Natural Gas: Nigeria's Next Big Thing Dr. Wisdom Patrick Enang +2348173555667, wisdom_enang@yahoo.co.uk NIGERIA INTERNATIONAL PETROLEUM SUMMIT, February 9 – 12, Abuja Nigeria
KEY OIL AND GAS PRODUCERS IN SUB-SAHARAN AFRICA • Nigeria is the largest producer of low-sulphur sweet oil in OPEC. • About 52% of the Nigerian total proven gas reserve is associated (natural gas obtained during the production of crude oil). Nigeria is the 4 th Largest LNG exporter in the world. • • NLNG train 7 will expand Nigeria’s capacity to 30 S-RM Intelligence and Risk Consulting (2019): Mt/y, and Nigeria will become the 3 rd largest LNG Opportunities and challenges in Africa’s Oil and exporter in the world. Gas sector.
NIGERIAN NATURAL GAS PATHWAY WITH FLARING Why flare? • Lack of infrastructure at some oil fields to harness the produced associated gas. • A limited number of reservoirs suitable for gas re-injection and storage. • The expensive nature of developing and installing a pipeline network for natural gas. • A limited local, regional and international natural gas market. • The difficult terrain of the Niger delta which is a hindrance to the gas gathering process. * CNG in Flare Gas Pipeline Gas Flare Nigeria has relatively Domestic Gas Consumption CNG lower End User Natural Gas investments Gas Exportation LNG compared to LNG Resource Utility Viable transportation
Gas flaring FLARING STATISTICS 178 Flare sites es
Gas flaring THE HEALTH AND ENVIRONMENTAL COST OF FLARING Pollution Toxic greenhouse gases CO 2 , CO, SO 2 , NOx, VOCs, PM Rust usted roof roof du due to to Ac Acid Rain in
Gas flaring THE OPPORTUNITY COST OF FLARING
NIGERIAN NATURAL GAS PATHWAY WITHOUT FLARING Pipeline Domestic Gas Consumption * CNG in Nigeria has CNG relatively End User lower Natural Gas Gas Exportation investments LNG compared to Resource Utility Viable transportation LNG Why the change in behaviour? ❖ Nigerian membership of the Global Gas Flare Reduction Partnership (GGFR). ❖ Nigeria is a signatory to the World Bank’s Zero Routine Flaring (ZRF) initiative by 2030 (2016). ❖ Federal Executive Council approval of the Nigerian Gas Flare Commercialisation Program (NGFCP) (2016). ❖ Nigeria is a signatory to the United Nations Framework Agreement for Climate Change (UNFCCC) to reduce greenhouse gas emissions (GHGs) (2016).
THE NIGERIAN ROAD TO BEING FLARE FREE Regulatory Approach • 1969 - Petroleum Drilling and Production Regulations: ❖ Provides regulations for protecting sacred lands, water and the environment. ❖ Mandates accurate record keeping by licensees. ❖ Provides process of abandonment of oil wells. • 1979 - Associated Gas Re-Injection Act: ❖ Compels every company producing oil and gas in Nigeria to submit preliminary programmes and detailed plans for gas re-injection. ❖ Regulates gas flaring by oil and gas companies in Nigeria. • 1992 - The Environmental Impact Assessment Act: ❖ Sets out the general principles, procedure and methods to enable consideration of environmental impact assessments on certain public or private projects. • 2018 – Flare Gas (Prevention of Waste and Pollution) Regulations 2018: ❖ Introduces the “polluter pays” principle to gas flaring (similar to carbon tax). ❖ Imposes significant obligations regarding reporting gas flaring activities. ❖ Mandates government access to all flare gas free of cost and without royalties. ❖ Imposes significant penalties for breach of regulation.
THE NIGERIAN ROAD TO BEING FLARE FREE Commercial Approach Nigerian Gas Flare Commercialisation Program (NGFCP) ❖ Designed to eliminate routine and non-routine gas flaring through technically and commercially viable gas utilisation projects developed by competent 3 rd party investors. Flare-Gas-to- market- products Modus Operandi ❖ FGN takes associated gas at the flare site free of charge, and without payment of royalty. ❖ Bids it out to third parties in a series of auctions. ❖ The third parties will propose projects and are selected on the basis of their technical and financial qualifications, soundness of project proposals, and several other criteria. Investor’s Incentive ❖ Bidders have flexibility of flare sites to bid for, the gas price, the end market or gas products (FG-2- MP), as well as the technology to be used (FA-2-MT).
THE NIGERIAN ROAD TO BEING FLARE FREE Objectives of the NGFCP ❖ Benefit Niger Delta communities ❖ Positively impact the Nigerian economy ❖ Present a market-driven solution for flares ❖ Be bankable for investors and lenders ❖ Ensure the safety of producers’ Exploration and ❖ Reduce routine gas flaring by the end of 2020 Production operations. Investment Value and Returns Estimated Annual Revenue : ~ $1 billion Knowl owledge edge Bank: nk: The NGFCP is the ❖ first global market driven program of this size. Host Community Benefits ❖ Products at concessional prices. ❖ Procurement of goods and services from the host communities. ❖ Setup of social infrastructure for the host communities.
GAS TRANSPORTATION OPTIONS CNG LNG Physical state Gas Liquid -162 o C Temperature in Ambient tank Typical pressures 200 - 250 5 – 8 in tank (bar) 435kg/m 3 Density 175 kg/m 3 at 200 bar Capacity (million 1.4 - 22 100 – 250 m 3 ) Reach (km) 2000 – 6000 – Cost Components 5500 12,000 Upstream Low Very large CNG LNG infrastructure cost Downstream Low Very large infrastructure cost Number of Large Low potential export sites
NATURAL GAS VALUE CHAIN Domestic Gas Consumption Gas Exportation
TRENDS IN THE NIGERIAN GAS TRADE Gas Exportation Nigeria’s dry natural gas production and consumption Nigeria’s export of LNG (2014) Nigerian LNG exports and destinations (bcm) 2005 - 2016 Natural gas is “dry” when it is almost pure methane due to the absence of the longer-chain hydrocarbons. It is considered “wet” when it contains other hydrocarbons in abundance. Those longer chain hydrocarbons can condense to form valuable light liquids (so-called natural gas liquids, or NGLs).
Gas Exportation THE FUTURE OF LNG PRODUCTION • No need for pipelines, compression units, dredging, jetty construction or an onshore LNG processing plant. • The facility is also able to be decommissioned and re-deployed elsewhere relatively easily. • Smaller and more remote fields can be developed.
DIVERSE DRIVERS TO LNG DEMAND Gas Exportation • Rising renewable penetration will expand LNG’s role in providing flexible power generation to balance the electricity grid in many major economies. • The use of LNG in the industrial and transport sectors will push up gas demand, particularly in Asia where environmental concerns are on the rise. ACHIEVING SUSTAINABLE LNG GROWTH IN NIGERIA
NIGERIA’S POWER GENERATION EFFICIENCY Domestic Gas Consumption Domestic Gas Utilisation in Nigeria in 2015 Key Challenges facing the Power Sector 1. Gas Availability: • Unprecedented pace of growth in demand relative to feed gas supply. 2. Gas Deliverability: • Inadequate gas transportation and processing infrastructure. 3. Commerciality of Supply: • Regulated Gas Pricing. • Value Chain Issues: Securitisation of payment / unpaid bills, weak and unenforceable GSPAs. Source: Nigeria Power Baseline Report (2015)
GAS MONETISATION OPTIONS IN NIGERIA Summary • Competitiveness of gas technologies varies widely depending upon specific project details and regional markets. • Various monetisation options are technically feasible but not all are economically viable, or practical long term solutions. Other criteria for determining the appropriate gas monetisation option: • Size and quality of the gas resource • Location of the resource relative to key markets - local and export • Competitiveness of end products • Manpower/skills availability • Requirement for strategic partners or agreements from foreign governments • Project financing • Environmental approval • Technology availability and reliability • Logistics for project construction
INVESTMENT OPPORTUNITIES IN THE NIGERIAN OIL AND GAS SECTOR Ministry of State and Petroleum Resources (2018): Investing in Extractives (Oil & Gas)
WHY INVEST IN NIGERIAN NATURAL GAS Government’s resolve to address gas deliverability concern: Some Key Operational / Ongoing / Planned Pipeline facilities Gas Capacity S/N Gas Pipeline Status (MMscf/d) Obiafu-Obrikom-Oben (OB3) Gas Pipeline 1 2,000 Almost completed • Domestic Escravos Lagos Pipeline System (ELPS) II Pipeline 2 1,100 Almost completed • Domestic & Export Trans-Nigeria Gas Pipeline (TNGP) • Ajaokuta-Abuja-Kaduna-Kano (AKK) 1,600 FID (late 2019) 3 • Obigbo-Umuahia-Ajaokuta (OUA) 1,200 - • QIT-Obigbo Node-OB3 1,200 - 4 Odidi-Warri Gas Pipeline Expansion Project (OWEP) 400 On going 5 Obiafu-Obrikom – OBOB (NAOC) – CTMS Pipeline 300 Almost completed 6 Assa North / Ohaji South (ANOH) – OB3 CTMS 600 Escravos Lagos Pipeline System (ELPS) I Pipeline 7 • 800 Operational (1989) Domestic & Export ( Operational in 1989 (supplies natural gas from Escravos to Egbin power station) West African Gas Pipeline (WAGP, 681KM, $900m) 8 170 Operational (2007) • Export ( Operational in 2007 (supplies has from Escravos to consumers in Benin Republic, Ghana and Togo)
WHY INVEST IN NIGERIAN NATURAL GAS Government’s resolve to address gas deliverability concern:
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