Nigeria designs master plan for gas development

May 04, 2004 02:00 AM

Nigeria has estimated gas reserves of 189 tcf, which can be regarded as the tip of the iceberg judging from the fact that gas discoveries in the country including the substantial discoveries that have been made since we ventured into the deep-offshore areas about a decade ago, have been incidental to oil exploration.
It is difficult to attempt a discussion on this topic without mentioning the phenomenon of gas flaring which has been a subject of debate among the various stakeholders in the oil and gas industry as well as the Government.

Presently, Nigeria produces an average of 5.5 bn cf of gas per day out of which about 2.6 bn cfpd or about 60 % is utilised. This implies that the remaining 40 %, which otherwise would have been available for commercialisation is flared.
Majority of the gas is unavoidably produced along with crude oil. Indeed, the total gas flared in the country is said to have economic value of well over $ 2.0 bn per year.

The volume of gas flared per year in the country is estimated to be sufficient to meet electricity requirements of sub-Saharan Africa. It is the aspiration of the present Government to commit the hitherto flared gas to a number of gas-based projects.
The Government is aware that the volume of gas being flared amounts to huge loss of revenue that could be better utilised for the provision of social amenities to improve the lot of her people and arrest the attendant environmental degradation associated with gas flaring. Everyone who is familiar with the reality of Nigeria situation knows that the oil and gas industry is of significance to the country's economy. Indeed, as at today earnings from oil contribute about 90 % of Nigeria's total foreign exchange earnings.

It is the plan of the present Administration to broaden the nation’s revenue base and one of the major avenues for realizing this is through the accelerated development of the gas sector. The present Administration realized early enough the need to develop and monetise gas, hence on assumption of office in 1999, it enunciated its aspirations for the gas sector.
The aspirations are:
-- End flaring by 2008,
-- Developing the domestic market,
-- Addressing environmental issues,
-- Capturing economic value of gas and
-- Generating as much revenue from gas as oil within the decade.

As a first step in realizing these aspirations, the Government commissioned "The Nigerian Gas Utilisation Study" in 2000. The study identified the need to utilize the large volumes of gas being flared and concluded that LNG and gas-fired power plant constitute veritable avenues for gas utilization in the short and long terms. To achieve this feat, the present Administration has mapped out an elaborate strategy for the gas sector.
Here follow some highlights of the Government’s plan to develop and monetise gas in the country.

Some of the existing projects are the NLNG Trains 1, 2, & 3 and the Escravos Gas Projects 1& 2 which are expected to utilize about 15 tcf of gas throughout theproject’s life span. The West African Gas Project which is supposed to supply gas for power generation to Ghana, Togo and Benin and the Escravos Gas Project-3 (GTL) which are at different stages of project execution, will equally consume about 7.0 tcf of gas.
Other projects under consideration are the NLNG Trains 4 & 5 and the Brass LNG which will also consume another 15.0 tcf of gas. On the domestic front, natural gas would also find application as energy of choice in the manufacturing sector (cement plants at Ewekoro and Shagamu, steel complexes at Aladja and Ajaokuta, textiles etc).

Increased demand for gas by these plants and gas used in similar manufacturing concerns will improve on the level of gas utilization in the country. In this regard, it is recommended that industries with close proximity to existing natural gas infrastructure should be made to convert their facilities to gas, if such is technically and economically feasible, while those already on gas should be encouraged to increase their off-take.
Regrettably, the steel plants of Ajaokuta and Aladja that are energy intensive consumers have not performed as expected, leading to gross under-utilisation of the dedicated gas supply systems. The present Administration is however making serious efforts at re-activating these plants.

It is our belief that when these plants become efficiently and effectively managed, capacity utilization will increase, thus leading to improvement in gas utilisation in the country. In addition, the Government has entered into discussions with private investors on the building of Independent Power Plants (IPPs).
The response has been very encouraging. Indeed, NNPC and Nigerian Agip Oil are embarking on the construction of an IPP in Kwale, Delta State while discussions on Siemens 276 MW power plant in Port Harcourt, ExxonMobil 388 MW plant in Bonny and the 450 MW ABB group plant in Abuja are progressing. These power plants are expected to boost power generation and enhance domestic gas utilisation.

Other local demand opportunities abound and include petrochemicals, aluminium smelting and distribution to industrial centres. A factor considered desirable and important for the rapid utilisation of gas and which may also boost the domestic consumption is the construction of a National Gas Grid System. This has the advantage of making natural gas available to a large area of the country from which prospective users can readily tap into to meet their needs.
Indeed, the drawback to the earlier efforts at gas utilization has been the absence of gas infrastructure required to transport gas to consumption centres. Despite all these, substantial volumes of about 150.0 tcf of stranded gas still exist thus signalling avenues for additional investment opportunities.

Another strategy through which Government is encouraging the growth of the gas sector is by offering generous incentives to investors in the sector. These incentives include:
-- Tax free period of three years renewable for additional period of two years;
-- accelerated capital allowances; and
-- import duty exemption on plant machinery and equipment.
It is the belief of the Government that through these incentives it would be able to attract additional Foreign Direct Investment into the country’s gas sector.

The development of a comprehensive gas strategy is another means through which government looks forward to developing the gas sector in the country. Given the enormous gas resources and the current upsurge in gas development and related activities, the present Administration has sought to evolve a strategy that would be all embracing and which would at the same time optimise the benefits of gas to the country. In order to achieve this, government has in recent past commissioned some gas sector studies.
Part of the recommendations of such studies is the call for a reform of the sector that would involve the removal of all existing barriers to private participation in the domestic gas sector. The expected reform would address key issues of infrastructural development and financing, pricing and fiscal matters as well as defining an appropriate legal institutional and regulatory framework for the sector.

It should also be mentioned that the development of the LPG is also receiving the deserved attention of the Government. The Government organised consultative workshops with the objective of fashioning out modalities for harnessing the country’s LPG sub-sector and meeting local demand while also guaranteeing that the products are available to the generality of the populace.
Indeed, one central recommendation of the study projects is setting target for the recovery and revitalization of the LPG sector.

In furtherance of the Government’s determination to revive the LPG sector, a Presidential Steering Committee was recently set up. The Committee is charged with the following tasks:
-- Coordinate efforts aimed at identifying, appraising and implementing business development opportunities in the gas and LPG sector Monitor implementation of the LPG sector blueprint
-- Assist in putting in place the following: LPG policy and regulation institutional framework, safety and standards, modalities for ensuring availability and distribution, establishing investment needs and opportunities and recommending sustainable prices of the commodity

The committee drew membership from the public and private sector as well as the World Bank. Going by this development, it might not be long before the expected development in the LPG sector would be actualised.
Also, one fundamental strategy by the present Administration intends to grow the gas sector is through undertaking a holistic reorganization of the operations in the sector. For instance, the Government intends to streamline the regulatory agencies and set up institutional framework that would be involved in the administration of the sector, just as it would ensure the sector is liberalized to encourage competition and private sector participation.
In view of this, service and regulatory agencies like the proposed Nigeria Gas Transport Company (NGTC), the Gas Regulatory Commission (GRC), among others would swing into action while the Government would also ensure that gas is appropriately priced.

Source: LiquidAfrica
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