With proven reserves now at 203.16 trillion cubic feet (tcf), natural gas is one of the hydrocarbons Nigeria has in abundance, yet under-utilised and equally flared. While the challenges are daunting, the need for increased energy generation, industrial production and household consumption, provides an opportunity to harness the nation’s natural gas potential. Will the Ajaokuta-Kaduna-Kano (AKK) Pipeline project aid the realisation of these goals?
For Nigeria and other African countries to minimize the effects of unstable oil prices and reduce dependence on oil, key investments must be geared towards developing Liquefied Natural Gas (LNG) infrastructure to encourage the adoption by local industries.
Stakeholders and investors had raised concerns about the level of infrastructural development in the country, especially as it relates to LNG and government’s gas commercialisation agenda.
According to the latest data from the Department of Petroleum Resources (DPR), Nigeria produces 8.3bsfcd of gas despite gas reserves of 203tcf. The country exports 41 per cent of its gas; uses 31 per cent in oil fields and plants for fuel, gas lift and re-injection; while 18 per cent is utilised in the domestic market for power and 10 per cent flared.
With the flag-off of the construction phase of the Ajaokuta-Kaduna-Kano pipeline in Ajaokuta, Kogi State, and Rigachikun in Kaduna State, there are hopes that power producers would increasingly deploy LNG as feedstock and help users to switch their fuel oil or coal plants to LNG.
Former Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, had told The Guardian that with the current investment in the 614km, 40-inch Ajaokuta-Kaduan-Kano (AKK) Pipeline, the country would add about 3,500 megawatts of electricity to existing 7,000 and address challenges around stranded gas.
He said though the country has drastically reduced the level of gas flaring, the administration would have done better if infrastructure challenges were not a barrier.
Details of AKK project
The AKK gas project is a component of the Nigerian Gas master Plan (NGMC), a gas infrastructure blueprint, which was approved by the Federal Executive Council in 2008, but had been delayed until now.
The other major domestic gas transmission systems are: the Western System, that is, the existing 36-inch Escravos-Lagos Pipeline I and II with 2.2billion cubic feet per day capacity, and the on-going East-West connection via the Obiafu/Obrikom-Oben Pipeline (OB3) featuring 2.4billion cubic feet per day capacity.
According to the Federal Government, the Pipeline will originate from Ajaokuta, in Kogi State and traverse Abuja (FCT), Niger, Kaduna and terminate at Kano.
It is expected to be fed from the existing domestic Infrastructure with a capacity of over 1.5 billion cubic feet per day and is being expanded by Escravos-Lagos Pipeline System II (ELPS II) and Obiafu-Obrikom 3 (OB3) gas pipeline that is presently under construction to double the capacity to over three billion cubic gas per day
The right of way for the proposed AKK gas pipeline is planned to run parallel to the existing Nigerian Pipelines and Storage Company’s 16inch-crude oil and 12inch product pipelines wherever possible.
The Engineering Procurement and Construction Contract (EPC) of the project, which was awarded by the Federal Executive Council in 2017, has a completion period of 24 months and defect liability period of 12 months.
The AKK Project when completed offers enormous economic and social benefits to the nation. In addition, the project is expected to support the development of Petrochemicals, fertilizer, methanol and other gas-based industries that will generate employment opportunities and facilitate Balanced Economic Growth.
Stakeholders appraise initiative
DPR Director, Auwalu Sarki, expressed optimism that improved infrastructure will drive the level of domestic gas utilisation, adding that Nigeria remains a gas country.
He explained that government’s aspirations are to ensure that the country monetizes gas and eliminates routine flaring by 2020, while also introducing new alternatives to PMS (otherwise known as petrol) through Liquefied Petroleum Gas or Compressed Natural Gas.
Sarki said although flared gas had maintained a stable profile in Nigeria in the last three years, the take-over of the gas flare points by investors will further reduce the amount of gas flared, and increase domestic utilisation.
With proven natural gas reserves now 203.16 trillion cubic feet (tcf), and crude oil reserves of 36.89 billion barrels (bb) as at January 1, 2020, Sarki said the Department has set new targets of 210tcf by 2025, and 220tcf by 2030 for its gas reserves, going by new discoveries.
The National Gas Association (NGA), noted that the gas sector could aid Nigeria’s diversification agenda if government is committed to the gas-to-power initiative, especially for industries.
The President of NGA, Mrs. Audrey Joe-Ezigbo emphasized the need to build capacity and domesticate the supply chain, reduce imports and create new markets for gas while exploring other funding opportunities in supporting the status of gas as Nigeria’s comparative advantage.
She reiterated that natural gas has risen beyond the status of a commercial product to become an economic growth driver, energy security product, and enabler for industrialisation, job creation and economic recovery.
The Programme Manager, Nigeria Gas Flare Commercialisation Programme, Office of the Minister of State for Petroleum Resources, Justice Derefaka, stressed the importance of domestic utilization in maximizing value and directly improving the local economy, whilst also addressing on some of the challenges across the gas value chain that need resolution for the market to enjoy the full benefits of the commodity.
The Managing Director of the Nigerian Gas and Power Infrastructure Company, Dr. Salihu Jamari, noted that focus must be on gas infrastructure to ensure that the lines of distribution from the producers to the consumers are better managed.
Hitherto, most of Africa’s gas has been produced for the benefits of foreign markets in Asia, the Americas, Europe and the Middle East, where it is shipped as LNG.
Although LNG prices have dropped to historic lows and are currently below the $2 threshold in Europe and Asia, African power producers still pay above that price to get natural gas in their turbines.
Current market prices for natural gas are expected to remain depressed for a while, and should be a strong incentive for African power producers to use LNG as feedstock and switch their fuel oil or coal plants to LNG, which can be easily procured on the continent.
“However, proper management of Africa’s natural resources does not stop at switching existing power plants to gas to benefit from a cheap and locally-available resource. It rather requires a profound transformation of how African countries see energy and how they plan to power up their economies moving forward.
“Because potential industrial users do not know what the future holds and do not get a clear vision on what their country’s energy mix will look like, their reluctance to switch to gas is directly impacting the attractiveness of the sector and keeps paying for expensive energy instead. Similarly, the imports of fuel oil and coal to power industries has become such a habit that making a long-term commitment on developing LNG receiving and processing infrastructure is now a matter of debate,” the African Energy Chamber stated.
In a post COVID-19 world, the Chamber stated that a situation in which Africa exports its energy while its people are in the dark, and imports finished products while its youth are unemployed is no longer viable.
“While foreign exchange and international capital will continue to be needed, there is an urgent need to energize African communities and neighbours first. Nigeria cannot think of its gas development without keeping in mind the energy needs of its immediate neighbours for example.
“Similarly, South Africa cannot plan for its energy future without taking in consideration the vast gas reserves of its neighbours. The list of examples goes on.”
“Africa needs to use the solid base of its natural resources to create opportunities and change the narrative around its industrialization by making a difference in its own energy space. For such a paradigm shift to happen, African sovereigns need to take the lead”, the AEC added
Why gas pricing is critical to power sector growth’
The growth of the power sector may remain elusive, if the Federal Government fails to address the challenges facing gas pricing in Nigeria, the power distribution companies have said.
According to the utility companies, since the cost of gas remains one of the key determinants of the electricity tariff in Nigeria, it is high time the government found a way to reduce the price for the sustainability of the power sector.
Recall that the Federal Government, through the Ministry of Petroleum Resources, had disclosed plans to review the prices of gas consumed across the country.
Minister of State for Petroleum Resources, Timipre Sylva, had earlier said the move would help deepen the use of Liquefied Petroleum Gas, popularly called cooking gas, as well as Compressed Natural Gas
But Executive Director, Research and Advocacy, Association of Nigerian Electricity Distributors (ANED), Sunday Oduntan, said natural gas supplied for electricity generation needed price review.
“Most of Nigeria’s power generating plants are thermal plants. They use gas as their fuel and as long as the price of gas is high, the cost of generation – and the eventual tariff to the end user will also be high.
“At present, the energy generation mix is around 80 per cent thermal and 20 per cent hydro. More so, the cost of gas is also affected by fluctuations in forex. So while the cost of gas (and generation) will rise due to forex fluctuations, the tariff is fixed in Naira and may not account for this difference especially because of the absence of a commitment to adhering to periodic tariff reviews.
“As we all know, today, the price of gas for local power production is a little over three dollars for one million British Thermal Units (mmbtu). Meanwhile, in this same country, the cost at which LNG exports gas is less than half the same amount. If you also consider that some of these IOCs are still flaring this much-needed gas into the atmosphere, you will realise that there are many options available to the government to intervene in the quest to make electricity more affordable,” he stated.
Oduntan noted that the cost of gas presently accounts for almost 70 per cent of all the input the plants utilise to generate power, stressing that unless the country considers solutions from gas perspective, making headway in providing cheap electricity may remain elusive.
According to him, the absence of a market-reflective tariff has continued to bedevil the sector and is presently responsible for most of the N1.5tn liquidity gap that has been threatening to derail the power sector reforms for years.
Oduntan added that with effect from July 1, a new performance driven increased tariff structure would set for implementation as a step towards narrowing the liquidity gap.
