A key driver of Nigeria’s industry and energy security

Nigeria

Olakunle Williams, CEO of QSL Gas & Power Limited, talks to The Energy Year about the role of natural gas in Nigeria’s future energy security, how to incentivise gas financing and the company’s gas development model. QSL Gas & Power Limited distributes natural gas for a wide range of industrial and power generation applications.

How fundamental is natural gas for ensuring Nigeria’s future energy security?
As we know, natural gas is the cleanest and most environmentally friendly fossil fuel. On a wider level, it is largely understood that natural gas will become the dominant fuel source to drive the global transition to a carbon-free world. Even thereafter, natural gas will remain key in maintaining energy security, as the global population, and by effect global energy demand, increase.
The good news is that Nigeria is a country that is very rich in natural gas, with an estimated 206.53 tcf [5.85 tcm] of gas reserves. This means Nigeria is largely a gas-based nation with a little deposit of oil in it. But our issue has been translating this huge natural resource to energy security for all Nigerians.
As you would imagine, energy security requires consistent, reliable energy supply for a Nigerian population estimated at over 200 million people. It also requires that we factor in additional energy demand year on year given our average annual population growth rate of about 3% and an estimated population exceeding 400 million by the year 2050.
So obviously, effective natural gas development and supply to the Nigerian domestic market is key to maintaining energy security. Today, over 70% of our daily domestic gas injection of 1.2 bcf [34 mcm] per day is used to generate grid power. This produces about 4,000 MW of power for the entire country, which barely meets the energy demand of our growing population. Estimates have it that Nigeria requires around 180,000 MW of power generation to achieve sustainable energy security for all Nigerians.
From 2010 until today, gas production and injection into the domestic market has grown by about 60%. However, we probably need an increase of more than 1 bcf [28.3 mcm] of gas per day, annually, to achieve energy security by 2050. That is the gap analysis. We are talking about spurring gas-to-power and using gas to industrialise the nation. Gas is the key to unlocking Nigeria’s industrialisation and achieving energy security moving forwards.

What is needed to further foster and incentivise gas financing in Nigeria?
There is now a global trend toward renewables and a net-carbon-zero economy. However, that means that Nigeria needs to urgently accelerate the development of its gas resources within the next 50-100 years.
One of the key challenges regarding our ability to effectively develop our gas resources has been finance. In a world that is moving away from fossil fuels, international access to finance on a global scale is challenged. This means that Nigeria needs to find a way to localise its ability to raise and channel finance towards developing and unlocking value from its hydrocarbon wealth. So, the first thing is to get creative in creating a robust local financing capacity and find better and cheaper financing through equity and debt in a way that incentivises rapid project development and execution within the sector.
The truth is that carrying out projects in Africa pre-Covid-19 was already challenging due to the perceived volatility and macroeconomic, security and political instabilities within the continent. Post-Covid-19, there is greater pressure on our nations to solve these perceived gaps to give investors confidence, especially now that there is a global competition for capital allocation in the energy space.
So, whether it’s to secure local or international financing, we must, once and for all, address those key issues that have been plaguing our global attractiveness as an investment destination: macroeconomic stability, a clear strategic policy objective with a long-term outlook that fosters policy coherence and consistency, and of course a clear economic blueprint that would create an enabling environment for public-private collaboration in investment promotion.
In addition, unlocking financing for gas-to-power projects would require a clear demonstration that the value chain works and all parties and indeed stakeholders are committed to a positive performance. This includes addressing the huge illiquidity crisis across the power supply chain within the shortest possible time and effective payment securitisation and revenue assurance.
Indeed, the only way Nigeria can become attractive as an investment destination is to build very low-cost manufacturing capabilities, which means that our energy needs to be affordable, available and consistent. As a country, we need to look at our fiscals, especially gas pricing, and see how to incentivise additional gas producers to effectively develop gas resources.

What approach has QSL Gas & Power Limited taken to achieve a successful gas development model?
QSL Gas & Power Limited is a natural gas utilisation, marketing and distribution company which is focused on driving natural gas utilisation across different industrial segments. We commenced our business activities in 2019 with the focus to advance gas-to-industry and gas-to-power supply within specific locations in Nigeria, namely Edo, Ondo and Delta states. Over the last two years, we have since developed a natural gas distribution capacity exceeding 70 mcf [1.98 mcm] per day and have within a short space become a dominant gas distribution company to major industrial zones within the South-South geopolitical zone of Nigeria.
We have also developed over 50 mcf [1.42 mcm] of additional gas trading capacity, where we supply gas to plants of major power GenCos such as the Niger Delta Power Holding Company of Nigeria (NDPHC). Our business model has hinged on incentivising low-cost gas development and supply for efficient energy generation.
We work with several stakeholders across the value chain and provide the backbone payment securitisation that gives our partners the confidence to develop more gas resources for the domestic market.
For example, we have a strategic collaboration with the Nigerian Gas Marketing Company Limited (NGMC), a subsidiary of the Nigerian National Petroleum Corporation (NNPC), for gas distribution within Edo, Ondo and key areas in Delta State. We also have gas aggregation and agency arrangements with the Gas Aggregation Company of Nigeria Limited. Also, we are working with partners such as the Shoreline Energy Natural Resources Limited at OML 30 to inject additional volumes of 30 mcf-100 mcf [around 850,000 cubic metres-2.83 mcm] per day into the domestic market within the next 18 months. Our unique value proposition in this regard is providing bankable offtake to create ripe conditions for the project financing.
QSL GP has been one of the very few companies in the Nigerian gas supply space to effectively operationalise gas supply through the recently effective Nigerian Gas Transportation Network Code (NGTNC). This means we have been able to directly access the gas transportation network as registered shippers and have already created a robust gas distribution portfolio with existing relationships with over six gas producers comprising IOCs and NOCs. This has been a major eye opener for us in shaping our strategic objectives of becoming an integrated energy supplier.
Another key strategic step we took is our recent development of an industrial park: the Ying Zhi Energy Industrial Park, which is located at Benin City, Edo State. The industrial park is being equipped with a gas distribution city gate and central power generation and supply to ensure low-cost energy supply for industries within the zone. We would use this medium to welcome industries to locate their businesses within our industrial park.

How are virtual pipelines an interesting business proposition for QSL Gas & Power Limited?
We have from the very beginning developed a downstream energy supply programme that comprises gas distribution city gate systems driven by piped gas supply to industrial clusters and a virtual pipeline gas distribution strategy for off-gas grid energy users. Today, we have delivered and continue to deliver the mandate on piped natural gas distribution to industrial clusters in our chosen markets. We are now implementing our virtual pipeline programme to facilitate gas supply to the off-gas-grid energy users in our markets.
We are developing a compressed natural gas distribution system to be located within our industrial park, which should come onstream by early Q1 of year 2022. Our proposed CNG facility is strategically located across key industrial corridors within the South West – South-South axis of Nigeria and would create an inclusive energy supply to offtakers within our chosen markets regardless of location relative to gas transportation systems.
Generally, we also have power packages in our overall energy delivery propositions to our offtakers, which are integrated as a turnkey solution under which payments by offtakers are based on consumption without any upfront capital provision requirement.

What gas infrastructure projects has QSL Gas & Power Limited recently been involved in?
Currently, we are a dominant gas supplier within the Edo-Ondo and Delta State cluster. We have financed and delivered gas distribution city gates to major industrial clusters including the 25-mcf [708,000-cubic-metre] per day City Gate to Yongxing Industrial Park, the 40-mcf [1.13-mcm] per day Gas City Gate to the RongTai Industrial Park, all of which supply gas to over 10 industrial entities.
We also developed the 6-mcf [170,000-cubic-metre] per day gas delivery system for gas supply to the CCETC Ossiomo Power Company (COPC), located in Ologbo, Edo State.
Currently, we are looking at opportunities to expand our gas distribution footprint to other unserved markets, with key gas distribution projects already being planned in some industrial clusters within the South West. We expect these to come on stream mid-Q1, 2022.
QSL GP is also collaborating with upstream entities such as Shoreline Energy Natural Resources Limited, who are the operators of the prolific OML 30 petroleum asset. The project would develop key gas utilisation infrastructures and distribution systems to deliver up to 100 mcf [2.83 mcm] per day of gas supply into the domestic market.
This is in addition to the development of our industrial park, the Ying Zhi Energy Industrial Park, which would house the CNG facilities and industrial concerns to support our nation’s industrialisation drive.

What major steps are being taken towards integrating Nigeria’s physical gas infrastructure?
Today, Nigeria has one major trunk pipeline system called the Escravos-Lagos Pipeline System (ELPS), which flows through parts of the west towards the southwest. There is now a plan in place to conclude and integrate additional infrastructure via the OB3 pipeline, which essentially enables interflow and interconnectivity of gas across the south of Nigeria. It is also hoped that the AKK, which would complete the integration with the north would come on stream as planned to complete our national gas infrastructure blueprint. Integrating the country’s gas infrastructure network will give the required confidence to push downstream supplies in different areas of Nigeria. The virtual pipeline system will also help with the further penetration of gas across the nation.
From here, key enablers for the gas transition would include a quick integration of the infrastructure through the rapid completion of the OB3 and AKK pipelines. There is also a plan to double the capacity for the ELPS to about 2.2 bcf [62.3 mcm] of gas per day. That will give the country and its gas players more confidence to deepen gas penetration to all areas of the country.

What attributes does QSL Gas & Power Limited bring to the still-nascent gas market in Nigeria?
I consider this a very important question. Indeed, the gas market is still nascent but there is now a gradual and sustained policy focus on stimulating gas development as the key driver for an industrialised and energy secured Nigeria. Obviously, this policy aspiration would have to be translated into action during huge macroeconomic, political and security issues, which continue to pose investment constraints.
At QSL GP, we therefore consider our greatest attributes as customer responsiveness, creativity, speed and resilience. We create unique, flexible and adaptable business models, including pricing, infrastructure delivery and so on, based on each customer’s specific situation. This has been possible and successful given our role as value chain players, with a robust stakeholder network that supports effective performance on our service delivery.
We also ensure we regularly have engagements with policy makers and our government stakeholders with a view to integrating policy and regulations with market realities and trends. This we believe would help ensure a co-ordinated gas market environment where policy strongly addresses real issues in the industry and indeed catalyses the much-needed growth in the gas market.

In what ways is QSL Gas and Power Limited matching the global move towards cleaner energy?
First of all, let me join the growing number of policy makers and African energy players who have said that regardless of the global dynamics and pressure to transit world energy utilisation away from fossil fuel, African countries like Nigeria would have to intensify capital allocations over the mid- to long term for accelerated development of petroleum assets to spur economic growth within the available economic window.
However, I recognise that a confluence of environmental activism, international political and economic pressure, and indeed innovation and technological improvement may ultimately guide an accelerated transition towards cleaner energy sources, due to the anticipated cost effectiveness and improved energy efficiency of some clean energy sources like hydrogen, over time.
We are already exploring the benefits that a hydrogen based economy would confer, especially with regards to green and blue hydrogen. We expect the fuel to be cost efficient in the long run and the good news is the low replacement cost for a switch between natural gas and hydrogen, given that the majority of natural gas power and industrial applications can run on hydrogen with little modification.
Hydrogen can also be transported in similar forms as natural gas, i.e., through liquefaction, compressed and via piped hydrogen gas supply. We are therefore closely monitoring this, and we believe that there are some quick wins that the hydrogen-based economy will bring, especially regarding the global imperative to achieve a net-zero carbon economy.
We hope that within the next 10-15 years, we will be able to integrate an energy mix that consists of a portion of gas and hydrogen. We would be happy to champion the adoption of clean hydrogen for our offtakers in the nearest future in a manner that combines clean energy supply with cost effectiveness.

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