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Business Model For Stranded Gas Evolves

Is someone really wealthy when he has no access to his money? The answer is really difficult in a mix of intricate and complex socio-economic context. Think of when your money is fixed for a term period in a bank, tied down in bonds and credit notes, or in equity share certificates. At such times of illiquidity, a wealthy man queues in the line to borrow money at a cost. But money is just a finished resource product, just like a piece of manufactured item ready for utilization. Nigeria’s energy sector with potential gas reserves of 600 trillion standard cubic (600 Tcf) feet of gas and proven gas reserves of 188 Tcf is still vigorously struggling with not only the prevailing acute scarcity in the domestic gas market but also with raising enough capacity to enter the race among producers to capture global market share as technology options narrow down market windows for export gas.

Yet, by all standards, 188 Tcf of gas reserves ranks among the biggest proven accumulation in one sovereign geographical entity. Add the potential for 600 Tcf, then Nigeria stands tall as one of the world’s biggest gas provinces. According to the Deputy Director in charge of Gas Monitoring and Regulation at Department of Petroleum Resources (DPR), Mr Kragha Ekaluo, an engineer, Nigeria ranks seventh in the world and first in Africa in gas reserves base. According to him, Nigeria’s gas reserves life index stands at 79 years as at January 1, 2015. Similar to Oil, the sector aspires to grow the gas resource base aggressively to catalyze growth of the wider national economy.

With adequate reserves base, government has floated series of programmes that seek to position gas as the key driver of the country’s economic development: gas-to-power programme, gas based industrial park projects, flare down programmes at oil production sites, and others which are summed up in the Nigerian Gas Masterplan. According to DPR, strategic framework for gas monetization across the gas value chain for a wholly competitive, market-driven domestic gas sector is being implemented. The programme, he said, is conceived to harness upstream gas for midstream processing and onward delivery to downstream demand centers. Mr. Ekalou told investors that adequate fiscal, structural and commercial arrangements have been installed to smoothen transactional interface between players in the entire gas value chain. He said government has focus on harnessing the nation’s stranded gas reserves that might be left unharnessed appropriate strategies, technology and business models are not evolved to monetize them.

Stranded gas reserves, according to him, are available but not developed due to economic and physical constraints. He explained the stranded reserves exist in remote fields un-economic for monetization, including associated gas reserves without gas gathering systems. Yet, delivering on the policy mandates that form crux of industry programmes has since exposed more fundamental problems of attracting the right mix of investments required to deepen the local market, stimulate rapid industrial development and yield the right set of non-revenue economic dividends for the country. With rising domestic, regional and global demand for natural gas, it only sounds logical to state that adequate commercial incentives exist to give momentum to both private and public investments in Nigeria’s natural gas exploitation.

However, the biggest challenge facing policy drivers and commercial players in the industry is making the big gas resources available to efficiently drive the nation’s economic aspirations and meeting stakeholders’ expectations. Beating the challenge entails bridging the massive infrastructure gap between the huge wild reserves and massive demand in the market. Out of the country’s gas reserves figure, Mr Ekalou stated at a gas business forum in Lagos, some volumes are stranded and scattered across different zones of the country.

He added that gas potentials exist in inland basins Benue Trough, Borno and Anambra with the biggest accumulation mainly concentrated in the Niger Delta Basin and in the nation’s deepwater basins. He listed factors militating against exploitation of stranded gas to include immature and sub-commercial domestic market, funding deficits, unattractive fiscal terms that host high risks and low returns on investments as well as absence of robust legislative and commercial framework for gas.

The consequence, he listed, include low accessibility to produced gas, lamenting that only 15 percent of the total gas production in the country is supplied to the domestic market. According to him, 37 percent of the country’s gas production is exported through regional gas pipelines or shipped in liquefied forms. Some 35 percent of the nation’s gas output, he said, is used by the producers in field operations because, the local gas market does not offer the right commercial incentives to stake huge funds to pipe the gas from production sites to processing plants and demand centers.

Mr. Ekaluo pointed out that the high risk and low return scenario in the country’s domestic gas market have remained the biggest commercial hindrance to meeting demands for power generation and industrial consumption. He said DPR was working to modify the prevailing price regime in the market to accommodate direct bargains between buyers and sellers in order to lower investment risks in the industry. He listed the key performance indicators for the industry to include need for a modified national gas policy, evolution of workable legislative, commercial and regulatory framework specifically for the gas industry.

He pointed out that the evolving gas industry currently relies on frameworks developed for oil operations. Other key performance indicators for the gas industry, according to him, are infrastructure development and capacity building; evolution of dynamic gas management model to manage demand and supply; widening the country’s share gas export market; and deepening the domestic market to guarantee commerciality for deep pocket gas investments. In his presentation at the event, Chairman, Nigerian Council of the Society of Petroleum Engineers (SPE), Engr. Emeka Ene, who delivered a presentation at the forum, stated that the challenges in capturing stranded gas in the country calls for modular approach to     overcome the challenges of infrastructure deficit. He explained that modular plants at production sites would leverage exploitation of the country’s huge energy potentials.

Engr. Ene who is also the Chairman of the Petroleum Technology Association of Nigeria (PETAN) pointed out that the high rate of pipeline vandalism and sundry commodity theft in the country have limited investors’ option simple business models. He provided data that show that vandalism on oil and gas installations in the Niger Delta has resurged above peak levels and now makes it difficult for investors to stake funds in harnessing gas for monetization. He advised players in the industry to scale down scope of investments to manageable modular platforms that deliver quick wins and lower risk exposures. Managing Director of Oando Gas and Power, Mr. Bolaji Osunsanya, declared at the forum that time has come for the Nigerian petroleum industry operators to deploy business models that focus on use of modular and mobile facilities to overcome challenges associated with pipeline security and asset commerciality.

Chairman of the Nigeria Gas Association (NGA) which hosted the event, Mr. Chima Ibeneche, pointed out that stranded gas remnains an economic or commercial phrase, explaining that natural gas is stranded in nature and normally requires investments to turn it into a useful resource by linking the gas in the reservoir to a consumer in a viable market. “The requisite investments usually include policy changes that help create economic justification for gas exploitation; exploration investments to identify and quantify the gas reservoirs; gas field development investments for construction of production wells and for gas conditioning; distribution investments required to transport the gas from the well head, or gas gathering station to the consumer. He said that business models that target stranded gas must consider some or all of a combination of policy changes, technical and financial investments, and other factors to make the exploitation of the gas an economically viable activity.

-Sopuruchi Onwuka

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