GAS AS NIGERIA’S NEXT INVESTMENT FRONTIER By Afam P. Umeano

0
483

the role of natural gas in energy security is tied closely to its ability to address environmental challenges. As concerns about air quality and climate change dominate public discourse, natural gas offers alternative to other forms of hydrocarbons.

According to International Energy Association (IEA), a Paris-based think tank, global gas demand is expected to grow by 1.6% per year for the next five years, with consumption reaching almost 4,000 billion cubic meters (bcm) by 2022, up from 3,630 bcm in 2016.

Already, in response to recent announcements by France, Norway, Germany and the United Kingdom placing deadlines on petrol and diesel powered cars, international oil companies are increasingly looking towards gas investments to remain competitive.

“If Europe is saying in five years’ time we are going to exit oil cars to electric cars, oil, therefore is getting its last years,” said Ibe Kachikwu, minister of state for petroleum resources at a recent conference in Abuja, “Except for those who produce and use it for local consumption because they are moving slowly away from it but in terms of an income resource you can begin to count the years on your hands.”

Since the world is moving away from oil, betting on gas has become an economic necessity. Nigeria, Africa’s largest crude oil producer, has proven gas reserves of 192 Trillion Cubic Feet (tcf) with ambition for a projected gas production of 15billion standard cubic feet (bscf) by 2025.

“Nigeria has the world’s 9th largest gas reserves but ranks 17th in production, demonstrating the vast untapped potential that exists in the country,” said Clay Neff, chairman of Oil Producers Trade Section of Lagos Chamber of Commerce and Industry and Managing Director Chevron Nigeria.

According to data from the National Bureau of Statistics (NBS), a government-funded statistics agency, Nigeria sold N85.8 billion worth of gas between January and July 2017, which is about 16 percent of the projected revenue of N544.5 billion for the year. Surely, more work needs to be done.

Engr. Dada Thomas, President, Nigeria Gas Association

Worse still, Nigeria is among the highest gas flaring countries in the world. Between 2012 and 2016, Nigeria flared a total of 1.698 trillion cubic feet (tcf) of gas according to the NBS.

With the international price of natural gas currently hovering around $2.90 per 1,000 standard cubic feet (scf), the 1.698 tcf of gas flared, translates to a loss of $4.9billion or N1.5trillion (using the official exchange rate of N305.75/dollar).  This is 20% of the country’s 2017 budget; it translates to 30 % of the 5.58 tcf of Associated Gas, the Nigerian Liquefied Natural Gas (NLNG) processed for exports as LNG and Natural Gas Liquids (NGLs) since inception. Nigeria’s domestic gas use hovers around 1bscf at a time the world is increasingly shifting to natural gas.

Still, Nigeria has estimated gas reserves of 600tcf, and gas consumption is rapidly growing through the building of gas-powered plants to provide electricity, for manufacturing purpose in factories, as feedstock and for Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG).

It is in realisation of this fact that the Federal Government through the Ministry of Petroleum Resources approved a National Gas Policy (NGP) in June this year. Through the NGP, Nigeria can have a degree of regulatory certainty that discerning investors require to create value. The policy will allow the use of LNG as a vehicle to grow domestic gas sector.

Olufola Wusu, an energy lawyer based in Lagos said an in-depth review of the NGP reveals that it makes provision for LNG for domestic downstream applications as fuel for heavy-duty vehicles, buses and taxis. Other applications are for shipping and rail, agriculture, power, gas source where no pipeline gas is available, backup supply for natural gas pipeline network, and storage for gas about to be flared, which will be used to fuel power plants serving host communities.

A few companies are already positioning to explore investments through the NGP. In September, Kachikwu, signed a landmark Gas Sales & Aggregation Agreement with Greenville LNG and Total for 74MMscf gas delivery to a $500 million LNG facility located in Rumuji, Rivers State.

Greenville, according to the terms, will build small-scale LNG plants that will deliver liquefied natural gas through adapted trucks to states not connected by pipeline. The trucks would have the capacity to travel about 1,000 km on liquefied natural gas before needing to refuel.

Twenty-two million tonnes per annum (mpta) of LNG is supplied from Nigeria to international markets mostly in Asia but local demand is growing. The country generates less than 4,000 MW of power with many power plants lying idle due to non-supply of natural gas to power their turbines.

As opportunities always lurk around problems, smart companies are taking advantage of the situation to create embedded power generation in industrial estates in parts of the country like Ikeja and Aba.

The LNG market is shifting towards spot market from the predominant 20-year long-term contracts. Once dominated by sellers offering “take or pay contracts” the tide of the market is gradually turning to a buyer’s market, where buyers have been able to renegotiate the price of LNG shipments. The implication is that Nigeria needs to look at growing the local LNG market.

A local LNG market is both feasible and profitable. Three critical areas that represent quick wins, according to experts, include energy, science, technology and innovation for development and for environmental conservation.

Energy lawyer Wusu in a post on his website said that perhaps the biggest advantage to the oil and gas industry in Nigeria is the economic impact it has on state funding.  NLNG has so far paid about $6 billion in taxes and $15 billion in dividends to the Federal Government since it started operations.

Gas exploration and processing may very well lead to a revival of manufacturing in Nigeria. Gas plays a key role in developing clean alternative energy sources in various ways, including fertilizer, animal feed, methane for hydrogen, and power generation.

Maarten Wetselaar, head of Shell’s gas business told the Financial Times recently that big oil companies are finding ways to deliver gas more economically. Floating storage and regasification units, or FSRUs — ships which can receive LNG and convert it back into gas — have sprung up on coastlines around the world as a low-cost alternative to building permanent onshore terminals.

The number of countries exporting LNG has almost doubled in the past decade to 35, in large part because FSRUs have made it affordable in places such as Pakistan, Jordan and Colombia. It used to take four years and $500m to build an LNG-receiving terminal. Now you can have an FSRU floating off your country 18 months after taking the decision, said Wetselaar.

New volumes of LNG are entering the global LNG market from the United States, which used to be a major importer and from Australia, with an expected slowdown in economic growth in Europe and Asia. The LNG spot market is making a strong showing as more buyers shun long term contracts in favor of spot contracts.

Globally about 1.06 billion people, predominantly rural dwellers, still function without electricity, half of these live in sub-Saharan Africa. For these and many more, natural gas presents the quickest path towards electricity.

GRAPHICS

For want of time, if it is possible, try to accommodate this write-up into the space available as well as the image,

You may also continue any spill over on another page.

I will be willing and available to edit it into a smaller size.

LEAVE A REPLY

Please enter your comment!
Please enter your name here