Oil price slump: Focus shifts to natural gas
Following the slump in oil prices, the focus is shifting to gas. Nigeria, just like other oil dependent countries, is also shifting the emphasis to gas. The plans by Africa’s richest man, Aliko Dangote, to build a 650,000 barrels per day oil refinery, petrochemical plant and fertilizer complex, hinges on one key component ; the availability of cheap natural gas in Nigeria.
The nation’s abundant and cheap natural gas can power numerous industrial parks, where companies can set up major manufacturing complexes, employing millions of Nigerians. The power of natural gas to transform societies can be seen in diverse places in the globe, from Qatar to China and the USA, where the shale gas revolution has led to a manufacturing renaissance.
Nigeria has however yet been unable to exploit this competitive advantage in Africa, even as other nations on the continent are beginning to discover significant gas resources of their own.
While domestic gas demand has grown in leaps, the government’s tight control of the sector means that supply has failed to catch up.
“Nigeria needs 11 billion scf a day to meet power demand and addressing the shortfall calls for a different strategy. We now need to look more for non-associated gas resources for dedicated gas development”, said Frank Edozie, senior special assistant to the minister of power, adding that gas is of national strategic importance.
The country currently produces about 1.5 billion scf per day, meaning there is 86.3 percent gap between demand and supply.
David Ige, group executive director, gas-to-power, NNPC, said “the challenge of domestic gas utilisation is for the country to grow supply as rapidly as demand” adding that as a result of JV funding challenges, international oil companies (IOCs) are not delivering gas to their capacity.
Another impediment to domestic gas utilisation is finance. Wale Shonibare, managing director of UBA Capital, said the major impediment to domestic gas is the economics. “The economics has to be right. For a long time, gas economics in Nigeria did not work because of the tariff. There has to be an economic framework. The future is domestic sales of gas,” he said.
Otis Anyaeji, chief executive of Otis Engineering, says that the entire banking sector in Nigeria does not have the capacity to play in the gas infrastructure.
Anyaeji says government needs to adopt policy-based financing for gas projects and infrastructure, adding that there is need to bring in state governments into gas infrastructure development.
According to BusinessDay Research and Intelligence Unit (BRIU), between 2003 and 2012, domestic gas utilisation grew by 103 percent and accounted for 79 percent of total gas produced in the first nine months of 2013 as shown in the statistical data made available by the Nigerian National Petroleum Corporation (NNPC).
In 2012, gas utilised accounted for 77 percent of overall production. In the first nine months of 2013, an aggregate of 1,615.79 billion cubic feet of natural gas was produced with 79 percent of the quantity utilised.
Nigeria has the world’s ninth-largest proven gas reserves at 188 trillion cubic feet (tcf) and potential gas reserves of 600 tcf.
Saudi Arabia focus on gas too
Industry sources and analysts say the OPEC kingpin is looking beyond the halving of global oil prices since June 2014 to a time when crude could again be in short supply. Riyadh is therefore keen to preserve what is known as its spare capacity – the kingdom’s unique ability to raise oil output quickly at any given moment.
Maintaining Saudi Arabia’s spare-capacity cushion for oil is costly. Saudi Arabia’s refusal to cut output last year has played a part in the most recent oil price slump, as Riyadh fights to maintain its market share against competing sources of crude.
Over the past two years, Saudi production has sometimes exceeded 10 million bpd in summer months as crude is burnt locally for power generation and new refineries. That forced Aramco to put more emphasis on gas exploration, as higher gas output would help preserve spare oil capacity.
“Aramco’s focus now is more on gas, so they have been moving some of their oil rigs to gas rather than terminating the contract and paying a penalty,” an oil industry executive in Saudi Arabia said.
Saudi Arabia according to Energy Information Administration (EIA) has proved natural gas reserves of 291 trillion cubic feet (Tcf) as of January 1, 2014, fifth largest in the world behind Russia, Iran, Qatar and the United States. The majority of natural gas fields in Saudi Arabia are associated with petroleum deposits, or are found in the same wells as the crude oil, and production increases of this type of gas remain linked to an increase in oil production.
FRANK UZUEGBUNAM