EXCLUSIVE INTERVIEW: “Shell to Facilitate More Investment for Nigerian Gas to industries, Power Projects” – Ubong

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In this interview, the Managing Director of Shell Nigeria Gas (SNG) and President of Nigerian Gas
Association (NGA), ED Ubong, talks to The Energy Republic about Shell’s operational excellence in
Nigeria and the company’s new investment focus on expanding its distribution networks, as well
as investing in gas-to-industries and power projects. INTERVIEW BY NDUBUISI MICHEAL OBINEME

TER: Since 1998, Shell Nigeria Gas (SNG) has been involved in the downstream distribution of gas to major industries in Nigeria, as well as providing clean, reliable, and low-cost alternatives to liquid fuel. Please could you provide more insight on SNG’s operational excellence in the Nigerian gas sector?

Ubong: Shell Nigeria Gas (SNG) was incorporated in 1998 for the marketing and distribution of natural gas to companies in Nigeria. It is the first wholly-owned gas distribution subsidiary of an international energy company in Nigeria. The company is certified in ISO 14001 – a certification that shows it operates at the highest industry standards.
Shell Nigeria Gas currently operates a growing world-class gas transmission and distribution network of over 150km in Nigeria. It operates several distribution systems including Agbara-Ota in Ogun state, the Aba Cluster in Abia State, and the Port Harcourt Cluster in Rivers State. Today, SNG serves about 150 industrial and commercial customers. Our gas distribution networks are capable of distributing more than 150 million cubic feet of natural gas a day to over 300 industrial and commercial customers.

In 2021, SNG supplied more than 400 megawatts (MW) equivalent of gas-generated power in Nigeria and completed the final phase of its 20km domestic gas pipeline expansion project in Abia State, connecting Agbor Hill, Osisioma, and Ariaria industrial zones.

The project has also enabled the supply of pipeline gas to Ariaria Market Energy Solutions Limited, the Independent Power Project (IPP) consortium that provides electricity to the popular Ariaria market in Abia State. Ariaria International Market is one of the largest leather shoe-making and open stall markets in West Africa, with over 37,000 shops and an estimated one million traders.

By the end of 2021, SNG had agreements in place with 165 customers across six states: Ogun, Abia, Rivers, Bayelsa, Oyo, and Lagos. The agreements will enable the supply of reliable, lower-carbon energy that drives industrialization, employs both the skilled and unskilled local population, as well as directly improve internally generated revenues in these states.

With gas, we are driving industrialization, providing employment, and improving internally generated revenues in the states where we operate.

TER: Nigeria’s gas potential is yet to be fully explored. According to a report, gas development in the country stands at about 25% of the proven reserves. There are opportunities along the entire upstream, midstream, and downstream value chain in the Nigerian gas sector. How is SNG working with government and industry stakeholders to accelerate domestic gas utilization in-country?

Ubong: Shell Nigeria Gas continues to collaboratively assess different potential solutions to help unlock value in this area and accelerate the growth of the domestic gas market; further deepening local content and unlocking Nigeria’s economic development.

In 2021, SNG signed a 20-year agreement for the domestic distribution of gas to industrial customers and manufacturing plants in Lagos and Ogun States. The new deal with the Nigerian Gas Marketing Company (NGMC) will also enable SNG to extend its distribution network to Badagry to serve a new market in the community that borders the Republic of Benin.

Shell Nigeria Gas pioneered the Strategic Partnership with Alternative Gas Delivery Technology Players in 4 states to reach off-grid frontier customers ahead of infrastructure development in those areas. We pride ourselves on such collaborations which have resulted in reductions in emissions from the use of liquid fuels such as diesel and the Low Pour Fuel Oil (LPFO).

We have also partnered with the Ogun Guangdong Free Trade Zone (OGFTZ), the first FTZ with full natural gas infrastructure in Nigeria. SNG currently supplies gas to three customers in the zone: Goodwill Ceramics, Greenpower Utilities, and CNG Glass Limited.

CNG Glass Nigeria FTZ, one of SNG’s customers in the zone, is the first float glass manufacturing plant. This plant aims to meet the rising infrastructure-driven domestic demand to diversify the Nigerian economy.

The plant will have a capacity of 500 tonnes per day and will produce tinted and solar control coated glass. 80% of the production will be sold locally and the balance will be exported to other countries in West Africa.

TER: What other areas is SNG looking to explore in expanding its distribution network in Nigeria?

Ubong: Despite the required portfolio actions in line with Shell’s Powering Progress Strategy, Nigeria remains core for Shell, and we will continue our investments in deep-water and gas. Gas-to-industry is an area we want to deepen, as we have seen that industrial clusters allow communities to flourish, developing economic activities like trading and manufacturing. This is a sustainable ecosystem that spurs development and employment.

At the same time, gas is more resistant to theft and sabotage, which has been one of the major concerns surrounding oil pipelines.

Shell Nigeria gas is looking at the Ajaokuta-Kaduna-Kano (AKK) pipeline project as an opportunity to target Northern Nigeria. This region has a huge population and major manufacturing potential. The AKK pipeline will be extensive and someone needs to build local distribution networks that will take gas to the various industrial areas. That is where we could come into play.

We are also building clusters in Bayelsa State and Oyo State. We plan to grow by getting as much gas as possible to power industries and manufacturing plants and to support Nigeria’s Decade of Gas.

SNG signed a Memorandum of Understanding (MoU) with the Oyo State Government for the acceleration of domestic gas infrastructure development to enable the distribution of cleaner and more reliable energy to industries in Oyo State and has also begun building a large gas processing plant in the city of Aba, Abia State.

Agbara-Ota is the cluster with the highest industrial density in the country. In January 2021, we signed a 20-year agreement that allows us to continue providing gas to industrial and manufacturing companies in Lagos and Ogun states. This is a long-term testament to our confidence and commitment. We invest in the region, build the required infrastructure, and partner with the government to ensure that we continue to deliver gas reliably to the more than 100 industries in this zone. This is a win-win equation in which they pay for gas and we continue to supply them with a cleaner source of energy over the next 20 years.

TER: With the Federal Government’s adoption of gas as the country’s transition fuel, what’s SNG’s business model to contribute to developing a credible gas-powered economy in Nigeria?

Ubong: Today, SNG operates under the Shell Energy brand… a business line established in Nigeria in 2021 to expand natural gas marketing and sales. Consolidating SNG’s successes achieved in previous years and inline with the federal government’s “Decade of Gas” initiative.

Shell Energy Nigeria’s focus is to deliver gas-based energy solutions to diverse businesses across the country by bringing to Nigeria, the resources and competence of our global gas, power, and environmental products marketing and trading business.

Shell Energy Nigeria will focus on gas, power, and energy solutions for industrial and commercial customers. SEN’s ambition is to distribute 1 billion cubic feet of gas in the domestic market by 2030.

TER: At SNG, are there plans or ongoing projects on CNG, LPG, Autogas development, and retrofitting some of your company’s current fleet from PMS to gas-powered vehicles?

Ubong: Indeed, we have a pilot project underway where we retrofitted an operational vehicle with a dual fuel CNG combustion system that can run on 100% CNG or PMS. This pilot project is the first of its kind in Shell Nigeria. It involved using a cheaper, safer, cleaner, & more environmentally friendly fuel that will result in the reduction of GHG emissions, as well as a reduction in fuel, maintenance, and operations, cost associated with SNG’s Operations. Once the pilot test is completed, SNG plans to extend the opportunity to other vehicles in SNG’s fleet.

This initiative contributes to SNG’s CO2 emissions abatement strategy by reducing GHG emissions associated with its operational footprint by replacing PMS/AGO fuel with CNG. Consequently, this initiative contributes positively to the GHG reduction strategy and has a very significant positive impact on the environment.

TER: It is estimated that Nigeria needs about $40 billion of direct investments to achieve the target of the ‘Decade of Gas’ initiative. What do you think the country can do to attract this level of investment?

Ubong: The growing demand for gas in the Nigerian domestic sector and the international market translates to significant reserves and production capacity development requirements. Reviewing the regulatory environment and promoting investor and business-friendly policies are crucial to attracting investment for the energy transition.

Experience from other emerging markets shows the potential of an enabling policy environment to accelerate the deployment of new energy infrastructure.

Mechanisms, such as smart subsidies for cleaner energy, may be needed to ensure the affordability of energy supply for the economically vulnerable sections of the population. It will encourage more interest and participation by industry players in exploring the untapped opportunities in the gas industry.

It is also important to promote local procurement in new projects so that local industries can flourish. Duty exemptions and tax incentives can be part of policies to promote cleaner energy solutions such as gas.

There are several challenges that we need to overcome to successfully liberate the domestic gas market and attract investments. A few key ones are:

Unpaid deliveries for power and gas – One of the challenges is to clear the backlog of deliveries of both power and gas to customers that have not been paid for. Without the payment of outstanding gas and power invoice arrears, and securitization of current and future revenues, operators are reluctant to commit additional investments to grow the domestic gas supply.

Investment to develop infrastructure – Another challenge is the need to attract investment to further develop infrastructure along the gas value chain, for example, to create a more robust pipeline network to improve reliability and security of supply. The reliability of the existing power transmission also needs improvement.

For example, SPDC JV’s Afam VI power plant, which has the capacity to generate up to 650 MW, only generates between 350-450 MW most of the time because the power transmission system is unable to evacuate the full output.

Sustainable upstream supply- upstream supply development needs to be incentivized at a level that recognizes Nigeria’s huge low-cost resource base while still supporting investment over the long term. Shell is assessing different potential solutions to help unlock value in this area and accelerate the growth of the domestic gas market; further unlocking Nigeria’s economic development.

Encourage Local manufacturing with gas as feedstock/raw material – Businesses such as petrochemical companies that use natural gas as a feedstock offer a large capacity to employ and use significant volumes. We must encourage local manufacturing to drive demand for businesses such as the petrochemical companies that use natural gas as a feedstock and offer a large capacity to employ and use significant volumes.

The legal, regulatory framework, and security- Finally, ensuring a conducive business environment is essential to attracting investments and running reliable operations. This includes respect for the sanctity of existing contracts, and predictable regulatory, commercial, and legal framework across the country. Overcoming security challenges in the Niger Delta has experienced an increased risk to personnel and property as well as the disruption to operations is also very important.

TER: In terms of gas, creating the link between the gas producer and the market has been a problem in Nigeria. What’s your perspective on strategies and policy implementation in unlocking new opportunities to strengthen Public-Private Partnerships (PPP) going forward?

Ubong: Policies must be fit for purpose; while learning from policy development across the world, there must be a recognition of the peculiarities of the Nigerian context both in setting policy and driving its implementation. Policies must provide mitigation for potential short-term negative impacts while still laying the groundwork for long-term success.

Phased approach: with the challenges in infrastructure, funding, security, and capacity, policy implementation must be phased in their approach. This approach enables the quick wins that create momentum for long-term delivery. It also helps in aligning and gaining support from multiple, complex and varied stakeholders.

The PIA has provided a stable regulatory framework for both the domestic and export gas market in Nigeria. With the recognition of gas as a transition fuel by the EU and the growing demand for gas, Nigeria is well placed to exploit the opportunity to fill this gas, especially over the next decade.

As much as renewable energy is reshaping energy consumption globally, oil and gas remain a very important drive for the world economy. The success of the Petroleum Industry is and will always be dependent on the legal provisions, governance, timely regulations, and fiscal framework.

TER: As a gas producer and President of the Nigerian Gas Association (NGA), what should government do, in partnership with industry stakeholders and players in developing a credible gas-powered economy in Nigeria?

Ubong: The declaration of 2021-2030 as the “Decade of Gas” is the realization by the Nigerian Government that Nigeria is, indeed, a gas nation whose gas production and consumption need to be accelerated.

For me, I believe the most important indicator of success for the average Nigerian citizen will be a reliable electricity/power supply. Currently, 85 million Nigerians do not have access to grid electricity, therefore we must unlock the challenges in the gas-to-power value chain to improve access to energy for Nigerians.

This will require pragmatic steps to address structural issues across the on-grid value chain ranging from interruptions in gas supply, transmission grid losses and outages, inadequate metering infrastructure, and illegal connections.

The NGA is working with its stakeholders to accelerate gas sector development across seven thematic areas: unlocking the domestic gas to power value chain; accelerating infrastructure development including virtual pipelines; driving gas-based industrialization; deepening domestic LPG penetration, building a stable regulatory environment anchored on a willing buyer-willing seller pricing regime; growing the export and regional gas market, building local capacity/content for contractors and professionals in the gas sector.

These seven thematic areas are critical to realizing the objectives of the ‘Decade of Gas’ and need to be pulled together in a Nigeria Decade of Gas Masterplan (NDGMP) that provides a roadmap that allows Nigeria to utilize its huge gas resources for its socio-economic growth in developing a credible gas-powered economy.

We are collaborating with the government and its industry partners to unlock the potential in the gas value chain and create an enabling environment for the Nigerian gas sector to thrive. This will yield a myriad of economic opportunities.

Harnessing our vast gas resources is key to the development of the country. Natural gas gives us the ability to lift millions out of energy poverty, giving people the power to improve their physical health, well-being, and standard of living.

It also gives us a pathway to economic growth and development, not only through direct exploration and trading of gas resources but by providing reliable power supply for the manufacturing and industrial sectors which are the major growth engines for developing economies.

TER: How is SNG leveraging on Nigerian Content and building capacities through gas development?

Ubong: Shell Nigeria Gas Limited (SNG) is the only Nigerian subsidiary of an international oil company in domestic gas distribution and it is 100% Shell share.

Shell Companies in Nigeria contribute to economic growth in Nigeria by generating revenue for the government through taxes, creating employment opportunities, and contributing to the development of local businesses.

In 2021, Shell Companies in Nigeria directly employed 2,500 people, 97% of whom were Nigerian nationals. More than 8,500 contractors supported our operations during the year.

Shell Companies in Nigeria awarded contracts worth $800 million (the same as in 2020) to Nigerian-registered companies, of which 92% was to companies where the Nigerian ownership was at least 51%.

At Shell Nigeria Gas, all our contracts for the past 3years have been awarded to Nigerian Contractors. In 2019, 98% of Shell Companies in Nigeria’s contracts worth $1.1 billion were awarded to Nigerian companies. These include the manufacture of tools and technical kits, the operation of helicopter flights in the Niger Delta, and strategic partnerships between foreign and local companies to stimulate technology transfer and capacity development.

Shell is investing in a gas portfolio that will increase supply for Nigeria’s growing industrial and commercial sectors, as well as to international customers via an expanding network of plants, pipelines, and export terminals. At Shell, we recognize that local content is key to surviving a post-covid world and Shell will continue to invest in this space. We remain committed to building capacity and competence in the country and to investing funds that enable more Nigerians to participate directly or indirectly in the gas value chain and support the local economy.

The Nigerian Gas Association is also focused on building human capacity and developing talent to move this industry forward. As we look forward to developing a gas-based economy in Nigeria, one of the NGA’s priorities is ensuring that we have skilled and competent individuals to lead and accelerate this transition. The skillsets required in oil production and gas production/distribution are quite different so the NGA is looking at how we can retool the seasoned oil professionals for gas sector delivery.

In this vein, we are seeking to collaborate with various stakeholders to deliver training programs that will build the required technical skillset for gas sector development. We are confident that most of the talent required for this transition to a gas-based economy, will come from Nigeria.

TER: What’s SNG’s new investment focus in 2022 and beyond?

Ubong: Gas-to-industry and power is an area we want to deepen, as we have seen that industrial clusters allow communities to flourish, developing economic activities like trading and manufacturing. This is a sustainable ecosystem that spurs development and employment. At the same time, gas is more resistant to theft and sabotage, which has been one of the major concerns surrounding oil pipelines.

SNG will continue to make domestic infrastructure investments under the right commercial conditions and birth domestic gas projects that will be major game-changers in Nigeria’s quest for cleaner energy sufficiency, industrialization, and economic growth in supporting the manufacturing and industrial sector.