Nigeria’s recently approved gas policy has created an opportunity for the development of domestic liquefied natural gas (LNG) investments which can help unlock billions of naira in revenue for Africa’s largest economy helping it deepen the sector.
According to data from the National Bureau of Statistics (NBS) a government-funded statistics agency, Nigeria sold N85.8 billion worth of gas between January and July 2017, which is about 16 percent of the projected revenue of N544.5 billion for the year, at a time the world is increasingly shifting to natural gas.
The NBS said that against monthly expected revenue of N317.6 billion, the most gas Nigeria sold within the period, was in July, at N29.6billion. In January, Nigeria sold N5.1billion worth of gas, while February and March gas sales were N1.1bn and N3.9bn respectively. April recorded the second highest sale of N29.3bn, May and June were N2.2bn and N14.2bn respectively, indicating a need to deepen the sector.
Analysts say the NGP, approved in June this year, is a step in the right direction, as it gives a certain degree of regulatory certainty which discerning investors can take advantage of and can also help to create an opportunity to use LNG as a vehicle to grow the domestic gas sector using the policy. The major goal of the policy is to encourage Nigeria’s domestic markets to begin to consume LNG.
“An in-depth review of the NGP, reveals that it makes provision for LNG for domestic downstream applications, as fuel for heavy duty vehicles, buses and taxis. Other applications of LNG are for shipping and rail, agriculture, power, gas source where no pipeline gas is available, backup supply for natural gas pipeline network, and storage for gas about to be flared, which will be used to fuel power plants serving host communities,” Olufola Wusu, an energy lawyer based in Lagos, told BusinessDay in an interview.
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Some local companies are making effort to take advantage of this provision. Last month, Ibe Kachikwu, minister of state for Petroleum Resources, signed a landmark Gas Sales & Aggregation Agreement with Greenville LNG, for 74MMscf gas delivery to a $500 million LNG facility located in Rumuji, River State.
Greenville will build small scale LNG plants that will deliver liquefied natural gas through adapted trucks to states not connected by pipeline. The trucks would have the capacity to travel about 1,000 km on liquefied natural gas before needing to refuel.
Experts say more of this development that will deepen local gas investments are now required. “The demand in gas within the Nigerian energy sector has risen significantly. Channeling resources to developing strategies for protection of gas pipelines and supply for local consumption would provide more stability for the sector which would invariably trickle down to the development of the economy, said Ayodele Oni, energy lawyer and partner at Bloomfield lawfirm.
Nigeria currently exports 22 million tonnes per annum (mpta) of LNG to international markets, mostly in Asia, but there are concerns in the industry about whether it can sustain this export at competitive prices. NLNG’s revenues plunged to $4.723bn last year, the lowest in seven years, due to falling in oil prices and the fact that LNG export market is experiencing an oversupply which is dampening the price of LNG.
There is a shift in the LNG market towards spot market from predominantly 20-year long term contracts. The market used to be dominated by sellers offering “take or pay contracts” but there is a gradual shift to a buyer’s market, where buyers have been able to renegotiate the price of LNG shipments.
Maarten Wetselaar, head of Shell’s gas business told the Financial Times recently, that big oil companies are finding ways to deliver gas more economically. Floating storage and regasification units, or FSRUs — ships which can receive LNG and convert it back into gas — have sprung up on coastlines around the world ,as a low-cost alternative to building permanent onshore terminals.
The number of countries exporting LNG has almost doubled in the past decade to 35, in large part because FSRUs have made it affordable in places such as Pakistan, Jordan and Colombia. It used to take four years and $500m to build an LNG-receiving terminal. Now you can have an FSRU floating off your country 18 months after taking the decision said Wetselaar.
New volumes of LNG are entering the global LNG market from the United States which used to be a major importer, and Australia, with a slowdown in expected economic growth in Europe and Asia. The LNG spot market is making a strong showing, as more buyers shun long term contracts in favour of spot contracts.
These developments, analyst say, is the reason why Nigeria should be proactive about developing LNG for the local market. “However, the domestic market for gas is experiencing severe energy shortage with power plants often going offline, due to gas supply constraints,” said Wusu.
Analysts say the issues confronting local domestic LNG usage involve how much gas Nigeria needs to produce for domestic consumption and how much will be exported via pipelines and LNG, competitive price for Nigeria’s natural gas, after factoring in liquefaction and transport costs, capacity to add new production and the need for investments in storage tanks.
ISAAC ANYAOGU
