OGJ estimates that Nigeria had over 180 trillion cubic feet of proven natural gas reserves, more than three times the proven oil reserves, as of January 2007, making it the seventh largest natural gas reserve holder in the world and the largest in Africa. A U.S. Geological Survey (USGS) study however estimates that the gas reserves potential in Nigeria could be as high as 600 trillion cubic feet.
There has been a steady growth in the amount of proven natural gas reserves in country, with the amount almost doubling over a period from 1992 to 2006, with most of new discovery occurring in deep water basins. More significantly gas reserves discovered, were as a result of exploration of oil as there has not been any dedicated gas exploration of any kind carried out in the country.
The biggest natural gas initiative in the country is the Nigeria Liquefied Natural Gas Limited (NLNG), is jointly owned by Nigerian National Petroleum Corporation (49%), Shell (25.6%), Total LNG Nigeria Ltd (15%) and Eni (10.4%). It was incorporated in 1989 and began exploration and production in 1999.
In 2008, company added a sixth unit to its natural gas export plant, located on Bonny Island in the southern Niger Delta, lifting annual shipments by a fifth to 22 million tonnes. The $1.6 billion unit took three years to build and should raise annual sales of liquefied natural gas (LNG) from the whole complex to about $6 billion, while a seventh unit is expected to be completed by 2011 depending on a Final Investment Decision (FID) scheduled for 2009.
The facility is currently supplied from dedicated natural gas fields, but it is anticipated that within a few years half of the natural gas feedstock will consist of associated (currently flared) natural gas from existing oil fields.
Additional LNG facilities in Nigeria are also being developed. In January 2005, Chevron announced it was looking into constructing the $7 billion OK-LNG plant at Olokola, Ondo State. In March 2007, NNPC awarded a construction contract to France-based Technip and the project includes connecting the LNG plant to oil and natural gas reserves in the Niger Delta through a network of pipelines. Once expected to produce its first LNG in 2001, OK-LNG is now expected to come on stream in 2015 according to a report released in October, 2008.
In December 2005, ConocoPhillips, Chevron and Agip met with NNPC to sign a shareholders agreement for the establishment of the $3.5 billion Brass River LNG plant. The project, which includes two LNG trains, is also now expected to come on stream in 2015.
Both the Brass and OK-LNG have been hit by independent oil companies (IOCs) reaction to the government’s decision to meet local demands for gas products before exports are made. This has led to the IOCs holding back on making further investments, as they believe they would recoup their investments more quickly by exporting to the more competitive markets in Europe and North America.
Chevron is working on the Escravos Gas-to-Liquids (EGTL) project and completion of the project was scheduled for 2009. However, in January 2007, work on the EGTL project came to a halt after a breakdown in negotiations over its cost, which had shot up to from $2.5 billion to $5.4 billion. Plans for the project included linking the Escravos pipeline system with the West African Gas Pipeline (WAGP) for natural gas export to Benin, Togo and Ghana.
There has been a global increase in the demand for natural gas, more so as it is seen as a cleaner alternative to other fossil fuels such as oil and coal. The Nigerian government is seeking to harness the potential natural gas has to offer by;
• Improving domestic use; mainly through the use of gas for the production of electricity.
• Consolidating its position as a regional player; By supplying gas to other African countries through the West African Gas pipeline project and the Trans-Saharan Gas project.
• Rapidly growing LNG exportation: Nigeria has the second fastest growing LNG capacity in the world after Qatar.
To help it achieve its goals the Nigerian government has developed the Nigerian Gas Master Plan (NGMP), along with other initiatives. The plan aims to;
1. Increase Market Share and Penetration: Fully exploit the potential gas has to offer by increasing sales and market penetration in the domestic, regional and international markets.
The government intends to protect supply to the domestic market, through the introduction of the Domestic Gas Supply Obligation regulation, which mandates that a certain portion of gas production be set aside for the domestic market. This is to prevent a scarcity of the gas products in the local market through the actions of Joint Ventures operating in the sector, who might want to sell majority of their products in more competitive international markets.
2. Establish a Competitive Gas Industry: By improving Nigerian gas industry’s competitiveness by implementing an integrated infrastructure strategy to support domestic, regional and export markets; and attracting new players; and ensuring the commercial viability of investments.
As part of its strategy, the government has approved a sector based gas pricing framework which divides the domestic market into three categories, encompassing the power sector; strategic gas-based industries that use gas as feedstock (fertilizer, methanol); and wholesale distributors, with a different pricing model developed for each of the categories.
A gas infrastructure blueprint has also been approved by the government, which will provide the backbone for the Nigerian gas grid. The blueprint, which was developed to provide for flexibility and scale ability of supply, and cost effectiveness, will see the creation of a gas infrastructure that concurrently supports the supply of gas to the domestic, regional and export markets.
The government believes that the proposed network of infrastructure, will improve the country’s ability to increase gas supplies rapidly and flexibly, and putting the country in a better position to respond to growth in demand both domestically, regionally and for export.
Joining the GECF
The government hopes the plan will lead to fully develop a market driven gas industry by 2014. Nigeria also became one of the founding members, along with 17 other countries, of the newly formed Gas Exporting Countries Forum (GECF), which was formally established on December 23, 2008 in Moscow, Russia.
GECF is expected to function in the same way as OPEC, regulating and controlling natural gas production in the international market and will be strictly guided by the framework and agreement which bind member states together. Members are also expected to share a common purpose to maximise value to their various nations while working towards ensuring a stable gas market that delivers fair price to both consumers and suppliers.
Analysts are of the view that Nigeria's membership of GECF is a step in the right direction in developing and exploring the country's long abandoned natural gas reserves as well as creating an alternative source of revenue for Nigeria outside crude oil revenue. It is also hoped, the member ship would also bring about a quick end to wasteful practice of gas flaring in the country.
The government’s current plans for the gas industry should bring needed improvements to a much neglected sector, what remains to be seen is if the government will execute it plans properly, or it will just fizzle out be like other government backed projects.
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