Nigeria Still Groping in the Dark
by CHIDI UGWU on Feb 1, 2015
Nigerian Mirror
… as huge uncertainties keep gas development projects on hold
Nigeria’s vast gas reserves makes it a more of a gas than oil producing nation, yet insecurity of infrastructure, uncertainties in the legal environment and other issues have combined to stall new investments in the sector while the nation ironically remains deprived of critical power supply. CHIDU UGWU reports.
On Thursday, March 24, 2011, President Goodluck Jonathan signalled Nigeria’s resolve to tap massively into the nation’s enormous gas reserves when he said: “As a nation, we are continually striving to realize the fullness of the great potential in the vast human and natural resources, which Nigeria has been blessed with. One such major resources is our proven gas reserves base estimated at 187 trillion cubic feet and a further undiscovered potential of 600 trillion cubic feet”
Nigeria which has the 9th largest proven gas reserves in the world, with approximately 187 trillion cubic feet, tcf of proven and a 600 tcf unproven gas reserves, can at best be described as a gas province.
However, not much of these abundant gas resources have been harnessed with the nation’s primary focus being on crude oil production, and much of the nation’s “associated” gas reserves, unarguably being “flared” by the several multinational companies in the course of extracting and producing crude oil from the well-heads, with its attendant effects on the environment and surrounding communities.
It is estimated that Nigeria loses billion of naira annually to gas flaring as International Oil Companies operating in the country continue to flare 1.4 billion cubic feet of gas across oil fields every day.
At the 14th Annual General Meeting and Business Forum of the Nigerian Gas Association in Lagos, the Director, Department of Petroleum Resources, Mr. George Osahon, said the 1.4bcfd flared gas was costing the Federal Government $4.9m daily at $3.50/1,000 standard cubic feet.
When put together, the Federal Government is losing about $1.79bn (N289.6bn) to gas flaring annually, a situation largely attributed to gross under-utilisation of gas in the country.
Osahon said under-utilisation of gas had continued to be a major problem in the country amid an under-developed domestic market, non-availability of gas-based industries and inadequate gas pipelines, among others.
However, the Group Executive Director, Gas, Nigeria National Petroleum Corporation, Dr. David Ige, said that the Federal Government’s Gas Master Plan, GMP, had paved the way for an unprecedented growth potentiality.
Designed to turn the enormous gas reserves in the country into a viable economic vehicle, the Nigeria Gas Master Plan, NGMP, has been described as the key trigger that will revolutionise the economy.
First developed in the Nigeria’s very ambitious era, the1980s, the Nigerian Gas Master Plan aims at encouraging companies to collaborate on gas development for accelerated economic and industrial growth.
The NGMP, which was approved in February 2008, was designed to optimise the vast gas resources in the country, with a target to move from the ground zero – characterised by increasing unstable position, thriving export, starved domestic, sub-commercial domestic market and poor infrastructure – to attain full market-driven status.
The key strategies of the Plan includes to stimulate the multiplier effect of gas in the domestic economy; position Nigeria competitively in high value export markets, and guarantee long-term energy security in the country
Nigeria currently has a market demand of 1 billion scfd (standard cubic feet daily) of gas, but plans are ongoing to increase it to grow to about 10 billion scfd. The main driver behind the Gas master plan is power, while the total estimated cost of the GMP is $30bn.
Included in the Gas master plan is the “Gas Revolution” which is essentially a scheme designed to take “gas” from the south of the country to the Northern city of Kano; to industrial plants, such as fertilizer plants etc. The Federal Government “de-regulated” gas in November, 2010 resulting in the market price of about $1.10 before it was adjusted further to $2.50 per 1,000 cubic feet of the product late last year, to encourage robust supply to power plants in the country.
According to Ige, a lot have been accomplished through the painstaking implementation of NGMP policy document growing the gas supply from market from 300 million cubic feet per day to close to 2 billion cfpd.
“The Gas master Plan basically is a policy document that outlines government aspiration for gas in Nigeria. It talks about the commercial framework for gas which has been implemented 100%, so the price of gas has been corrected. It talks about the contractual and bankable framework for gas in Nigeria to allow a market that works. That has been completed it is being implemented, and today we are operating gas based on gas agreements basically. It talks about gas uptake for power, and today we have we have grown gas supply from market from 300 million cubic feet per day to close to 2 billion cfpd. It talks about gas infrastructure and in no time in the history of this country that we have implemented gas infrastructure as we have done in the last four years according to the blueprint in the gas master plan.
It talks about gas industrialization, which we have started. Basically, today we have an outlay of many fertilizer plants already positioned to be the largest producer of fertilizer by 2018. It talks about regional export and we have started producing in West Africa. Everything that was outline in the government policy is being implemented to the letter and it is beginning to deliver the results as we planned. The issue of vandalisation has nothing to do with policy implementation” stated the GED.
Ige however admitted that consistent attacks on gas pipelines across the country is a major frustration and a drawback to efforts towards the development of the sector, stressing that each time the pipeline is attacked gas production in the some facilities is hampered.
“Whenever this pipeline is out we lose gas production from gas facilities. This accounts for almost 40 to 50 per cent of the entire gas production in the country. And it takes quite some time to repair. A typical repair takes about four or five days. And sometimes after repairing you realise that additional holes have been drilled. And when you fix it takes us several days to back production up to capacity. “We lose time, we lose money. Sometimes before we get back up to capacity the pipeline is down again. The problem of vandalism is not limited to Trans Forcados, we have the same problem on Trans Niger pipeline on the Eastern side of Nigeria. It also gets vandalised with similar levels and frequency. In the last few weeks the intensity is unprecedented. From January 1, Trans Forcados has not been up for two or three days in row without being hit” he stated.
The Head of Gas Supply at NLNG Limited, Mr. Emmanuel Nnabuife, corroborated the increased rate of vandalism on gas pipelines when he said, that the company had targeted to load 325 cargoes in 2013, but could not achieve this target.
According to Nnabuife, the company ended up exporting 280 cargoes because of the blockade by the Nigerian Maritime Administration and Safety Agency (NIMASA), which accounted for non-export of 25 cargoes and the disruption of gas supply to the plant as a result of vandalism.
“In 2013, we started with a plan to do 325 cargoes. But we ended up with 280 cargoes because of the challenges we had with some of our external stakeholders, one of them, as you know, is the NIMASA issue we had in June, which led to the loss of about 25 cargoes off our production plan. Also, we suffered gas supply constraints because of the challenges we have in the Niger Delta today. People go in and drill into the pipelines and what that creates is that we have to shut down to repair the lines. For any of those interventions, production suffers. But by and large, we closed the year with 280 cargoes, which is about 45 cargoes below the target,” he said.
According to data from Pipelines and Product Marketing Company, PPMC, pipeline breaks and ruptures from 2011 to 2013 were 4,468, 3708 and 3,571, respectively, these ruptures also targeted at gas pipelines impact negatively on gas supply to power plants.
Aside from the security risks in the Niger Delta hampering the development of necessary infrastructure for supporting gas monetisation, poor regulatory regime coupled with sub-commercial frameworks, notably fixed low prices for domestic users, also discourage investment in natural gas.
Federal Government had as part of efforts to encourage private investment in the country’s gas sector, raised domestic gas price to bring prices in line with international market rates and also incentivise suppliers to power plants.
Analysts say that inadequate investment in gas infrastructure in Nigeria has affected the supply of gas for domestic use, particularly for power generation which accounts for about 80 per cent of the domestic gas consumption in the country.
The power sector is expected to require 3.5 billion cubic feet per day (bcfd) over the next three years and could require more than five billion cfd when some of the power plants being privatised under the National Integrated Power Project (NIPP) scheme are completed, according to Ecobank Energy, Oil and Gas Research.
“Furthermore, there are several other independent power projects already licensed and in various stages of development that could come on-stream in the coming years. The pace of investment in power generation assets however has not been matched with a commensurate investment in gas field development to boost gas production,” the report said.
In its Nigeria Power Report Q2 2014, Business Monitor International (BMI) noted that government’s decision to raise domestic gas prices incrementally is an attempt to encourage private investment in the country’s chronically underperforming gas sector.
But, BMI stated that “raising prices will do nothing to tackle issues such as security risks in the Niger Delta and the high degree of regulatory uncertainty pertaining to the long-awaited PIB.
“While higher prices may strengthen the domestic market (with gas prices kept artificially low, the industry is struggling to meet production and processing costs; capacity upgrades and expansions remain largely uneconomical), price rises alone will only create limited upside to our gas production forecasts,” said BMI.
Experts say that for a typical gas development policy to attract an Oando-owned Gaslink type project for example, a Gas Supply Agreement that will typically define its relationship with a prospective purchaser will be crucial to its investment in the sector. Analogous to this however is also the existence of a stable and long-term pricing regime.
Analysts have repeatedly noted that the above twin ingredients are absolutely necessary for the survival and viability of upstream gas contracts accounting for the clamour for the passage of the Petroleum Industry Bill (BIP) by industry players.
Industry players generally believed that the PIB, which is expected to overhaul the beleaguered Nigerian oil and gas sector, but has been in the works for the past six years is putting the brakes on the Nigerian Gas Master Plan.
The uncertainty created by the non-passage of the PIB over the years has continued to impede investments in the gas sector. The bill is still in the National Assembly.
The President of International Association for Energy Economics and Director, Emerald Energy Institute, University of Port Harcourt, Wumi Iledare, said: “The non-passage of the PIB is actually creating more uncertainty in an industry that is already full of risks… And I say this with due appreciation to what the government is doing with respect to trying to reform the industry, but it has taken too long, 13 years in the making”.
An energy law and policy expert and senior associate in top law firm, Banwo & Ighodalo Ayodele Oni, noted that so far, some of the NGMP’s targets of having gas producers reserve specified quantity of gas for domestic use are being fulfilled and the pricing regime also seems to be working slightly well as domestic gas prices seem to be moving towards being commercial and cost reflective.
He however said that the passage of the PIB and higher gas prices can help improve the current situation.
It is however believed that in order transit from an oil industry to integrated oil and gas industry, Nigeria needs to vigorously pursue the aspirations of creating as much revenue from gas as the oil.
For the this school of thought, these impediments on the accelerated growth of the nation’s gas sector could be easily achieved by painstakingly implementing to the letter, the four- pronged approach initiated in order to reposition the gas sector including the development of a Natural Gas Policy, Legislative Reviews, Fiscal Reforms and the Gas Master Plan.
The Natural Gas Policy is aimed at promoting a public-private sector partnership for the orderly and rapid commercialisation of Nigeria’s natural gas resources for the development and diversification of the domestic economy. It is also aimed at recovering maximum revenue possible from gas utilization. The Downstream Gas Act addresses the legal, regulatory, institutional and policy constraints to investment in the Nigerian downstream gas sector.
In the same vein, the Fiscal reform deals with the development and legislation of a new fiscal regime for gas projects that is simple and flexible and that will ensure that Nigeria receives an appropriate share of the economic rent generated from the production and utilization of natural gas resources. The proposed fiscal system is anchored on the principle of sustainability that will stimulate participation of new players and ensure that government revenues are aligned with expenditure in the sector for broader economic growth
Lastly, the Gas Master Plan is developed to provide a framework for Nigeria to maximize value from its gas resources through leveraging the multiplier effect of gas in the domestic economy and optimizing Nigeria’s share in the high value export market. The Gas Master Plan is to facilitate timely and cost effective gas capacity additions to meet unprecedented global and domestic gas demand.
 |
| OPEC president and Nigerian oil minister Mrs. Diezani Alison-Madueke. |
Nigerian Mirror
… as huge uncertainties keep gas development projects on hold
Nigeria’s vast gas reserves makes it a more of a gas than oil producing nation, yet insecurity of infrastructure, uncertainties in the legal environment and other issues have combined to stall new investments in the sector while the nation ironically remains deprived of critical power supply. CHIDU UGWU reports.
On Thursday, March 24, 2011, President Goodluck Jonathan signalled Nigeria’s resolve to tap massively into the nation’s enormous gas reserves when he said: “As a nation, we are continually striving to realize the fullness of the great potential in the vast human and natural resources, which Nigeria has been blessed with. One such major resources is our proven gas reserves base estimated at 187 trillion cubic feet and a further undiscovered potential of 600 trillion cubic feet”
Nigeria which has the 9th largest proven gas reserves in the world, with approximately 187 trillion cubic feet, tcf of proven and a 600 tcf unproven gas reserves, can at best be described as a gas province.
However, not much of these abundant gas resources have been harnessed with the nation’s primary focus being on crude oil production, and much of the nation’s “associated” gas reserves, unarguably being “flared” by the several multinational companies in the course of extracting and producing crude oil from the well-heads, with its attendant effects on the environment and surrounding communities.
It is estimated that Nigeria loses billion of naira annually to gas flaring as International Oil Companies operating in the country continue to flare 1.4 billion cubic feet of gas across oil fields every day.
At the 14th Annual General Meeting and Business Forum of the Nigerian Gas Association in Lagos, the Director, Department of Petroleum Resources, Mr. George Osahon, said the 1.4bcfd flared gas was costing the Federal Government $4.9m daily at $3.50/1,000 standard cubic feet.
When put together, the Federal Government is losing about $1.79bn (N289.6bn) to gas flaring annually, a situation largely attributed to gross under-utilisation of gas in the country.
Osahon said under-utilisation of gas had continued to be a major problem in the country amid an under-developed domestic market, non-availability of gas-based industries and inadequate gas pipelines, among others.
However, the Group Executive Director, Gas, Nigeria National Petroleum Corporation, Dr. David Ige, said that the Federal Government’s Gas Master Plan, GMP, had paved the way for an unprecedented growth potentiality.
Designed to turn the enormous gas reserves in the country into a viable economic vehicle, the Nigeria Gas Master Plan, NGMP, has been described as the key trigger that will revolutionise the economy.
First developed in the Nigeria’s very ambitious era, the1980s, the Nigerian Gas Master Plan aims at encouraging companies to collaborate on gas development for accelerated economic and industrial growth.
The NGMP, which was approved in February 2008, was designed to optimise the vast gas resources in the country, with a target to move from the ground zero – characterised by increasing unstable position, thriving export, starved domestic, sub-commercial domestic market and poor infrastructure – to attain full market-driven status.
The key strategies of the Plan includes to stimulate the multiplier effect of gas in the domestic economy; position Nigeria competitively in high value export markets, and guarantee long-term energy security in the country
Nigeria currently has a market demand of 1 billion scfd (standard cubic feet daily) of gas, but plans are ongoing to increase it to grow to about 10 billion scfd. The main driver behind the Gas master plan is power, while the total estimated cost of the GMP is $30bn.
Included in the Gas master plan is the “Gas Revolution” which is essentially a scheme designed to take “gas” from the south of the country to the Northern city of Kano; to industrial plants, such as fertilizer plants etc. The Federal Government “de-regulated” gas in November, 2010 resulting in the market price of about $1.10 before it was adjusted further to $2.50 per 1,000 cubic feet of the product late last year, to encourage robust supply to power plants in the country.
According to Ige, a lot have been accomplished through the painstaking implementation of NGMP policy document growing the gas supply from market from 300 million cubic feet per day to close to 2 billion cfpd.
“The Gas master Plan basically is a policy document that outlines government aspiration for gas in Nigeria. It talks about the commercial framework for gas which has been implemented 100%, so the price of gas has been corrected. It talks about the contractual and bankable framework for gas in Nigeria to allow a market that works. That has been completed it is being implemented, and today we are operating gas based on gas agreements basically. It talks about gas uptake for power, and today we have we have grown gas supply from market from 300 million cubic feet per day to close to 2 billion cfpd. It talks about gas infrastructure and in no time in the history of this country that we have implemented gas infrastructure as we have done in the last four years according to the blueprint in the gas master plan.
It talks about gas industrialization, which we have started. Basically, today we have an outlay of many fertilizer plants already positioned to be the largest producer of fertilizer by 2018. It talks about regional export and we have started producing in West Africa. Everything that was outline in the government policy is being implemented to the letter and it is beginning to deliver the results as we planned. The issue of vandalisation has nothing to do with policy implementation” stated the GED.
Ige however admitted that consistent attacks on gas pipelines across the country is a major frustration and a drawback to efforts towards the development of the sector, stressing that each time the pipeline is attacked gas production in the some facilities is hampered.
“Whenever this pipeline is out we lose gas production from gas facilities. This accounts for almost 40 to 50 per cent of the entire gas production in the country. And it takes quite some time to repair. A typical repair takes about four or five days. And sometimes after repairing you realise that additional holes have been drilled. And when you fix it takes us several days to back production up to capacity. “We lose time, we lose money. Sometimes before we get back up to capacity the pipeline is down again. The problem of vandalism is not limited to Trans Forcados, we have the same problem on Trans Niger pipeline on the Eastern side of Nigeria. It also gets vandalised with similar levels and frequency. In the last few weeks the intensity is unprecedented. From January 1, Trans Forcados has not been up for two or three days in row without being hit” he stated.
The Head of Gas Supply at NLNG Limited, Mr. Emmanuel Nnabuife, corroborated the increased rate of vandalism on gas pipelines when he said, that the company had targeted to load 325 cargoes in 2013, but could not achieve this target.
According to Nnabuife, the company ended up exporting 280 cargoes because of the blockade by the Nigerian Maritime Administration and Safety Agency (NIMASA), which accounted for non-export of 25 cargoes and the disruption of gas supply to the plant as a result of vandalism.
“In 2013, we started with a plan to do 325 cargoes. But we ended up with 280 cargoes because of the challenges we had with some of our external stakeholders, one of them, as you know, is the NIMASA issue we had in June, which led to the loss of about 25 cargoes off our production plan. Also, we suffered gas supply constraints because of the challenges we have in the Niger Delta today. People go in and drill into the pipelines and what that creates is that we have to shut down to repair the lines. For any of those interventions, production suffers. But by and large, we closed the year with 280 cargoes, which is about 45 cargoes below the target,” he said.
According to data from Pipelines and Product Marketing Company, PPMC, pipeline breaks and ruptures from 2011 to 2013 were 4,468, 3708 and 3,571, respectively, these ruptures also targeted at gas pipelines impact negatively on gas supply to power plants.
Aside from the security risks in the Niger Delta hampering the development of necessary infrastructure for supporting gas monetisation, poor regulatory regime coupled with sub-commercial frameworks, notably fixed low prices for domestic users, also discourage investment in natural gas.
Federal Government had as part of efforts to encourage private investment in the country’s gas sector, raised domestic gas price to bring prices in line with international market rates and also incentivise suppliers to power plants.
Analysts say that inadequate investment in gas infrastructure in Nigeria has affected the supply of gas for domestic use, particularly for power generation which accounts for about 80 per cent of the domestic gas consumption in the country.
The power sector is expected to require 3.5 billion cubic feet per day (bcfd) over the next three years and could require more than five billion cfd when some of the power plants being privatised under the National Integrated Power Project (NIPP) scheme are completed, according to Ecobank Energy, Oil and Gas Research.
“Furthermore, there are several other independent power projects already licensed and in various stages of development that could come on-stream in the coming years. The pace of investment in power generation assets however has not been matched with a commensurate investment in gas field development to boost gas production,” the report said.
In its Nigeria Power Report Q2 2014, Business Monitor International (BMI) noted that government’s decision to raise domestic gas prices incrementally is an attempt to encourage private investment in the country’s chronically underperforming gas sector.
But, BMI stated that “raising prices will do nothing to tackle issues such as security risks in the Niger Delta and the high degree of regulatory uncertainty pertaining to the long-awaited PIB.
“While higher prices may strengthen the domestic market (with gas prices kept artificially low, the industry is struggling to meet production and processing costs; capacity upgrades and expansions remain largely uneconomical), price rises alone will only create limited upside to our gas production forecasts,” said BMI.
Experts say that for a typical gas development policy to attract an Oando-owned Gaslink type project for example, a Gas Supply Agreement that will typically define its relationship with a prospective purchaser will be crucial to its investment in the sector. Analogous to this however is also the existence of a stable and long-term pricing regime.
Analysts have repeatedly noted that the above twin ingredients are absolutely necessary for the survival and viability of upstream gas contracts accounting for the clamour for the passage of the Petroleum Industry Bill (BIP) by industry players.
Industry players generally believed that the PIB, which is expected to overhaul the beleaguered Nigerian oil and gas sector, but has been in the works for the past six years is putting the brakes on the Nigerian Gas Master Plan.
The uncertainty created by the non-passage of the PIB over the years has continued to impede investments in the gas sector. The bill is still in the National Assembly.
The President of International Association for Energy Economics and Director, Emerald Energy Institute, University of Port Harcourt, Wumi Iledare, said: “The non-passage of the PIB is actually creating more uncertainty in an industry that is already full of risks… And I say this with due appreciation to what the government is doing with respect to trying to reform the industry, but it has taken too long, 13 years in the making”.
An energy law and policy expert and senior associate in top law firm, Banwo & Ighodalo Ayodele Oni, noted that so far, some of the NGMP’s targets of having gas producers reserve specified quantity of gas for domestic use are being fulfilled and the pricing regime also seems to be working slightly well as domestic gas prices seem to be moving towards being commercial and cost reflective.
He however said that the passage of the PIB and higher gas prices can help improve the current situation.
It is however believed that in order transit from an oil industry to integrated oil and gas industry, Nigeria needs to vigorously pursue the aspirations of creating as much revenue from gas as the oil.
For the this school of thought, these impediments on the accelerated growth of the nation’s gas sector could be easily achieved by painstakingly implementing to the letter, the four- pronged approach initiated in order to reposition the gas sector including the development of a Natural Gas Policy, Legislative Reviews, Fiscal Reforms and the Gas Master Plan.
The Natural Gas Policy is aimed at promoting a public-private sector partnership for the orderly and rapid commercialisation of Nigeria’s natural gas resources for the development and diversification of the domestic economy. It is also aimed at recovering maximum revenue possible from gas utilization. The Downstream Gas Act addresses the legal, regulatory, institutional and policy constraints to investment in the Nigerian downstream gas sector.
In the same vein, the Fiscal reform deals with the development and legislation of a new fiscal regime for gas projects that is simple and flexible and that will ensure that Nigeria receives an appropriate share of the economic rent generated from the production and utilization of natural gas resources. The proposed fiscal system is anchored on the principle of sustainability that will stimulate participation of new players and ensure that government revenues are aligned with expenditure in the sector for broader economic growth
Lastly, the Gas Master Plan is developed to provide a framework for Nigeria to maximize value from its gas resources through leveraging the multiplier effect of gas in the domestic economy and optimizing Nigeria’s share in the high value export market. The Gas Master Plan is to facilitate timely and cost effective gas capacity additions to meet unprecedented global and domestic gas demand.
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