Stephen Tierney is the Managing Director of Accugas, Seven Energy’s wholly owned midstream business, which focuses on sales and marketing, processing and distribution of gas to Nigeria domestic market. In an exclusive interview with Frank Uzuegbunam, Editor, BusinessDay West Africa Energy, he spoke on his company’s plans to push Compressed Natural Gas (CNG) to the small and medium-sized enterprises (SMEs), Nigerian gas market amongst other issues. Excerpts:
What is your assessment of the Nigerian gas market in the last few years?
When we started focusing on gas about 10 years ago, it was seen as a waste product of little value compared to oil. Times were changing and the importance of gas as an economic and environmentally attractive fuel was coming to the fore. We knew that gas had a commercial value and believed that it would become strategically important. Seven Energy started to pursue a strategy to develop, commercialise and use Nigeria’s gas resource for the benefit of the country.
The transformation of the Nigerian Gas Master Plan cemented Nigeria’s resolve to become a major international player in the international gas market as well as providing a solid framework for gas infrastructure expansion within the domestic gas market. The evolution has been a positive one. We now have a solid platform that allows private companies like Seven Energy to develop gas infrastructure in-country for supply to power and industrial sectors and this has seen Accugas rise to become a leading player in this sector.
What are the major challenges the new government needs to address in the gas sector?
Principally, the new administration needs to focus on accelerating the transition of the current gas market into a private market. The federal government should provide a strong stimulus for the initiation of large structural changes. Once the FG goes a certain distance, we will see more participation of the private sector in infrastructure investment and gas development. To encourage more private sector participation, there is a need to allow much more freedom around pricing. Gas prices should be determined by supply and demand. FG can subsidise where necessary for key strategic sectors like power and let other sectors play out.
On the power side, there is a shortage of money in the value chain; from the consumer all the way through to the gas provider at the start of the chain. If power distribution companies (DISCOs) are not collecting enough money, this has the knock-on effect for power generation companies (GENCOs), infrastructure and pipeline owners, and ultimately the gas suppliers to make it economically viable and attractive for investment.
In my opinion, the solution could be for the FG to fund and subsidise the sector by injecting cash to correct that shortfall or to raise the price of electricity to bring more money into the stream. Or alternatively, improve the level of collection at the DISCO level. If they are only collecting 40 or 50 percent of the revenue, clearly this will not provide an environment suitable for investment to proceed. Power generation represents 70 percent of the demand for gas. The FG really needs to focus time, effort and resources to address these crucial issues.
Accugas recently hosted customer forums on Compressed Natural Gas (CNG). Can you tell us more about CNG?
When we take piped gas from our existing network; pass the gas through compressors which effectively reduce the volume of that gas by a factor of about 200, then we get CNG. This means that the gas can then be moved more efficiently. It can be loaded into trucks, pressurised trailers and also distributed in smaller quantities to the small and medium-sized enterprises (SMEs) market that require lower volumes. These are companies that typically cannot afford a large pipeline to be installed all the way to their premises, so CNG is a good option for them. We are also focusing on small clusters of SMEs and it will make sense for us to install small pipelines to that cluster of customers.
What are the competitive advantages of CNG over other fuels?
The first advantage is the price. The fuel of choice in Nigeria is to burn diesel. Those who have bigger companies quite often use Low Pour Fuel Oils (LPFOs) but either of these options is sold at unsubsidised prices. Switching to CNG takes your cost down significantly as gas is cheaper than liquid fuels. So even with the price of converting generators, plants and equipment to work with CNG, it would typically take a few months to recover the conversion costs and still make substantial savings on your business operational costs.
The second aspect is the environmental benefit. CNG is much cleaner than liquid fuels. Typically, a 95 percent reduction in carbon monoxide is expected if your business changes from diesel usage to gas. In addition, for every diesel truck or tanker you take off the road, there is a secondary impact; you are reducing traffic and pollution from that traffic.
Can CNG be used for power generation?
Yes. Although we operate in the oil and gas sector, we interact with owners of power projects both large and small. CNG has a role to play in power generation but it is a limited one. For a very small generation plant with lots of private industrial users, it can make sense to truck CNG to the base of operations and to generate power for their own use or cluster or geographic area.
However, with power stations sized at around 15 megawats (MW) which is still relatively small, there is a point where you are almost receiving a constant supply of CNG trucks delivering CNG to your premises. This starts to become a logistical problem. It makes absolute sense to do that for a 5MW/7MW plant but once you get to the 15MW level, the benefits start to diminish and complexity increases.
How would you rate Nigeria’s performance with regards to ending gas flaring and commercialising gas for domestic consumption?
When I first came here, you could fly over the country and anywhere you looked out of the aircraft window, you could see flares. Today flaring has dropped significantly. Whenever we undertake development projects, we are challenged by the Department of Petroleum Resources (DPR) and the Nigerian National Petroleum Corporation (NNPC) on what our solution to gas flaring will be; what we will do with the gas and so on. They will not allow you to develop any new oil field without having a solution for the gas. What you are seeing now are small pockets and quantities of gas being flared and those are very difficult to commercialise.
If you have a small marginal field, for example, that may have 2, 3 or 4 oil producing wells, the associated gas may only be 10, 15 or 20 million standard cubic feet per day. If you are 20 kilometres away from an existing gas infrastructure network, it could be prohibitively costly to build a pipeline to connect that small quantity of gas. But 10 years from now, when Nigeria gets a more mature gas infrastructure network reaching out to more geographic areas, those small pockets of gas can be tied to a network and commercialised.
How have you been able to tackle vandalism and ensure that your gas infrastructure is protected?
Essentially, it comes down to stakeholder management, communication, education and selection of favourable locations. It is a complex puzzle and we have been fortunate as our infrastructure has been largely untargeted. We work closely with the communities long before we start installing any infrastructure; we negotiate in advance as much as possible and as fairly as possible, understanding and engaging all groups that are affected by our work, including families, local communities and local government.
We also try to award as many local contracts as we possibly can, up to the point where we feel it may impact on the safety of the operations. This permeates the whole development process and beyond when we move to commercial operations. We have communities involved in surveillance contracts along the pipelines and we regularly drive through all the pipeline routes to look for any signs of interference of our pipelines, which are buried several metres underground. We monitor this carefully, watching for any signs of disturbance.
What are your plans for the Nigerian gas market in the years ahead?
Accugas will continue with gas commercialisation for the domestic market. It has been a challenge to achieve what we have done in the last few years. We are now at the point where we are seeing the benefits and we plan to continue developing the network we have installed in the service. Seven Energy is not talking of any new major capital projects at this point but we have started to engage with our potential customers through the SME forum. We are actively working with people who are slightly off our existing networks and investigating the feasibility of building small pipelines to reach them. If we are unable to build direct pipelines, we will look at CNG as an option for those customers.
Accugas will do everything it can to help industrial investment and employment growth in those areas through the industrialisation of the Nigerian economy. Nigeria has a wealth of gas resource and Accugas is appealing to the government to provide more access to gas resources that we can bring to this network and thus allow us to supply more customers and take on longer term supply for those customers. We are actively acquiring and seeking development in other geographical areas in Nigeria.