Advancing Nigeria’s gas flare commercialisation amidst global funding challenges

The “Nigerian Gas Flare Commercialisation Programme (NGFCP)” of 2016 and the “Gas Flaring, Venting, and Methane Emissions Regulation” of 2023 are, in my opinion, significant initiatives aimed at ensuring local gas availability in various forms to improve the standard of living in Nigeria and boost the country’s GDP.

However, are we truly prepared for significant gas uptake and usage, especially considering the “Decade of Gas” initiative from 2020 to 2030, with 40 percent of this period already elapsed and little tangible progress in flare reduction?

“Moreover, the market for gas is ripe, with a shortage of LPG for cooking, the potential for future CNG use for local consumption, and opportunities in gas-to-chemical conversion.”

Indeed, these policies and regulations have prompted the exploration and production industry to initiate gas collection efforts. The urgency is further heightened by the G7’s gas finance exclusion policy. Nonetheless, the high costs associated with gas investment facilities and infrastructure, coupled with the challenges of establishing a viable market for gas at appropriate prices, have historically hindered gas development.

The new regulations, which render gas flaring uneconomic, combined with the 11 percent domestic gas price hike in April 2024—from $2.18/MMBtu to $2.42/MMBtu under the Gas Pricing and Domestic Demand Regulation, 2023—have the potential to enhance the return on investment for gas development projects.

Read also: NUPRC remains optimistic with gas flare commercialisation program

Moreover, the market for gas is ripe, with a shortage of LPG for cooking, the potential for future CNG use for local consumption, and opportunities in gas-to-chemical conversion. These resources are in close proximity to flare sites and can be accessed via virtual pipelines, reducing the need for extensive physical pipeline infrastructure.

With these policies and regulations in place, the hope is that the political will exists to drive decisive government action, particularly during the current period of economic austerity affecting most households in the country. What remains critical is securing adequate financing to bring gas commercialisation to life.

The key requirement now is financing for gas projects and infrastructure. I believe that the awardees from the bidding process for flare gas commercialisation are mostly small, local players. Securing adequate financing may prove to be a Herculean task, given the high interest rates and uncertainties surrounding loan acquisition for oil and gas projects. Many of these projects are likely at the feasibility study stage, with loan acquisition efforts at an advanced stage.

It is imperative that the government takes extraordinary measures to ensure the success of this initiative. This could involve assisting the awardees in securing funds at reasonable rates through financial institutions, both in Nigeria and abroad, as has been done in the past. The anticipated launch of the Africa Energy Bank to finance large-scale investments in Nigeria’s energy sector is a welcome development, with the decision to locate its headquarters in Nigeria being commendable.

A potential application of the “CapEx to OpEx” strategy could offer a novel approach to enhancing Nigeria’s gas flare commercialisation efforts. In this context, NUPRC might consider adopting a “gas-as-a-service” model.

One approach could involve major exploration and production (E&P) companies or NNPC covering the cost of gas infrastructure, which could then be converted to OpEx for the awardees over a specified timeframe through a subscription or pay-per-use model. This would help minimise initial capital expenses and facilitate a quicker startup, similar to the OML divestment scenarios in Nigeria.

Alongside other flexible financing options, this approach could address the challenges of securing funds and lead to more adaptable financing methods for gas projects. Such strategies have the potential to expedite the commercialisation of gas.

Moreover, since the flare gas is owned by the NUPRC as mandated in the NGFCP, another option could be to provide the gas to awardees at zero cost, with the NUPRC earning revenue directly through taxes on the revenue generated by the awardees. This would, in turn, boost revenue to offset CapEx in the short term, leading to quicker payback of investment costs.

Despite financial constraints on investment, ensuring a relatively constant and predictable volume of flare gas is of utmost importance for the economic viability of the gas off-taker, the awardee. This is because flare gas, being associated gas (AG), is a by-product of oil production and is thus tied to crude oil production volumes. Flare gas availability is influenced by oilfield development scenarios, crude oil export allocations, and the fluctuating nature of produced gas-oil ratios over time. Therefore, NUPRC, as the regulator, should provide guarantees of predictable and relatively constant gas volumes.

In my view, the off-takers cannot operate in isolation from the OML operators of the particular oilfields if they are to be successful.

Nigeria has a track record of success with projects of this scale, supported by local expertise, know-how, and operational capacity. If similar achievements have been made in the upstream sector and the midstream and downstream sectors with modular refineries and gas processing facilities in the Niger Delta, then the country is well-positioned to meet its Nationally Determined Contributions (NDC) and Energy Transition Plan goals, particularly in ending gas flaring and achieving zero fugitive gas emissions.

Now is the time to accelerate investments in the energy sector, particularly in oil and gas, as the sector faces funding challenges amid the global energy transition.

Despite calls for multidimensional transitions from hydrocarbon-rich countries in the Global South, including new entrants in Africa awaiting the first oil in some fields, the focus must remain on driving substantial progress in Nigeria’s energy landscape.