Three years after the Federal Government launched a programme to harness the country’s gas resources, key projects marked for execution under it have been ignored, indicating it may have amounted to nothing more than sloganeering, BusinessDay analysis shows.
Nigeria’s ‘Decade of Gas’ is a government-led initiative aimed at harnessing the country’s vast gas reserves to drive economic growth and development. It was launched on March 29, 2021 by President Muhammadu Buhari in Abuja. Under the plan, Nigeria will, in collaboration with other stakeholders, ramp up gas use in the decade from 2020 to 2030.
The ‘Decade of Gas’ initiative is built on the premise that gas is a key driver of economic growth and development. Nigeria has nearly 209 trillion cubic feet of natural gas reserve, which ranks as the ninth largest in the world, but harnesses only about 8 billion standard cubic feet per day (bscf) of gas, and most of it is sent to the export market.
The $20 billion dollar initiative is centered on four key pillars: increasing domestic gas utilisation, expanding gas infrastructure, growing gas exports, and attracting foreign direct investment into the gas sector.
To achieve these goals, the government outlined a number of policy measures, including the implementation of a new gas pricing regime to encourage investment in the sector, the development of new gas infrastructure, and the promotion of gas-based industries such as fertiliser production, power generation, and petrochemicals.
Following the declaration by Buhari, a ministerial committee at the highest organs of government, which includes the ministries of petroleum resources and finance, regulatory agencies, industry operators, and the Nigerian National Petroleum Company, was formed. Eventually, a steering committee was instituted and a consultant was hired to draft an action plan that will deliver a decade of gas.
BusinessDay has obtained the government action plan, which contains carefully calibrated plans including timelines and expected outcomes if the Nigerian government leads efforts to deepen gas usage.
From the project timeline, the most important deliverables over the first six months after launch are to reach a firm commitment on settling debts to gas producers and initiate and progress discussions on the 10 key gas projects, slated for completion by August 2022. But they are yet to begin.
With only a month to the swearing-in of a new government, the best-laid plans run the risk of ending on a dust pile in a creaking government ministry office.
“The key promoters who launched this are on their way out. We will have a new administration, but we cannot afford a disruption in the plan. And so the biggest challenge that we have is to ensure that this plan remains on track and is also implemented as planned,” said Phillip Mshelbila, managing director/chief executive officer of Nigeria LNG Limited (NLNG).
Ambitious plan
According to the plan, between 2020 and 2030, gas demand is expected to grow at a compound annual growth rate of 16.6 percent annually, driven by major projects such as NLNG Train 7 in the base case, Nigeria/Morocco pipeline, NLNG Train 8, and AKK pipeline-related projects in the high case.
Other projects from which the Decade of Gas was meant to be achieved include Brass Fertiliser and all under-construction power plants. Gas supply for the Decade of Gas would derive from specific onshore non-associated gas (NAG) and shallow water associated gas/NAG development projects.
These were meant to spur the development of other critical projects like the Obiafu-Obrikom-Oben Gas Pipeline designed to transport gas from the Obiafu-Obrikom gas plant in Rivers State to the Oben gas plant in Edo State, and the Escravos Lagos Pipeline System Phase II, an expansion project for the existing Escravos Lagos Pipeline System that transports gas from the western Niger Delta to Lagos and other cities in the South-West.
Projects already slated for development like the Assa North-Ohaji South Gas Development Project, which will see the development of gas fields in the Assa North and Ohaji South areas of Imo State and Central Processing Facilities (CPF) in Oil Mining Leases (OMLs) 58, 61, 62, 63, which will develop CPFs in four OMLs in the Niger Delta to help process associated gas produced along with crude oil.
It will revive the Nigerian Gas Flare Commercialisation Programme, an initiative aimed at eliminating gas flaring in Nigeria by monetising flared gas through various projects, such as gas-to-power, gas-to-industry, and gas-to-people. It would drive compressed natural gas (CNG) and mini-liquefied natural gas projects across the country.
According to the plan, by the end of 2030, natural gas production is projected to increase from 8.0bcfd in 2020 to 12.2bcfd. The bulk of this production, about 58 percent, is expected to come from NAG reserves, driven by onshore developments such as ANOH, Ubeta, and offshore developments to meet demand from Train 7.
For this to happen, infrastructure projects including pipelines must be delivered on time, the country would transit to market-based gas pricing, settle historical debt to power plants, and incentivise fiscal and commercial terms for offshore NAG developments.
Some critical midstream and downstream infrastructure development include the expansion of the existing transmission lines as they are insufficient to meet projected 2030 demand. So $9 billion investments in priority pipeline infrastructure are required with about $1.5 billion to be funded by the government.
Private sector investment would be unlocked by a transition to market-led prices (gas sales, transmission costs to guarantee private investors on investment). The network code would be expanded to govern private pipelines.
The plan also involves creating gas processing facilities which will require about $6 billion investment in new priority gas processing infrastructure. A tolling framework for third-party access to the processing facility is required to enable commercial agreements. Then onshore processing facilities including regasification terminals would be built for onshore gas destined for the domestic market. It also called for investments in distribution, pipeline, and liquefied petroleum gas (LPG) facilities.
To meet the potential short of 0.95bcfd distribution capacity compared with high case supply by 2030, the plan requires a $1.5 billion investment estimated for distribution – $0.9 billion estimated for LPG, $2.6 billion estimated for CNG, through long-term loans at the single digit interest rate for up to 20 years.
Direct government intervention funds would be targeted at historically underserved locations, while incentivising private sector investments in major demand centers.
The guiding economic principles for the Decade of Gas begin with cost-reflective tariffs across all segments of the gas value chain to enable participants to earn a normal rate of return while stimulating sector growth. Next is a transparent and market-led gas pricing framework and balancing the needs of vulnerable end users.
“We are now at a stage where power tariffs are almost at cost-reflective tariff on the retail end; this needs to be achieved at the wholesale end too, between the off-takers and the power developers,” Oti Ikomi, CEO of Proton Energy, told BusinessDay.
The comprehensive plan identified three key interventions to help secure Nigeria’s Decade of Gas. This includes improving investor confidence by eliminating historical debt to gas producers from the power sector estimated at $900 million and straightening mechanisms to improve power sector liquidity.
Another measure is to guarantee investors attractive returns through cost-reflective pricing across the gas value chains and enable investments by supporting key infrastructure by government contributing equity or debt to key gas infrastructure projects as well as guarantees to private investors.
Benefits
The government’s gas development blueprint called for urgent action to prevent adverse outcomes. “Without urgent action, there could be a potential gas supply shortfall of at least 3 bcfd by 2030,” it warned.
This will exacerbate domestic gas shortage as six power plants built under the National Integrated Power Project (NIPP) are currently constrained by gas and by the end of the decade are likely to see constraints across all NIPP plants, leading to shutdowns across multiple power plants. This will impact the ability of the NLNG to meet supply obligations.
The sector would be unattractive for investments as the entire gas value chain is at risk of default. Nigeria will miss out on the critical European gas market and suffer a decline in domestic gas demand that would lead to shutdowns of gas-fired power generation, which will hobble GDP growth and reduce foreign direct investment.
However, the benefits are immense if the opportunities are harnessed. It called for about $5 billion investment from the federal government till 2026 and several policy changes including market-based gas pricing, settling legacy debts, and providing guarantees to private investors.
The delivery of the key Decade of Gas projects could supply an additional 300mmscf/d to the domestic power sector by 2026. This will increase available on-grid electricity distribution by 30 percent.
Eliminating gas constraints to available capacity could lead to a cumulative impact on GDP over the power sector by $4.7 billion, the commercial sector by $5 billion, gas-based industries by $4.4 billion, and growth in exports by $5.3 billion.
Unlocking the 3.1bcf/d, which is the plan’s goal, would attract about $14 billion in foreign direct investments, create over 2 million new jobs across the gas value chains and add $12 billion to the federal government’s revenue from gas royalties and taxes.
