America’s shale gas: A deterrent to Nigerian gas exportation revenue?

Since the Nigerian Liquefied Natural Gas’ first shipment of the natural resource began in 1999, the energy-producing sector has witnessed an appreciable rise in value maximization of gas through the integration of global best practices in crude refining.

The divestment and acquisition of assets by International Oil Companies as well as indigenous energy generating institutions operating in the country has also drawn attention to the need to boost the local content prospective of the gas industry.

However, with the National Assembly’s hesitation in passing the Petroleum Industry Bill, PIB, viable clauses that will engender profitability for stakeholders has been stymied thereby putting a damper on full scale exploration activities. 

The unavailability of laws that guide the production of gas locally have invariably led to unstructured and low production capacities in a market where demand far exceeds supply. The untapped potential existing in the gas industry has also raised concerns as governments across the world commence the utilization of their indigenous shale gas reserves.

Although many are conversant with the term, the United States Energy Information Administration defines ‘Shale gas’ as natural effluvium extracted from a cluster of fine sedimentary rocks which are rich in petroleum and gas through horizontal drilling and hydraulic fracking.  

With the United States E.I.A annual energy outlook projecting a 44 percent increase in gas production from 7.8 trillion cubic feet in 2011 to about 16.7 trillion cubic feet in the year 2040 and China along with Argentina possessing 1115 and 825 billion cubic feet of the effluvium respectively, it is evident that stiff completion in the global gas markets are set to arise.

However, as industry leaders gathered recently at a conference to discuss long-term cost and political implications of gas exploration by industrial nations with the financial capacity to refine the resource, fears of the possible reduction in exportation revenue was called to question.

At present Nigeria sells to other countries an average of 2.5 billion cubic meters of natural gas daily with countries like Japan serving as major points of commerce.

Speaking on the issue, the General Manager Development and Director Shell Petroleum Development Company, Bayo Ojulari stated “I think we all know that the discovery of huge volumes of Shale gas has a profound effect on the Henry Hub Gas Pricing Index. The U.S information administration predicted already that the pricing would be centered at about $4 dollars per million BTU for the next decade and may max a high of $6 dollars in that time frame.

“So clearly, there is no doubt that to maintain and grow the market share for us in the regions that are left which is namely Asia, Europe and the Far East, we would have to compete.

With ripples of panic sweeping through oil and gas producing countries due to the foray by developed nations for alternative energy, Ojulari also identified substitute markets for local gas content exportation.

While experts emphasize the need to ignore moves by the United States to begin the indigenous production of energy, others advocate the necessity of developing the domestic markets to forestall future impacts of shifting prices.

On this issue, the director further said, “The crux of the matter is that Africa itself needs energy. According to the World Bank, out of the nearly 600 million people on the continent more than 60 per cent lack electricity that is available all day in other parts of the world. 

“This means that there is a huge energy potential in the Africa market. Just think about [Nigeria] giving every village in Africa access to power – this market is so huge that for me, worrying about Shale gas is a waste of time,” he concluded.

Impact on global gas pricing

One of the first considerations by the Organization of Petroleum Exploration Countries (OPEC) is the effect on production and market prices.

The general trade assumption is that with the growth in the number of players capable of providing the same natural resource at relatively competitive cost, there should be a concurrent downward shift in the unit prices of the commodity. 

However, this is not usually the case with OPEC who has a long standing history of regulating the level of participation of non-importing nations by enforcing production cuts which in turn leads to an accumulation in spare capacity and stratified pricing.

For OPEC, analysts foresee a shift in the monopolitical power exercised by the organization in controlling gas prices especially with the United States, Russia and Saudi Arabia accounting for almost one-third of the entire world’s gas production capacity.  

If OPEC holds its ground, there is a high chance no fluctuations in gas pricing will be experienced but if things take a turn for the different, stiff competition may cause the value of each unit per cubic meter to diminish – an occurrence that has not been happened in the sector since the early 1980’s. 

Environmental concerns

As China made big proclamations with respect to its climate protection bid, green-house activists called to question its proposal to continue with the extraction of gas from shale. 

The country which is known to own the largest reserve of shale in the world, has come under fire for its decision to raise its effluvium target to 30 billion cubic meters by the year 2020 – a small proportion compared with the 90 percent increase (at 319 BCM) in domestic consumption pegged by the International Energy Agency as China’s natural gas requirement in six years.

Although out of the 117 billion cubic meters of natural gas that was produced in the country last year, only about 0.2 BCM came from shale due to the cost of sourcing the effluvium as well as a proactive move to curtail the harm done to the environment.

While other countries take into cognizance the need to temper their exploration activities with global climatic impact as incentive, Nigeria is yet to come to terms with the damage its actions can cause in the long run.  At the moment, more than 40 billion cubic meters of natural gas is flared according to statistics by the Nigerian National Petroleum Corporation and the repercussions are evident in the change in rainfall patterns and the subsequent effect on agriculture, with food shortage projected in the coming year and desert encroachment in most parts of northern Nigeria.

To mitigate further damage, legislative backing and governmental bureaucracies may need to give way for the passage of the PIB whose draft contain stipulations expressing that, “natural gas shall not be flared…under any circumstances in any oil and gas production operation, block or field, onshore or offshore, or gas facility, except under exceptional or temporary circumstances”.

So far independent oil companies have served as the worst offenders as they flare more than 87.25 per cent of their total gas produced while marginal fields’ operators burn 1.066 billion SCF of their total gas valued at 1.92 billion SCF.

Out of their 41.58 billion standard cubic feet of the natural resource, Production Sharing Companies and Joint Venture companies flared 9.477 and 24.36 billion SCF of gas respectively.

Rita Ohai