CREATING OPPORTUNITIES IN THE NIGERIAN GAS TO INDUSTRY SECTOR CHARTING A WAY FORWARD SEPTEMBER 2019
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Despite having 187 TCF of gas reserves - the world’s 9 th largest - the outlook on Nigeria’s domestic gas demand remains constrained and undiversified 80.0 70.0 Gas production 60.0 expected to continue outstriping Nigeria’s 50.0 demand 40.0 bcm 30.0 Emphasis of gas demand has been on 20.0 use as a fuel 10.0 0.0 2005 2010 2015 2020 2025 2030 2035 Generation Other Losses and Gains Industry & Non-Energy Use Transport Residential/Commercial Production Source: Historical Data: IEA; Forecast: Wood Mackenzie Energy Markets Service 3
Even when assuming energy self sufficiency, there remains significant headroom to leverage gas as a core driver of Nigeria’s domestic industrialization 2019 (i.e. Today) Scenario – Assuming Electric Power Generation rises to 15,000MW ~7.5 bcfd** ~7.5 bcfd (Nigeria current (Nigeria current • 12,522 MW gas production) gas production) Others: • Installed Capacity Exports (LNG), Thermal: 81% Industries, Re- ~1.8 bcfd to Hydro: 19% injection, Flares Electricity etc generation • ~3,500 MW approx ~0.6bcfd to • Actual Generated \ Distributed Electricity generation ~3,500MW 15,000MW* (2019) Main channels- Nigeria exports ~35% of gas as LNG, Re-injection\Gas Lift ~30%, Flaring ~10%, Gas use as upstream fuels 5%, Piped gas to West African Subregion 1%, and Others ** 4 *Assumes: 80% of national Electricity generation is from gas fired plants; 150MMscfd per 1,000MW conversion ratio; Gas supply levels remains flat; 15,000 MW generated and evacuated ** Source: DPR and NNPC Statistics Bulletin
Benchmarking Nigeria and Saudi Arabia shows significant room to create value by expanding gas use for Petrochemicals & Fertilizers Saudi Arabia – 4TCF Annual Gas Production Nigeria – 3TCF Annual Gas Production Petrochemicals & Fertilizer Electric Power 2% Others 8% 15% Flare 10% Gas Reinjection\Gas Lift 30% Gas Exports (LNG) 35% Gas Production- 11 bcfd Gas Production- 7.5 bcfd Gas Reserves – 288 TCF Gas Reserves – 187 TCF Source: Team Research; Saudi Natural Gas & Vision 2020; DPR and 5 NNPC Statistical Bulletin
Global Development Partners are uniquely positioned to help Nigeria leverage this endowment for accelerated economic diversification, and to achieve climate\emissions benefits (B) Light Industry (A) Domestic Heavy Industry (C) Transport (i.e Consumer) (as feedstock) 1. CNG Vehicles 1. Eleme Indorama Complex (Petrochemicals 1. LPG supply to consumers a) Little to no domestic track and Fertilizer) a) One primary domestic record 2. Notore Chemicals (Fertilizer) supplier (NLNG) Areas of new b) ? 3. Dangote (Fertilizer) b) 5 Coastal Storage Facilities 4. Chevron EGTL (Gas to Liquids) opportunity c) >1,000 inland distributors 5. ? d) ? 1. Nigeria LNG 1. Installed Capacity, 12,000 MW of gas fired plants a) 6 trains in operations 2. ELPS\ WAGP Domestic Supply b) Train 7 under consideration 3. Trans Nigeria Gas Pipeline (TNGP) 6
(A) Gas to Heavy Industry – As seen in other gas rich countries, the chemicals sector needs to become a core part of Nigeria’s industrial agenda, and a major foreign exchange earner i.e. Petrochemicals, Urea Fertilizer, Methanol, Ammonia etc S/n Country Oil Reserves Gas Reserves Exports of Crude Exports of Chemicals and Installed Capacity of Oil in 2017 Derivative Products in Petrochemicals and (Value) 2017 Fertilizer A concerted effort (Value) (Tonnage) to diversify from crude oil exports 1 Venezuela 297 bn bbls 195 tcf US$ 22.0bn US$ 0.8bn N.A 2 267bn bbls 288 tcf US$ 110.0bn US$ 38.5bn 96.0m tpa Saudi Arabia 3 154 bn bbls 1,187 tcf US$ 38.5bn US$ 5.9bn 60.0m tpa Iran On track to increase Petrochemicals 4 141 bn bbls 112 tcf US$ 57.5bn Nil N.A Iraq capacity at least 2.5x over next 10 years 5 104 bn bbls 64 tcf US$ 31.5bn US$ 4.5 bn 8.8m tpa Kuwait 6 98 bn bbls 215 tcf US$ 40.0bn US$ 10.0 bn 13.6m tpa UAE 7 80 bn bbls 1,688 tcf US$ 97.0bn US$ 20.0 bn 40.0m tpa Russia 8 48 bn bbls 55 tcf US$ 16.0bn Nil N.A Libya 9 Nigeria 37 bn bbls 187 tcf US$ 35.0bn US$ 0.2 bn ~5.0m tpa (current and upcoming) * Other noteworthy examples include efforts in Qatar, Trinidad & Tobago, and Brazil 7
(A) Gas to Heavy Industry (Contd) – Untapped possibilities in Nigeria The Petrochemicals Map 8 Source: www. Petrochemistry.eu
(A) Gas to Heavy Industry (Contd) – Gas producers also seeking credible and commercially viable channels to monetize reserves i.e. Petrochemicals, Urea Fertilizer, Methanol, Ammonia etc Gas % of Structure Producer national gas prod Shell 25% JV, PSC Exxon 24% JV, PSC Chevron 16% JV, PSC ENI 16% JV, PSC Total 10% JV, PSC ND 4% JV Western\ NDPC Others 21% Independents and Marginal Field Producers Gas production levels may not necessarily reflect the reserves of each company Image Source: Petroleum Economist 9
(A) Gas to Heavy Industry (Contd) – A vision for Nigeria could be to quadruple its Petrochemicals capacity by 2029 ~ 20-25 MTPA Implications (early assessment) i.e. Petrochemicals, Urea Fertilizer, Methanol, Ammonia etc Gas Needs ? 2 – 3 bscfd Expectations from gas suppliers? # of Projects Completion of 15 to 20 heavy chemicals plants (1MTPA each) How would Chemicals companies reach financial close \ accelerate project execution? Chemicals Clusters At least 5 (or more) Chemicals clusters could emerge Investments required 5 Mtpa US$25bn-US$35 bn More needed? Industry Turnover Over US$2bn p.a additional earnings to gas suppliers (depending on gas pricing) Over US$15bn p.a grows earnings to Chemicals Companies 2019 2029 (?) 10
(A) Gas to Heavy Industry (Contd) – What have others done ? i.e. Petrochemicals, Urea Fertilizer, Methanol, Ammonia etc Gas Pricing ? Large creditworthy gas (additional thoughts from Offtakers Industry Stakeholders) Investor Political Risk Specialization Chemical Plants Clusters Domestic Capital Shared gas gathering & Product evacuation Strong Anchor Standardized Chemicals infrastructure gas contracting Projects (Pipelines and Jetties) framework Note: Bubble size indicates 11 * Source: A synthesis from prior discussions, meetings, and research relative importance
(B) Gas to Light Industry\Consumers – Nigeria is a high priority LPG market i.e. Liquefied Petroleum Gas #People without access to clean fuels Liquified Petroleum Gas (LPG) is an alternative fuel for cooking in India 705 households but has been in limited use due to a regulatory framework not China 612 conducive to increase market penetration – only middle and upper income Bangladesh 135 households participate Indonesia 131 Nigeria 118 There have been series of engagements with the LPG Association in Pakistan 111 Nigeria, revealing major constraints to establishing LPG as the primary Ethiopia 81 cooking fuel, to substitute kerosene and firewood in most homes in Nigeria DRC 61 A specific gap is the insufficiency of cylinders in the market, to lower Vietnam 49 switching costs for consumers. Phillipines 46 Myanmar 44 Benefits of an intervention in LPG include: Tanzania 42 Sudan 35 (i) boosting Nigeria’s economy Kenya 33 (ii) reducing negative health impacts of cooking with dirt fuels, Uganda 32 Afghanistan 27 (iii) protecting the environment, and Nepal 25 (iv) accelerated growth in LPG industry turnover South Korea 22 Mozambique 22 Ghana 20 0 100 200 300 400 500 600 700 800 Source: World LPG Association 12
(B) Gas to Light Industry\Consumers (Contd) – Opportunities to drastically cut CO2 emissions by growing the use of LPG in homes i.e. Liquefied Petroleum Gas Nigeria can eliminate ~15million Each year, approximately 43m tons of Household Fuel use in Nigeria, heavily tons of CO2 emissions over 10 CO2 emissions from Nigeria’s dependent on high CO2 emissions sources years, by doubling LPG usage household fuels Saw dust Electricity Equivalent to keeping 300,000 cars off 2% 4% Charcoal the road each year x3 6% LPG 1.8m tons 5% Nigeria Household Fuel Annual CO2 Emissions x2 (in tons) Firewood 37,208,640 1.2m tons LPG 1,793,400 Today Saw Dust 1,661,100 600k tons Kerosene 992,250 Firewood Electricity 980,000 56% Kerosene Charcoal 705,600 27% 43,340,990 Source: World LPG Association Source: The Engineering Toolbox; Team Estimates 1.5m tons CO2 savings Implications- Per Year 3m tons - High CO2 emissions CO2 savings Per Year - High rates of deforestation - Health hazards especially in poorer households Note: Calculation assumes LPG displaced use of Firewood and Sawdust 13
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