Oil majors are placing huge bets on gas, Nigeria should too – Wusu

OLUFOLA WUSU, an energy lawyer, cofounded Megathos Law Practice has advised clients on Intellectual property in Oil and Gas, joint ventures; marginal fields; production sharing contracts and IP in gas and LNG. He served as the Legal Advisor/Company Secretary for an oilfield service company with operations in six African countries and his practice covers the development and implementation of IP policies, protection strategies, regulatory advice, IP audits and domain name disputes. Wusu speaks to BusinessDay’s ISAAC ANYAOGU on critical issues in Nigeria’s gas sector.

There is a shift of focus by oil majors towards gas, what is driving this trend? How much of these are we likely to see?

The shift of focus by oil majors to gas has been on for quite a while, that same strategy led Shell to acquire BG.  The other oil majors are also placing huge bets on gas. Natural Gas is attractive because it enables the Oil and Gas industry to squeeze out dirty coal out of the global energy system and compete with the rise of renewable source of energy like wind and solar power.

The oil majors are shifting investments into gas because awareness about the need to preserve our environment has risen, natural gas is the cleanest fossil fuel compared with oil and coal which will possibly allow its demand to continue to grow while other fossil fuels decline.

Natural Gas has one hydrogen molecule and 4 carbon molecules, unlike diesel that has 8 carbon molecules; Natural Gas emits half as much carbon dioxide as coal when burnt to generate electricity, and at least 75 per cent less nitrogen oxide and other health-harming particles.

This makes gas a potential ally in the fights against climate change and air pollution, while providing a hedge for industry against the threat of electric vehicles eroding demand for oil.

Natural gas is the cleanest fossil fuel. Natural gas deposits are more plentiful. The cost of floating LNG plants is dropping. The possibility of an LNG plant being provided as service is getting closer; the floating LNG plants will simply be shipped to places that have gas deposits they want to liquefy, after liquefaction the floating LNG plant will be shipped elsewhere to be used by another client with gas deposits. With contracts in hand, the gas business is just one of putting together infrastructure.

What will be the implication for Nigeria?

Nigeria has been described as a gas province with just a drop of oil. Nigeria has significant natural gas reserves, estimated at 192 Trillion Cubic Feet, TCF, and currently, ranks ninth in the world. The International Gas Union has ranked Nigeria 4th among LNG exporting countries.

With its abundant gas resources, Nigeria is positioned strategically for the age of natural gas which has begun. Nigeria is said to have received the sum of $3.7 billion in taxes and royalties, from Anglo-Dutch Shell Group. Managing Director of Nigeria Liquefied Natural Gas, NLNG, Tony Attah, was reported to have said the company has so far paid $5.5 billion in taxes and $15 billion in dividends to the Federal Government since his appointment in July 2016.

In addition to the hundreds of thousands of Nigerians who have a job in oil and natural gas, gas exploration and processing may very well lead to a revival of manufacturing in Nigeria. Natural gas will help Nigeria to develop clean alternative energy sources in various ways, including fertilizer for ethanol, methane for hydrogen and power generation.

While Nigeria sources 85% of its power from gas-fired plants, and has the 9th largest gas reserves in the world, it cannot generate more than 5,000MW, what reform needs to be done to change this situation?

Nigeria needs to look at the cheaper, better and faster way of generating electricity, for areas with coal, they can use coal to generate power, for areas with water, hydro power and for other areas gas. Nigeria needs to have the liberty to develop at its own pace, while paying close attention to the environment too.

Most experts agree that the major challenges facing the power industry include but are not limited to;  electricity theft, lack of investment in renewable energy, destruction of critical power infrastructure, electricity tariff, cost of gas,  revamp of power generation, transmission and distribution infrastructure.

There are so many recommendations on how to improve power supply, while execution of the recommended policies is often half hearted. For power supply to improve, whatever policy direction government decides on needs to be aggressively implemented and monitored by all stakeholders. Execution is what we need to move the power sector forward.

Nigeria recently approved a national gas policy, what is your take? Will it address all the gaps in the sector?

I was part of the team that reviewed the draft National Gas Policy (NGP) for DPR, which review was well received, as evidenced by the commendation letter from the Department of Petroleum Resources which I received. I have also reviewed the NGP for various foreign and local investors, it is safe to say that the NGP is designed to create a separate gas Industry, monetize the abundant gas assets Nigeria has and help accelerate Nigeria’s industrialization since gas has many byproducts useful for numerous industries.

The NGP plans to increase gas supply, to the power sector, gas based industries, encourage the use of gas by buses and trucks in business hubs, rail, ship and even cars, domestic use of gas, transportation of gas by truck, ship and rail.

It gives a certain level of regulatory certainty, identifies areas government is looking for people to invest in. This is likely to attract much needed foreign investment, into the different value clusters in the gas sector.

The policy seeks to set up a single independent petroleum regulator and separate upstream from midstream operations and to separate gas infrastructure ownership and operations from gas trading. It also divide the Nigeria Gas Company into separate transport and gas marketing companies and introduce “market-led wholesale gas pricing” after a transitional period. Government has made it clear that the NGP will be reviewed periodically. With time, the market will mature, in terms of demand, reliability of supply.

Other African countries like Tanzania and the rest are attracting investments in their gas and LNG, what is Nigeria not doing right?

Regulatory uncertainty is one factor that may have discouraged foreign direct investment in gas and LNG in Nigeria.

This issue is being addressed by the able leadership of the HMSPRS Dr Ibe Kachikwu. In recent times, the Federal Executive Council has approved both the National Petroleum Policy and the National Gas Policy respectively. These two policies give a bit of insight into the policy direction of the government. The seven big wins being championed by Dr Kachikwu also give a bit of direction too. Other issues include the absence of infrastructure, corruption, insecurity, power supply, skilled labour and the general ease of doing business,.

Boston Consulting Group did a report on Nigeria titled “Unlocking Nigeria’s Potential: The Path to Well-Being”. In this report the BCG identified eight actions that were critical to ensuring maximum impact of governmental reforms geared at attracting investment into key sectors including gas.

They include setting clear priorities, moving quickly, and keeping it simple. Leaders can squander their political capital by taking on too many projects at once. Instead, it makes sense to focus on a few significant problems and show results quickly.

Focus resources on those priorities once priorities are established, develop detailed action plans and monitor execution closely. This means establishing rigorous plans with specific targets and milestones, clarifying responsibilities, and monitoring progress.

Other strategies including creating links between implementers and decision makers, properly communicating reforms and leveraging partnerships with the private sector, donor organizations, and development finance institutions.

What is the outlook for domestic gas consumption in Nigeria?

Traditionally, Nigeria’s Gas strategy, with reference to LNG was primarily geared towards export of LNG. Recently, NIGERIA LNG Limited (NLNG) was reported to have attained a milestone with the export of its 4000th cargo of Liquefied Natural Gas (LNG) from the Bonny Island Terminal in Rivers State to Mamara LNG Terminal in Turkey.

However, changing LNG market is creating a need for a new strategy. The LNG market is rapidly evolving, from the 20 year long term contracts to spot markets, LNG was dominated by sellers using “take or pay contracts” to a buyer’s market, where buyers have been able to renegotiate the price of LNG shipments.

New volumes of LNG are entering the global LNG market from the United States (which used to be a major importer) and Australia, with a slowdown in expected economic growth in Europe and Asia. The LNG spot market is making a strong showing as more buyers shun long term contracts in favor of spot contracts.

However, the domestic market for gas is experiencing severe energy shortage with power plants often going offline due to gas supply constraints. The LNG market seems to be experiencing a glut, while the domestic gas market is still suffering an energy deficit largely due to an absence of critical gas infrastructure that no one wants to pay for. These pending gas projects may need to tweak their strategy and think of innovative ways to supply LNG to the domestic market.

However Nigeria can domestic uses for LNG such as for fuel for vehicles, shipping and rail, agriculture, power, as a gas source where no pipeline gas is available and as a backup supply for natural gas pipeline network.