Global gas demand is expected to rise by 2.8 per cent this year. With Nigeria said to be more of a gas province with some oil reserves, developing the gas sector could be the talisman for resuscitating the economy from the woods.
The Minister of State, Petroleum Resources, Chief Timipre Sylva, declared last year as the year of gas. This was ostensibly designed to develop the gas sector to boost revenue earnings, drive industrial growth, provide electricity for about 45 per cent of the populace said to living in darkness and generally stimulate economic activities.
The government has continued to make efforts through the Ministry of Petroleum Resources (MoPR), Ministry of Finance and the Central Bank of Nigeria (CBN) to improve its commitment towards significant flared gas reduction and driving gas utilisation for domestic and industrial usage.
According to the Department of Petroleum Resources (DPR), Nigeria’s proven gas reserves has increased by 0.57 per cent from 202trillion cubic feet (tcf )recorded in January 2019 to 203.16tcf as at June 2020. This DPR figures puts to rest the controversies around the figures being put out in the public space by stakeholders in the industry.
The DPR has also set the target of achieving proven reserves of 210tcf by 2025 and 220tcf by 2030.
The above figures, according to KPMG Nigeria Gas Sector Watch Volume 2, only serve to validate Nigeria as a gas province with some oil reserves. Nonetheless, the Federal Government should continue to drive the implementation of the various policies that are geared towards revitalising the gas sub-sector, to enable the country benefit from the monetisation of this vast resource.
It identified some key initiatives of the government around gas to include the Nigeria Gas Transportation Network Code (NGTNC) – Go Live, Adoption of LPG Cylinder Recirculation Model to increase LPG penetration, sale of gas assets, unveiling of framework for the Implementation of Intervention Facility for the NGEP and others.
Following the launch of the NGTNC to deepen the growth of domestic gas market which became effective in February 2020, the government virtually flagged off the operationalisation of the NGTNC in August 2020. This was in line with the government’s 2020 strategy to drive key policies and regulatory initiatives that would enhance gas reserves growth to support domestic and export projects.
Chief Sylva highlighted during the virtual Go – Live that the implementation of the NGTNC and other related interventions by the government ( that is National Gas Expansion Programme (NGEP) and the Nigerian Gas Flare Commercialisation Programme (NGFCP)) would lead to improved gas supply to power, growth of gas-based industries, domestic Liquified Natural Gas, Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG) penetration, to enhance Government’s revenue from the gas sub-sector.
One of the objectives of the NGTNC was to unleash the potentials of accelerated growth to stimulate investment opportunities and national economic development. Thus, for ease of operationalisation of the NGTNC, the DPR established a Network Code Electronic Licensing and Administration System (NCELAS) portal to process all licences required for operating gas transportation arrangements and administration of all regulatory roles, required for the optimal performance of the Network Code. The DPR has also commenced the issuance of licence to gas transporters, shippers and agents, via the network code, and the migration of existing gas transportation agreements into the network code regime has begun.
Despite the challenges posed by the COVID-19 pandemic, the traction achieved by the government in implementing some of the policies introduced for the sector last year, has made stakeholders become more optimistic that the government is desirous of stimulating the necessary investments in the gas sub-sector.
In a bid to steer the gas sub-sector for optimal performance and increased utilisation of the vast gas resources, the Federal Government launched and subsequently inaugurated the National Gas Expansion Programme (NGEP) committee in January last year. The challenges bedeviling the domestic gas subsector, particularly, the absence of a clearly defined framework, have continued to constrain investment in the sub-sector, culminating into the low level of production and utilisation of gas, as a clean alternative source of domestic energy in the country.
The mandate of the committee is to reinforce and expand domestic gas supply and stimulate demand through effective and efficient mobilisation and utilisation of available gas assets, resources and infrastructure in the country. The Committee is also expected to come up with strategies to reform and implement a market-based and cost-effective gas distribution.
It is expected that through the effective implementation of the NGEP, CNG and LPG would become the fuels of choice for transportation, domestic usage, and captive power generation. This is especially so given that CNG and LPG are more environmentally friendly than other heavier hydrocarbons – thus a critical component of sustainable energy generation and, by extension, development of industrial clusters.
Another initiative is that adoption of LPG Cylinder Recirculation Model (CRM) to increase LPG penetration in the country.
The Federal Government objective is to achieve 5 million metric tons (Mt) annual consumption of LPG by 2022.
In order to achieve this objective within the timeline, the government indicated its commitment towards adopting the CRM to increase domestic LPG penetration. Under the CRM model, cylinders will be delivered and retrieved by the marketers who will also be responsible for the maintenance and refurbishment of the cylinders, thus making LPG accessible to a whole new segment of non LPG users, at the least possible cost.
“The CRM is a paradigm shift from the current Consumer Cylinder Owned Model, where LPG consumers purchase and own the cylinders, and refill the gas when necessary.
“Expectedly, CRM will eliminate the consumers’ up-front purchase of LPG cylinders which in some cases are substandard, thus replacing it with a cylinder exchange, whereby the consumer only pays for the content and not the cylinder.
“The model is inherently capable of significantly lowering the bulk cost of switching from other sources of fuel to LPG, improving the safety of recirculated cylinder, and increasing the distribution of LPG to remote locations for household usage,” KPMG said.
State-run oil firm, the Nigerian National Petroleum Corporation (NNPC) last year announced the activation of CNG refill stations for motorists across all the 36 states and the Federal Capital Territory (FCT). To drive this initiative, the DPR has commenced the audit of fuel retail outlets with the aim of segmenting them into different categories. Based on the outcome of the audit, about 9,000 retail outlets, representing 27 per cent of total number of retail outlets were listed as Category 1, and identified as suitable for integration of modular add-on gas dispensing plant based on robust safety assessment and technical considerations by DPR.
The gases intended to be dispensed include LPG, CNG and LNG, depending on the type of vehicle/mechanical device. Operators of retail outlets in Categories 2 and 3, whose facilities do not meet the minimum requirements, or do not have sufficient land area, are encouraged to apply for stand-alone LPG, CNG, LNG or Autogas facilities (full-scale or modular) under an incentivised regulatory regime.
It is expected that the integration would promote gas as a replacement fuel for automobiles and domestic usage, and in the long run, conserve the foreign exchange expended on imported fuels. In addition, gas is generally considered as a cheaper, cleaner and more-environmentally friendly alternative to petroleum motor spirit (PMS), dual purpose kerosene (DPK) and automotive gas oil (AGO). Given that most automobiles in the country are not configured to run on Autogas, the government plans to collaborate with various stakeholders on the most efficient way to reduce the cost burden of converting existing vehicles to run on Autogas.
“Nonetheless, the NGEP committee has been charged with the mandate to reinforce and expand domestic gas supply to stimulate demand through an efficient and effective mobilisation and utilisation of all available assets, resources and infrastructures in the country.
The collocation of LPG and CNG modular plants at fuel stations would increase LPG penetration and accessibility. However, the real issue would be apathy of people towards change – from PMS to LPG/Autogas and CNG as the alternative sources of transportation fuel. In addition, there are already heightened safety concerns on the adoption of LPG as domestic fuel, given our safety records as a country in general. In response, the DPR has approved the deployment of skid-mounted modularised/containerised LPG/Autogas handling systems and other intrinsically safe systems for gas storage and handling, to promote affordability, accessibility and availability of the products,” it explained.
The Federal Government, through the DPR, unveiled its plan to commercialise 96 gas flare points in a bid to generate additional revenue and expand the domestic consumption of gas. The commercialisation of the flare sites has a dual purpose of reducing gas flaring in line with the NGFCP and expand gas utilisation based on the NGEP. During the first quarter of 2020, about 200 companies had indicated interest in taking over 45 out of the 178 gas flaring sites in the country. However, investors were unable to access the flare sites due to COVID-19 curtailment measures. It is expected that the sites would be visited and allocated as soon as normalcy returns to the public health space.
As part of the DPR’s efforts to monitor and monetise flare gas, it has deployed fiscal meters to monitor gas quality and monetise the gas produced, and allocation meters to measure the utilisation of the produced gas. Any gas flared beyond an acceptable level and allowable volume attracts charges. The data collected by the meters are also harnessed to determine the financial viability of the flare sites.
While the level of flare gas has remained constant at 10 per cent for about three years, it is expected that this volume will further reduce with the commercialisation programme.
It is, therefore, important for the DPR to conclude the process of allocating the flare sites to the interested bidders, in order to jumpstart activities in this space and potentially increase the amount of gas available for domestic and industrial usage.
As part of its effort to harness finance to the critical sectors of the economy, the CBN recently announced a N250 billion intervention facility to help stimulate investment in the gas value chain in line with the objectives of the NGEP. The Intervention Facility is designed to improve access to finance for private sector investment in the domestic gas value chain; stimulate investment in the development of infrastructure to optimise the domestic gas resources for economic development; fast-track the adoption of CNG as fuel of choice for transportation and power generation, as well as LPG as the fuel of choice for domestic cooking, transportation and captive power; and fast-track the development of gas-based petrochemical ventures to support large industries, such as agriculture, textile, and related industries.
Other are provide leverage for additional private sector investment in the domestic gas market; and boost employment creation across the country.
Depending on the scale of the project, businesses can access the intervention funds either through the Power and Airlines Intervention Fund (PAIF), the Targeted Credit Facility scheme operated by the Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL) Microfinance Bank, or any other Participating Financial Institution (PFI) under the Agribusiness/Small and Medium Enterprises Investment Scheme (AgSMEIS).
Specifically, aggregators, manufacturers, processors, wholesale distributors and related activities (Category A) shall be funded under the PAIF Scheme, while the SMEs and retail distributors (Category B) shall be funded by NIRSAL Microfinance Bank (NMFB)/ PFIs under AgSMEIS.
Based on the framework, some of the eligible activities include establishment of gas processing plants and small-scale petrochemical plants, gas cylinder manufacturing plants, L-CNG regasification modular systems, auto gas conversion kits or components manufacturing plants, and CNG primary and secondary compression stations; establishment and manufacturing of LPG retail skid tanks and refilling equipment; and development/enhancement of auto gas transportation systems and conversion and distribution infrastructure. Others are enhancement of domestic cylinder production and distribution by cylinder manufacturing plants and LPG wholesale outlets; establishment/expansion of micro distribution outlets and service centres for LPG sales, domestic cylinder injection and exchange; and any other mid to downstream gas value chain related activity recommended by the MoPR.
Meanwhile, global natural gas demand is forecast to increase by 2.8 per cent this year after experiencing its largest drop on record by 2.5per cent in 2020 due to milder winter and COVID-19 lockdowns, according to a new report by the International Energy Agency (IEA).
The world’s natural gas demand fell by 100 billion cubic meters (bcm) in 2020 down to 3,910 bcm.
This was triggered by exceptionally mild weather in the early months and the onslaught of the COVID-19 pandemic, according to the IEA’s Gas Market Report, Q1 2021.
The global natural gas market continued to gain in depth and liquidity in 2020 despite shrinking demand.
“This reflects expanding volumes of liquefied natural gas (LNG) traded on the spot market and a substantial rise in volumes traded on regional gas hubs. LNG volumes traded on spot and short-term basis continued to rise in 2020,” the report said.
The US continued to be the largest source of flexible LNG with a 20% share of spot and short-term volumes, while China and India remained the world’s largest buyers of short-term and spot LNG with 20per cent and 11per cent market shares respectively.
In Europe, Turkey increased purchases of short-term and spot LNG by more than 50per cent largely at the expense of piped imports from Iran and Russia, especially during the first-half of 2020, the IEA found.
The colder temperatures through the last month of 2020 marked the start of a gas price rally amid tightening LNG supply.
Spot LNG prices in Asia more than tripled to above $30 per million Btu by the start of January 2021, with some cargoes reportedly awarded close to $40 per million Btu, breaking the record price levels in the aftermath of the Fukushima nuclear accident in 2011, according to the report.
Increasing demand due to the colder winter, lower nuclear capacity particularly in Japan, and lower gas stocks resulted in a price rally.
“However, the price spikes are not expected to last beyond the short-term cold snaps given that market fundamentals for 2021 remain fragile. Global gas demand is expected to recover its 2019 level but with uncertainties regarding the recovery trajectory of fast-growing markets compared with more mature regions,” the report said. “Sectoral demand, on the other hand, is subject to a variety of risk factors, including fuel switching, slow industrial rebound or milder weather.”
Total global gas demand in 2019 was 4,008 bcm. However, the expected gas demand recovery of 2.8 per cent, or around a 110 bcm increase this year, is a far cry from the 7.5per cent year-over-year post-2009 financial crisis rebound in 2010.
With this increase, total global gas demand is forecast to reach 4,021 bcm this year with emerging markets being the main drivers of the demand growth.
Fast growing markets in Africa, Asia, Central and South America and the Middle East are projected to account for about 70 per cent of global demand growth in 2021.
According to the IEA’s forecast, mature markets are likely to see a more gradual recovery though some may remain below their 2019 demand levels.
