With over 180 trillion standard cubic feet (Tcf) of proven gas reserves and over 600 Tcf of proven and probable (2P) gas reserves, experts think that government should liberalize investments and optimize market opportunities in the gas sector.
With the lucre of billions of dollars in annual gas export earnings on the one hand and palpable internal supply shortages on the other hand, government appears torn between acute necessities that compel regular reworking of important policy strategies.
Currently, three programmes are running to provide gas for domestic market, fire new electric power plants to boost supply, and harness associated and non-associated natural gas resources for reliable fuel that would displace costly and less efficient liquid industrial fuel options.
With programmes conceived under the Nigerian Gas Masterplan and subsequent Gas Revolution, government is positioning gas as the key driver of economic and social development of the country, deemphasizing the preceding focus on huge revenue targets from gas export projects.
The swing in policy direction followed astronomic rise in domestic gas consumption as local demand base expanded with parallel capacity growth in the electric power production.
Thus, evolving plans for gas valorisation and drawing priority between domestic supply and export targets have dominated industry debates and influenced policy shifts in the petroleum industry for the past decade, leaving a string of liquefaction, fractionation and sundry gas conversion projects stranded at critical investment stages.
According to the documents available at the corporate planning division of the Nigerian National Petroleum Corporation (NNPC), government’s gas policy direction has in the period been swinging between export and domestic targets as industry players forage through policy incentives for better investment options and commercial returns.
At inception, NNPC stated in a document, policy drivers had seen gas a by product of oil production and associated gas was burnt off in routine flaring at oil production sites.
However, a combination of environmental, regulatory and economic concerns as well as global trends in the industry raised the consciousness of the government on the peculiarities of natural gas as commercial product.
Also, the growing status of gas as preferred industrial fuel, its rising value in the export market and the commerciality of gas investments gave rise to rapid evolution of policy, regulatory and legal frameworks for gas monetization.
Over the period several decrees, policy documents, directives and laws were issued to the industry to stimulate investments in gas monetization.
These legal instruments propelled operating companies, mainly multinational oil firms that run joint ventures with Nigerian National Petroleum Corporation (NNPC) to thrust initial feet into gas projects. Thus companies like Shell began to create special entities for gas portfolios.
There were also the Agip gas masterplan, Mobil’s Natural gas liquids (NGL) plants, Chevron’ gas-to-liquid (GTL) plants, Total’s Obite Gas Plant, and many more by different companies with operated assets in the country.
However, these efforts were not adequate to rein in associated gas as Nigeria put more and more fields to production. And in no time gas flare reduction became a huge issue in the country, prompting government to set time 2007 and 2010 as deadlines for elimination of flares at production sites. But a combination of funding constraints, project underperformance and regulatory laxity truncated the targets, sending policy developers back to strategy room.
Operators in the country pointed at shallow domestic market, lean local demand for natural gas and sub-commercial domestic tariff structure are key disincentives for further investments in gas.
One huge leap in realization of policy targets came with the realization of the country’s, nay, Africa’s first gas liquefaction project driven by a consortium of investors led by Shell and her joint venture partners.
The success of Nigeria Liquefied Natural Gas (NLNG) Limited in absorbing huge volumes of associated gas from project partners’ oil fields, the company’s large share at the global market space, and its huge commercial returns swayed policy direction towards export.
Thus, other export projects were quickly conceived, including the West African Gas Pipeline (WAGP), Trans-Saharan Gas Pipeline (TSGP) and new liquefaction projects at Bonny, Brass and Olokola.
Whereas the WAGP has been delivered and activated, NLNG-7, Brass LNG, Ok-LNG and TSGP have all been caught up in a number of policy swings, delays in investment decision and fiscal uncertainty currently prevailing in the industry.
Currently, emphasis has been pushed back to meeting domestic gas demand in a deliberate process use gas in driving development across the domestic real sector.
Thus, the central to the government’s economic policy for national growth is the reformation of the Nigerian gas sector, and to facilitate the reform of the sector, the Nigerian Gas Master Plan (NGMP) was introduced to guide investments in gas production, processing, transportation, and distribution.
The masterplan is sold as a holistic framework for the development of full gas industry value chain in Nigeria.
Among other things, the masterplan provides a blueprint for gas infrastructure development in Nigeria, guide all investment in gas infrastructure to maximize synergies and align infrastructure development.
The comprehensive plan provides for creation of three domestic central processing facilities at the Warri/Forcados area, Akwa Ibom/Calabar area and Obiafu area (north of Port Harcourt).
These central processing facilities form the major gas hubs where wet gas from gas fields will be treated and processed to extract LPG and condensate while the dry gas is fed into a network of three gas transmission lines that take gas from production hubs to key demand centres in the country.
Given the level of foreign direct investment interests in gas based industries such as fertiliser production, power generation and methanol production, government introduced mandatory Domestic Gas Supply Obligation (DSO) regulations to ensure the availability of gas for domestic gas utilisation projects.
By regulation government has made participation in the programme mandatory through allocation of domestic gas obligations among all operating companies in the country.
Under the regulation all oil and gas operators in the country to set aside a predetermined amount of gas reserves and production for the domestic market.
The regulation also empower the Minister of Petroleum Resources to stipulate the requisite amount of gas to be set aside periodically by International Oil Companies (IOC’s) for a period of between 5 – 7 years.
The regulation also mandates oil and gas producers to comply with their obligations or face penalty for gas under supplied and or restrict export of gas produced by erring producers or both.
On the commercial side, incentives are also built into the arrangement to create a structured and transparent framework for the pricing using market price benchmarks.
Under the new gas programmes, domestic market tariff has been reviewed from less than two dollars per 1000 standard cubic feet (scf) TP $3.30, Thus narrowing the gap between export prices and local prices for natural, and also stripping export projects the status of first appeal.
Whereas domestic gas programmes continue to earn government’s policy drivers commendation, investors trapped in stalled liquefaction projects blame policy instability for debilitating delays that led to current fiscal quagmire that stalled investment decision.
Managing Director of Seplat Petroleum, Mr. Austin Avuru, leads the opinion that policy concepts that gave generous incentives for gas liquefaction and export without parallel buffer for the domestic market were slipshod.
Mr. Avuru whose company has invested heavily in the Gas Revolution programme also applauded government’s intervention in correcting domestic tariff for natural gas in the country, saying the move would guarantee long term view on investments in the sector.
In criticizing the previous emphasis on revenue focused LNG projects in the country, Mr. Avuru who is a former President of the Nigerian Association of Petroleum Explorationists (NAPE) said the past leaders of the industry were not looking into the future.
“But I’m not sure anybody is plotting that graph and saying by this date this is where we might be. The reason I said nobody might be doing that is that we have seen a natural gas demand drop on out laps and we are not ready for it.
“In the past 20 years our domestic consumption has been 300 million to 400 million standard cubic feet (scf) of gas per day. Then suddenly the attempt to deregulate the gas market and privatize the power sector, and all of a sudden domestic demand has jumped to 1.5 billion cubic feet (bcf) of gas per day. So there is a shortfall and that is why all the power plants are struggling.
“At the same time, this country has been struggling and making it a matter of prestige that we must have three LNG plants. We must have Brass; we must have Olokola and Bonny LNG plants. Everybody is talking about foreign energy security. Nobody figured out that by 2013 domestic demand might be 3.0 bcf. Nobody prepared for it.
“So today, we are suddenly in a situation where it is actually senseless to drive any additional LNG project. Maybe one additional train in Bonny and we concentrate on domestic supplies, and that will take all our production,” he opined.
Managing Director of WAGP, Mr. Walter Perez, has in several occasions decried the capacity underutilization of the export pipeline despite a waiting market that offers premium for Nigerian producers over the domestic tariff.
The facility which, he said, is primarily owned by Nigeria currently suffer acute underused flowing inability of the franchise shipper, N-Gas, to meet its supply obligations to regional customers.
Despite dismantling monopoly on the pipeline and offering multiple shippers opportunity to explore the regional market, response from gas players in Nigeria has been very disappointing.
Latest check shows that the regional gas conduit is still grossly underutilized despite promotional visits by Mr. Perez to Lagos.
Managing Directors of Shell and NLNG respectively however continue to contend that both domestic and export projects could be jointly pursued given the country huge gas reserves profile.
Former Managing Director of NLNG, Mr. Chima Ibenche, Told Energy Today in Abuja that domestic gas projects and export gas projects need not be mutually exclusive.
According to him, government agencies in the industry appear to sell the impression that the gas opportunity in Nigeria could either target local market or foreign market.
In actual fact, he said, both export and domgas projects could play complementary roles in meeting government’s gas-to-value target of eliminating flares and monetizing the resources.
He explained that huge foreign exchange income flowing in from the export market could contribute to realization of governments costly infrastructure development programme in the domestic gas environment.
Last week, current Managing Director of NLNG declared that Nigeria is underutilizing her gas potentials, pointing at other gas producing countries that have used their reserves profile to attract world class technology driven projects that hold potentials for sustainable value creation.
He said the commercial returns yielded annually by NLNG to the country plus the non-revenue economic benefits strongly recommends increased investments in the highly successful enterprise before the global market gets crowded with cargoes.
He dispelled the widely held impression that NLNG is totally export focused, explaining that key part of the company’s business is production liquefied petroleum gas (LPG) to satisfy domestic demand.
He said the company currently meets over 80 percent of total LPG supply to the domestic market and has also developed capacity for 250 metric tonnes of cooking gas dedicated to the local. He added that the company would continue to invest in LPG capacity development as domestic demand continues to grow.
On flare reduction performance, Mr. Omotowa pointed out that the company has provided facility for its promoters to take over four trillion standard cubic feet (4.0 Tcf) of natural gas off the flare boom.
And with the natural gas harnessed from the production sites, he explained, the company has been able to muster over $10.5 billion or N2.1 trillion in gross earnings in 2014 alone.
If the planned seventh train of the plant is achieved, he said, the company would add some 40 percent capacity for LNG, LPG and flare reduction capacity.
In terms of tax performance, Mr. Omotowa stated that the company remained the biggest single tax payer in the country, ahead of multinational and indigenous companies in the country.
He also stated that the gas company has lived up to its status in delivering performance realizing Nigeria’s key aspirations in the petroleum sector.
He said NLNG currently stands tall as the biggest indigenous shipping company with its Bonny Transport Limited’s ocean going vessels. He added that the company has delivered impressive performance at Local content compliance in workforce, vendor patronage, scholarship schemes, training of indigenous technical personnel for industry operations and maintenance jobs.
A port facility planned by the company, according to Mr. Omotowa, will engage over 18000 local workers during construction.
In stressing that LNG and other export projects do not stand in the way of parallel programmes to satisfy domestic demand, what is required is structured pattern of developing and deriving value from Nigeria’s gas resources in a manager that value could be generated from all fronts.
He cited Australia as an example, saying whereas the country’s gas reserves is 60 percent that of Nigeria’s proven reserves, it generates over 50, 000 megawatts of electricity and developed 400 percent Nigeria’s LNG capacity.
Also pointing at Qatar, he said planned and harmonized gas programmes earn the Middle East country over $100 billion in export revenue annually.
In proffering a balanced policy approach for gas monetization in the country, the President of Nigerian Gas Association (NGA), Mr. Bolaji Osunsanya, told Energy Today that government should run both domestic and export projects simultaneously.
Mr. Osunsanya explained that the demand pressure in the domestic market would soon be satiated, leaving the country in search of surplus volumes from the capacities being developed under the prevailing domestic market incentives.
With a falling oil prices, low revenue and huge funding requirement for development of internal gas facilities and infrastructure, time appears to beckon on government alter strategies in order to position the nation’s gas sector for the global market.