Nigeria has recently been described as a gas producing country having some significant quantity of crude oil, but the country has failed to fully utilize the opportunities inherent in gas. This article highlights the challenges confronting the sector, as well as the opportunities; and also explores the various ways the challenges can be surmounted and the opportunities tapped for the benefit of all Nigerians..
It has been observed that Nigeria, despite having abundance of natural gas, and being the ninth largest natural gas resource holder in the world, is facing an energy crisis. It has been argued severally that the key energy challenge facing Nigeria was not a lack of energy resources such as natural gas, but the question of what the country is doing with its resources.
Over the years, gas has played a major role in economic growth, influence and prosperity of countries that have effectively used the commodity, such as Russia, Qatar and Trinidad & Tobago, among others. Gas has the potential of creating linkages with other sectors of the economy such as agriculture, industry and power. Gas penetration is key to enhancing industrial growth of the transit towns and villages. A typical example in Nigeria is the Escravos to Lagos gas Pipeline System (ELPS), which is responsible for the proliferation of power plants, gas based industries, cement companies, fertilizer plants among others. This is a pointer to the fact that the expansion of gas pipeline can influence economic growth and serve as a catalyst for nation building In Nigeria. Gas, unlike oil, has had significant impact on the Gross Domestic Product (GDP).
It is a known fact that Nigeria can achieve a greater percentage of its Economic Recovery and Growth Plans’ objectives, as well as improve Real Gross Domestic Product (GDP) growth through the effective utilisation of its gas resources.
Natural Gas remains a viable fuel option for environmental sustainability due to its cleanliness and low green gas emissions. Experts agree that there is a correlation between the levels of domestic gas consumption, power production, and the Gross Domestic Product (GDP) of a country. According to some, full monetization of our abundant natural gas resources will propel the Federal Government of Nigeria’s economic diversification agenda.
In view of the enormous opportunities, experts are unanimous in their views that emphasis should immediately shift to developing the country’s gas resources and addressing bottlenecks to tapping the immense potentials of the country’s gas resources. This was the view of experts at the 2018 International Conference and Exhibition of the Nigerian gas Association (NGA) which held in Abuja. According to the experts, Nigeria, as with other countries in the West African region, must embrace the use of natural gas to accelerate the pace of development and industrialization of their respective national economies within a regional framework. In his presentation to participants at the conference, Dr. Ernest Azudialu-Obiejesi Group Managing Director, Nestoil Group, lamented that the audacious goal of having the gas sector contribute up to 10 per cent to Nigeria’s annual GDP is yet to materialize. He noted that inadequate investment in upstream gas development, pipeline and other related infrastructure has resulted in both an inadequate, aggregate gas supply and left several stranded gas assets across the country.
He noted that the well-intentioned plan to set up Central Processing Facilities (CPF) in three franchise areas has also not worked because of the obvious limitations in the commercial arrangements driven by government and International Oil Companies (IOCs). He argued that government may need to review the existing CPF franchise arrangement and invite indigenous companies to drive the gas processing infrastructure that will serve as the building block of a re-loaded Nigerian Gas Master Plan (NGMP).
Continuing, Azudialu-Obiejesi said, “The power sector accounts for over 80 per cent of the domestic gas off-take market. Liquidity issues in the power sector means that gas producers are owed huge sums of money for gas they have supplied. “Furthermore, they cannot get the required financial securitization to invest in additional supply of gas to power generating companies (Gencos) even if the infrastructure were in place. “As a player in the power sector, I am very conversant with the liquidity issues bedeviling that sector. I am of the very firm belief that if the liquidity issues in the power sector are resolved, the gas supply industry in Nigeria will experience a boom and the need for price regulation and other forms of government interventions would diminish.
“Gas Flaring is the result of these obvious gaps in the gas industry. Despite the best efforts of government, the menace of gas flaring continues to linger. The recent Gas Flaring Regulation embedded in the 2017 Gas Policy is an audacious and innovative step by Government to discourage gas flaring. Apart from increasing the penalty for flared gas to $2 per 1,000 standard cubic feet, the policy seeks to commercialize the utilization of flare gas through 3rd party investors. “This is quite commendable but I doubt that it is far reaching enough. This is still akin to treating the symptoms rather than the root cause. A permanent solution would be to address the liquidity issues in the downstream and power sectors to encourage much needed investments in gas gathering infrastructure that would eliminate gas flaring.” Also, in his presentation, Group Managing Director of the NNPC, Mr. Maikanti Baru, listed the challenges facing gas development to include challenge of pipeline vandalism which has led to shut-in of some wells.
“It is important to reiterate that we cannot achieve our collective growth aspiration without gas,” he noted.
According to Baru, for some wells, they will never come back on-stream while for others, additional investments will be required to bring them back to production. He said, “Similarly, there are issues around power transmission and evacuation. Non-evacuation of power has led to back pressure on the transmission lines which have also resulted in shut-in of producer wells. “Thus, it is a cyclical challenge. This challenge will definitely dovetail into discussions around National Grid upgrade, Grid decentralisation, off-grid power, captive power among a host of alternatives. “I will not forget to mention the challenge of funding critical gas infrastructure. In fact, this led to our adoption of the Contractor-financing model for the Ajaokuta- Kaduna-Kano (AKK) pipeline.” Realising the importance of gas to the economy, Baru disclosed that the NNPC was already playing a key role, diversifying the Nigerian economy from an oil-based economy to a gas-driven economy.
According to him, the multiplier effect of the evolution of gas-based industries to galvanise industrialization and develop small and medium scale enterprises, fertilizer production for the country’s agricultural revolution, power generation for residential and industrial consumers, and petrochemical products for almost all sectors of the economy. He argued that presently, there was an unprecedented demand for gas which far outweighs the global average growth rate. This growth, he maintained, was mostly fueled by demand from the power sector following massive investment in power plants, mainly National Integrated Power Project (NIPP) and relocation of gas based industries into Nigeria. “Our current average gas production is in the region of 8.5 billion SCF per day (Bscfd). Of this volume, about 43 per cent – 3.7Bscfd is exported, 32 percent – 2.7Bscfd is utilized for gas re-injection/gas-lift, 18 per cent -1.5Bscfd is used domestically for power and industries while the balance of 7.0 percent – 0.6Bscfd is unfortunately being flared,” he noted. Baru added that in the last eight years, the NNPC has completed and commissioned over 500 kilometers (KM) of gas pipelines which are now delivering gas to the country’s power plants and industries.
He identified some of the completed pipelines as the Oben-Geregu (196 km), Escravos-Warri-Oben (110 km), Emuren-Itoki (50 km), Itoki-Olorunshogo (31 km), Imo River-Alaoji (24 km) and Ukanafun-Calabar pipeline (128 km). In addition, he stated that the NNPC was also also currently completing the construction of the strategic 48 inches by 130km Obiafu-Obrikom-Oben (OB3) East-West interconnection pipeline which would deliver 2Bscfd of gas. He said, “We expect to complete and commission this pipeline early 2019. In addition, we are completing the expansion of the existing Escravos to Lagos Pipeline (ELPS) to double the installed capacity of ELPS from 1.1Bscfd to 2.2Bscfd. This line is expected to be commissioned by the end of this year.
“To underscore the importance of the subject matter, we are not only investing in gas pipeline infrastructure, we are also looking at developing the feedstock – gas, so that we do not build an empty pipeline. To this end, we identified key gas development projects to forestall any shortfall at least in the medium term. “This we termed the ‘Seven Critical Gas Development Projects (7CGDP)’. These projects are an integral leg of the gas development strategy designed to leverage the full potential of gas to meet the target of generating at least 15 gigawatts (GW) of electricity by 2020. “The Seven Critical Gas Development Projects include – the 4.3 trillion cubic feet (Tcf) Assa North/Ohaji South field; the 6.4 Tcf Unitized Gas fields (Samabri-Biseni, Akri-Oguta, Ubie-Oshi and Afuo-Ogbainbri), the 7 Tcf NPDC’s OML 26, 30 and 42, the 2.2 Tcf Shell Petroleum Development Company (SPDC) JV Gas Supply to Brass Fertilizer Company, the cluster development of 5Tcf in OML 13 to support the expansion of Frontier E & P Uquo Gas Plant; and the cluster development of 10 Tcf Okpokunou/Tuomo West in OMLs 35 and 62).”
Baru disclosed that these projects were expected to deliver about 3.4 billion standard cubic feet of gas per day (bscfd) to bridge the foreseen medium term supply gap by 2020 on an accelerated basis. According to him, these projects would not only bridge the projected shortfall in supply upon completion, but would also signal the beginning of the process of closing demand-supply gap in the domestic gas market.
“It is important to reiterate that we cannot achieve our collective growth aspiration without gas,” he noted.
However, despite NNPC’s laudable moves in development of Nigeria’s gas resources, Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, warned that, “If we do not take steps to attract the very little capital that is out there in the diaspora, for investment in gas plants, in gas investment and they all fizzle out into the new emerging economies in Africa, who are beginning to find gas almost everyday, we would be going to a point where we would basically be stuck with having to invest our own personal money which we do not have to be able to move gas forward.”
Kachikwu stressed that there is a huge amount of urgency, to look at gas policies again and not get stuck with policy directions that would not move gas forward.
He said, “We have worked very hard on policy. We have the Nigerian Gas Policy and other previous policies that we have rehashed together to have a better focus. We have also done a lot of work in terms of gas flare, we are beginning to open up our fields so that we can deal with gas flare issues; we are also looking at making LPG available across the whole country.
“Those are policy push. But the key element is the funding of some of these policies. Most times we do not have the funds to push them forward and the private sector have not bought into the fact that going forward, gas is going to be the beautiful bride in the room. “We also need to find a way of decoupling gas, so that gas on its own can stand as a profitable investment.” Also speaking, Managing Director of Total Exploration and Production Nigeria Limited, Mr. Nicolas Terraz, noted that efforts should be made to truly interrogate, and take a deeper look at some of the challenges confronting the country in the area of gas development, noting that the problems go beyond developing new infrastructure.
Terraz, who was represented by Mr. Patrick Olinma, Executive Director, Asset Management and New Energies, Total Nigeria, at a panel session at the just concluded Nigerian Gas Association, NGA, International Conference and Exhibition in Abuja, argued that the solution to the problems in the gas and electricity sectors go beyond infrastructure development. According to him, no matter how much infrastructure is put into the system, it is not a silver bullet; it would not move things forward.
He said, “Security of off-take payments, having a bankable Gas Supply Agreement, GSA, in the Nigerian context, with all the guarantees, does not really mean much. We built a multi-million dollars pipeline, to deliver gas to Alaoji, up to 300 million standard cubic feet, SCF. Today, we are not even supplying up to 10 per cent of the 300 million SCF in that pipeline and yet we have a bankable GSA, with the Alaoji power plant. “I don’t know how many gas suppliers have been able to enforce ‘take or pay’ that you have in these gas contracts; and indeed around the world, I don’t know how many suppliers have been successful to enforce ‘take or pay.’” He pinpointed security of gas pipelines as one of the crucial areas that requires attention if the Nigerian energy, oil and gas sector must achieve its full potential. Terraz, also suggested placing emphasis on solving the myriad of issues affecting the development of the gas sector over fixating on building new infrastructure.
He added that domestic gas supply challenges had contributed to problems in the power sector, while he noted that the industry should be focused on hindrances which if not dealt with, could impede the development of the sector. He said, “For instance, we and several other independent companies use the Trans-Niger Pipeline (TNP), which is a very crucial pipeline, to evacuate gas. “When we make our plans we consider 25 per cent non-operational outage. This has nothing to do with maintenance or operational issues, but with security, vandalism and all sorts of things going on in the Niger Delta. I am talking about an existing pipeline not a new infrastructure.” Mr. Anthony Okolo , MD Royal Niger Emerging Technologies towed the path of Terraz. He queried the genuine intention of government to pursue local content, claiming that developing new infrastructure or building new technological competencies has never been the challenge with growing Nigeria’s oil and gas industry. “How do you explain to your business partners, after identifying a huge gap that made business sense, investing millions of dollars, and you end up not getting patronage!”, he lamented. “One would expect the local content law to protect a Nigerian, in fact the first African company to develop a critical component in the in the industry; we built a well-head system! But as I speak, the well head has been sitting in China, we don’t even have money to bring it into Nigeria after so much has gone into building it.”
Alleging the lack of will power by government agencies to sanitize the system, he continued “It’s not about building new infrastructure, capacities, or capabilities but about stake holders and the government making a solemn commitment to protect and maximize existing investments in-country. We can leverage our competencies and stop seeking new ones at the moment. Why are the operations and maintenance jobs not coming to the locals with competences? Yet, there is an existing Act that protects local content.” Speaking at the same event, the Chairman/ Managing Director of Chevron Nigeria Limited, Mr Jeff Ewing, represented by the Director, Downstream Gas, Mr. Sanjay Narasimhalu, posited that opportunities for investments into the Nigerian gas sector were enormous. He advocated for stakeholders to support and enable the willing seller – willing buyer gas pricing model in order to make the market competitive which would eventually allow for increased private investment.
Ewing added that there should be deliberate exploration for non-associated gas to support the Nigeria Gas Master Plan, with a focus on high liquid yield for non-associated gas resources to optimize the gas development project economics.
Meanwhile, in a communiqué issued at the end of the conference, the NGA noted that going by the fact
that natural gas has the capacity to propel industrialization, Nigeria should therefore aim at balancing domestic and export needs with domestic gas consumption embracing gas-to-power, gas-based industries such as fertilizer, methanol and other petrochemical plants, transportation and other sectors. In the communiqué signed by Mrs. Audrey Joe-Ezigbo, President of the association, the NGA noted that maximizing capacity utilization of existing gas infrastructure is as of much importance, as the push for new gas infrastructure development, adding that there should be extensive due diligence by project developers in planning and execution of projects, as well as concerted efforts to enhance execution capabilities of contractors.
The group further lamented that the country’s gas-to-power value chain is currently neither viable nor sustainable, noting that the country was facing an energy crisis. It, therefore, called on the Federal Government to declare a power sector emergency in order to develop a holistic intervention plan to rescue the gas-to-power sector from collapse, and to put in place plans for the immediate liquidation of the over N1 trillion Naira debts within the gas-to-power value chain and assurances for payment of generation and gas invoices from January 1, 2019.
According to the NGA, the illiquidity crisis in the power sector is exacerbated by added market imperfections which do not provide for adequate incentivization of the entire value chain, including: a non-market reflective pricing framework; ineffectual securitization and guarantees; infrastructure deficits; inadequate tariffing; and the current situation in the foreign exchange market which creates significant exposures, losses and value erosion for investors.
The NGA, therefore, called on the Federal Government to urgently review the progress of the incomplete Nigerian Electricity Sector reform and take necessary steps to conclude the process and solve the pending issues. To this end, the NGA said, “The Conference calls on the FGN to maintain a concerted push towards monetization of Nigeria’s gas resources, noting that natural gas is a key ingredient for the success of the Federal Government enunciated ERGP key priority areas of: achieving agriculture and food security – natural gas resource abundance supports increase in fertilizer production; attaining energy sufficiency in power and petroleum products – natural gas fueled power generation remains the lowest cost option for immediate and massive increase in national grid power generation as well as increased LPG production. “Improving transportation infrastructure – natural gas vehicles will enable in the first instance mass transit and large fleet operations; drive industrialization by focusing on SMEs – natural gas will provide the fuel and energy required for local manufacturing including petrochemicals to grow, providing the necessary platform for Industrialization.”
In addition to the position of NGA, one recalls the communique from the Petroleum Technology Association of Nigeria, PETAN after its OTC outing in which it clearly spells out measures for moving forward, similar to recommendations by NGA. Key among the points is the urgent need for regional integration. While it recognised the local Nigerian challenges, and proffered solutions, it encouraged stakeholders to plunge deep and explore the opportunities in the emerging markets within the region, stating that, ‘regional integration’ broadens markets and attracts investments in Africa’s petroleum sector which will improve quality of life for Africans and also bring returns to the investors. It is expected there would be renewed efforts by the government, companies and other stakeholders to invest their resources in the development of Nigeria’s gas industry, especially in the quest of the country to pursue its economy growth and development, industrialization, job security and energy security through the commodity.
