Nigeria’s natural gas market fundamentals strong amid waning investor confidence
The fundamentals underpinning Nigeria’s natural gas market remain strong but investor confidence is waning because Africa’s largest crude oil producer is failing to spell out clear legal and fiscal regimes to govern the petroleum industry.
Nigeria’s gas reserves are thought to be the largest in Africa at 5.2 trillion cubic metres, according to BP data. Domestic gas production has been steadily increasing over the past decade, reaching 47.2 billion cubic metres last year. That is up from 35 billion cubic metres in 2007.
Aggregate gas demand in Nigeria has remained low, and hard to calculate too, Ed Ubong, the managing Shell Nigeria Gas told Bloomberg in an interview. This is “partly because there isn’t a robust distribution system” Ubong said.
Available data show that Nigeria, with a population of 200 million people consumed 20 billion cubic metres, (about 706.3 billion cubic feet) of gas in 2016, according to government data. That is just a quarter of the 81 billion cubic metres 66.57 million people strong United Kingdom consumed that year, and with just a third of Nigeria’s population, according to data from BP Plc. This shows a market that is largely underdeveloped and poised for growth.
In addition, Nigeria currently flares 700 MMscf/d of gas at 178 flare sites which is equivalent of the total volume of gas used in power production. This results in 20 million tons of CO2 emissions per year.
In 2016, Nigeria lost $800 million to gas flaring, annually, for many years, the country loses close to $1.15 billion. The challenge it seems, is the absence of political will.
The Nigeria Gas Flare Commercialisation Programme (NGFCP) value proposition is that assuming around 65 percent of the flared gas volume meets a minimum monetisation investment threshold; it could lead to overall investment of $3-5 billion.
Low aggregate demand foreshows growth potential and commercialisation of flared gas represents investment opportunities. Furthermore, natural gas is plentiful and harder to steal, better for the environment, which can build a robust sector that employs thousands of Nigerians.
Nigeria has taken some first steps to expand its liquefied natural gas capacity by a third, outlining a $12 billion programme to help it keep up with the world’s biggest producers of the fuel.
Nigeria LNG, a venture involving the state-owned oil company and three oil majors, signed engineering and design contracts for a seventh facility on the nation’s Atlantic coast. Among the contractors participating are Saipem SpA, TechnipFMC Plc and Chiyoda Corp. A final investment decision could be taken late this year.
Nigeria has joined nations from the United States of America to Australia in increasing output of the fastest growing fossil fuel to help meet rising demand from China to the Middle East. NLNG’s Train 7 would boost production to 30 million tons by 2024 from 22 million tons now.
“Our vision is to be a global player that helps to build a better Nigeria,” Tony Attah, Nigeria LNG’s chief executive officer, said in London. “We are looking forward to the growth. When I am talking about growth I am talking about Train 7. We have the support we need, we have the support from the shareholders, from the government, from the board of directors.”
Qatar, Australia and the US will probably account for 60 percent of global LNG supply by 2023, according to the International Energy Agency in Paris. Nigeria, which supplied the world with 7 percent of the super-chilled fuel last year, does not want to miss out.
Keeping up will require a huge investment. Train 7 will cost as much as $6.5 billion to build, with another $5 billion to be spent on wells and pipelines needed to supply the plant. Nigeria LNG is seeking $7 billion from the global financial markets for sustainability of its operations and the expansion.
STEPHEN ONYEKWELU