Nigeria kicks off year of gas with two big projects

In January this year, the Federal Government declared 2020 as the year of gas. Halfway into the year, with one gas project completed and another launched, Africa’s biggest oil producer seems to be waking up the reality that gas is the future.

On June 28, Shell Nigeria Gas (SNG) announced that it has completed the final phase of its 20km domestic gas pipeline expansion project in Abia State, connecting three industrial zones in Aba.

The 20km Shell pipeline connects Ogbor Hill, Osisioma, and Araria industrial zones and supplies gas to Ariaria Market Energy Solutions, an independent power project(IPP) consortium, delivering electricity to Ariaria International Market, one of West Africa’s largest markets.

Mansur Ahmed, president of the Manufacturers Association of Nigeria (MAN), said industries and manufacturing plants play a key role in transforming the Nigerian economy and this project would connect many manufacturers in Abia State, one of the nation’s major industrial hubs, to pipeline gas, which is a cheaper, cleaner and more reliable source of energy.

According to Ahmed, the gas supply to the Ariaria Market IPP would strengthen micro, small and medium enterprises in the Abia State and enhance the operating environment for manufacturing to thrive.

Two days later, President Muhammadu Buhari performed the flag-off of the construction of the 40-inch x 614km Ajaokuta-Kaduna-Kano (AKK) Gas Pipeline project, a section of the Trans-Nigeria Gas Pipeline (TNGP) with capacity to transport about 2.2 billion cubic feet of gas per day, expected to be completed in 24 months.

The Ajaokuta-Kaduna-Kano (AKK) gas pipeline project is planned to be financed through 85 percent debt and 15 percent equity with loan facility from the China Export & Credit Insurance Corporation (Sinosure) at London Interbank Offered Rate (LIBOR) interest rate plus 3.7 percent with a 12-year repayment period, while NNPC will cover the remaining 15 percent of the project’s cost.

“We have done an extensive review of this project and we are satisfied that the cash flows from the Ajaokuta-Kaduna-Kano gas pipeline will be sufficient to repay the facility,” Nigeria’s finance minister, Zainab Ahmed, told Reuters in March.

According to the Federal Government, the economic benefits of the AKK pipeline which would originate from Ajaokuta in Kogi State and traverse Abuja (FCT), Niger, Kaduna and terminate at Kano, would boost domestic utilisation of natural gas for Nigeria’s social economic development, when completed.

It would also unlock 2.2 billion cubic feet of gas to the domestic market, support the addition of 3,600 megawatts of power to the national grid and revitalise textile industries which alone boast of over 3 million jobs in parts of the country.

“When completed, the 614km pipeline will be Nigeria’s biggest domestic gas transmission infrastructure,” said a release from the presidency.

However, Nigerians have expressed a mixture of admiration and concern for the projects, especially the AKK pipeline project. The 614km AKK pipeline is part of the Trans-Nigeria Gas Pipeline which will ultimately pipe Nigeria’s gas into Europe but its route includes insecure terrains susceptible to attacks by insurgents.

While the objectives of the TNGP sound laudable, analysts say the Nigerian economy would benefit even more from government incentives targeting local gas utilisation projects driving increased domestic gas consumption, particularly for petrochemicals.

The government has been praised for its commitment to revamp gas infrastructure to unlock domestic utilisation of gas.

According to a release signed by Lucky Akhiwu, publicity secretary of PETAN, the AKK Gas Project is positioned to help realise the long-held dream of developing Nigeria’s domestic gas transmission infrastructure as well as implementing Nigeria’s Gas Masterplan.

It is also hailed as a local content success with local oil company, OilServe Ltd, leading the project. PETAN said the project will promote the domestication of technology in Nigeria and concretise the gains of Nigerian Content by encouraging participation of indigenous companies in the delivery of the project. More than 3,000 Nigerian workers will be engaged in the project.

However, some have also expressed concern thst it could be commercially unprofitable for a poorly industrialised sub-region with little commercial offtakers.

“The capital expenditure for the crude pipeline to Kaduna, and that of the construction of the refinery, could not be recovered, not to talk of profit,” said Alao Abiodun, head of energy research at New Nigeria Foundation.

These projects signpost a shift towards developing gas resources following the signing of the final investment decision on NLNG Train 7 project and the NNPC/Chevron Nigeria Limited agreements over the multibillion-dollar Escravos Gas-to-Liquid (EGTL) project

Signed in December 2019, the project is expected to boost the domestic gas market with 400MMScf per day gas supply, equivalent to 26 percent of total domestic gas supply in the country.