Harnessing gas resource for economic development

Nigeria is considered as a gas resource nation because it has 202 trillion cubic feet (tcf) of proven gas reserves and over 600tcf unproven gas reserve. OLATUNDE DODONDAWA writes on the need for maximising Nigeria’s gas potential for economic development.

Introduction

Nigeria is the largest natural gas producer in Africa and one of the largest in the world. The country has 202 trillion cubic feet (tcf) of proven natural gas reserve and additional 600 tcf estimate of unproven reserve, making it a gas country rather than a hydrocarbon country. Nigeria’s focus has remained on crude oil exploration and exploitation with no deliberate policy for gas exploration and exploitation. It is important to note that Nigeria’s proven gas reserve consists of associated gas only (that is gas discovered during crude oil exploration). However, despite the poor fiscal regime in gas sector, some stakeholders have continued to sustain efforts aimed at full utilisation of gas resource for revenue generation, clean environment and economic development.

Power sector and domestic gas utilisation

Nigeria’s epileptic power supply is inexcusable because there are more than enough natural gas reserves for both domestic power generation and for export. The country’s Gas Master Plan enables export and robust utilisation of gas for domestic purposes. Nigeria’s 24 gas-fired power plants have a total installed capacity of 8457.6MW (81 per cent of power generation) and they dominate the Nigerian power supply mix. Good fiscal regime for gas will promote full capacity utilisation of the gas-fired power plants and improve domestic gas utilisation.

LPG and domestic gas utilisation

Nigeria has recorded a significant improvement in gas utilisation is in the consumption of Liquefied Petroleum Gas (LPG) otherwise called cooking gas. Nigeria is among large producers of LPG in the world, but remains one of the lowest LPG consumers in the world with 624 metric tonnes per annum (MTPA). The Nigeria Liquefied Natural Gas Limited (NLNG) has been setting aside 350,000MTPA of LPG for domestic consumption in its efforts to boost domestic gas utilisation for economic development. Harnessing and deepening of LPG consumption can serve as an engine and catalyst for the economy and for the benefit of Nigerians.

Minister of State for Petroleum, Chief Timipre Sylva, had declared year 2020 as ‘the Year of Gas’ for Nigeria. He said the government was desirous of deepening LPG penetration in the country. He said other plans by the government include upgrading the Lagos-Apapa LPG plant from 4,000MT to 8,000MT storage and increasing LPG allocation to the domestic market from Natural Gas Liquids (NGLs) to reduce butane/propane exports.

He said the government also aims to diversify supply sources with 110,160MTPA from Nigerian Petroleum Development Company’s Oredo facility expected to come on stream by first quarter of the year.

NLNG trains and domestic gas utilisation

NLNG has taken the Final Investment Decision (FID) on its Train 7 Project, which will increase production capacity at its plant on Bonny Island, Finima, Rivers State from 22 million metric tonnes to 30 million metric tonnes per annum (mmtpa).

NLNG currently has six trains with combined capacity of 22mmtpa and it has paid $36 billion as dividends to its shareholders over the years. The shareholders are: Nigerian National Petroleum Corporation (49 per cent); Shell Gas B.V. (25.6 per cent); Total Gaz Electricite Holdings France (15 per cent) and Eni International N.A. N.V. S.ar.l (10.4 per cent).

Train7 guarantees over 12,000 direct jobs during construction phase,

Foreign Direct Investment for Nigeria upstream and other associated projects coming on stream and stimulation of the domestic economy. Train 7 is expected to be completed within five years from start of construction.

The Engineering, Procurement and Construction (EPC) phase is expected to commence after the FID. Letter of Intent for EPC Contracts was issued to SCD JV Consortium in September 2019. SCD JV Consortium comprises Saipem of Italy, Japan’s Chiyoda and Daewoo of South Korea. SCD JV will be constructing one complete train and one common liquefaction unit with a total capacity of approximately 8 MTPA, as well as associated utilities and infrastructure.

The project will be financed partly from NLNG Balance Sheet. It will also be partly financed through third party corporate loans from export credit agencies and a number of key international and local banks.

NLNG has generated significant revenue for the nation and contributed to the reduction in environmental hazards arising from gas flaring. It has converted about 191.5 billion standard cubic metres (bcm) or 6.8Tcf of Associated Gas (AG) as Liquefied Natural Gas (LNG) and Natural Gas Liquids (NGLs), thus reducing gas flaring by upstream companies from over 60 per cent when it commenced operations to less than 20 per cent currently.

NLNG has two subsidiaries; Bonny Gas Transport Limited (BGT) and NLNG Ship Management Limited (NSML). NLNG has 23 vessels in its fleet, 13 of which are owned by its subsidiary, BGT. NSML, initially set up as a manning outfit in 2010, metamorphosed into an ‘international maritime services company, providing the following world-class maritime services, namely, vessel management, crew management and administration, terminal management and maritime training, projects and consultancy.

Today, NSML has achieved over 83 per cent of its Nigerianisation target and is on course to meet the 100 per cent Nigerianisation target by 2022. As at December 2019, the company has in its employment 661 competent and professional employees (297 Officers, 329 Ratings and 35 shore-based personnel).

In real terms, NLNG assets and cumulative earnings have surpassed the assets and earnings of the over 169 companies listed on the 59-year old Nigerian Stock Exchange and has exceeded the benchmark set for Fortune 500 companies.

Significantly, over 70 per cent of NLNG’s profit goes to Nigeria, via NNPC through dividends, and Federal Inland Revenue Service (FIRS), through Company Income Tax. Other applicable taxes include VAT and Education Tax. NNPC also gets 55-60 per cent of the feed gas revenues through its participating interest in the upstream JVs.

In addition, personal income tax of over N 7 billion yearly accrues to the Rivers State Government through the company’s PAYE scheme. Among other things, NLNG also pays about NGN 140 million and NGN 2.5 million annually in tenement rates to Bonny and Port-Harcourt Area Local Governments respectively.

It is noteworthy to state that NLNG achieves so much by undergoing the business of converting natural gas into other products for exports.

Conclusion

The Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, stated that the recent signing of FID for the NLNG Train 7 Project would boost gas supply and increase the Federal Government’s revenue by $9 billion and generate about 10,000 direct jobs and 40,000 indirect jobs to ease youth unemployment challenge in the country.

Moreso, government’s demonstration of commitment towards improving domestic consumption of cooking gas through the removal of the five per cent Value Added Tax on domestic LPG is a welcome development, however, the government, through the NNPC, must demonstrate its commitment to deepen domestic utilisation of natural gas by ensuring that NLNG’s Train7 becomes a reality.

This is because NLNG’s sustained operations on delivery of Train 7 will continue to assure Nigeria of significant revenue generation, reduction in gas flaring, sustained domestic LPG supply, viable LNG supply for domestic need, job opportunities and local capacity development.

The Managing Director of NLNG Ltd, Mr Tony Attah, stated that “Nigeria was just 24 months behind Qatar when the Nigeria LNG started in 1999. But today, Qatar is on 77 million metric tonnes per annum production capacity, while Nigeria LNG is on 22 million metric tonnes per annum. That for us is a major reason for Nigeria LNG to wake to the reality that Train 7 is no longer ambitious; not for Nigeria LNG; not for Nigeria.”

Attah beleived FID signed by NLNG with its partners on the Train 7 project will be a game changer. “The FID we have taken will expand the Nigeria LNG production capacity by 35 per cent and boost Nigeria’s competitiveness in the global LNG market,” he said.

It is rated the fourth company in Nigeria and contributed over 12 per cent of government revenue in taxes and dividend in 2014 and 2015.

With revenue exceeding $90 billion since 1999, the company ranks with FTSE 100 companies globally and is being managed to world class standards.