DPR seeks for investors in Nigeria’s Gas Sector
…DPR has streamlined issues and way forward for optimum gas development
…Accessibility, availability and affordable of LPG is under way to boost investments
…Train 7 project will leverage Nigeria’s resources in the gas sector
…NGFC programme will be market driven with commercial structures
…Investors assured of positive returns in investment
By Abisola THOMPSON
The Department of Petroleum Resources (DPR) is an agency that regulates Nigeria’s oil industry and this transcends all sectors in the petroleum value chain.
Director of DPR, Modecai Baba Ladan, a Petro-Chemist who commenced his career as a Senior Analytical Chemist, has held several key positions. Ladan received an award for commendable leadership in the Public Sector from Texen, UK, in recognition of his outstanding contributions, inspiring regulatory leadership policies, intervention and stakeholders’ engagement with industry players in the Nigerian oil and gas industry.
Recently, Ladan met investors and stakeholders at the Nigeria-South Africa Chambers of Commerce (N-SACC) in Lagos. The DPR Director was represented by Mr. Olawoleola Ogunsola, of the Department of Gas Production and Flare Monitoring, Gas Division.
Ladan stated clearly to investors that report of the Organization of Petroleum Exporting Countries (OPEC) is key including energy information administration and all other research agencies show that the business of oil and gas will still be in existence for some time.
However, up to 2050, gas and oil will continue to play significant role in world energy mix because global economy is doubled and population will reach 9 billion by 2040 as projected while global energy demand will grow by 50% in 2040.
Obviously, there will be need for energy supply and gas having a better credential as a cleaner fossil fuel will come to the rescue. Gas is central in the global energy mix going forward. Plans are ongoing for sustainable future for gas especially in Africa.
HISTORICAL BACKGROUND OF NIGERIA’S GAS RESOURCES
Ladan explained to investors in N-SACC that in terms of gas potentials, Nigeria is ranked 1st in Africa and 9th in the world in gas resources. Proven gas reserves which is currently over 200 trillion cubic feet (tcf) as at 2019 with immense potentials. There is steady growth in gas reserves, interestingly, there have been two episodes of growth occasioned by technology, government drive at investment and incentive regime. This is important because all gas reserves that are discovered at present, has been incidental or accidental to oil, there has been no dedicated search or exploration for gas which shows that the country has immense potentials of gas.
The dashboard of gas sector in Nigeria shows from the country’s account that it has 200.79 tcf which is the official figures of gas reserve as at 1st January, 2019. This was declared by DPR that reserves the right to show the figure on annually basis. Out of this volume, Nigeria produce 8 billion standard cubic feet (bcf) of gas a day. As a country of over 200 million, there is need for power and industry commercial use of gas. The 8bcf is distributed into various volume. Export market takes 40% volume, the domestic market comprising power, commercial and industry gets a paltry 17%. For the use of oil production in terms of gas injection, gas lift, storage and home consumption, they take 30%.
Gas market is growing with increased attention and it is heading towards utilization either for export or domestic purpose.
But about 11% of gas produced in Nigeria is flared and it is estimated that the country flare $2.6 million daily.
Ladan revealed that there is an historically perspective, from 1958, Nigeria started gas production consequent upon the beginning of oil production, the country grew rapidly in gas production while it was basking in the euphoria of oil discovery because of the proceeds from oil. The physical and legislative structure that were required to effectively annex gas was not given attention. Almost everything produced in form of gas was flared.
More so, in the 80’s departure between production and flare line started becoming prominent with combination of legislation, penalty regime and more importantly the gas development drive. Drive from effective gas monetization through big major capital projects by International Oil Companies (IOCs) including the Nigerian Liquefied Natural Gas (NLNG) began to get Nigeria on the hint line and the plot for gas utilization. This was what happened in the 90’s.
Historically, Nigeria did not know what to do with gas not until it got producers to conserve it in form of injection to incentives in order to monetize it with enforcement of domestic supply and pricing regulation.
The Chief Regulator made it known that recently, government has signed and introduce flare gas pollution rules and regulation 2018. This is to underpin government commitment to end gas flaring. This has been an intervention of government in the country’s national history.
However, domestic utilization has an history which goes from the 60’s. In the 60’s there was not much being done except for some few industries across the country that were getting gas from Shell Petroleum and Development Company (SPDC).
Astoundingly, in the 90’s gas was revolutionary. The defunct National Electric Power Authority and Power Holding Company of Nigeria (NEPA/PHCN) played some roles in terms of gas utilization as their plants were powered through gas. Thereafter, the Escarvos-Lagos pipelines systems was built and commission to get gas to power for commercial and industrial users. There were also big bank projects like the Escarvos gas plants, Mobil Bonny River Terminal and NLNG. These are milestones and turning point in the history of gas utilization in Nigeria. The country has also been moving ahead with other projects like the EGTL which some companies are playing active roles and key gas development drive from 2010 when the Escarvos plant was commissioned.
Ladan explained to investors at N-SACC that government aspiration for gas sector is clear. It has a clear mandate to grow reserves and eliminate routine flaring to ensure that domestic gas is available and sufficient for use. The drive of government aspiration is being galvanized in the policy of reforms tagged the 7 BIG WINS of government.
The Petroleum Sector Road Map Reforms has seven key critical areas from policy and regulation to business environment and investment drive with transparency and efficiency. This is part of the revolution hence the government recognized the importance and critical nature of gas in industrial development. This entails infrastructure, gas based industrial project, domestic utilization of LPG, elimination of gas flaring and gas to power. These are key elements to government and commitments to show there is a clear Road Map to achieve a sustainable gas development in the country.
FEW CHALLENGES IN TH SECTOR
It is important to recognize that there are challenges in the sector. Notwithstanding, there are some strengths which is the potentials and resource base. The strengths are to be leveraged by making use of the opportunities. Part of the opportunities is the gas transmission and distribution infrastructural network which is currently being expanded in line with infrastructural blue print of the Nigerian Gas Master Plan. The country endeavours to move at the right direction.
Government reforms are key to DPR which is in the forefront of implementing gas transportation network code. This is a set of rules to assist and enable open access to gas infrastructure and thus stimulate the sector in terms of possessing pipeline evacuation infrastructure.
WEAKNESSES IN THE GAS SECTOR
Ladan submitted that there is still gap in infrastructure which the government is working assiduously to eliminate. The pricing issue within the domestic market is still a challenge. Liquidity and payment of critical aspect such as power sector of the industry which consumes 75% of gas remains an issue. Nature of the market which include Legislative commercial term regarding access to gas and Production Sharing Contract (PSC) are challenges that need to be addressed. There is also need for the country to leverage its potentials to develop the Nigerian gas sector optimally to be able to attract much needed investment in the sector.
DPR has streamlined issues and way forward for optimum gas development having recognized potentials of the country.
The first Road Map is gas reserves growth with 200 tcf a day, the target has been achieved before 2020.
However, the existing volume is because the country produced 8 bcf of gas a day with life index reserve for about 92 years. If the country doubles its production which it urgently needs, it can sustain the life index by being a major player in the export market in terms of LNG.
According to Ladan, high value gas export is another lever DPR intends to maintain so that the country can have a significance presence in the international gas market. The regional gas pipeline by optimizing the use and capability of the West African Gas Pipeline and potentially increase it. There is also the need to increase the length to other West African countries with global market via LNG.
He disclosed that the country needs to take opportunities of available demand in the LNG space which is key for sustainable gas development. He stated further that to grow reserves, the DPR is driving and advocating for deep drilling. Deep drilling creates room for gas discovery. This has been proven from recent discoveries hence the regulatory agency enhances drive towards deep drilling.
In terms of domestic gas supply and its imperative, DPR is enforcing obligation that works with other elements in the mix. This needs infrastructure to deliver with a credible market ready to pay for gas and take it.
Another key issue is the development of Nigerian Gas Transportation Market Network Code. The country must move from interventionist policy which has to do with subsidy-like regime to a willing buyer-willing seller status. Market led pricing is what works in an economy where gas becomes the key driver of energy.
A known fact about Nigeria’s gas sector is that basic infrastructure is concentrated along Lagos-Escavos pipeline system that convey gas from the Niger Delta to Lagos. There is another eastern domestic network at the south-south and south-east part of the country where gas supplies and demand are taken. There is also extension of Oben to Ajaokuta to feed power plant and industry where government plans to extend the Ajaokuta-Kaduna- Kano (AKK) pipeline to improve production and services. It forms part of larger trans-Nigeria gas pipeline system.
A critical pipeline that is also required is the OB3 line which Nigeria Gas Company (NGC) disclosed will be commissioned by quarter 3 in 2019. The advent of OB3 is due to supply glut in the east which is close to Niger Delta and with huge demand for gas. It gives avenue for interconnection to evacuate excess to demand centres in west and north of the country which is part of the infrastructural blueprint designed for Nigeria’s gas policy. It has to be achieved to utilize optimally domestic gas resources.
Being a regulator that shows concern for growth of the gas sector, DPR is spearheading implementation of Nigerian network code with a set of rules to entrench open access. This provides competitive access to gas transportation infrastructure without discrimination in order to stimulate the market. Suppliers remain where they are in the chain while infrastructure owners build pipeline and charge tariff for off takers that take gas at different points of the pipeline with ease. The code will soon be launched. DPR is driving committedly with the support of government to ensure the code is launched so as to unleash potentials of infrastructural development.
Ladan sought the support of investors to build pipelines in critical areas to saturate the domestic market for gas.
UTILIZATION OF LPG
Ladan told investors that one of the elements of the domestic market is Liquefied Petroleum Gas (LPG) penetration. Nigeria has abundant gas but one of the lowest in terms of utilization of LPG in Africa at 2.5 kilogram (kg) per capita. While countries like Morocco and Algeria are about 50 kg. The country has LPG but because of bottlenecks across the value chain, it is unable to leverage the resources. The opportunities are rife in LPG utilization in Nigeria.
Energy in Nigeria has about 400% increase from 2007. The market has grown and absolved itself with latent demand making it clear with 200 million people who need LPG and gas for cooking.
To access this, there must be accessibility of gas, building of LPG plants, storage facility to transcend the country. The government is also driving the accessibility with DPR ensuring the safety of LPG facility in order to build assurance and confidence for the Nigerian people in making LPG acceptable.
For availability in terms of supply, in-country processing plants have Liquefied Natural Gas (LNG) that can supply significant portion of energy LPG required. But the infrastructural challenges along the chain is the bottlenecks to get all the supply.
Ladan added “When other elements in the chain work, affordability becomes easy because resources and infrastructures are in place. Market driving mechanism will come to play as well. Nigerians can use more gas which will be an opportunity for investors.”
The DPR boss expressed confidence on the Train 7 project. It has been estimated that Train 7 Final Investment Decision (FID) will be taken later in 2019 or early 2020. The front-end engineering design is currently ongoing which will precede the FID. Obviously, the project will leverage Nigeria’s resources and captures some of the world’s markets in future.
He told investors at the N-SACC that Nigeria being a major player, the country will drive its vision with virile policies, regulations and investment climate for LNG export with regional pipeline development which gives clear opportunities for Nigeria to drive development across the West African Sub-region.
GAS FLARE OUT
More importantly for the gas sector is gas flaring. It is astounding that since 1956 to 1958 that Nigeria has been a global player in the oil industry, it is still battling with gas flare.
The DPR boss appealed to stakeholders to concertedly work together to take advantages and opportunities to stop gas flaring for the benefit of the country so as to improve its environmental credentials.
Ladan pointed out clearly that the time for blame game is over and stakeholders from government, indigenous producers, development partners, host communities and social pressure groups should come together with holistic approach to address the issue.
There has been blame game of infrastructure, gas pricing, sub commercial, nature of the market, lack of political will, lack of willingness of IOCs among other issues. These blame games and bulk passing are causing set-back for gas development in the country.
Nevertheless, government has realized that producers have done all they can to stop gas flaring, it is using the provision of Petroleum Act which gives it the right to take gas and flare free of charge and potentially award it to third parties who could find it commercial. Thus, according to Ladan, “If producers feel it is sub commercial for them, the Nigerian gas flare commercialization programme is taking the gas flare and awarding it to investors who can take flare gas to market.” This is an investment climate in the works.
The Nigerian Gas Flare Commercialization Programme (NGFC) is market driven with commercial structures to enable flare gas to market. The idea is to have a structure that is bankable and provide a solution that benefits the Niger Delta communities. Social challenges and environmental issues with health impact of gas flaring cannot be overestimated. It needs a solution. Government tried to solve the issue in the past but because it was not commercially driven hence the aim this time is to ensure that there is a commercial network for the programme. This is what the DPR and Ministry of Petroleum Resources are both envisioning.
The outcome means $3 billion investment will be required to take gas from over 170 flare points spread across the Niger Delta to take gas to the market and being able to annex 800 million scoff of gas per day which is being flared. It is an immense investment opportunity and potential for job creation.
The DPR, under Ladan’s watch, is projecting the NGFC programme and has invited competent professionals and investors to express interest. The regulator has gotten numerous expressions of interest, it will be evaluated and qualified applicants will emerged and they will be given access to the data room where they will see the locations of the flare. This include composition and technology which might be suited for one particular flare point and how it can be gathered. It follows a market study which will suit investors such that they will be able to leverage on the study to see the importance where certain flare points are more amenable to technology, what market and proffer solutions.
Qualified applicants will submit their requests for proposal which will be evaluated and before the end of 2019, those who win will get permit order to access flare gas. Ladan referred to this innovative idea as a game changer. Investments opportunities, issues bothering the Niger Delta, environmental credentials are DPR’s national contribution in line with climate change accord to achieve flare outs in the country.
OPPORTUNITIES FOR INVESTMENTS
Ladan gave investors’ confidence that Nigeria has about $50 billion required in the size of investment in oil and gas industry. Significant portion of this, is in the gas sector which also provide credible opportunities for investors. Investments opportunities includes; upstream, midstream, gas processing plants, fertilizers and petro-chemicals, gas terminals and storage for LPG. An integrated value chain approach for LPG, distribution and marketing to increase per capita consumption of 2.5 kg of LPG to 50 kg.
Indeed, great opportunities exist for investors.
Virtual pipeline solution is key to address short and mid-term challenge in infrastructure in gas transportation network. Also, there is investment opportunities in pipe mills, fabrication yards, LPG cylinders and accessories including other opportunities for operations and maintenance services for the gas sector.
The NGFC programme that will address gas flaring challenges in the country will make room for huge investments that will be required for investors to take advantage. It is an opportunity for investors to optimally develop the gas sector.
The DPR Director assured investors that the future of energy is bright in spite of doom’s day prophecy that oil and gas will not be relevant. He told them this is not true. Despite “The advent of renewables, nuclear and other alternatives, however, oil and gas will still be in business for years.”
Gas will be a major player going forward because Nigeria has abundance potentials which will be actualized.
Government is committed via enabling legislative framework to reform the industry with political will to drive gas development in Nigeria and that is the kind of environment investors required since there is stable policy to invest and get returns for investment. This is the vision of the government.
Gas policy has been approved, the NGFC, Nigerian Gas Transportation Network Code are all elements of the reform to show that government is committed to drive the development of the gas sector.
Ladan asserted, “DPR invites everyone to leverage these potentials and take a piece of the cake so that Nigerians can benefit from their huge resources. Nigerians and South Africans can take advantage of this opportunity so that together, we all can participate to ensure a sustainable and optimum development of the Nigerian gas sector.”
INVESTORS CONCERN
However, business men and investors commended the DPR Director but also expressed concern on how the country loses an average of $2.6 million per day which is about $949 million per year. They were perturbed about government’s belated intervention through NGFC programme that after discovery of oil between 1956 to 1958, the problem of gas flaring persisted.
Investors asked on how government will access private sector participation in the gas sector especially on the grounds of policy summersault and inconsistency in government policy. For instance, if there is a change of government, private sector engagement becomes threatened as seen in the past. How will private sector participation be enhanced so that sanctity of contract will be assured?
Others are worried that if pipelines are developed adequately, what happens to downstream LPG which might not be able to compete favourably with piped gas. What is DPR doing to ensure virile fiscal regime in the gas sector?
Responding and addressing the fears and worries of investors at the N-SACC forum, Ladan said, that the NGFC programme remains the only alternative since the IOCs are not interested in small volume of gas. The government has the right under the petroleum act to award it to other players that have the technology, take it to the market and sell the gas which in turn will be beneficial to government.
On the use of LPG, the DPR helmsman expressed optimism that the office of the Vice President of Nigeria is driving a vision regarding access to cylinders through awareness campaign and other initiatives. This will metamorphose to gradual acceptance of LPG. Already, the country has grown its use to 500 000 metric tons from 70 000 ten years ago.
Ultimately, investors will benefit immensely from Nigeria’s gas sector if they invest. This is the vision and aspiration of DPR going forward.
