Nigeria Natural Gas: Towards Sustainable Energy Development

By Tolulope Togun

Gas utilization is a primary goal of Nigeria's petroleum and energy policies. This is because, with a proven reserve of about 182 trillion cubic feet of natural gas, Nigeria's gas reserve is triple the nation's crude oil resources. Gas discoveries have been largely the result of an influx of foreign exploration capital from international oil companies. Natural gas, a clean burning fuel, is recognized as a key component of meeting sustainable development goals. Private sector investment in natural gas is allowed to varying degrees and has problems that lack of capital has on resource development. Lack of capital remains an issue where private investment is required.

USES OF NATURAL GAS:

v  Power Generation – Natural Gas is often used for power generation using micro turbines, turbines or gas generator.

v  Industrial fuel – Natural Gas is used for space heating and raising of steam.

v  Chemical feedstock - Natural Gas is used as feedstock for fertilizer and methanol production.

v  Transportation - Natural Gas is used to fuel vehicles and forklifts

v  Residential - Natural Gas is used for space heating, cooking, etc.

  

Not surprisingly, discussions have intensified as to the best way that Nigeria should develop its natural gas resource; here is a summary of the various dimensions to this discussion;

v  ROLE OF INTERNATIONAL OIL COMPANIES: Some argue that Nigeria needs to attract foreign, equity capital to develop its natural gas resources. Other argue that foreign capital should come only in the form of loans, in order that ownership and profits remain with domestic (public and private) firms.

v  SPEED OF DEVELOPMENT:  Some argue that the natural gas resource should be developing slowly, the expectation being that natural gas will increase in value (domestically and internationally) over time. Other argues that the value of the resource may not grow, and that as a poor country Nigeria needs to develop its natural gas resources quickly to meet urgent financial and energy supply needs.

  

v  NATURAL GAS EXPORTS:  Natural gas export provides revenue to the government for other programs such aseducation health and infrastructure; and NLNG (Nigeria Liquefied Natural Gas) company to continue exploration and development. On the other hand, Nigeria could lose from a natural gas export policy in the short term because of misuse of revenues and in the long –term, because of early exhaustion of a resource that may provide its greatest benefit in domestic use.

v  OWNERSHIP OF THE SYSTEM FOR EXTRACTING DISTRIBUTION AND USING GAS:  Some want extraction and delivery systems to be privately owned in competitive, but regulated Markets; this, they argue, will ensure greater efficiency and ultimately a greater public benefit from the resource. Others argue that public ownership can better satisfy the needs of Nigeria.

·         NATURAL GAS PRICING: Some want domestic natural gas price for all consumers to be set at prices that could be commanded in export market (or at least at prices high enough to recover all costs of supply) they ague this will ensure that domestic users only use natural gas when they value it as much or more than would foreign users.

My Nigeria Natural Gas Vision is a key effort to look at how the Nigeria government, with input from the energy industry can achieve its goals for natural gas. The article explores what we (Nigerians) have done to ensure the optimal development of natural gas and what we will need to do in the future to ensure that our projected gas produced will be effectively and economically put to use.

In order to diversify its revenue base and reduce the huge wastage of valuable resource as well as the degradation of the environment from flaring, the Nigerian Government, through the NNPC, is vigorously pursuing a number of natural gas utilization projects with its joint venture partners whereby associated gas would be harnessed to achieve these objectives.

The government is sufficiently concerned about the issues of environmental degradation so much so that it initially targeted 2010 as the deadline year when all gas flares would be extinguished. In line with this target therefore, all the Joint Venture partners also set their own targets in order to meet this deadline. Presently 1.4bcf  (billion cubic feet) of gas is being flared

Market Structure:

The natural gas industries of Nigeria can be separated into three sections or streams: the upstream, midstream, and downstream. These streams account for all of the industry activities including exploration, extraction, production, transportation, storage, distribution, marketing and consumption. The upstream represents the initial stages of natural gas production and the discovery of the raw gas, the midstream represents the processing of gas, and the downstream represents the transportation and use of the marketable gas product.

Infrastructure:

Delivery and storage systems are key to making natural gas an economical source of fuel for energy consumption. The increasingly competitive global natural gas market has resulted in a need for countries to increase natural gas storage capacity to ensure secure supplies of the fuel, increase market efficiency and subsequently, market growth. During the last decade, a great deal of construction activity to develop gas distribution and transmission systems took place world-wide. The Nigeria natural gas market has developed into an industry that operates in a more open market environment. The government has made rapid progress in opening natural gas distribution, transport, storage and commercialization to private participation. Considerable expansion of the existing infrastructure was needed both to provide gas to fuel electricity generation and to provide access to the residential market. Much of the expansion has been accomplished by the private sector.

LNG AND GTL

Currently the preferred option for exporting the stranded gas is liquefied natural gas (LNG). With a projected increase in world market share to 13%, Nigeria will rank as one of the highest producers of LNG in the world. However, the world LNG market is relatively small compared to the middle distillates and it strongly driven by long-term and high risk contractual agreements. An emerging technology in natural gas exploitation is the gas-to-liquids (GTL) technology, with end products being useful in transportation fuels, power generation and base chemical feedstock. The major advantages of GTL compared to LNG include:

1. The relatively large global market for middle distillates.
2. Premium and superior quality of GTL fuels.
3. High market demand for cleaner fuels and low cost chemical feedstock.
4. Additional power generation from waste

  Nigeria Natural Gas Utilization 2003 - Source: Adegoke

 ^{NIGERIA NATURAL GAS UTILISATION (2006)}

Utilization	Percentages
Liquefied Natural Gas (LNG)	30%
Natural Gas Liquid (NGL)	6%
Gas re-injection	15%
Industrial purposes	15
Fuel	5%
Flared	29%

 The diagrams above show the gas utilization in 2003 and 2006 respectively.

Power Generation

With the advent of private participation, Natural Gas in Nigeria is currently used for thermal power generation, as a feedstock in fertilizer production, as a thermal source for other industrial applications and in commercial and household applications (primarily for cooking). Forecasts of future natural gas use vary widely, depending on the assumptions made. Key among these assumptions is:

·                     The rate of growth of electricity production.

·                     The rate of extension of the natural gas transmission and distribution network.

·                     The price of natural gas for domestic consumers.

·                     Industrial demands for natural gas.

·                     Continued support for compressed natural gas for vehicles.

·                     Decision on natural gas exports.

·                     Encouragement of domestic uses of natural gas, especially for cooking.

Some analysts have pointed out that a continued domestic growth rate of even 10 percent will be difficult to achieve because of the slow pace of investment in sectors that use gas.  Upon a careful analysis of electricity, fertilizer, other industrial uses, commercial and household uses, the Nigeria Gas Company (NGC) (1999) projected that Nigeria demand for natural gas will increase by about 50 percent by the year 2010 from 1999 levels. Clearly, the growth rate of natural gas use will depend on the success of several related policies, among them are: market reform in the natural gas sector, market reform in the electricity sector, industrial policy, and policies to encourage foreign investment in serving domestic gas and electric markets.

Demand for Natural Gas:

Continued Nigerian operations in natural gas production, processing and delivery will be even more important over the next decade. The demand for natural gas is expected to increase at a faster rate than production growth. The increased demand for natural gas will be driven by many factors including population growth, industry consumption, and the environmental benefits of natural gas (compared to other fuels).At current and even increasing levels of use, Nigeria already has enough natural gas for many years of domestic consumption. This relatively high reserve to domestic production and consumption ratio discourages further exploration and development investments by IOCs.  With the current and growing reserves, investments today for prospecting natural gas are not particularly attractive.  Such investments face the risk of waiting decades before any new gas found can be brought to market and sold.  Even if domestic consumption increases at truly outstanding rates, a string of successful exploration wells can worsen the prospects for the investor of finding a domestic market for natural gas within a reasonable time period.  At some point, private gas exploration investment will diminish or even cease and Nigeria will lose not just the exploration investment but also the spin-off economic activity that is associated with it.  This could happen very soon, as experiences in many jurisdictions have shown before.

MY CONCLUSION AND RECOMMENDATIONS

CONCLUSION

Prospects for the growth of the gas industry are enormous when viewed from the perspective of various industrial and commercial consumers that need to be served as well as the potential local market available for chemicals derived from natural gas- which are currently imported.

Based on data from the country’s energy regulatory bodies, natural gas demand in Nigeria will continue to increase significantly. Demand is expected to rise. In particular, natural gas will be required for incremental electric power generation and LNG exportation

The maturity of conventional natural gas supply areas and sources in the Nigeria and the lack of capital to develop gas supplies will mean that increasing supply to meet this demand growth will be challenging.

These challenges currently face the natural gas industry:

• Bottlenecks in production, transportation and storage infrastructure – which need to be remedied. An unprecedented level of land-owner concerns to pipeline projects and difficulties in pipeline permitting as well as difficulty in finding credit-worthy shippers to sign long-term contracts and underpin expansions, particularly given gas market volatility.

• Significant siting and regulatory hurdles- which must be overcome to create LNG facilities, build new pipelines and storage facilities. More efficient regulation is needed to allow markets to freely function so that natural gas supply and infrastructure can be developed in a timely manner.

• Government policies on energy, the environment and land use- which need to be clear. Compatible guidelines and strategies among countries would enhance transparency and encourage a cooperative region, while respecting divisions of jurisdictional authority of each country.

MY RECOMMENDATIONS

In order to promote the nation’s gas industry for sustainable growth, towards the realization of our goals, the following specific recommendations are proffered;

• Create a favourable gas policy framework - The successful implementation of the gas policy framework should provide necessary fiscal, administrative and financial incentives to invest in the nation’s gas industry. It should also remove various constraints that tend to undermine sustainable development of the sub-sector.

• Promote Local Content Development: In order to grow the natural gas industry, there is need to accelerate indigenous participation. Presently, a considerable proportion of technical and managerial staff comprises expatriates, who are paid in hard currency, with grave implications to the nation’s foreign exchange reserves. Also, most equipment associated with projects in the gas sector is being imported, despite the fact that local capacity remains untapped. Therefore, government needs to implement vigorously its local content development policy aimed at increasing local content in projects executed by operatives in the oil and gas sector. This will not only develop the capacity of the nation’s engineers, technicians and managers, it will also enhance technology transfer and conserve scarce foreign exchange reserves. Local content development can also serve as a vehicle to boost employment opportunities in the nation’s oil and gas sector.

• Fast Track Exploration and Development Activities: in order to harness fully the nation’s extensive natural gas resources, there is need to accelerate gas exploration and development activities. There is need to now explore gas resources if the nation’s twin aspirations of transforming the nation’s petroleum sector into a viable industry AND realizing equal levels of revenue earned from gas as with Oil exports are achievable.

• Enforce Gas flare-out policy: Government should enforce the gas flare-out policy. The imperatives of a flare-out policy are anchored on the need to foster environmental protection and bring to end economic losses that have accompanied the negative phenomenon. Also, gas which is currently being flared should be converted into feed-stock needed as input for power stations which are currently established by the government to increase electricity generation across Nigeria.

 • The gas sector should be adequately funded as significant growth over historical levels requires ample funding.

•The Nigerian government should enact and implement attractive fiscal terms that would improve the marketing of Nigerian natural gas. As much as possible, a favourable investment condition will go a long way to motivate companies to produce gas at cost competitive price.

 NUTSHELL:

Tolulope Togun provides this summary with the aim of enlightening anyone interested in Nigeria's Natural gas industry. According to him, the industry has vast potential which is yet to be tapped; he goes on to make the case for more concerted efforts at getting this industry off the starting blocks and into its rightful position. Nigeria has had a Gas Masterplan in the past; now there is a Gas Revolution...; is this ''it'' or just another grandiose scheme? Time will tell. The bench mark is to, at least, match the Oil Industry for a start. Tolu welcomes your comments and contributions. For more information about this article and to view Tolu's professional profile, Click here -->