A number of indigenous firms such as SEPLAT, Oando, Seven Energy and Dangote Industries Limited are priming to invest in the Nigeria’s hugely untapped gas sector as divestments by International Oil Companies (IOCs) spur opportunities.
The firms are hoping to succeed in a sector where the Nigerian government has so far proved to be a spectacular failure.
“Shell, Total and Agip divested from Nigerian assets worth $6.5 billion in 2013,” said Victor Eromosele, formerly on the financing team of Nigeria LNG, and CEO of ME Consulting Limited. “Indigenous players were the major beneficiaries and are set to gain from such IOC divestments in the future.”
SEPLAT Petroleum Development Corporation, an indigenous oil and gas firm, which acquired assets (OML 4, 38 and 41) from Shell onshore divestments in Nigeria, says it aims to take advantage of improving market conditions to monetise its existing gas reserves.
The company currently has natural gas reserves of 768 bcf of gas (2P and 2C), which it says provides a platform for significant potential growth.
“SEPLAT signed two gas supply agreements, under which it agreed to supply the Geregu and Sapele power plants with approximately 130 MMscfd at a price of $1.40/Mscf, which is scheduled to increase to $2.00/Mscf during 2014,” the company said in a statement announcing its intention to float its shares on the Nigerian Stock Exchange (NSE) and London Stock Exchange (LSE).
“To date, the company has initialed two gas sales agreements with commercial off-takers, Azura Power and Southfield Petroleum, at a minimum unit price of $3.00/Mscf and is in advanced discussions with a number of other potential commercial off-takers,” it added.
The company’s total gas production was 16.3 bcf for the year ended December 31, 2013, equivalent to an average daily production of 45 MMscfd.
Nigeria has the world’s ninth-largest proven gas reserves, at 188 trillion cubic feet, and potential gas reserves of 600 trillion cubic feet (TCF). However, much of it is flared.
At least $3 billion in revenue is lost annually due to flaring, according to the Petroleum Ministry, while lack of gas for power plants stunted Nigeria’s double-digit growth potential.
President Goodluck Jonathan formally launched Nigeria’s ambitious gas master plan with much fanfare in March 2011, designed to end gas flaring in the country.
Global oil and gas capital expenditure (capex) is estimated to have exceeded $1 trillion in 2013. However, much of the money flowed away from Nigeria, whose aspirations to produce 3-4 billion cubic feet (BCF) of gas a day by 2015 is expected to require significant infrastructure spend of $30 billion.
The prospects of building more gas infrastructure – pipelines, gathering plants – has been stymied by government’s control of the gas pricing environment, which made investors less willing to participate in the sector in the past.
“The regulated domestic gas price is too low to spur real investment in gas gathering and transportation,” said an analyst at an Africa-focused infrastructure fund. “Gas transportation requires major investments to acquire rights of way over long distances, install pipes, and build processing plants. It can take years and only the truly hardy will take such risks.”
The increasing gas demand from thermal plants and industrial users and improving pricing dynamics have, however, led to companies showing greater interest in the sector.
DIL, controlled by Africa’s richest man Aliko Dangote, recently submitted the highest bid for Shell’s stake in Oil Mining Lease (OML) 18, according Forbes online, quoting a recent report by Africa Intelligence. The Alakiri Creek plant on the OML 18 field processes 80 million standard cubic feet per day, but has the potential to rise to 120 mmsf/d.
Oando, another indigenous oil firm, is investing to extend its gas pipelines to Lagos Island and the ongoing Eko Atlantic City.
Oando, which is purchasing ConocoPhillips’ assets with significant gas reserves, has 100km of gas pipelines laid in Lagos and another 128km in Eastern Nigeria.
PATRICK ATUANYA
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