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+2348173555667, wisdom_enang@yahoo.co.uk
Natural Gas: Nigeria's Next Big Thing
NIGERIA INTERNATIONAL PETROLEUM SUMMIT, February 9 – 12, Abuja Nigeria
SLIDE 2 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.
SLIDE 3 NIGERIAN NATURAL GAS PATHWAY WITH FLARING
Utility Resource 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.
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.
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FLARING STATISTICS
178 Flare sites es
Gas flaring
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THE HEALTH AND ENVIRONMENTAL COST OF FLARING
Rust usted roof roof du due to to Ac Acid Rain in
Pollution
CO2, CO, SO2, NOx, VOCs, PM
Toxic greenhouse gases
Gas flaring
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Gas flaring THE OPPORTUNITY COST OF FLARING
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Utility Resource 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).
Domestic Gas Consumption Natural Gas Gas Exportation LNG CNG Pipeline End User
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- 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
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THE NIGERIAN ROAD TO BEING FLARE FREE 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).
SLIDE 10 THE NIGERIAN ROAD TO BEING FLARE FREE
❖ 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
Knowl
edge Bank: nk: ❖ The NGFCP is the first global market driven program of this size.
SLIDE 11 Cost Components LNG CNG
CNG LNG Physical state Gas Liquid Temperature in tank Ambient
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
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NATURAL GAS VALUE CHAIN Gas Exportation Domestic Gas Consumption
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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).
SLIDE 14 THE FUTURE OF LNG PRODUCTION Gas 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.
SLIDE 15 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 DEMAND Gas Exportation
SLIDE 16 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.
Domestic Gas Consumption
SLIDE 17 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
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.
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INVESTMENT OPPORTUNITIES IN THE NIGERIAN OIL AND GAS SECTOR
Ministry of State and Petroleum Resources (2018): Investing in Extractives (Oil & Gas)
SLIDE 19 WHY INVEST IN NIGERIAN NATURAL GAS
S/N Gas Pipeline Gas Capacity (MMscf/d) Status 1 Obiafu-Obrikom-Oben (OB3) Gas Pipeline
2,000 Almost completed 2 Escravos Lagos Pipeline System (ELPS) II Pipeline
1,100 Almost completed 3 Trans-Nigeria Gas Pipeline (TNGP)
- Ajaokuta-Abuja-Kaduna-Kano (AKK)
1,600 FID (late 2019)
- Obigbo-Umuahia-Ajaokuta (OUA)
1,200
1,200
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 Escravos
to 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
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Government’s resolve to address gas deliverability concern:
WHY INVEST IN NIGERIAN NATURAL GAS
SLIDE 21 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%
- ffshore.
Barry Rogers (Rogers Oil and Gas Consulting October 30th, 2012): Fiscal Systems Comparison (World Fiscal Systems for Oil and Gas)
WHY INVEST IN NIGERIAN NATURAL GAS
SLIDE 22 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
- btained 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:
WHY INVEST IN NIGERIAN NATURAL GAS
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Good ratings from industry experts: Fitch Solutions (2019), Q4 2019, Oil and Gas Report (Upstream)
WHY INVEST IN NIGERIAN NATURAL GAS
The Nigerian Petroleum Industry Bill holds the potential to unlock a new wave of investment.
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Good ratings from industry experts: Fitch Solutions (2019), Q4 2019, Oil and Gas Report (Downstream)
WHY INVEST IN NIGERIAN NATURAL GAS
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).
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Continued Investor confidence in the Nigerian Gas Sector
WHY INVEST IN NIGERIAN NATURAL GAS
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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
