When in 2016 the Federal Government actuated the 7 Big Wins Initiative to reinforce its commitment to the acceleration of the gas revolution, and the eventual approval on June 28, 2017, of the new National Gas Policy, the midstream space of the country’s oil and gas sector became fully energised with implementation of near moribund projects, CHIKA IZUORA, writes.
The simultaneous inauguration of the 7 Big Wins Initiative and the National Gas Policy which essentially builds on the policy goals of the Big Wins Initiative clearly articulates the policy goals, strategies, and implementation plan of the federal government to reposition Nigeria as an attractive gas-based industrialised nation through the prioritisation of local gas demand requirements.
Gas export projects remained the national priority until 2008, when the federal government approved the implementation of the Gas Master Plan which aimed at provoking an entirely different vista of opportunities for Nigeria to launch itself as a mature domestic market.
No doubt, a lot of investment opportunities abound in the natural gas sector of the Nigerian petroleum industry, and presently more attention is being given to this vital sector. Government’s aspirations for the gas sector include creating new industries out of the old oil industry; capturing economic value and generating as much revenue from gas as from oil by 2010, as well as developing the domestic gas market and, ending gas flaring by 2008.
From records, physical progress has been recorded towards the realisation of these objectives, which has resulted to plunging of gas flare.
Records show that the current annual gas production of about 2,000 billion standard cubic feet (Bscf), only about 40 per cent is flared, showing a drastic drop from the 70 per cent proportion flared before the advent of current administration.
The advantage this is bringing to the nation is that the flared gas is now being channeled into gas powered projects for rapid utilisation and monetisation with a view to maximising value addition to the nation’s natural gas resource.
Equally, domestic gas consumption is expanding as a result of the ongoing power sector reforms while gas export which was non-existent prior to 1999, has received a strong boost.
Comprehensive and integrated gas utilisation Master plan/programmes have been embarked upon, in which Liquefied Natural Gas (LNG) and Independent Power Projects (IPP) developments are being given priority and with expected increased export earnings from LNG, coupled with adequate domestic power supply from IPPs, these will strongly support and broaden economic expansion and urbanisation, increase the income generating capacity of Nigerians and lift the general wellbeing.
It is also expected that all of these will further reinforce government’s efforts towards integrating the Host communities into the mainstream of national development and growth, as many gas-based projects are being undertaken in line with Governments aspirations in the sector.
Domestic Gas Market Expansion
As a result of various projects established, total gas utilised in the country increased from about 197 million scf/d in 1999 to about 573 mmscf/d in 2004. The power sector is the single largest consumer of natural gas in the domestic market.
It is estimated that about 80 per cent of natural gas utilised in Nigeria is consumed annually by Power Generation Companies, and Independent Power Producers.
The remaining 20 per cent is utilised as industry fuel in the cement, fertiliser, rubber, manufacturing, aluminum and steel industries. It is expected that domestic gas demand will grow to 4800 million standard cubic feet daily mmcfd, by the year 2020. The current domestic gas demand is estimated at about 1800, mmcfd, and this demand estimates includes about 1400 mmscfd, for power generation while the remainder is concentrated in a small number of other sectors by a few consumers.
Government is encouraging multinational oil companies operating in Nigeria to embark on IPPs, as part of the Power Sector reform. The Reform Act reviewed the generation, transmission and distribution of electricity in the country to improve its performance. The IPPs will not only boost electricity supply but also, provide necessary infrastructural support for economic growth, and also guarantee additional revenue to the participating companies. There are other gas infrastructure like the Brass LNG, the Olokola (OK) LNG.
Also, the West Africa Gas Pipeline, and the Tran Saharan gas pipeline running from Nigeria to Algeria are strategic gas infrastructure projects that would essentially trigger gas utilisation efforts. Equally worthy of mentioning are the Escravos Gas- to- Liquids with a capacity of 34,000 barrels per day, as well as the Mobil Natural Gas Liquids initiatives.
NLNG As Key Export Driver
The Nigerian Liquefied Natural Gas (NLNG), among other gas infrastructure projects remains the country’s hope in achieving milestones in gas export and reaping huge foreign exchange to fund other critical sectors of the economy.
Currently, Nigeria is joining nations from the U.S. to Australia in increasing output of the fastest growing fossil fuel to help meet rising demand from China to the Middle East. With the addition of Train 7, the NLNG anticipates to boost production to 30 million tons by 2024 from present 22 million tons.
Experts, share the same belief that gas export business could easily attract more investments which can be used to develop the much-needed infrastructure to unlock and unleash the potentials of proven and unproven gas reserves of 187 and 600 trillion cubic feet (tcf) respectively in the country and that this can only be enabled via the right policies, legislation, and incentives to drive investments in the sector.
The NLNG is moving fast in its desire to meet its target though drastically slowed down by dearth of policy because it argues that this is time for gas development in Nigeria, because the industry holds the key to stimulate growth in every sector of the economy especially agriculture, industries, and power, but can only do so if factors currently inhibiting rapid growth are effectively addressed.
It argues that underinvestment in appraisal and exploration activities due to inconsistent policies, unattractive commercial framework, security of investments, etc. invariably impact gas reserves, production, and commercialisation”.
Qatar, Australia and the U.S. will probably account for 60 per cent of global LNG supply by 2023, according to the International Energy Agency in Paris, and Nigeria, which supplied the world with 7 per cent of the super-chilled fuel last year, is expanding its infrastructure to retain a chunk of the market share.
Global LNG demand is estimated to increase by 72 per cent between 2017 and 2030, Bloomberg New Energy Finance said in March.
In estimation, the Train 7 development will cost as much as $6.5 billion to build, with another $5 billion to be spent on wells and pipelines needed to supply the plant. Nigeria LNG is seeking $7 billion from the global financial markets for sustainability of its operations and the expansion.
Read Also:
The project is “the gas revolution” in Nigeria after the expansion has been stalled for many years under previous administrations. The Nigeria LNG had planned to set up 12 trains by early 1980s, with only six commissioned so far. Nigeria needs to invest in new production to avoid slipping from the 4th to the 10th position by 2025 in the ranking of global LNG exporters.
To achieve this, the company recently signed front-end engineering and design, FEED, contracts with two consortia of engineering companies. The work will take about eight months, Guido D’Aloisio, managing director of Saipem Contracting Nigeria Ltd., told reporters at the MoU signing event in London.
According to records, Nigeria supplied 24 countries with LNG in 2017, up from 21 in 2016, according to GIIGNL, an industry body for importers.
Nigeria LNG says its customers already have agreed to take additional volumes from the new plant, though contracts setting out the terms haven’t yet been signed. Once those contracts are finalized, the company will be in a position to make a Final Investment Decision, FID on the project. The company is ready to discuss the flexibility that buyers are seeking in pursuit of shorter, competitive and less rigid terms of supply.
Tony Attah, NLNG chief executive officer, considers the FEED, contract as a very historical moment for the company because it had set out to execute the Train 7 since 2007, without success.
“Our vision is to be a global player that helps to build a better Nigeria, We are looking forward to the growth. When I am talking about growth I am talking about Train 7. We have the support we need; we have the support from the shareholders, from the government, from the board of directors.” he said.
LEADERSHIP reports that the NLNG is desperately seeking $7 billion from the global financial market for the sustainability of its operations and expansion project which will increase its production capacity from 22 million tons per annum (mtpa) to 30mtpa.
According to Attah, the funds being requested will cover the company’s expansion programme (construction of Train 7) and investment in the upstream gas sector in Nigeria that will ensure supply to its existing trains (Trains 1 to 6) and the new Train 7.
He said that the NLNG is a mid-stream company that has monetised over 5.96 trillion cubic feet (tcf) of associated gas (AG) which would have otherwise been flared thus helping to build a better Nigeria. “However, what we are doing is not just looking to fund the expansion of the plant but also to ensure sustainability of feed-gas supply to the plant, for the continued success of NLNG. All of these align with our belief that gas is a catalyst for industrial and to become a leading gas producing country”, he said.
According to him, the success story of the NLNG project was due to some key critical success factors which include the shareholding and governance structure of the company that has made the company an independent incorporated joint venture, guaranteeing an independent board of directors, effective decision making as well as funding for its projects which is critical for the sustenance of this successful project.
“Over decades, the company has raised funds for combination of shareholders loans, internally generated revenue and third party loans. In all of these financial ventures, NLNG demonstrated financial discipline and character by abiding by loan covenants, terms and conditions without a single breach or default, and we believe this positions the company as a lenders delight”, he said.
He added that the economic impact of increased LNG production output will be significant, stating that since the start of NLNG operations 19 years ago, NLNG has generated more than $90 billion in revenue and has paid over $16 billion dividends to the federal government, with respect to its 49 per cent shareholding in the company, held by Nigerian National Petroleum Corporation (NNPC).
In addition, NLNG has paid $13 billion to the government for feed gas purchases and $6.5 billion in taxes as well.
“We take up about 50 per cent of Liquefied Petroleum Gas (LPG) supply in the country and we have committed about 350, 000 tonnes to the domestic market. We believe that with an increase in our production, these numbers will be impacted on positively and this will help with the country’s revenue generation profile,” he said.
Attah said that NLNG has received federal government support for its expansion project. With that, NLNG has the full backing of all critical stakeholders, and that the stars have lined up in support of Train 7 therefore there is no going back on the taking of the Final Investment Decision (FID) soon which will signal commencement of construction.
In the end it’s really about that global play for us. So for a long time, we have been on just 22 million tons since 2007. It is worthy of note that between 1999 and 2006, we were actually the fastest growing LNG plant in the world.
“We built six trains and every 18 months we were adding a new train but since 2007 we have not made as much progress with our Train 7, but we believe that the time is right and the time is now.
On the back of growing that capacity would come in my mind what I believe is one of the most important opportunities for the Niger Delta. It’s about employment and job creation. Easily, we see between the upstream and our own midstream project, more than ten thousand jobs and we believe 10,000 to 18,000 jobs in the time frame and for us that is a major opportunity for the Niger Delta and a major opportunity for Nigeria.
From investment point of view, Attah, is looking at an opportunity to actually go to 15 trains as he believes that the Nigeria LNLG can be a 100 million tons per annum plant. Qatar started just 24 months apart from Nigeria but today Qatar is at 77 million tons per annum, three times above Nigeria.
Nigeria was number three in the world, behind Qatar but due to delay in project implementation the country has slipped to number four just because it did not grow over a ten year window and indeed with the emergence of United states, which used to import but now exporting, and Australia growing even bigger capacity plus Russia.
Attah, has expressed fears that if nothing is done urgently the country will continue to slip on the ladder of producing nations. “So to have gone to number four from number three when we actually had about 10 per cent of market share, we were producing about 10 per cent of market share in the world today we are less than seven. So you can just see that a do-nothing scenario is not acceptable, not to me, not to the company, not to the country.
“So, for me, the way forward and vision for Nigeria LNG has to be premised around growth. And that is why the starting point would be this 35 per cent capacity increase to move us from 22 million tons to 30million and it is about value. So we need to continue to grow the value of the company.
“And seriously 15 trains is not far fetched. We have seen other countries do it, like Qatar, so why not Nigeria? And I believe if it is going to be possible, it is going to be possible on the back of Nigeria LNG, because we know how to build the trains, we know how to operate them, we have now operated as an LNG company for 20 years” he concluded.
