Path To Optimum Monetization of Nigeria’s Natural Gas Assets

Natural gas in Nigeria has not attained its potential as a major source of fiscal revenue in the economy because of inadequate funding for infrastructure development, inept pricing of natural gas for domestic gas policy and regulatory framework. Due to unsustainable exploitation practices together with the lack of gas utilization infrastructure, Nigeria flares a substantial proportion of the gas it produces when compared with oil production in advanced countries, Nigeria lags far behind in terms of associated gas conservation and utilization.

Attempts at the utilization of natural gas started long ago when Shell and her Joint Ventures (JV) partners in 1962, started supplying gas to the domestic gas market which also supported most industries in the southern part of Nigeria but was constrained by infrastructure. Also, together with the Nigerian National Petroleum Corporation (NNPC), Total and Agip, Shell established the Afam 6 power plant which supplies 650 Mega Watts of power.

The joint UNDP/World Bank Energy Sector Management Assistance Programme, report on a strategic gas plan for Nigeria in 2004 indicated that the gross monetary value of Nigeria’s natural gas reserves is roughly US $2.5 billion per year and the environmental impact of gas flaring was highly significant (70 million metric tons of CO2 emissions per year). As a result, the Nigerian Government developed strategies for curtailing the financial loss and environmental impact of gas flaring, and to encourage the oil companies to develop programs for gas storage, processing and utilization.

The Petroleum Act (Cap 350 Laws of the Federation of Nigeria, 1990) specified under Regulation 42 (Petroleum Drilling & Production Regulations) that oil producing companies are required to submit work programs for the utilization of associated gas in oil fields within five (5) years from the commencement of production. Also the Associated Gas Reinjection Act (Cap 26, Laws of the Federation of Nigeria 1990 as amended) also stipulates that oil producing companies should provide detailed plans for gas processing and utilization. It also prohibits gas flaring without the written consent of the Petroleum Minister. There were also penalties for gas flaring as well as deadlines for gas flare-out.

The Downstream Gas Act and the Fiscal Reform Act were developed in 2005 to deal with the issue of gas availability. Subsequently, their provisions were subsumed under the Petroleum Industry Bill (PIB). The National Assembly has had numerous public hearings on the PIB, but there is no clear signal on when the bill will be passed.

The Natural gas policies and the Nigeria Gas Master Plan (GMP) were approved in February 2008. The natural gas policies were targeted at promoting a public-private sector partnership for an orderly and speedy commercialization of the nation’s gas reserves, while the gas master plan was developed as a framework for maximizing the value inherent in the nation’s gas reserves, to bring about the multiplier effect of gas usage in the economy and enhance the high value gas export market. The major aim of the plan was to grow the Nigerian economy with gas by pursuing three key strategies:

Under the strategic themes of the GMP, it is envisaged that it will deliver gas to power for at least threefold increase in generation capacity, achieve reasonable level of gas based industrialization by positioning Nigeria as the undisputed regional hub for gas based industries such as fertilizer, cement, petrochemicals and methanol.  It is also focused on achieving high value export via LNG and regional export drives. Also the marginal field development programme was initiated in 2001 to boost oil and gas production and utilization.

In the last few years, there has been improvement in the utilization of natural gas in Nigeria; Shell Petroleum Development Company (SPDC) and Chevron route their produced natural gas to NLNG in Bonny, where the gas is processed to LNG, and then exported to other countries for use as domestic fuel. In addition, the Olokola LNG and the Brass LNG projects are on course to being delivered.

The growth of the power sector is dependent on the direct growth in gas demand, since recent design in power plants are gas fired. There are potential for gas utilization opportunities in Onshore/Marginal fields, which comes in Micro/Mini/Small Scale LNGs, Modular Liquefied Petroleum Gas and Power Generation and Agro-based opportunities. Some of the projects of gas monetization technologies or options  are Liquefied Natural gas (LNG), Gas to Liquid (GTL), Compressed Natural Gas (CNG), Gas to power (GTP), and Gas to solid (GTS).

Some key infrastructure projects being executed as a result of the Gas Master Plan by the government through public-private sector partnerships include; expansion of the Escravos to Lagos pipeline, Oso to QIT, Ibeno project, the massive Calabar to Kaduna gas pipeline project, Obiafo to Oben a 120km a 2bl cubic ft linking the eastern to western part of Nigeria, QIT-Obigbo and Egbin pipeline as well as The West African Gas Pipeline (WAGP).

An area that can make serious impact in gas utilization is the LPG sub-sector. Thanks to Nigeria Liquefied Natural Gas (NLNG), the gas is there so the next value chain focus is retail and distribution of LP gas to address the issue of accessibility. There are about 440 gas plants in place nationwide and a rising number of LPG dispensing skid tank deployment which needs to be expanded, especially into rural communities and strategic locations to enhance the retailing and distribution of gas. In terms of cylinder manufacturing, 2.3 million cylinders is what we need right now, based on the current gas supply from NLNG and with the market utilization potential of 1 million metric tonne (MT) per annum, 16million cylinders will eventually be required before 2020.

A combination of some of these policies, projects and activities has started having some positive impacts as the  Environmental Impact Assessment (EIA) Report (2015) on Nigeria’s oil and gas sector, reveal that Nigeria flared 12% of gross production,(associated gas) in 2015, making Nigeria the fifth-largest natural gas flaring country, down from the second position it held in 2011.

Some factors that are germane to the Nigeria Gas Master plan include cost effectiveness and competitiveness in supply of all markets. Others are robust and scalable supply infrastructure as well as a liberalized and market driven sector that stimulates long term supplies. There should also be intervention plans to kick start viable domestic markets which include the introduction of domestic supply obligation regulation and transitional gas pricing structure.

Moving forward, Nigeria should establish strategic partnerships with global gas-producing companies to secure presence in international markets; expand gas-based industries through partnerships so as to become a regional hub for natural gas-based products and enhance access to capital and technology for natural gas production.

Ayoka Anthony O. (tonyayokaok@gmail.com) Prog. Director, Habitatcare and Protection Initiative

N/B: This is the concluding part of the two part series on Nigeria’s Natural gas assets.