natural gas: nigeria's next big thing - thedaily€¦ · dr. wisdom patrick enang...

Dr. Wisdom Patrick Enang

+2348173555667, [email protected]

Natural Gas: Nigeria's Next Big Thing

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.

• NLNG train 7 will expand Nigeria’s capacity to 30 Mt/y, and Nigeria will become the 3rd largest LNG exporter in the world.

S-RM Intelligence and Risk Consulting (2019): Opportunities and challenges in Africa’s Oil and Gas sector.

NIGERIAN NATURAL GAS PATHWAY WITH FLARING

UtilityResource Viable transportation

Natural Gas

Flare Gas

Domestic Gas Consumption

Gas Exportation LNG

CNG

Pipeline

End User

Gas Flare* CNG in

Nigeria has relatively

lower investments compared to

LNG

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.

FLARING STATISTICS

178 Flare sites

Gas flaring

THE HEALTH AND ENVIRONMENTAL COST OF FLARING

Rusted roof due to Acid Rain

Pollution

CO2, CO, SO2, NOx, VOCs, PM

Toxic greenhouse gases

Gas flaring

Gas flaring THE OPPORTUNITY COST OF FLARING

UtilityResource Viable transportation

NIGERIAN NATURAL GAS PATHWAY WITHOUT FLARING

* CNG in Nigeria has relatively

lower investments compared to

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).


Natural GasGas Exportation LNG

CNG

Pipeline

End User

• 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.

• 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.

• 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.

THE NIGERIAN ROAD TO BEING FLARE FREE

Regulatory Approach


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).


❖ 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 Production operations.

❖ Reduce routine gas flaring by the end of 2020

Objectives of the NGFCP

Host Community Benefits

❖ Products at concessional prices.

❖ Procurement of goods and services from the host communities.

❖ Setup of social infrastructure for the host communities.

Investment Value and Returns

Estimated Annual Revenue : ~ $1 billion

Knowledge Bank:

❖ The NGFCP is the first global market driven program of this size.

Cost Components

LNG CNG

CNG LNG

Physical state Gas Liquid

Temperature in tank

Ambient -162oC

Typical pressures in tank (bar)

200 - 250 5 – 8

Density 175 kg/m3 at 200 bar

435kg/m3

Capacity (million m3)

1.4 - 22 100 – 250

Reach (km) 2000 –5500

6000 –12,000

Upstream infrastructure cost

Low Very large

Downstream infrastructure cost

Low Very large

Number of potential export sites

Large Low

GAS TRANSPORTATION OPTIONS

NATURAL GAS VALUE CHAIN

Gas ExportationDomestic Gas Consumption

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

Gas Exportation

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).

THE FUTURE OF LNG PRODUCTIONGas Exportation

• 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.

ACHIEVING SUSTAINABLE LNG GROWTH IN NIGERIA

• 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.

DIVERSE DRIVERS TO LNG DEMANDGas Exportation

NIGERIA’S POWER GENERATION EFFICIENCY

Source: Nigeria Power Baseline Report (2015)

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.


GAS MONETISATION OPTIONS IN NIGERIA

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

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.

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

S/N Gas PipelineGas Capacity (MMscf/d)

Status

1Obiafu-Obrikom-Oben (OB3) Gas Pipeline

• Domestic2,000 Almost completed

2Escravos Lagos Pipeline System (ELPS) II Pipeline

• Domestic & Export1,100 Almost completed

3

Trans-Nigeria Gas Pipeline (TNGP)

• Ajaokuta-Abuja-Kaduna-Kano (AKK) 1,600 FID (late 2019)

• 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

7

Escravos Lagos Pipeline System (ELPS) I Pipeline

• Domestic & Export (Operational in 1989 (supplies natural gas from Escravos to Egbin power station)

800 Operational (1989)

8

West African Gas Pipeline (WAGP, 681KM, $900m)

• Export (Operational in 2007 (supplies has from Escravosto consumers in Benin Republic, Ghana and Togo)

170 Operational (2007)

Government’s resolve to address gas deliverability concern: Some Key Operational / Ongoing / Planned Pipeline facilities

Government’s resolve to address gas deliverability concern:


Competitive fiscal terms for gas exploitation:

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.

Barry Rogers (Rogers Oil and Gas Consulting October 30th, 2012): Fiscal Systems Comparison (World Fiscal Systems for Oil and Gas)


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 Exploitation (Upstream Operations)

• All investments necessary to separate oil from gas from the reserves into suitable products is considered part of the oil field development;

• Capital investment facilities to deliver associated gas in usable form at utilisation or transfer 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 Utilisation (Downstream Operations)

• An initial tax free period of three years renewable for an additional two years;

• 15% investment capital allowance which shall not reduce the value of the asset;

• All fiscal incentives under the gas utilisation down-stream operations in 1997 are to be 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.

Favourable fiscal incentives for LNG projects, gas exploitation and utilisation:


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.

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).

Continued Investor confidence in the Nigerian Gas Sector


Solving the

Operator’s Dilemma

A ROAD MAP TO THE DEVELOPMENT OF A SUSTAINABLE NATIONAL GAS INITIATIVE

Challenges Potential Solutions

Gas availability, supply and storage

❖ 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 resources, which are otherwise left “stranded” or “flared”.

❖ Development of gas pipeline transmission systems and gas compressor stations to 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.

Of an onsite gas compression facility

natural gas: nigeria's next big thing - thedaily€¦ · dr. wisdom patrick enang...

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