According to the Nigerian National Petroleum Corporation (NNPC) Nigeria has proven natural gas reserves of 202tcf plus much more in undiscovered gas reserves. Consequently, Nigeria holds an enviable position as the ninth largest proven gas reserves in the world and the most proven gas reserves in Africa. The Ministry of Petroleum Resources estimates Nigeria’s reserves to production ratio, which measures the remaining amount of a non-renewable resource expressed in time, at 46 years for crude oil and 102 years for natural gas. This explains why many have described Nigeria as a gas province with some oil. Gas produced in the country has primarily been utilised for LNG export, re-injection for crude oil recovery and domestic utilisation by power and gas-based industries. A significant amount of natural gas is flared.
In 2014, natural gas accounted for 25 percent of the world’s energy consumption. British Petroleum’s Energy Outlook 2035 forecasts that about a third of the probable rise in global energy demand will be supplied by natural gas. This rise in the importance of natural gas as a fuel of the future owes much to its intrinsic properties— it is plentiful, cleaner, safer and environmentally friendly. Natural gas has proven to be one of the fastest paths to industrialisation and there is evidence of a correlation between GDP growth and gas consumption by productive sectors of the economy.
Global, demand for gas has risen significantly over the past decade, led by Asia which contributes about one-third of the total. China’s gas demand makes up the largest within Asia and is driven by the country’s coal-to-gas substitution policy targeted at addressing environmental concerns arising from carbon emissions. According to the International Energy Agency (IEA), natural gas is expected to overtake coal as the world’s second largest energy source by 2030.
Before widespread utilisation of gas, the main sources of energy were liquid fuels (mostly by-products of crude oil), and in Nigeria, predominantly Automotive Gas Oil (AGO), Low Pour Fuel Oil (LPFO) and Premium Motor Spirit (PMS). For industrial production, AGO and LPFO have been the fuels of choice. These fuels however, are plagued by issues such as scarcity, labour strikes, pilferage, port delays, refinery shutdowns and unpredictable product pricing, especially for deregulated fuels. Many of these issues are exacerbated by the linkage to crude oil and very recently, at the height of the all-time high crude oil prices at over $100 per barrel, prices of liquid fuels were unsustainable and partly responsible for the shutdown of some manufacturing concerns.
Then came gas, the cheaper and much cleaner alternative with an entirely domestic value chain. The advent of gas solved the issues associated with liquid fuels including reliability, price predictability and local abundance, and as the manufacturing industry gradually embraced gas, manufacturers have become more profitable and productive overall.
In this article, the focus is on the economic benefits and “Messiah” status of natural gas to the domestic manufacturing sector which has been shortchanged by liquid fuels.
Key benefits are that gas is a solution to fuel pilferage and adulteration, a reliable energy source, cleaner alternative and an enabler for increased profit due to its relatively lower cost compared to alternatives
Compared to liquid fuels, the incidence of fuel theft is relatively non-existent with natural gas. Liquid fuels are mostly transported via trucks and so, are usually untraceable and difficult to track in the event of theft. With these incidences of theft come spillages that result in the pollution of farmlands and water bodies, and overall environmental degradation with the associated costs of clean ups.
A second consequence of pilferage is the problem of product adulteration where stolen fuel is mixed with other substances and resold to unsuspecting users. This results in equipment breakdown and incomplete combustions, and the attendant implications to human lives and properties.
The application of natural gas completely solves all of these. Gas is mostly transported via underground pipelines, therefore making pilferage (and follow-on consequences such as product adulteration) unlikely. Also, given that gas must usually meet a specific quality threshold to be transported to last mile users, the likelihood of product adulteration is further limited. With gas, incidental leaks on pipelines are relatively easier to detect and can be easily managed by proper ventilation of the facilities, since gas is lighter than air, after leak is arrested.
As stated earlier, liquid fuels are susceptible to a myriad of issues that make them unreliable. Port delays, labour strikes, the underperformance of refineries etc. make it difficult to predict when products will be available. Also, because these fuels are mostly imported, scarcity of foreign exchange impacts availability, and a lack of predictability will usually make it difficult for manufacturers to plan operations. With liquid fuels, the issue of end product stock-outs is prevalent because manufacturers are not able to effectively manage inventory. This ultimately results in loss of sales, profits, customers and market share.
The fact that gas is locally sourced solves these issues. The entire gas value chain – from upstream production to transportation and final delivery to last mile users – is domestic. Save for a few militancy attacks, for many years, there were no gas supply interruptions. Natural gas therefore comes to the rescue, making it easier for companies to effectively manage production schedules with minimal interruptions and ultimately run very efficient and predictable operations.
The combustion of liquid fuels typically produces 2-3 times more carbon dioxide than natural gas, thus polluting the atmosphere and accelerating global warming. In addition, liquid fuels also produce other harmful substances such as soot, sulphur oxide (SOx) and nitrogen oxides (NOx) and sometimes deadly carbon-monoxide due to incomplete combustion. All these affect the health and productivity of staff of manufacturing organisations, as well as present them in a bad light as contributors to environmental pollution. Consequently, such organisations may find it more difficult to attract financing from global financiers and staff attrition and absenteeism may also be high, leading to unstable operations.
The introduction of natural gas as the “saviour” solves most of these issues because it is environmentally friendly, odourless, colourless and produces only water vapour and small amounts of carbon dioxide during combustion.
The combined effect of pilferage, high cost of maintenance of equipment, and overall unreliability associated with liquid fuels, places a heavy cost burden on the manufacturing industry. Natural gas is generally about 30 to 40 per cent cheaper than diesel. Manufacturing concerns that have switched to natural gas have immediately experienced a positive impact on their bottom line.
Whilst the initial capex requirement for gas equipment is higher, they generally have lower maintenance cost and therefore lower total cost of ownership, compared to liquid fuels. Such lower costs stem from the fact that there are no spills, effluents or soot with gas equipment and by implication no costly requirements for cleanup, lower staff medical bills, given that employees are not exposed to hazardous substances and waste.
Against this backdrop, the government must focus its efforts at creating an enabling environment for the development of the gas industry. Natural gas provides a strong base for industrial development and thus developing the sector will position the country for unprecedented growth, while creating an alternative source of public revenues.
A key enabling factor for the development of the sector is “pricing” and significant efforts must be directed at promoting a framework that attracts quality private capital, including foreign direct investment. The framework must be such that balances the need to guarantee investors a reasonable return on investment alongside the need to deepen domestic gas utilisation.
Olusola Bello
