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Nigeria puts money into gas drive

A state guarantee for the bulk of the financing needed for a big pipeline project suggests Nigeria is serious about boosting domestic gas supplies

Successive Nigerian governments have talked about better utilising the country’s vast gas reserves to drive economic growth—with little to show for it. But measures announced by President Muhammadu Buhari’s administration look set to get the sector moving. 

The flagship projects in this push are two new gas pipelines and a series of power stations along their routes, designed to alleviate decades of inadequate electricity supply. The 614km Ajaokuta-Kaduna-Kano (AKK) pipeline will take gas from the Niger delta to northern Nigeria, while the Escravos-Lagos Pipeline System (ELPS) 2 project will double the capacity of a pipeline serving the country’s largest city. 

The government underscored its commitment to the AKK pipeline in early March by agreeing to guarantee 85pc of the cost of the $2.9bn project, which is being funded by a loan from the China Export & Credit Insurance Corporation. State oil firm Nigerian National Petroleum Corporation (NNPC) has said it will fund the other 15pc – around $430mn. Contractors set to build the pipeline include a consortium of Nigeria’s Oando and UAE-based Oilserv, and another of Nigeria’s Brentex and China Petroleum Pipeline Bureau.   

Nigerian governments are notorious for abandoning or stalling projects sanctioned by their predecessors, so building the pipeline within Buhari’s second and final term in office—due to end in 2023—is seen as crucial to its success. NNPC managing director Mele Kyari said in March the that project would be inaugurated in the second quarter of 2020, and the government has said it believes the pipeline can be built within two years. 

Ready market

Nigeria has 202tn ft³ of proven gas reserves and 600tn ft³ of unproven potential resources, according to NNPC. But despite having Africa’s largest resources, only around a quarter are being produced or are under development. 

One reason for the lack of investment has been the paucity of guaranteed offtakers for the gas in Nigeria. But there should be a ready market for supply from the power sector, as well as industrial and domestic customers, if the 3.5bn ft3/d AKK pipeline is fully built. Gas-fired plants are being built in Abuja (1,350MW), Kaduna (900MW) and Kano (1,350MW). In February, the US Trade and Development Agency said it would provide a grant of more than $1mn for technical and financial work on the Abuja plant. 

One reason for the lack of investment has been the paucity of guaranteed offtakers for the gas in Nigeria

The ELPS 2 pipeline will also serve a potentially huge customer base in the greater Lagos area. Kyari says the government will push ahead with the project, which will expand the capacity of the existing ELPS system to 2.2bn ft³/d from 1.1bn ft³/d, as well as the delayed east-west Oben-Obiafu-Obrikom (OB3) pipeline. Completion dates for these projects have yet to be announced. 

Meanwhile, the conglomerate owned by magnate Aliko Dangote says it is building a 3bn ft³/d gas pipeline from the Delta to Lagos’ Lekki free zone, where it is constructing a $15bn+ refining and fertiliser complex. 

Regulatory revamp

The government will be keen to avoid a repeat of the problems that hit the country’s botched power sector privatisation. That was characterised by opaque contracts and poor cashflow along the gas supply chain, which left some suppliers out of pocket. 

To that end, a national gas transportation network code (NGTNC) was announced by petroleum resources minister Timipre Sylva in February. This is intended to provide a transparent operating environment and encourage further investment in pipeline projects. The code provides a framework for contracts between producers and pipeline operators, and ensures accurate metering of gas flows.    

202tn ft³ – Nigeria’s proven gas reserves

Supply for the expanded domestic network is intended to come largely from production in the onshore Niger Delta, now operated mainly by smaller companies. Gas production from deep offshore fields operated by the IOCs is likely to continue to go to the more lucrative export market via the Nigeria LNG facility on Bonny Island, where construction of a seventh train was given the go-ahead in December 2019

Flaring progress

Efforts are being stepped up in the Delta to boost supply by harnessing flared gas. Nigeria has been promising to reduce flaring since 2016 as part of its climate change commitments, but has made limited progress so far. The country flared around 260bn ft³ of gas from its oil operations in 2018, making it the world’s seventh-largest flarer, according to World Bank data. The government estimated in 2019 that some 11pc of Nigeria’s gas production is flared. 

A programme in which companies offered proposals to capture and sell flared gas attracted 800 interested companies, of which 200 have been shortlisted, the government said in February. These firms will compete to operate at 45 flaring sites. Increased penalties for flaring are also planned. 

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