Nigerian Gas Revolution: Rebirth of Nigeria’s Industrialization.

By Ademola SOILE-BALOGUN

      

As a nation, we are continually striving to realize the fullness of the great potential in the vast human and natural resources, which Nigeria has been blessed with. One such major resources is our proven gas reserves base estimated at 187 trillion cubic feet and a further undiscovered potential of 600 trillion cubic feet”- President Goodluck E. Jonathan, Thursday , March 24, 2011.

With those words, the President of the Africa’s most populous and resourceful people signaled an unmistakable resolve to tap massively into a hitherto underexploited resource, Gas. Much of the nation’s “associated” gas reserves unarguably being “flared away” by the several multinational companies in the course of extracting and producing crude oil from the well-heads, with its attendant effects in the operating environments and surrounding communities.

DEVELOPING THE ENVIRONMENT FOR A GAS REVOLUTION 

The Nigerian Gas Master Plan which aims at encouraging companies to collaborate on gas development was first developed in the Nigeria’s very ambitious era, the1980s.  Nigeria, currently has a market demand of 1 billion scfd (standard cubic feet daily) of gas, while plans are ongoing to increase it to grow in to about 10 billion scfd. The main driver behind the Gas master plan is power, while the total estimated cost of the Gas master plan is $30 billion. Included in the Gas master plan is the “Gas Revolution” which is essentially a scheme designed to take “gas” from the south of the country to the Northern city of  Kano; to industrial plants, such as fertilizer plants etc, which in themselves were part of the earlier mentioned 1980s initiatives. The erstwhile minister of Petroleum Resources “de-regulated” gas in November, 2010 resulting in the current market price of about $1.10.

Energy policy-makers are unanimous on the reasoning that the role of a gas economy in a virtual absence of internal gas market requires some sort of unconventional approach, thus the author’s agreement with the Federal Government’s policy on a “revolutionary approach towards strategically positioning gas as a pilot instrument towards renewed-industrialization. The unassailable fact still remains that, gas, is different from oil. Though it is not in doubt that gas has a lower energy content than oil, several factors however, not limited to a guaranteed market, capital requirement, asset-specific nature and the virtual absence of gas infrastructure in form of massive pipeline-network  will make it different from that  of the oil industry in Nigeria. Therefore, for a typical gas development policy to attract an Oando-owned Gaslink for example, a Gas Supply Agreement that will typically define its relationship with a prospective purchaser will be crucial to its investment in the sector. Analogous to this however is also the existence of a stable and long-term pricing regime. Authors like Smith, Dzienkowski, and  Lowe have repeatedly noted that the above twin ingredients are absolutely necessary for the survival and viability of upstream gas contracts.

 Having considered two of the most vital ingredients of an upstream gas contract, and by extension, the commercial viability of an investment in our country’s abundant gas resources,

it would be somewhat appropriate at this point to consider critically; the nature of gas market that the Federal Government seeks to create, possibly in a bid to “force” a large commercial

development of our gas fields.

ROLE OF LOCAL CONTENT IN THE GAS REVOLUTION SCHEME? 

Following the Trinidadian model of local content participation policy in their gas operations, the Federal Government has decided to follow suit, and offer an opportunity of sorts to the local firms that will be participating in this historic opportunity. The Gas Master Plan would involve the laying of some 2,000 or so kilometres of pipeline, and thus massive opportunities for the indigenous gas companies that would be involved in this huge  “pipe-line pie”. The co-operation of the Nigerian and Trinidad and Tobago’s Government on this transcends mere gas. It would appear that the socio-environmental issues involved in the historic exploitation of gas in both countries have a curious similarity! Dr. Williams Wallace, Honorary Consul-General of the Antigua and Barbuda was reported to have noted recently; “we told the International Oil Companies(IOCs), ‘We own the gas , you don’t own the gas  but you flare it. You do not have a Gas Producing License, you have an Oil Mining License...”. He went further to explain that the IOCs initially refused, but it was consequently resolved to the effect that the Trinidadian Government took control of the transportation of the gas midstream, i.e, the Government’s  commercial undertaking took the vital control of the gas as soon as such gas resource got on-shore from the gas production well-heads into the distribution network(pipelines) for further consumption in the downstream market. It is in line with this thinking that it is hoped that the synergy between Nigeria and Trinidad and Tobago would further bring to the fore, the local content opportunities envisaged under the Nigerian Local Content Act, 2010 in our Gas Revolution initiative, and harness it in the manner which the latter has done.

STATE CREATED MARKETS?     

 One of the most significant steps that the Government has taken to promote the production and development of our gas fields lies beyond the franchise granted to the gas production companies, but in the creation of a substantially guaranteed market, comprising a world-scale petro-chemical plants, five fertilizer blending plants, a methanol plant as well as a Liquefied Petroleum Gas (cooking gas) distribution plant.  This is clearly not included in the supply of cheap natural gas to the power plants, a gas-to-power arrangement under much emphasized power-sector reforms. The assurance from the Honourable Minister of Petroleum, Mrs Diezani Alison-Madueke in March that over $10 billion of FDI is expected to flow into the country between 2012 -2014 would no doubt have a lot of positive impact in the nation’s economy, with the capacity of generating about half a million jobs from the gas-development initiatives! This fund is expected to form part of the ambitious $25billion expected to be sunk into these wide-ranging projects over the next four years. An award of a Central Processing Facility development in Obiafu (Rivers State), and Warri(Delta State) to the Agip/Oando-led consortium as well as the Memorandum of Understanding between Xenel (a privately-owned Saudi Arabian Investment Company), Nagarjuna and the NNPC to build Petro-chemical and Fertilizer plants was in the bid to make this ambitious gas initiative a reality. However, the purpose of this write-up is not merely to restate the economic benefits of the Gas-Revolution agenda, as such benefits have been sufficiently and painstakingly outlined at many-a forum by President Jonathan and the Minister of Petroleum. What this write-up nonetheless seeks to do is basically to consider the operating and contractual environment under which this initiative has been birthed and will be implemented, as well as how policy factors will invariably affect the interplay of investments and state actions.

AN END TO THE NUISANCE OF GAS–FLARING? 

The twin issues of oil spillage (crude oil) and gas flaring (gas) remain the most disturbing environmental concerns in Nigeria’s oil producing areas, thereby exposing the oil-bearing communities to the evils of pain, disease, environmental and social degradation overtime. In fact, in 2010, the British Broadcasting Corporation reported that Nigeria was the second in the hierarchy of an unenviable club of oil-producing countries which flare its gas on a large scale; infact, second only to Russia. One fact that must however be pointed out is that much or all the gas flared comes in form of associated gas, that is gas that is “commingled” with crude oil such that, a commercial exploitation of the Oil in question can only take place only when such “commingled” gas is flared (burnt) off. The price for this however is the consequent environmental degradation and the almost permanent state of environmental disrepair!

On the international stage however, it would appear that the United Nation’s Climate-Change Conferences have not done much to rise up in condemnation of this continued degradation. The Copenhagen Conference (Denmark) of December 2009 failed to seize the initiative in this regard, despite the high expectations it had generated. The UN climate-change conference of the following year in Cacun ( Mexico) only continued in this trend, with  regions recording highest emission rates like China and India and the United States not giving the firm commitment necessary to stem this dangerous global trend.

The question here is - “Will the gas revolution initiative sound the death-kneel to the incidence of gas-flaring in the country? The answers will be best answered in the annals of time. One thing is very clear however, the commercial usage of “flare-able gas” has to take a very practical approach for the Federal Government to make good its promise of stopping the practice in a few years. It would be borne in mind that a judgment was entered by the Federal High Court (Benin Division) on November 14, 2005 to the extent that the gas flaring must stop in a particular Niger-Delta community, as it affected the guaranteed constitutional rights to life and dignity of the applicants and their community. The matter was brought against Shell Petroleum Development Co. Nig. Ltd, the NNPC and the Attorney General of the Federation by Jonah Gbembre, for himself and representing Iwherekan Community in Delta State. One remarkable thing about the judgment is that it appears to have ended in a cul-de-sac of sorts, as it could not stand in the face of commercial realities.

The draft bill of the Petroleum Industry Bill currently before the National Assembly has fixed a January, 2013 deadline to end the incidence of gas flaring. Whether this is workable without a water-tight policy execution on gas utilization and commercialization remains to be answered in the annals of time!  

Nutshell

Examining the Gas Master Plan and the gas revolution initiative is this interesting write up by Ademola where he critically analysed various initiatives set out in the plan. This is the first installment of this interesting article.  Read, Learn, Share and Discuss!!! Comments and questions are very much welcome.