Nigeria struggles to realise gas potential
Africa's biggest economy is set to expand gas exports but domestic distribution remains a trickier proposition
Nigeria's domestic gas sector is struggling to capitalise fully on the potential of its sizeable gas reserves even though some big-ticket projects are emerging in the country.
Seplat Petroleum's planned $700mn gas joint venture with the state-owned Nigeria Gas Company in Imo state is emblematic of what the government would like to happen more often – a high impact project run by a homegrown company.
The Assa North-Ohaji South plant will process wet gas from Niger Delta crude producing blocks 21 and 53. It is slated to have a capacity of 300mn cubic feet a day (f3/d) with the first supply due in 2021. Another plant, run by Shell Petroleum Development Company (SPDC), will process another 300m ft3/d from the field.
Assa North-Ohaji South is one of seven gas projects identified by the government in 2018 as critical to overcome a looming supply gap. They have been fast-tracked to provide 3.4bn ft3/d of gas to provide feedstock for 15 gigawatts (GW) of generation.
Shell Nigeria Gas, the firm's domestic distribution arm, stated in June that it had increased its gas distribution capacity by over 150% following the completion of its second gas train, the Agbara-Ota Capacity Increase Project in Ogun state. The company stated its expansion projects in various states would add more than 1GW of power to industrial parks and companies.
However, the vast majority of Nigeria's huge reserves remain untapped. Proven reserves total 200trn ft3 with a further 600trn ft3 of estimated unproven reserves, according to the Nigerian National Petroleum Corporation (NNPC). The Department of Petroleum Resources told local news media in April that Nigeria's total gas production stood at around 1.2bn ft3/d of which 41% was exported and 48% was used domestically – leaving 11% to be flared.
In addition, much of the gas produced from oil fields is currently flared. The establishment of the Nigerian Gas Flare Commercialisation Programme in 2016 was intended to encouraging its use for power. Nigeria's president, Muhammadu Buhari, set a target date of 2020 for the elimination of flared gas – but this target now looks impossible to meet.
There is no doubt that Nigeria needs gas domestically. Electricity supply remains intermittent, despite successive administrations putting gas at the centre of their power sector reforms. However, gas supply is not the biggest bottleneck in the system.
Distribution to households and industrial plants is being hampered by a lack of investment in power and gas distribution infrastructure, in part due to market uncertainties such as those resulting from the botched privatisation of the electricity sector in 2013. Investment is also being constrained by the lingering impact of the deep economic recession of 2016-17; customers' inability to pay left gas suppliers and power companies out of pocket.
"[There's] a chain of debt in the power sector," one Lagos-based analyst said. Generating companies were owed about NGN500bn ($1.4bn) by the Nigerian Bulk Electricity Trading Company (NBET), which was owed money by distribution companies, which in turn were struggling to collect arrears from their customers, the analyst noted.
Adedamola Adegun, gas commercial advisor at Nigerian Petroleum Development Company (NPDC), agrees. "We have oversupply… [and] we have a liquidity or credit problem [so] gas suppliers don't get their money," he said.
The threat of unrest in the Niger Delta region, where much of Nigeria's domestic gas supply is produced, also hangs heavily over the sector – although militant attacks on pipeline infrastructure have at least become less frequent.
NLNG edges towards FID
Success in the export market demonstrates that gas production can be ramped up. Given a dependable customer base and a helpful operating environment there is no reason this cannot be replicated for the domestic market.
Front-end engineering and design contracts were awarded in 2018 for a seventh train at the Nigeria LNG (NLNG) project on Bonny Island, which would add up to 8mn tonnes a year (t/yr) of LNG capacity to the existing 22mn t/yr. In March 2019, NLNG and the Nigerian Content Development Monitoring Board signed a content plan for the project agreement. NLNG's managing director Tony Attah said to local media in late June that he expected the FID on the seventh train, which has been discussed for years, to be taken in October 2019.
NLNG is generally regarded as one the best run projects in which NNPC is involved. The company, in which NNPC has a 49% stake and a consortium of Shell, Total and Eni hold the other 51%, has been largely insulated from Nigeria's harsh business climate and unpredictable political games over the years, in part due to the protection of a constitutional by-law.