Natural Gas: Nigeria's Next Big Thing

Dr. Wisdom Patrick Enang

+2348173555667, wisdom_enang@yahoo.co.uk

NIGERIA INTERNATIONAL PETROLEUM SUMMIT, February 9 – 12, Abuja Nigeria

 KEY OIL AND GAS PRODUCERS IN SUB-SAHARAN AFRICA

• Nigeria is the largest producer of low-sulphur

sweet oil in OPEC.
• About 52% of the Nigerian total proven gas reserve
is associated (natural gas obtained during the
production of crude oil).

• Nigeria is the 4th Largest LNG exporter in the world.

S-RM Intelligence and Risk Consulting (2019): • NLNG train 7 will expand Nigeria’s capacity to 30
Opportunities and challenges in Africa’s Oil and Mt/y, and Nigeria will become the 3rd largest LNG
Gas sector. exporter in the world.
 NIGERIAN NATURAL GAS PATHWAY WITH FLARING

Why flare?
• Lack of infrastructure at some oil
fields to harness the produced
associated gas.
• A limited number of reservoirs
suitable for gas re-injection and
storage.
• The expensive nature of
developing and installing a
pipeline network for natural gas.
• A limited local, regional and
international natural gas market.
• The difficult terrain of the Niger
delta which is a hindrance to the
gas gathering process.

* CNG in
Flare Gas Pipeline Gas Flare
Nigeria has
relatively
Domestic Gas Consumption CNG
lower
Natural Gas End User
investments
Gas Exportation LNG compared to
Resource Utility Viable transportation LNG
Gas flaring FLARING STATISTICS

178 Flare sites

 Gas flaring THE HEALTH AND ENVIRONMENTAL COST OF FLARING

Pollution
Toxic greenhouse gases

CO2, CO,
SO2, NOx,
VOCs, PM

Rusted roof due to Acid Rain

Gas flaring THE OPPORTUNITY COST OF FLARING
 NIGERIAN NATURAL GAS PATHWAY WITHOUT FLARING

Domestic Gas Consumption Pipeline

* CNG in
Nigeria has
CNG relatively
Natural Gas End User lower
Gas Exportation LNG investments
compared to
Resource Utility Viable transportation LNG

Why the change in behaviour?

❖ Nigerian membership of the Global Gas Flare Reduction Partnership (GGFR).

❖ Nigeria is a signatory to the World Bank’s Zero Routine Flaring (ZRF) initiative
by 2030 (2016).

❖ Federal Executive Council approval of the Nigerian Gas Flare

Commercialisation Program (NGFCP) (2016).

❖ Nigeria is a signatory to the United Nations Framework Agreement for Climate

Change (UNFCCC) to reduce greenhouse gas emissions (GHGs) (2016).
 THE NIGERIAN ROAD TO BEING FLARE FREE

Regulatory Approach

• 1969 - Petroleum Drilling and Production Regulations:

❖ Provides regulations for protecting sacred lands, water and the environment.
❖ Mandates accurate record keeping by licensees.
❖ Provides process of abandonment of oil wells.

• 1979 - Associated Gas Re-Injection Act:

❖ Compels every company producing oil and gas in Nigeria to submit
preliminary programmes and detailed plans for gas re-injection.
❖ Regulates gas flaring by oil and gas companies in Nigeria.

• 1992 - The Environmental Impact Assessment Act:

❖ Sets out the general principles, procedure and methods to enable consideration of
environmental impact assessments on certain public or private projects.

• 2018 – Flare Gas (Prevention of Waste and Pollution) Regulations 2018:

❖ Introduces the “polluter pays” principle to gas flaring (similar to carbon tax).
❖ Imposes significant obligations regarding reporting gas flaring activities.
❖ Mandates government access to all flare gas free of cost and without royalties.
❖ Imposes significant penalties for breach of regulation.
 THE NIGERIAN ROAD TO BEING FLARE FREE

Commercial Approach

Nigerian Gas Flare Commercialisation Program (NGFCP)

❖ Designed to eliminate routine and non-routine gas flaring through technically and commercially
viable gas utilisation projects developed by competent 3rd party investors.

Flare-Gas-to-
market-
products

Modus Operandi
❖ FGN takes associated gas at the flare site free of charge, and without payment of royalty.
❖ Bids it out to third parties in a series of auctions.
❖ The third parties will propose projects and are selected on the basis of their technical and financial
qualifications, soundness of project proposals, and several other criteria.

Investor’s Incentive
❖ Bidders have flexibility of flare sites to bid for, the gas price, the end market or gas products (FG-2-
MP), as well as the technology to be used (FA-2-MT).
 THE NIGERIAN ROAD TO BEING FLARE FREE
Objectives of the NGFCP

❖ Benefit Niger Delta communities ❖ Positively impact the Nigerian economy

❖ Present a market-driven solution for flares ❖ Be bankable for investors and lenders
❖ Ensure the safety of producers’ Exploration and
❖ Reduce routine gas flaring by the end of 2020
Production operations.

Investment Value and Returns

Estimated Annual Revenue :

~ $1 billion

Knowledge Bank:

❖ The NGFCP is the

first global market
driven program of
this size.

Host Community Benefits

❖ Products at concessional prices.
❖ Procurement of goods and services from the host communities.
❖ Setup of social infrastructure for the host communities.
 GAS TRANSPORTATION OPTIONS

CNG LNG
Physical state Gas Liquid
Temperature in Ambient -162oC
tank
Typical pressures 200 - 250 5–8
in tank (bar)
Density 175 435kg/m3
kg/m3 at
200 bar
Capacity (million 1.4 - 22 100 – 250
m3)
Reach (km) 2000 – 6000 –
Cost Components 5500 12,000
Upstream Low Very large
LNG CNG infrastructure
cost
Downstream Low Very large
infrastructure
cost
Number of Large Low
potential export
sites
NATURAL GAS VALUE CHAIN

Domestic Gas Consumption Gas Exportation

 Gas Exportation TRENDS IN THE NIGERIAN GAS TRADE
Nigeria’s dry natural gas production and consumption Nigeria’s export of LNG (2014)

Nigerian LNG exports and destinations (bcm) 2005 - 2016

Natural gas is “dry” when it is almost
pure methane due to the absence of the
longer-chain hydrocarbons. It is
considered “wet” when it contains other
hydrocarbons in abundance. Those
longer chain hydrocarbons can condense
to form valuable light liquids (so-called
natural gas liquids, or NGLs).
Gas Exportation THE FUTURE OF LNG PRODUCTION

• No need for pipelines, compression units, dredging, jetty construction or an onshore LNG processing plant.
• The facility is also able to be decommissioned and re-deployed elsewhere relatively easily.
• Smaller and more remote fields can be developed.
Gas Exportation DIVERSE DRIVERS TO LNG DEMAND

• Rising renewable penetration will expand LNG’s role in providing flexible power generation to
balance the electricity grid in many major economies.
• The use of LNG in the industrial and transport sectors will push up gas demand, particularly in
Asia where environmental concerns are on the rise.

ACHIEVING SUSTAINABLE LNG GROWTH IN NIGERIA

NIGERIA’S POWER GENERATION EFFICIENCY Domestic Gas Consumption

Domestic Gas Utilisation in Nigeria in 2015

Key Challenges facing the Power Sector
1. Gas Availability:
• Unprecedented pace of growth in demand
relative to feed gas supply.
2. Gas Deliverability:
• Inadequate gas transportation and processing
infrastructure.
3. Commerciality of Supply:
• Regulated Gas Pricing.
• Value Chain Issues: Securitisation of payment /
unpaid bills, weak and unenforceable GSPAs.
Source: Nigeria Power Baseline Report (2015)
GAS MONETISATION OPTIONS IN NIGERIA
Summary
• Competitiveness of gas
technologies varies widely
depending upon specific project
details and regional markets.
• Various monetisation options are
technically feasible but not all are
economically viable, or practical
long term solutions.

Other criteria for determining the appropriate gas

monetisation option:
• Size and quality of the gas resource
• Location of the resource relative to key
markets - local and export
• Competitiveness of end products
• Manpower/skills availability
• Requirement for strategic partners or
agreements from foreign governments
• Project financing
• Environmental approval
• Technology availability and reliability
• Logistics for project construction
INVESTMENT OPPORTUNITIES IN THE NIGERIAN OIL AND GAS SECTOR

Ministry of State and Petroleum Resources (2018): Investing in Extractives (Oil & Gas)
 WHY INVEST IN NIGERIAN NATURAL GAS
Government’s resolve to address gas deliverability concern: Some Key Operational / Ongoing / Planned
Pipeline facilities
Gas Capacity
S/N Gas Pipeline Status
(MMscf/d)
Obiafu-Obrikom-Oben (OB3) Gas Pipeline
1 2,000 Almost completed
• Domestic
Escravos Lagos Pipeline System (ELPS) II Pipeline
2 1,100 Almost completed
• Domestic & Export
Trans-Nigeria Gas Pipeline (TNGP)
• Ajaokuta-Abuja-Kaduna-Kano (AKK) 1,600 FID (late 2019)
3
• Obigbo-Umuahia-Ajaokuta (OUA) 1,200 -
• QIT-Obigbo Node-OB3 1,200 -
4 Odidi-Warri Gas Pipeline Expansion Project (OWEP) 400 On going
5 Obiafu-Obrikom – OBOB (NAOC) – CTMS Pipeline 300 Almost completed
6 Assa North / Ohaji South (ANOH) – OB3 CTMS 600
Escravos Lagos Pipeline System (ELPS) I Pipeline
7 • Domestic & Export (Operational in 1989 (supplies 800 Operational (1989)
natural gas from Escravos to Egbin power station)
West African Gas Pipeline (WAGP, 681KM, $900m)
8 • Export (Operational in 2007 (supplies has from Escravos 170 Operational (2007)
to consumers in Benin Republic, Ghana and Togo)
 WHY INVEST IN NIGERIAN NATURAL GAS
Government’s resolve to address gas deliverability concern:
 WHY INVEST IN NIGERIAN NATURAL GAS
Competitive fiscal terms for gas exploitation:
Barry Rogers (Rogers Oil and Gas Consulting
October 30th, 2012): Fiscal Systems Comparison
(World Fiscal Systems for Oil and Gas)
Main fiscal incentives for gas production,
transmission and distribution
• Tax rate under petroleum profit tax (PPT) act to
be at the same rate as company tax which is
currently at 30%;
• Capital allowance at the rate of 20% per annum
in the first 4 years, 19% in the 5th year and the
remaining 1% in the books.
• Investment tax credit at the current rate of 50%;
• Royalty at the rate of 7% onshore and 5%
offshore.
 WHY INVEST IN NIGERIAN NATURAL GAS
Favourable fiscal incentives for LNG projects, gas exploitation and utilisation:
S/N Activity Incentives
1 LNG Projects • Applicable tax rate under PPT is 45%;
• Capital allowance is 33% per annum onsite-straight-line basis in the first three years with 1%
remaining in the books;
• Investment tax credit of 10%;
• Royalty of 7% onshore, 5% offshore tax deductible.
2 Gas • All investments necessary to separate oil from gas from the reserves into suitable products is
Exploitation considered part of the oil field development;
(Upstream • Capital investment facilities to deliver associated gas in usable form at utilisation or transfer
Operations) points will be treated for fiscal purposes as part of the capital investment for oil
development;
• Capital allowances, operating expenses and basis for assessment will be subjected to the
provisions of the PPT act and the revised memorandum of understanding (MOU).
3 Gas • An initial tax free period of three years renewable for an additional two years;
Utilisation • 15% investment capital allowance which shall not reduce the value of the asset;
(Downstream • All fiscal incentives under the gas utilisation down-stream operations in 1997 are to be
Operations) extended to industrial projects that use gas in power plants, gas to liquid plants, fertiliser
plants and gas distribution/transmission plants;
• The initial tax holiday is to extend from three to five years;
• Gas is transferred at 0% PPT and 0% royalty;
• Investment capital allowance is increased from 5% to 15%;
• Interest on loans for gas projects is to be tax deductible provided that prior approval was
obtained from the federal ministry of finance before taking the loan;
• All dividends distributed during the tax holiday shall not be taxed.
 WHY INVEST IN NIGERIAN NATURAL GAS
Good ratings from industry experts: Fitch Solutions (2019), Q4 2019, Oil and Gas Report (Upstream)

The Nigerian
Petroleum Industry
Bill holds the
potential to unlock
a new wave of
investment.
 WHY INVEST IN NIGERIAN NATURAL GAS
Good ratings from industry experts: Fitch Solutions (2019), Q4 2019, Oil and Gas Report (Downstream)

Increased potentials
due to the size of the
Nigerian domestic
market and the
potential for growth
(driven mainly by the
country’s growing
population, growing
energy demand
forecast and access to
domestic crude feeds).
 WHY INVEST IN NIGERIAN NATURAL GAS
Continued Investor confidence in the Nigerian Gas Sector
A ROAD MAP TO THE DEVELOPMENT OF A SUSTAINABLE NATIONAL GAS INITIATIVE

Challenges Potential Solutions

❖ Development of central gas gathering and processing facilities in Delta, Rivers and
Akwa Ibom State, for treating wet gas, extracting Liquefied Petroleum Gas/Natural
Gas Liquids, and exporting lean gas into transmission systems.
❖ Pipeline infrastructures to tie-in most shallow to medium depth (<200m) offshore
Gas availability, gas resources, which are otherwise left “stranded” or “flared”.
supply and ❖ Development of gas pipeline transmission systems and gas compressor stations to
storage efficiently distribute gas to areas of need in-country.
❖ The use of scalable containerised, skid mounted, barge type “plug and play”
technologies, virtual pipeline as well as compressed natural gas (CNG) trucks.
❖ Functional Gas Aggregators with storage facilities where oil and gas companies can
send their gas directly to.

Solving the

Of an onsite gas
Operator’s Dilemma compression facility