and reduce vehicle air emissions at the same time.”
In countries around the world, IMW products are used to fuel vehicles with clean-burning CNG, as well as to supply natural gas for industrial users not serviced by pipelines via bulk gas transportation systems.
The use of CNG in natural gas vehicles (NGVs) reduces greenhouse gases (GHG) from emissions by approximately 25 per cent compared to gasoline or diesel. In addition to the environmental benefits, the cost of CNG is typically 40 to 50 per cent less than gas or diesel, when compared by energy content and this makes fueling more affordable, especially for high-mileage users.
NERC New Gas Price Regime
The Nigerian Electricity Regulatory Commission (NERC) has expressed optimism that Nigeria would witness better supply of electricity as international companies would now be encouraged to sell to the domestic market because of increase in the prices of the product in December 2014.
The price of gas for power generation last this December went up and the price as approved by the Federal Ministry of Petroleum and NERC is now $2.50 per MMBTU (Million Metric British Thermal Units) effective the same month while gas transportation cost was also increased to $.80.
NERC Chairman, Dr Sam Amadi, said the price of gas would be a turning point for power generation and supply in the country even though he admitted that transmission is still a bottleneck and particularly called on the Federal Ministry of Power not to interfere in the running of the Transmission Company of Nigeria.
Amadi said: “I think it (transmission) is a simple bottleneck. The Ministry of Power should remove its hands from the transmission company, simply by allowing it have a board with clear directives.
“With the new gas price, we expect some increase in power production. Already, some of the gas suppliers have made commitments but we are certain that this new gas price will help in the longer term because people will, on that basis, begin to invest in gas infrastructure knowing that the price is good and will be indexed.
“It has the potential of enhancing the capacity of gas to power going forward. It will unlock the sector for more investment and in the interim, ensure that we have more gas to power our generators. But ultimately, the value is down the road when these investments have been made and matured.”
He also spoke on some of the challenges associated with the privatised electricity industry, dismissing fears about power supply dipping further.
Amadi said: “From the empirical evidence we have, it is actually not true that electricity has done worse since take over. Some of the operators have done fairly well’. On the amended Multi Year Tariff Order (MYTO 2.1), the NERC chief said tariff increase was deliberately approved for only commercial consumers to encourage the utilities to invest heavily in improving service delivery, noting calls for significant improvement in supply to residential consumers.
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