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Power in Nigeria: ‘The Decade of Gas’

The world’s population is exploding – literally. The world’s population is estimated to reach 9.8 billion in 2050, and this increase is expected to be accompanied by a commensurate increase in energy demand. Nigeria is not left out of this unfolding dilemma as its population is expected to have more than doubled in the same period.

While Nigeria is rich in energy sources, it ranks low on the reliable electricity access index. The drive for energy from renewable sources in Nigeria has surfaced in the energy mix. However, as many argue, it will take more than one source (technology) – solar, for instance – to electrify and increase energy access. It will require much more for Nigeria to meet continuously increasing energy demand.

Nigeria’s power generation is predominantly thermal (gas-powered). Most of Nigeria’s gas is sourced as associated gas (AG) from oil-well exploration. However, non-associated gas reserves are abundant in the inland basin and Niger Delta basin. Nigeria gas reserves, now at 203.16 trillion cubic feet, are the ninth-largest in the world. This current reserve can last 92 years and dramatically increase economic growth through an upsurge in power generation for Nigeria’s electricity customers.

National on-grid electricity generation remains at an all-time low. Generating Companies, on average, dispatch 4,000 megawatts (MW) of their installed capacity leaving the market in severe debt. Worse still, global supply for AG is expected to decline by over 4% following the disruptive oil clash post-COVID 19 pandemic. Thus, Nigeria gas-to-power potential, relying on AG, will indefinitely have to equate the several bottlenecks along the gas supply value chain for domestic projects or match up with the exploration of NAG. That would define the futuristic limits or, in fact, the decade of gas.

There has been little attention to expanding on the gas sector’s value-adding capacity in recent years. However, recent and critical domestic projects like the East-West and Abuja-Kaduna-Kano (AKK) gas pipelines; and NLNG Train 7 are expected to improve commercial activity in Nigeria’s gas sector within the coming decade. The Federal Government primarily funds the existing projects, but observers have remarked ‘slow momentum’.

Nigeria’s readiness to integrate its abundance of gas would largely depend on investment, enabling environment, and pricing. The delving question therein: Is Nigeria ready for gas?

Gas to Power
Gas-to-Power is best described as the process of using gas to generate electricity. Gas currently dominates Nigeria’s electricity generation mix. The electricity Regulator confirmed that 8.15 kilowatt-hours (kWh) of every 10kWh of electric energy generated in Nigeria in the second quarter of 2020 came from gas.

Read also: Nigeria’s solar wealth can solve its gas-related power shortages

Several factors contribute to ‘Gas-to-Power’ as a viable and attractive commercial plan for energy access and global energy transition. These factors include political weighing of global energy mix towards cleaner, sustainable energy; the national deregulation of existing domestic gas markets and security of gas supply. An integrated gas-to-power project involves multiple players and components – investors, plant configuration, storage, off-takers, revenue and debt etc.

However, much like any industry, constraints exist. In the Nigerian gas-to-power network, the need to established creditworthy off-takers is paramount. Nigeria is currently experiencing a service reflective electricity tariff regime that does not allow full cost recovery down the Nigerian electricity value chain. This situation leads to notoriously large payment gaps due to poor customer payment collection, the inability of DisCos to make payments as off-takers and so on. A cost relative tariff regime should be deliberated to establish gas-to-Power for the electricity network.

At the crux of it all, the high capital expenditure necessary for gas infrastructure affects government, investors, and complementary assets need, for example, gas storage and transportation. NERC’s second-quarter report 2020 reflects that reduction of 37.14% of available capacity was attributed to constraints with gas supply shortage, transmission, and distribution off-take network bottlenecks.

A challenge: International prohibition on funding for gas-fuelled Power for climate mitigation
Several countries like the United Kingdom are placing prohibitions on powering Africa through gas. The reasoning being that although gas is a cleaner energy source, it will increase CO2 emissions. However, the Energy for Growth Hub reports that if every Sub-Saharan African country tripled its electricity consumption overnight with just natural gas, the world’s total global emissions would only be affected by 1 percent . On the side, it is essential to observe that climate resilience requires more energy, not less. Therefore, for the determined gas investment to be successful, the Nigerian government needs to create feasible projections that accommodate more local investment capacity over Foreign Direct Investments, considering international restrictions attempting to overshadow the gas awakening in Nigeria.

National Gas Expansion Programme (NGEP)

Across Nigeria’s extractive sector, poor private investments have resulted in low domestic, commercial, and gas utilisation viability. However, in 2018, gas had a remarkable year with a 4.6 percent increase in consumption following its economic diversification from oil. The NGEP was introduced in 2020 to harness Nigeria’s gas resources and its outlook potential further.

The mandate of NGEP is to create a framework for Nigeria that recognises Compressed Natural Gas (CNG) and Liquified Petroleum Gas (LPG) as an alternative fuel, as a low carbon emission source of energy. To support related investments, the Central Bank of Nigeria, in collaboration with the Ministry of Petroleum Resources (MPR), introduced a 250 billion naira intervention facility with an interest rate of 5 and 9 percent per annum until February and March 2021, respectively. This initiative was introduced as a way to narrow the investment gap in the sector.

Through the NGEP, the Central Bank provides a package to improve access to finance for private investment in the gas value chain, which in the long–term, aids gas infrastructure and the optimisation of domestic gas resources for economic development. This inevitably includes adopting LPG as an alternative fuel for transportation and power generation. Following aggressive investments, the Federal Government anticipates the output from gas to increase by 30 percent in the next two years, with daily production above 8.2 billion standard cubic feet per day (bscf/d).

The flagship project, among others, is the AKK gas pipeline. The 614km gas pipeline project is scheduled for completion in 2023. It is expected to transport about 2.2 bscf/d and provide an additional 3,600MW to the National electricity grid. The project is developed by Nigerian National Petroleum Corporation (NNPC), with ongoing investments from relevant private participation in infrastructure investments (PPIs)

The AKK pipeline is expected to relieve some of the bottlenecks that the gas supply chain currently faces. For example, it will supply gas to operate an additional 1,500MW from Azura-Edo Independent Power Project to complement the current 461MW Open Cycle Gas turbine power station .

Closing the Energy Access Gap with Gas
For Nigeria, taking on a Gas revolutionisation allows the nation to explore another one of its rich resources. Expanding on the current pipeline infrastructure will mean an increase in gas-to-Power for electricity, leading to more households and industries closing the impending energy access gap. With more gas projects like the AKK gas pipeline and expanded domestic markets that allow for increased exports, Nigeria can prepare for economic stabilisation and increased electricity supply.

Nigeria cannot afford to experience a wasted opportunity due to failure to enrich electricity through gas by value-added qualities. To improve energy access through gas, variants along the electricity supply chain must cover the costs.

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