Gas: Charting new course for Nigeria's industries

Jan 13, 2003 01:00 AM

by Godwin Haruna

A landmark event that has the potential of turning the Nigerian industrial sector around, took place in the remote village of Ewupe in Ogun State. It was the commissioning of the Ota/Agbara gas transmission and distribution system.
Even the freshly constructed road that leads to Ewupe in Ado-Odo, Ota Local Government Area of Ogun State did not give any picture to the unwary visitor that there is a revolution in the Nigerian industrial sector going on there. But a further foray on the road into the sleepy village, revealed everything to the first time visitor that indeed, a phenomenon that is bound to take the Nigerian industrial sector by storm, is being midwifed in the village.
Like the Pentecostal Christians would say, very soon, life in the industrial sector, would not be the same again. The perennial power fluctuations that has become the perpetual nemesis of industries in Nigeria, a factor that has held down their capacity utilisation over the years, would be a thing of the past.

To underscore the importance of this "revolution", Ewupe played host to the number one citizen in the country, President Olusegun Obasanjo and other important dignitaries. The President performed the formal commissioning of Shell Nigeria Gas, Ota/Agbara natural gas transmission and distribution system. The landmark event momentarily brought the hitherto sleepy village to national limelight.
Virtually all the guests at the event, which included political leaders from the executive and the legislative branches, barons of industry, business leaders and the host communities, were elated that a project of that significance, was being flagged off to aid the economic development of Nigeria. The timing of the event, which coincided with the president's victory as the Peoples Democratic Party (PDP) presidential flag bearer the previous day, also provided another avenue for his admirers to celebrate. Governor Olusegun Osoba of Ogun State actually alluded to the pleasant coincidence in his remarks at the ceremony, which he re-christened a "revolution".

A visibly ecstatic Obasanjo, who brushed aside the sleeplessness of the previous day's PDP convention to grace the occasion, stated in his speech that the event marked the beginning of yet another landmark project in the goal of optimal utilisation of the nation's gas resources. He said it re-established the fact that Nigeria was more of a gas country than an oil country. In spite of that, he said Nigeria had exported only crude oil for forty-two years and wasted enormous volumes of gas by flaring.
"It will be recalled that three years ago, this government enunciated a gas policy that aimed to eliminate flaring of our gas in 2008. We had also aimed at developing the gas industry such that by the year 2010 revenue from gas would be close to that from oil. In the same vein, we set out to encourage our joint venture partners in actualising the production, transmission and utilisation of gas, particularly its transportation to third parties", Obasanjo said.
He added that it was a good measure of the pace of development of gas that the date for eliminating gas flaring was brought forward to year 2004, stressing: "This is indeed, good news for many Nigerians who have cried out against the wastage for decades".

The president said the Federal Government was committed to boosting domestic utilisation of gas beyond the current demand of less than 500 mm cfpd, by rehabilitating several generating units of National Electric Power Authority (NEPA), partaking in joint venture with multinationals for the establishment of new Independent Power Plants (IPP), exploring additional domestic gas projects and market development.
Obasanjo stated that the project is one of the steps that would bring natural gas to industrial customers and potential independent power producers in Ota and Agbara industrial estates of Ogun State.
"Momentous impact on the local economy is expected from the supply of clean, reliable and cost competitive fuel that will help in substituting liquid fuels which can be released for other markets", he further said.

While expressing the hope that the project would be extended to other parts of the federation, he noted with satisfaction that the project has attracted over 4 bn naira of foreign direct investment to the country. The president said it was significant that the Ota/Agbara project was the result of a strategic alliance between Shell Nigeria Gas Limited and the Nigeria Gas Company, a subsidiary of the NNPC.
He stressed that it attested to the government policy thrust of providing the enabling environment for such partnerships between foreign investors and indigenous concerns to thrive for the benefit of the national economy. Obasanjo lauded Shell Nigeria Gas (SNG) in its commitment to developing gas supply infrastructure in other industrial areas of the country and power plants.

Also speaking on the occasion, Governor Osoba declared that it was a striking coincidence that as the president was celebrating his nomination as the PDP flag bearer in the April presidential election, his home state, Ogun, was celebrating its industrial revolution. Osoba, who veered into political issues in the remarks, noted that it was significant that the president, through his various overseas' trips, had induced the "revolution".
He said even though, he was a member of another party, the president had provided good leadership in the past three and half years and therefore, merited a second term of office. Osoba emphasised that Obasanjo had delivered many democracy dividends since his return to power in 1999. He hailed the president as a master of transition, who midwifed it in South Africa and Nigeria in 1979. Because of these antecedents, he advised cynics and doomsday prophets to hold their breath as the peaceful conduct of the PDP presidential primaries was a prelude to what to expect in the 2003 general elections.

The Ogun State governor declared that Ota town had benefited significantly since Obasanjo decided to relocateto the place after his first sojourn in government. He assured the management of SNG that the environment would be made conducive for them to carry out their business, adding: "I will do everything possible to ensure that your stay here is hitch-free".
He, however, solicited the cooperation of Shell Group in remitting the income taxes of its employees, who are working in Ogun State to his government instead of paying such taxes to the Lagos State Government through Shell's headquarters, which is based in Lagos.

Group Managing Director of the NNPC, Mr Jackson Gaius-Obaseki in an address, said the Sango Ota/Agbara gas supply project has been critical to the realisation of the overall objective of ensuring effective participation by the private sector in a key aspect of the gas business in Nigeria. He said when he was managing director of the Nigerian Gas Company (NGC), he had a clear mandate to commercialise the operations of the company and change its focus from government-oriented company to a businessconcern.
Gaius-Obaseki said this realisation made his management to draw a four-point agenda which included: "to be financially self-sustaining as a company rather than depend on NNPC, re-define our business goals, in the course of which we decided that in order to improve on system efficiency and ensure effective capacity utilisation of installed facilities, our activities should be limited to high-pressure transmission whilst making every effort to invite. and encourage the private sector to take over downstream low-pressure gas distribution.”
"Others, are regularisation of our relationships with gas suppliers through contracting, where rights and obligations were clearly defined and respected; and regularisation of our relationships with the end-users of gas through contracting, stipulating adequate penalties for default," he stressed.

The NNPC boss said whereas the first three were successfully pursued with all vigour, the fourth posed the greatest challenge, as their major customers in terms of sales volume were government parastatals. Given the usual problem of inertia and short-term view of the Nigerian business community, he said the strategies devised by his management then met with limited success as only very few companies responded to their initiatives. The reason, he explained, was because gas distribution was a long-term investment, which though steady, did not guarantee quick returns.
Be that as it may, Gaius-Obaseki said as at the time he was redeployed to manage the crude oil marketing division of the NNPC in August 1998, NGC was financially self-sustaining, gas had been given the right focus and all contracts including some of those to be serviced by this system were in place. "However, I left hoping that my dream of having private sector participation would be realised and that the confidence of the industries that had entered into agreements with NGC, at the time, for gas supplies would be sustained by those to whom the contracts were assigned.”
“I therefore have cause to be grateful to the Almighty Father for granting me life and the opportunity to witness the second successful realisation of the dream that we had some years ago", he stated. He said the event was significant, as the yearnings of the industries in Sango-Ota/Agbara axis, would now be met resulting, hopefully, in improved capacity utilisation, substantial reduction in energy cost of production, displacement of liquid fuel for other uses or export and more employment for the people.

Gaius-Obaseki expressed optimism that more companies would seize the opportunity of their proximity to gas infrastructure and convert their facilities to natural gas; a more efficient and less expensive source of energy.
"Investors both local and international are hereby invited to establish gas distribution companies that could deliver gas to the end-consumer whilst NGC consolidates in high-pressure transmission. Our expectation is that the entire Nigerian gas industry will be fully deregulated in the near future with end-consumer having the opportunity as it is the case with the West African Gas Pipeline Project (WAGPP) to purchase gas from the producer and pay tariff to both the transmitter and distributor, for gas carried on behalf of the end-consumer or any other player in the business", he added.

Also speaking at the event, Mr Ron Van Den Berg, chairman of Shell Companies in Nigeria, said the facility has made a very strong, loud and positive statement about the effective domestic utilisation of the resources with which the country was richly endowed. Berg said Nigeria was blessed with gas reserves probably than she was blessed with oil reserves. "For industries, be it as alternative fuel or feedstock, the time for natural gas has arrived in Nigeria. This project and SNG's proven capability provides the blueprint with which to extend domestic gas distribution across the nation", he said.
Reinforcing his assertion that the project has changed the face of the industrial sector in the country, the Shell boss quoted a comment of the managing director of one of their customers who said: "Since Shell Nigeria Gas started gas supply to us, we have been running three shifts in the factory, producing 24 hours a day/seven days a week and at one-fifth the energy cost, unlike when we were using LPG and barely running two shifts at a very high energy cost."

Van Den Berg said for Shell, this was a positive reinforcement of its long-standing relationship with Nigeria, and a testimony of its faith and commitment to her development.
"Through this facility which is the very hub of the Ota/Agbara transmission and distribution infrastructure, over 30 companies in the Ota/Agbara industrial hub stand to benefit from a cleaner, cheaper, efficient and more reliable fuel", he added. He said of the thirty customers that have signed up for gas purchase to date. eleven were already connected and utilising gas as fuel.
"Mr President, your interest in the development of the gas sector to diversify the Nigerian economy has been clearly articulated, not only to those of us in the industry, but to all stakeholders of the economy. It therefore gives us joy that, as pioneers of the oil and gas industry, we in Shell are able once again, to live up to our responsibilities to the country.”
"Indeed, from the early 1960s when we pioneered gas supplies to industries in Port Harcourt and Aba, to the late 1990s when we participated in Nigeria's major entry into the world LNG business through NLNG, we have been in the forefront of making gas utilisation a way of life. Natural Gas, it has been established, is the future fuel of first choice", Van Den Berg stated.

He said Shell had been involved in a range of initiatives to put the country's gas resource to economic use and to stop its flaring. He added that alongside NNPC, Shell remained the industry leader in promoting gas utilisation in a wide range of projects.
In the upstream oil and gas sector, he listed them as:
-- The SPDC joint venture the largest supplier of over 50 % of all domestic gas consumption in Nigeria, supplying NEPA and other government and private customers, including NGC and SNG;
-- The SPDC joint venture which also supplies over 50 % of the gas required by NLNG. Some of this gas is to be purchased from SNEPCO's deep water projects.
These long term gas supply arrangements, Van Den Berg stressed, are enabling SPDC and SNEPCO to grow oil production capacity for the nation while eliminating routine associated with gas flaring by 2008. Three major associated gas gathering hubs were commissioned by SPDC last year (Soku, Obigbo, Odidi), one of which contributes to the gas supply to this project (Odidi). Three more will be commissioned in 2003 (Forcados Yokri, Cawthorne Channel and EA), he said.

In the downstream gas sector, Van Den Berg also listed their efforts through Shell Gas and Power to include the following:
-- Domestic gas distribution through Shell Nigeria Gas (SNG), represented by the project being launched and similar projects at Aba and Ikorodu, with aspirations to grow this business;
-- Major export and foreign exchange generating projects of which Nigerian LNG (NLNG) is the flagship; and
-- the WAGP project.
The oil chieftain said additional foreign exchange to that already generated in NLNG would be earned through major NLNG expansion and from the West African Gas Pipeline project. He said "by 2006 we expect through NLNG that Nigeria will become the world's third largest exporter of LNG. A fantastic achievement in such a short time."

He said the NLNG successfully commissioned its much anticipated third LNG train and exported the train's first LNG cargo to customers in Europe in December 2002. "Train 3 start-up,” he noted, "is now significantly boosting revenues to all shareholders, of which NNPC, representing the Nigerian Government, is the largest. This is a fantastic example of how major international and local expertise and capital can be brought together in a complex project to monetise gas resources on a world scale."
As the largest private investor and technical leader in NLNG, Shell was committed to further expansion of NLNG to 5 trains by 2006, and it is expected that a similar commitment for the West African Gas Project could be made before the end of this year. A sixth train at NLNG is also under consideration, he added.
As regards the domestic gas distribution sector, he said they were determined to contribute to boosting industrial growth through implementing viable gas supply projects like this one, across the country. The Shell boss said they were committed to the Aba Phase I project, which would be completed this year. Funds, he added, have also been committed by the shareholders of SNG for the execution of a similar project in Ikorodu, Lagos State.

"In supporting the government's policy on gas utilisation as an alternative source of energy, SNG's blueprint project undoubtedly offers the nation innumerable benefits. They include: Provision of clean, reliable and low cost fuel to industrial customers; stimulation of industrial growth through increased capacity utilisation due to cheaper and stable source of energy.”
“It has been established that at present, gas is extremely competitive with the cheapest alternative liquid fuel. In some cases, 40 % cheaper; saving the country valuable foreign exchange which would otherwise have been used to import expensive liquid fuel such as diesel and LPFO. Others are sustainable development through creation of jobs generally, but in particular within host communities and reduction in gas flares; contribution to increased revenue for the country through monetisation of the nation's gas resources and creating an environmentally healthy society through the reduction of emissions associated with the use of liquid fuels," Van Den Berg noted.

For the full realisation of the enormous opportunities gas offers the country, Van Den Berg however listed challenges that must be dealt with. Top among them is the need to develop a coherent National Gas Policy to guide and encourage investors and clearly delineate roles for the different stakeholders in the value chain.
"This is necessary because there is no debating the strong correlation between the efficient utilisation of gas and the economic fortunes of the country in the immediate future. Growth in the power sector is particularly dependent on this", he added.
Earlier in an address, Mr Orlando Ojo, managing director of SNG, said the beauty of the day lay in the joy of applying available gas resources effectively to enhance national productivity and growth. He said SNG was established in 1998 as a wholly owned Shell company, and as an operating unit of Shell Gas & Power. Shell Gas & Power is the global gas and power business of the Shell Group, based in London.

Ojo said SNG has a vision to be a first class operator-marketer of gas, with an emphasis on boosting gas sales to manufacturing industries, power plants, and commercial consumers, as well as expanding the nation's gas transportation system. He said the Ota/Agbara gas distribution project consists of 72 km of gas pipelines, the first 20 km of which brings gas at high pressure from a tie-in point to NGC's Escravos Lagos Pipeline system to the site.
He said the capacity of the pipeline system is 120 mm cfpd. Located on the site, he disclosed that the system is the central pressure reduction, treatment and metering station (PRMS). According to him, the facilities installed on the site were capable of processing 45 mm cfpd of gas, while ample room has been provided for further expansion.

Ojo said at various points downstream along the pipeline system, 30 customer pressure reduction and metering stations have been installed, one for each customer. Contracted gas volumes to these customers are so far some 15 mm cfpd, he added. He informed the guests that all the 50 personnel operating the facility are all Nigerians.
"As you can see from these statistics, SNG has invested in employment of Nigerian talent from day one, and has invested in providing gas supply capacity for the needs of today, and for the long term future, in line with the government's policy", Ojo said. He added that the approach aligned with the ethos of Shell Companies in Nigeria, where they try to differentiate themselves as a partner of first choice.
"With investment of $ 34 mm (about N 4 bn), the project is the largest of its type in Nigeria, and was funded through direct inflow of foreign investment from Shell Gas and Power,” Ojo stated. He said the government's 2002/3 initiative to address regulatory and commercial sustainability issues in the domestic gas sector through its ongoing study with World Bank involvement, should provide the required National Downstream Gas Policy framework to enable such investments to proceed in the medium term. He said Shell fully supports this initiative and was actively participating in the study.

One of the pioneer benefiting customers of the project also made a remark at the ceremony. Technical Director of Tower Aluminium Nigeria, Mr V.V. Pabalkar, who spoke on the customers' behalf, said the project commissioning was the realisation of long cherished dream.
"Our enthusiasm was evident from the fact that we had signed the contract on gas supply with NGC in 1997 and were fully prepared much in advance of the actual supply in September, 2002. In fact we were constantly monitoring SNG on the progress of the pipe line job, and keeping constantly in touch with them during the pains of implementation of the project", Pabalkar said.
His company, he said commenced the use of piped gas within a week of its availability as most of the conversion of our equipment for furnaces was done in advance. He said Tower Aluminium has even "pioneered the generation of power by installing and commissioning a 2000 kW gas generating plant. Enthused with this development and encouraging response to manufacturers from government, we have already taken up the expansion of our plant with a sizable investment", he added.

Pabalkar said his company's experience inthe use of gas since the last three months had been very rewarding. Besides saving cost of production, he noted: "The operations are safer, cleaner and the environment is pollution free. We also take pride in contributing to the national cause of oil preservation and reduction of gas flaring." He appealed to the government to reactivate ALSCON aluminium smelting company, which, he said, would boost the Nigerian aluminium industry.
The president and his entourage later inspected the facilities on the site before commissioning the project to signal a formal beginning of what many industry chieftains dubbed a "revolution" in Nigeria's industrial firmament. Similarly, the event marked the beginning of the end of the days of gas flaring in Nigeria. It is a turning point in Nigeria's quest for industrial development.

Source: This Day/All Africa Global Media
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