Issue 139 • 23 May, 2008

Nigeria unveils master plan to harness the ‘unbelievable’ potential of gas

Nigerian energy officials have taken important steps to move forward key policy goals, despite reports of delays and in-fighting across the Yar’Adua administration. Key developments include finalising new financing structures for joint ventures, discussed in Upstream oil and gas below, and unveiling the new Nigerian gas master plan – in the process giving details of how much gas operators will be required to set aside for the domestic market.

Investors, who are apparently lining up to exploit the opportunity, were “welcome on board”, said State Minister for Energy (Gas) Emmanuel Odusina as Nigeria unveiled its new gas master plan – a vision for a restructured industry where new regionalised gas hubs form the basis for a new industrial infrastructure coalesce. “Officials have seen a lot of interest in the three proposed central processing facilities (CPFs); we are beginning to see a lot of consortiums formed, desperately trying to build a proposal to do this,” Nigerian National Petroleum Corporation (NNPC) group general manager Dr David Ige told a 19 May roadshow in London, organised by Lagos-based Energynvest.

Details of the gas master plan were released in February but potential investors and others concerned about how finite gas resources are going to be allocated as the Nigerian industry restructures have been looking for further details (AE 134/6). The plan, billed as Nigeria’s ‘first major attempt to articulate a holistic framework for gas’, has three major sections: a gas pricing policy (aimed at creating a structured and transparent framework for pricing); a domestic gas supply obligation regulation (to assure availability of gas to industries such as power, methanol and fertilisers) and a gas infrastructure blueprint. This was the focus of the May roadshows in London, Abuja and Singapore.

Nigeria has ambitions to become one of the world’s major suppliers. “We have around 152trn ft3 of reserves and are still counting. In terms of quality we have some of the highest grade gas, with almost 0% sulphur,” said Ige. “Up until now we have never explored for gas – all the current gas reserves were discovered while exploring for oil. The potential for gas is unbelievable and it’s estimated that we have 600trn ft3 reserves.”

According to Odusina, “there are broad infrastructure opportunities for would-be investors – ranging from gas-gathering and processing facilities to major transmission lines. Private sector participation is crucial and the underlying premise of this programme is commercial viability… Nigeria is poised for companies who have the will, power, capability and resources to come to Nigeria and invest. You will not be disappointed.”

The infrastructure blueprint is anchored primarily in two core investment categories: gas-gathering, processing and liquefied petroleum gas handling facilities, and gas transmission lines. In addition, there are other “supporting” opportunities – services, materials, LPG distribution services, LPG bottling plants and pipeline haulage services.

The government expects consortia to be formed by investors, and would like each group to have the ability to gather and process dry gas, and handle LPG, and/or be able to build and operate a network of transmission lines. It hopes that investment will be private sector-led (as does the World Bank), but noted recently that “some form of government participation either through host state government equity participation or federal government participation may be mandated for a certain minimum equity… this is being finalised.”

Gas hubs for regional development

Ige told delegates that critical to the infrastructure blueprint would be three gas-gathering and processing facilities, which will serve as “regional gas hubs… with scope for numerous gas-based industries to settle on or around these facilities.” One will be in the south-east, at Akwa Ibom in Calabar State, another in eastern Nigeria, at Obiafu in Rivers State close to Port Harcourt, and the third in the Warri/Forcados area of Delta State). “The aspiration is that these hubs will take wet gas from all the flows within their vicinity and process it, to a standard specification for export into transmission lines,” Ige said. “The lean gas will then be transported into the domestic, regional and export pipelines.”

Extracted LPG and natural gas liquids will be stored in primary storage facilities pending subsequent transportation to local or foreign markets. Each processing facility will cover a designated, exclusive geographical area for which it is franchised, and within each franchise area the investor will be expected to plan a network of gas gathering pipelines linked to flow stations and non-associated gas fields.

According to Ige, “our expectations are that investors will own and operate these plants as tolling facilities for third party gas. But that does not exclude you from accessing gas as well. So an investor in the CPF is not only a service provider for the upstream suppliers, he will also be able to access a lot of stranded gas.”

Transmission systems

In addition to the hubs, the government has proposed three major transmission systems for Nigeria: the South-North Transmission backbone, the Western Transmission system, and an inter-connector system.

The 1,200km South-North pipeline will start at the Akwa Ibom CPF, traverse the eastern states of Abia, Ebonyi and Enugu to Kano and Kaduna via Ajaokuta and Abuja. This is envisaged as the major backbone system conveying gas to eastern, Middle Belt and northern regions; it will “anchor” the industrialisation of the east and north. The pipeline will also carry gas for the Trans-Sahara Gas Pipeline project if it comes to fruition. At its peak, the estimated possible gas flow rate through this pipeline is some 3bn ft3/d, including 2bn ft/d for the TSGP.

For the purposes of investment, the system has been broken up into two conceptual systems: the 395km Akwa-Ibom to Ajaokuta leg, and the 740km Ajaokuta-Kano line. Officials said there was already active interest in the second leg and investors were therefore being sought primarily for the 395km section.

The Western Transmission system comprises the existing Escravos-Lagos pipeline system, a planned offshore bypass from Warri/Forcados CPF to Sagamu near Lagos, and has provisions for a spur extension to the planned Olokola LNG plant – which is good news for the latter project. Investors are being sought for the offshore extension to Sagamu and further extensions to Jebba and Ekiti.

The inter-connector system starts at the Obiafu CPF and comprises a new 100km pipeline to Oben and the existing Oben-Ajaokuta link. This system will link the gas-rich east and the major western and northern transmission systems.

According to Ige, “we believe that with this new infrastructure, the gas from any ‘cluster’ across Nigeria (there are nine clusters in total) can get to any market, regardless of where that market is… it will allow swaps to take place.” The Niger Delta region has been divided into three franchise areas – each CPF will be designated a franchise area and all gas produced in that area for the purpose of meeting the domestic obligation under the master plan is required to be processed through the local CPF.

Priority to domestic market

According to Ige, Nigeria is today at “ground zero, a crossroads for us: we have a huge resource base, a rapidly evolving export potential, but we have a situation where the domestic market is seriously starved of gas, and lots of power plants cannot function. We believe that is a very unstable situation and we do not want to make the mistakes we made with oil.”

The master plan’s first phase involves rapid intervention by the government to kick start a viable domestic market, with the hope that by January 2011 there will be full commerciality in the domestic market. By 2013 the authorities hope to have attained full liquidity in the gas sector for the domestic, regional and export markets. “Currently gas from one end of Nigeria cannot get to the other end, and there are very few players and buyers. Our aspiration by 2013 is that gas… can go anywhere in Nigeria,” said Ige. By January 2014 “we want to have reached full market-driven status… it should be a complete paradise for investors.”