SPECIAL REPORT: Evaluating The Nigerian Gas Potentials

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By Ndubuisi Micheal Obineme

In Nigeria, Crudeoil and natural gas production commenced in 1958 when the first oil was drilled in Oloibiri, Bayelsa State. Nigeria possesses one of the largest natural gas reserves in the world and is ranked as one of the world’s largest exporters of Liquefied Natural Gas (LNG).

According to the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), the country’s proven reserves as of January 1, 2022, is 209.5 Trillion Cubic Feet (TCF), the largest in Sub-Saharan Africa and the top 10 in the world. Nigeria also has over 600 TCF of unproven gas reserves.

As there are many other natural resources abound in the country, Nigeria’s gas potential is yet to be fully explored. 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.

In 2019, Nigeria’s domestic natural gas consumption was about 15 billion cubic meters (bcm), and it is expected to increase to about 20 billion cubic meters by 2030.

Nigeria’s net export of natural gas was 30 billion cubic meters in 2019, and it is expected to increase to 44 billion cubic meters by 2030. Liquefied Natural Gas (LNG) account for the majority of export and it is expected to increase from 32bcm to 41bcm by 2030. Pipeline gas exports were 0.8bcm in 2019 and are likely to increase to 3.5bcm by 2030.

The Nigerian gas potentials are 10 times the potentials of oil. Gas as a fuel source creates enormous opportunities and products that can be deployed which include gas as an energy source, and gas as a feedstock (Petrochemical). It can also be used for the production of high-value fuels and chemicals such as methanol, ethanol, gasoline, and diesel oxygenated fuel blend.

The Nigerian government does not only see gas as a revenue-generating resource, it also sees it as a transition fuel amid the global push toward cleaner and greener energy sources. Over the years, the government has been formulating various policies aimed at deepening domestic gas utilization and increasing the country’s export capacity.

There is also domestic Liquefied Petroleum Gas (LPG), Gas to Liquids, Small Scale Liquefied Natural Gas, Gas to Power, AutoGas for the Automobile Industry, Gas for the Industrial Manufacturing Sector, Gas to Commercial and Residential Sector, Agriculture Industry among others.

Furthermore, Nigeria flares around 700mscf per day from 178 flare sites which translate to Nigeria losing approximately $10 billion in revenue annually due to its inability to capture and commercialize flared gas in the country.

Experts have said that if flared gas is properly managed, Nigeria will generate 600,000 Metric Tonnes (MT) of LPG per year and generate 2.5GW of power from new and existing independent power plants to power the economy.

Currently, Nigeria generates 5,000MW of power which isn’t good enough as the country can generate over
13,000MW. In its bid to commercialize flared gas to stimulate economic growth, drive investments, and provide jobs in oil-producing communities and for Nigerians through the utilization of available innovative technologies, the Nigerian government approved the Nigerian Gas Flare Commercialisation Programme (NGFCP) in June 2016.

Over 800 companies expressed interest to manage about 178 gas flared sites that the government has identified. The government 2019 inaugurated a Ministerial Steering Committee to recommend the best governance structure before the defunct Department of Petroleum Resources (DPR) go on with the programme as a statutory function there and then after the first auction rounds.

NGFCP was designed as a strategy to implement the policy objectives of the Nigerian government for the
elimination of gas flares with potentially enormous multiplier and development outcomes for the country.

At NGFCP bidders’ conference in February 2020, the DPR disclosed that 200 companies had been shortlisted, following the evaluation of statements of qualification, adding that 45 gas flare sites would be put up for auction in the first phase of the programme.

“The NGFCP is designed as the strategy to implement the policy objectives of the FGN for the elimination of gas flares with potentially enormous multiplier and development outcomes for Nigeria. The objective of the NGFCP is to eliminate gas flaring through technically and commercially sustainable gas utilization projects developed by competent third-party investors who will be invited to participate in a competitive and transparent bid process. The commercialization approach has been considered from legal, technical, economic, commercial, and developmental standpoints. It is a unique and historic opportunity to attract major investment in economically viable gas flare capture projects whilst permanently addressing a 60-year environmental problem in Nigeria,” NGFCP says on its website.

“The NGFCP will offer flare gas for sale by the Federal Government of Nigeria through a transparent and competitive bidding process. A structure has been devised to provide project bankability for the Flare Gas Buyers, which is essential to the success of the Programme.”

In December 2017, the Nigerian government gazetted the National Gas Policy (NGP). The policy commits to ending gas flaring, creating an enabling environment for investors, seeking value addition for gas, and improving governance in the sector.

The program information memorandum of the NGFCP, states, “The Federal Government of Nigeria will work to grant open access to all pipelines and other essential midstream infrastructure. Concerning the pricing of gas for the domestic market, which is largely controlled by the Federal Government of Nigeria under a transitional pricing framework, the current framework will be retained for a limited period until a sufficient gas market is established. The policy objective is to move to market-led wholesale gas pricing without gas price regulation, except where there are natural monopolies. Earlier in 2015, the Ministry of Petroleum Resources announced ‘7 Big Wins’,7 which outline short- and medium-term priorities to grow Nigeria’s oil and gas industry from 2015 to 2019. The third pillar is a gas revolution, which includes reduction of gas flaring as one of the six goals.”

The Minister of State for Petroleum Resources, Chief. Timipre Sylva, in December 2019, declared 2020 as the Year of Gas for Nigeria. The country kicked off the year with plans to harness its gas by addressing some of the barriers hindering the utilization of gas resources including passing a regulatory framework for the upstream sector and the launch of the Nigerian Gas Transportation Code to further drive gas-based industrialization.

“On January 16, we inaugurated an Interagency Committee saddled with the responsibility of coordinating our concerted efforts to ensure the penetration of domestic utilization of liquefied petroleum gas (LPG), encourage Auto LPG, compressed natural gas, and LPG for the domestic market. This will drastically reduce the massive outflow of the nation’s foreign exchange currently being expended in the importation of Premium Motor Spirit (PMS),” Sylva said at the Seplat Energy Summit in 2020.

“We declared 2020 the year of gas because we realized that we need to focus on gas as a bridge to renewable fuels and we have abundant gas resources. So we need to take advantage of it,” Sylva reiterated while featuring on the News Agency of Nigeria (NAN) Forum last year.

According to him, “Gas is produced and it can be transformed to fertilizer and fertilizer can fertilize our agricultural sector.

“Also, the gas that is produced can be transformed into petrochemicals, and petrochemicals can be transformed into everything that we need in life including the plastic on the camera, phones, even the clothes we wear.

“Petrochemicals come from gas, and gas can be transformed into methanol, and this is the basis of chemical and pharmaceutical industries.

“So you can imagine if we harness our gas resources and do a fertilizer blending plant based on gas, then produce the fertilizers and send them to the farmers.

“And you can imagine if all the farmers in Nigeria have access to cheap fertilizer what it would do for our agriculture without anybody doing anything else.”

The Minister noted: “If you have gas and produce petrochemicals with it, from petrochemicals you produce raisins, power the textile and electricity industry or all kinds of industries, you can imagine the number of job opportunities we can create. Thereafter, we can use the gas to power the country.

“We have this kind of resource and we have not even scratched it and then how can we move away from it? Let us face the benefit that is in gas to develop as a country.

“I believe that if we are talking about diversifying Nigeria’s economy, gas is the option, if we go gas, we can use it to diversify the economy faster than any other commodity, and fortunately we have it in abundance than any other commodity.”

Aside from having huge proven gas reserves, Nigeria is also well located in terms of transporting gas to Europe and Asia, has a big domestic market with its over 200 million population, and has highly skillful people in the oil and gas industry.

“Nigeria is almost equal(tor)-distance whether you’re going to Asia or whether you’re going to America. So that puts us in a very good position. That’s number one. Number two, we’ve been blessed with an abundance of these resources (gas) still there – onshore, in shallow water, even in the deepwater, even in the land areas.

“Having had this very extensive oil life of about sixty-something years, also means that we have a very good repository of experience in the oil and gas business somehow. So, we’re well located, we have got the resources under the ground, you’ve people — it’s not as if we’re going to be bringing in people from Ghana or anywhere to help you to do it.

“We have the people to help to do it. It’s just to make it happen,” says Chairman of Energy Institute Nigeria, Osteen Olorunsola in a documentary by the Ministry of Petroleum Resources in 2021, sponsored by the Nigeria Liquefied Natural Gas (NLNG).

Decade of Gas
President Muhammadu Buhari while declaring 2021-2030 as the Decade of Gas for Nigeria said that before the declaration of the Year 2020 as “The Year of Gas”, this Administration had shown commitment to the development of Nigeria’s vast gas resources and strengthening of the gas value chain by reviewing and gazetting policies and regulations to enhance operations in the sector as encapsulated in the National Gas Policy of 2017.

“We demonstrated this through enhanced accelerated gas revolution”. President Buhari made the declaration in March 2021, at a pre-summit conference of the 2021 Nigeria International Petroleum Summit (NIPS) now Nigeria International Energy Summit (NIES).

Subsequently, President Buhari in June flagged off the commencement of construction work on the Nigeria NLNG Train 7, which is located in Bonny, Rivers State.

Buhari noted that the focus of his administration is to boost the development of the country’s vast gas resources, strengthen the gas value chain, develop infrastructure and enhance safety in the sector in line with the 2017 NGP, adding that the Decade of the Gas initiative will transform the country into an industrialized nation.

“The focus of this administration is to boost the development of Nigeria’s abundant gas resources, strengthen the gas value chain, develop the much-needed infrastructure and enhance safe operations in the sector as outlined in the National Gas Policy of 2017.

“Through the Decade of Gas initiative, which recently launched, we will transform Nigeria into a major gas and industrialized nation with gas playing the key role as a revenue earner, fuel for industries, and necessary feed for petrochemicals and fertilizer plants,” he said.

The President appreciated the shareholders,the federal ministry of petroleum resources, the Nigerian National Petroleum Corporation (NNPC), and the Nigerian Content Development and Monitoring Board (NCDMB) for their collaboration, which has resulted in the commencement of work on Train 7.

He said, “As we flag off the Train 7 project today, I look forward to the development and execution of more Gas Projects by the IOCs and Indigenous operators, and more Trains from Nigeria LNG to harness the over 600 trillion cubic feet of proven gas reserves we are endowed with.

“Let me use this opportunity to commend the Shareholders of NLNG, the Federal Ministry of Petroleum, NNPC, and the NCDMB and other stakeholders for very exemplary collaboration which has culminated in this great opportunity for Train 7.

“I want to thank the foreign investors for the confidence reposed in Nigeria, and assure all Nigerians and potential investors in the Oil and Gas sector that the Federal Government will continue to create the enabling environment to develop the sector and bring the full benefits of Gas closer to our people.”

In 2019, the Nigerian government took the Final Investment Decision (FID) for the multibillion dollar project, NLNG Train 7. The FID was followed by the signing of the Engineering, Procurement, and Construction (EPC)

Contracts in May 2020, for the project with the SCD JV Consortium, comprising affiliates of Saipem, Chiyoda, and Daewoo.

SCD JV will be constructing one complete train and one common liquefaction unit with a total capacity of approximately 8 MTPA, as well as associated utilities and infrastructure.

The NLNG is an Incorporated Joint Venture owned by the NNPC (49%), Shell Gas B.V. (25.6%), Total Gaz Electricite Holdings France (15%), and Eni International N.A. N.V. S.àr.l (10.4%). Train 7 will increase value for shareholders.

“Train 7 is the crux of a growth agenda which will ensure the Company’s position as the 5th major supplier of global LNG is maintained, increasing value to its shareholders and other stakeholders, as well as further reducing the gas that would otherwise have been flared, in fulfillment of its vision of ‘being a global company, helping to build a better Nigeria,” the former Managing Director, NLNG, Tony Attah said while speaking at the signing ceremony of FID on Train 7.

Train 7 will increase NLNG production by 35 percent, and it is expected to attract about $10 billion in Foreign Direct Investment (FID). The project is expected to be completed within five years from the start of construction, and there are plans to build Trains 8, 9… to 12 in no distance time.

Also, the Nigerian Content Development and Monitoring Board (NCDMB), an agency of the Nigerian government, has committed a total of $332million under its commercial ventures partnership programme to attract project developments in-country valued at $3.7bn.

Some of the partnerships undertaken by the Board are in the area of gas. The partnerships include the 5,000 barrels per day Waltersmith Modular Refinery at Ibigwe, Imo State; NEDO Gas Processing Company in Kwale, Delta State, an 80 million standard cubic feet per day (MMscfd) gas processing plant; and Kwale Gas Gathering Hub, a 300MMscfd.

Others include the development of 5,000 metric tons LPG Storage and loading terminal facility by Triansel Gas Limited in Koko, Delta State; Duport Midstream Energy Park with a modular refinery, power plant, and 40MMscfd gas processing facility at Egbokor, Edo State; 10,00MT/day Methanol Plant Brass Fertiliser for the development of a 10,000MT/day Methanol Plant and 500MMscfd gas processing plant at Odiama in Brass, Bayelsa State.

The NCDMB is also partnering with Rungas Group for the manufacturing of 1.2million composite LPG cylinders per annum in Bayelsa and Lagos States as well as a partnership with Butane Energy to deepen LPG utilization in the northern states of the country.

“We shall complete and commission composite LPG cylinder manufacturing plants with a combined capacity of 1.2million cylinders per annum. We shall commission three other projects dedicated to gas processing, LPG bottling, and production of base oil. We shall also commission and commence operations from our industrial parks at Odukpani and Emeyal-1 and we shall commercialize at least one R&D project and close skills gaps in underwater welding and any other core skill required in the industry,” the Executive Secretary of the NCDMB, Engr. Simbi Wabote disclosed at the 2021 Nigerian Oil & Gas Opportunity Fair (NOGOF).

The Decade of the Gas initiative of the government is aimed at making Nigeria a gaspowered economy by 2030. The key objectives of the initiative include increasing access to electricity, building a stronger economy, addressing poverty, and reduction in carbon emissions by deepening domestic utilization of gas.

Energy Transition
As part of its commitment to ending gas flaring and lower carbon emissions, Nigeria ratified the Paris Climate Change Agreement and is a signatory to the Global Gas Flaring Partnership (GGFR) principles for global flare-out by 2030.

In December 2020, Nigerian President Buhari launched the National Gas Expansion Programme (NGEP) & the National Autogas Roll-out Initiative. With the launch, the country is committed to using Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), and Liquefied Natural Gas (LNG) as alternative fuels for transportation, industrial and domestic use.

“It is no longer news that the vast natural gas resources, which Nigeria is endowed with, have hitherto been used sub-optimally as a result of a dearth of gas processing facilities and infrastructure connectivity for effective and optimal domestic utilization.

“As I mentioned above, with a proven reserve of about 203 trillion cubic feet (TCF) and the additional upside of 600 TCF ranking Nigeria as the ninth in the world currently, the need for domestic gas expansion and utilization is apparent,” Buhari said while launching the programme.

He added: “Therefore, the roll-out of the National Gas Expansion Programme, Auto-gas Initiative is coming at the right time, especially in light of global crude oil market fluctuations coupled with the full deregulation of the local PMS market.

“These developments have made it imperative to focus on gas as an alternative fuel to move Nigeria from the conventional dependence on white products for automobiles and prime movers of industrial applications to a cleaner, more available, accessible, and affordable energy source.

“The outcome will not only cushion the effect of the downstream deregulation that this government has to painfully implement, but also create new markets and enormous job opportunities for our people.

“I, therefore, encourage everyone to embrace gas in form of LPG, CNG, and LNG as an alternative fuel for automobiles and other prime movers.”

The NGEP is seen by analysts as a practical demonstration of the president’s commitment to this goal by utilizing gas as not just a transition fuel but also for social-economic development. Buhari in June 2019 said that his government is working towards lifting 100 million Nigerians out of poverty.

“The programme has its main objective to reinforce and expand gas supply as well as stimulate demand in Nigeria through effective and efficient mobilization and utilization of all available assets, resources, and infrastructure in the country.

“The programme is geared towards the implementation of Mr. President June 12, 2019 promise to take a hundred million Nigerians out of poverty within the current decade by ensuring that locally produced, available, accessible, and affordable fuel is sufficiently supplied across the country,” said the Minister of State for Petroleum Resources, Chief Timpre Sylva at the inauguration of NGEP in Southwest Nigeria in February last year.

Over 70 percent of households in Nigeria use firewood as a source of cooking energy. This has led to deforestation and is responsible for the death of over 93, 000 Nigerians annually, according to the International Centre for Energy and Environmental Development (ICEED).

To address this, the Nigerian government has been initiating various programs aimed at deepening the domestic utilization of LPG.

About three years ago, the government removed Value Added Tax (VAT) on LPG in Nigeria, a measure it said was targeted at growing the LPG sector. The Nigerian government is targeting a 40 percent adoption rate (i.e. 13.8m households) in 5 years, and 73 percent adoption in 10 years (33.3m households).

“We believe that the sub-sector can create up to 2 million new direct and indirect jobs in Nigeria. Our determination to prioritize the LPG sector development culminated in the Federal Executive Council’s approval of the National Gas policy in 2017, with dedicated input for the enhancement of the LPG sub-sector. Our driving vision has been to transform the sub-sector from a commodity sector based on export to a value creation sector based on domestic utilization and industrialization,” said the Vice President, Prof. Yemi Osinbajo in 2019.

Nigeria at the COP-26 in Glasgow, Scotland, last year, pledged to achieve zero carbon emission by 2060. And gas is going to play a big role in achieving this target.

“As a commercially driven entity, we are leveraging the current industry dynamics to diversify and grow our portfolio to maintain relevance in the global energy market.

Additionally, we are reassessing the brown and green assets for our Carbon Budget and environmental credentials as part of our transition to an energy company of global excellence,” said the CEO of the Nigerian National Petroleum Corporation Limited (NNPC), Mele Kyari in the Atlantic Council’s “The 2022 Global Energy Agenda”.

Kyari believes that adoption of low-carbon technology across its operations, deepening natural gas utilization to reduce energy poverty, and invest¬ment in clean energy technology and products are key to sustaining global energy security and equitable growth as the world transits to a carbon-neutral economy.

For the first time in Nigeria’s history, the domestic consumption of LPG, exceeded 1 million Metric Tonnes (MT) in 2020, according to the defunct Petroleum Products Pricing Regulatory Agency (PPPRA).

“Nigeria consumed 840,594.37 MT LPG in 2019, indicating an increase of 60.5 percent over 635,452.061MT recorded in 2018,” the agency said in a statement in January last year.

“This steady and sustained pattern of growth culminating in the over one million metric tonnes of LPG domestic consumption milestone in 2020 has placed the country 1st in West Africa and one of the leading LPG consuming nations on the continent.

“With this laudable feat, the country is on track to meet the five million MT by 2022 target, set in the Nigeria Gas Policy (NGP) of 2017,” it added.

Opportunities for investors
There are huge investment opportunities for investors in the Nigerian gas space. In the Upstream, for instance, opportunities abound in the area of exploration of frontier basins, the development of upstream gas fields, and the financing of greenfield/brownfield additional production on de-risked assets. But lack of adequate gas infrastructure has been a major challenge to the development of Nigeria’s vast gas deposits.

However, Nigeria, Niger, and Algeria in February, during the third edition of the Economic Communities of West African States (ECOWAS) Mining and Petroleum Forum (ECOMOF), which was held in Niamey, Niger signed an agreement to resume the development of Trans-Saharan Gas Pipeline project.

The West African Gas Pipeline – the first transnational gas pipeline in the West Africa subregion, with the potential of creating 80,000 jobs and reducing greenhouse emissions by approximately 100 million tons as well as the Trans-Saharan Gas Pipeline, if funded will create numerous investment opportunities in the gas space.

The Nigerian government also flagged the construction of the 614km Ajaokuta-Kaduna-Kano (AKK) gas pipeline in June 2020. The gas pipeline is part of the Trans-Nigerian Gas Pipeline (TNGP) projects. Other parts of TNGP projects include the Escravos Lagos Pipeline System (ELPS) 2, and the Obiafu-Obrikom-Oben (OB3) gas pipeline.

“What we are doing is some kind of replacement such that we move from the dirtier fuel to cleaner fuel which is gas,” Kyari said at the Atlantic Council Global Energy Forum, held in Dubai.

Reiterating the government’s commitment to building gas infrastructure, he said, “And what we had to do is to build the enormous gas infrastructure required to ensure that there is sufficient supply of gas into the domestic market and provide some for the international market.

“And more than that, within the West Africanm context, you will see that energy inefficiency and poverty that you see in Nigeria is also in many West African countries around us.

“We are trying to see how we can build a network of pipeline infrastructure that will deliver gas and potentially jump into Europe through Morocco or Algeria.”

In Gas & Power infrastructure development, there are opportunities in expanding the country’s gas pipeline networks, development of gas-based industries as well as integrated power plants.

“In line with our aspiration towards becoming a net exporter of petroleum products.

“Opportunities abound in the rehabilitation of our existing refineries as well as the construction of greenfield condensate refineries.

As we strive to deepen domestic gas utilization, it has created more opportunities in the downstream sector, especially in LPG and CNG plants across the country. There are also opportunities in the pipeline and storage tank construction; as well as developing Shipping Capacity,” Kyari said at 2021 the Nigerian Oil and Gas Opportunity Fair (NOGOF).

Also, the NLNG Train 7 will further the development of the country’s local capacity and businesses through 100 percent in-country execution of construction works, fabrications, and major procurements.

Train 7 will increase local content by 55 percent from the engineering activities end, creating 12,000 direct jobs and about 40,000 indirect jobs. It will also bring out the retention of incountry expertise through training, technology transfer, patronizing and developing the local capacity of Small and Medium Scale Enterprises (SMEs); creating investment opportunities in manufacturing and capacity development; creating employment opportunities for Nigerian service providers and manufacturers.

More so, 55 percent of all procurement for the execution of the project will be done by Nigerian vendors. This is in addition to 100 percent of the installations and construction happening in Nigeria.

Nigeria’s domestic gas consumption in 2019 was 15 billion cubic meters and is expected to rise to 20 bcm by 2030. The country’s net LNG export in 2019 was 33 bcm. This is projected to rise to 44bcm by 2030. LNG accounts for the majority of exports. Also, pipeline gas export which was 0.8bcm in 2019 is expected to rise to 3.5bcm by 2030.

To realize the Decade of the Gas target, Nigeria needs about $40 billion investment. The government is creating an enabling environment to attract investors.

Last year, it established the Nigeria Oil and Gas Excellence Center (NOGEC), which will help to address disputes. It also launched the Nigerian Upstream Cost Optimization Programme (NUCOP) — an industry-wide initiative designed to optimize Nigeria’s upstream operating expenses through process enhancement and industry collaboration to ensure improved and sustainable profitability for all stakeholders.

President Buhari signed the Petroleum Industry Bill (PIB) into law last year. The PIB, which is now known as the Petroleum Industry Act (PIA), provides a legal, governance, regulatory and fiscal framework for the Nigerian petroleum industry, the development of host communities, and related matters.

Among other incentives that the PIA provides for investors is gas pricing. It pegs the domestic base price for gas at $3.2 per Million British Thermal Units (MMBtu) for power plants. But the price at which the gas-based industry, comprising companies that produce methanol, fertilizer (urea, ammonia), polypropylene, etc will purchase natural gas, can be as low as $1.5 per MMBtu.

Gas users outside the power sector and gasbased industry will, according to the act, pay at least $0.5 higher than $3.2 per MMbtu, and their cost of purchase will depend on negotiations with their suppliers. The law, however, notes that the domestic $3.2 per MMBtu shall increase annually by $0.05 per MMBtu until 2037 when a price of $4.00 per MMBtu will apply for that year and future years.

Nigeria has a population of over 200 million people and needs at least 200 gigawatts of electricity generation to have a stable power supply. This makes it the biggest market in Africa. With this huge population and the various policies and programs being rolled out by the government, Nigeria is a place where investors who are interested in gas-related businesses should consider investing in.