One of the most interesting ironies we are going to have to explain to future generation of Nigerians is the reality that in 2022, after the G-7 placed an embargo on Russian Crude Oil exports and Gas (expropriation of Nordstream I & II), with LNG prices per tonne rising to nearly $400 per tonne, and crude oil prices rising to July 2008 highs of $145, Nigeria still recorded deficit financing in its budget of 43.8%. I mean, explain to me like I am six year old, how in the midst of what is supposed to be a period of plenty where the government is spoilt for revenues and is considering turning in funds to increase its Sovereign Wealth Fund (SWF), we instead had oil subsidy payments of seven trillion naira, oil subsidy to total budget size of 32.5%, debt servicing cost to total budget size of 29%, debt servicing cost to government revenues of 96.3%, and nearly zero remittances through dependent FX revenues from government owned enterprises at not enough to close the black market premium to the real effective exchange rates, with premiums trading at 63% above fair value.
At the height of gas income to the Russian Federation from its export pipelines to China through the Power of Siberia (Sakhalin II), Nordstream I & II, the importers of Russian Gas were remitting as much as $900m per day. Qatar with a population 2.6m earned as much as $42.5bn in gross profits in 2022, with plans to increase their current total LNG capacity from the current 77m metric tonnes per annum to 126m metric tonnes per annum in 2027. Question we need to ask ourselves is that since the National Gas Policy was developed in 2017 and 2018 was christened as the decade of Gas, what has the government actually done to ensure it can move the 209 trillion cubic feet of Natural Gas, the country has in deposits from potential in associated gas and condensates into not just solving the gas needs of its own people, but also exporting it for much needed revenues. The problems are multi-faceted:
1. Nigeria lacks a framework to turn gas flaring into floating LNG terminals to enable the Nigeria LNG meet up with its forward commitments to importing partners, as well as hold enough spots to take advantage of the price swings. And this emanates from the fact that the PIA of 2021 lacks proper legal guidance that gives clarity to NLNG for upstream associated gas assets from well-heads on drilling rigs. This means that raising FID for Train 8, 9 & 10 will leave technical partners contemplating on where their feedstock will come from
2. Nigeria Gas Infrastructure Company (NGIC) lacks the infrastructure to develop condensates as standalone E&P operations, to take advantage of the enormous reserves of gas fields outside of associated gas from well-heads that are trapped and prevented from flaring
3. Nigeria lacks sufficient gas gathering pipes that will take associated gas from flowstations to midstream terminals where they are cleaned, separated into methane (C1) and C+ gases. This is important because you require upstream stock to feed into the high-pressure transmission pipes
4. Nigeria currently has less than 2,000 kilometers of gas pipeline infrastructure across the country to solve the domestic demand for methane, ethane, propane and Isobutane gases. And this comes from the fact that the Nigeria Gas Marketing Company has not deregulated the price of gas to enable gas prices to track the bending moment formular in a free float of 40% to diesel prices. This infrastructure impediment that is as a result of the lack of proper capex to open final investment decision (FID) for the board of Nigeria Gas Infrastructure Company (NGIC) to fund EPC for pipeline construction, the over-inflation of EPC cost, and the fact that there is currently a lack of backward integration for carbon steel required to construct high pressure transmission pipes, poses a problem to the internal distribution of gas around Nigeria; either for methane gas (that has a lower flammability ratio and makes up 80% of the composition of natural gas, or the C+ gases like ethane, propane and isobutane that makes up the other 20%
5. The midstream infrastructure to separate gases, treat, either liquefy into LNG, or dry and compress into CNG or feed into pipe with pressure for delivery across a range, is absent for the most part.
Considering that at the 2023 G-7 meeting of World leaders, the decision was made to adopt Natural Gas as a transition fuel, Nigeria currently has a head start. It can:
· Conduct a comprehensive audit of NNPC to enable it start the process of book-building for an IPO. Selling at least a quarter (25%) of equity through the equity capital market in an initial public offering like Saudi Aramco did in 2019, is critical to them raising the revenue required to fund ambitious capital projects like the 5,660-kilometer Nigeria Morocco Gas Pipeline (NMGP) that stretches from Lagos all the way to an existing city gate in Morocco. The reason why this pipeline project is very important is because this project doesn’t only provide gas for the Western Sahara Pipeline that links to Spain, it also provides for Nigeria to pass 13 West African Countries and offer them city gates to purchase gas at a discounted price that is less their right of way fees
· Commission Final Investment Decision (FID) for Engineering, Procurement & Construction (EPC) of Train 8, 9 & 10, that has the capacity to add 24-30 million metric tonnes in additional capacity to the current 22 million metric tonnes that is suffering force majeure. The Nigeria LNG requires a 49% counter-part contribution from the FGN with the Ministry of Finance Incorporated as its Special Purpose Vehicle (SPV) to fund expansion of its upstream gas gathering, midstream processing infrastructure for C3 (propane) gas, splitter unit that can convert propane to Isobutane (C4), C1 (methane gas that is frozen to -162 degrees centigrade) after it is separated and treated
· Have the Nigerian Secretariat of the Africa Free Continental Trade Agreement (AFCFTA) include Natural Gas in either the Exclusive or Sensitive (10%) list for instruments of ratification for gas exports to other African Countries. South Africa with the stage 6-8 load shedding it has, requires gas to expand and build new thermal plants as a means to replace their old, worn out and outdated coal powered plants that Eskom runs. Nigeria has the advantage of signing forward contracts ahead of Angola LNG in Kwanda Island, Mozambiquan LNG in the Cabo Del Gado province that is not due to come onstream until 2025, or Tanzanian LNG in partnership with Equinor that is also not due until 2025.
Following the impact of the suspension of revalidation of the 4,128-kilometer Trans- Sahara Pipeline (TSGP) as a result of the coup and overthrow of civilian government in Niger Republic, and the hostility of diplomatic relations in the Sahel, one can comfortably say that the only viable export pipeline project is the NMGP,
However, my question remains for the NNPC controlled NGIC: ‘’How do you structure a pipeline user agreement in a gas supply contract with the West African Gas Pipeline Company (WAGPCO) considering that NNPC owns only 27.9% of the current export pipeline, otherwise known as the Itoki line, that extends all the way to Senegal.
If the Nigerian Government can refocus its efforts on Associated Gas and Condensates, incentivize the private sector to build manifolds, midstream separation, treatment and processing plants, high pressure transmission pipes for not only methane, but also the C+ gases, export pipelines like Russia did to Europe, and then to China, gas will raise the Oil & Gas revenue to GDP ratio significantly above 20% to a point where the deficit financing in the budget will be almost zero, and where budget surplus will be ploughed into the existing Sovereign Wealth Fund (SWF) like you have in Norway, Kuwait, Saudi Arabia, Qatar, etc.
Nigeria is more a gas than it is an Oil Nation. It’s time to wake up and smell the Coffee.
Quote: Nigeria is more a gas than it is an Oil Nation. It’s time to wake up and smell the Coffee