Nigeria’s gas transformation

Nigeria

Ogagbano Adejo-Ogiri, executive secretary of the Association of Local Distributors of Gas (ALDG), talks to The Energy Year about the factors pushing Nigeria to develop its immense gas reserves and the key role of private investment in developing the gas network. ALDG brings together players in the gas distribution part of the value chain in Nigeria, mainly from the private sector.

What compelled the Nigerian government to declare the Decade of Gas?
Nigeria is known to have abundant gas resources, about 203 tcf [5.75 tcm], which places us as the country with the eighth-largest gas reserves globally, and the largest in Africa. Experts estimate that we could have 600 tcf [17 tcm] as the dedicated exploration of gas has not really taken off and most of the reserves were found as we explored for oil.
Secondly, our gas production efforts have not been commensurate with our potential. For example, in 2020 gas supply volumes averaged 4.7 bcf [133.1 mcm] per day, positioning Nigeria as the 19th highest gas-producing country, behind countries with much lower reserves such as Canada, Australia and Norway. In the LNG space, countries such as Australia, with about 60% of Nigeria’s reserves, have four times our LNG capacity.
Thirdly, the energy transition is getting significant attention with a strong international push towards a net zero carbon emissions future. Even though the ideal is to transit to renewables in the long term, gas is perfectly positioned as the transition fuel because of its much lower carbon emissions compared to oil or coal. However, this transition window is not expected to last forever, and this means that, in a way, Nigeria must take advantage of this gas-based shift before these resources could potentially become stranded.
Furthermore, as a country we have historically depended on oil revenues, which is expected to further decline as oil prices are forecasted to drop in the foreseeable future. The years of easy oil are long gone and there is now an opportunity for Nigeria to join the global shift towards gas, harness its gas resources, key into the decarbonisation agenda and achieve much for the economy.
Lastly, developing our gas will boost economic prosperity, as it has the power to jumpstart in-country industrialisation due to its linkage with the power, industry and agriculture sectors. Dynamics such as gas-to-power and gas-to-industry are gaining traction and will benefit the economy at large. These in my view are the factors that have compelled the government to declare the decade of gas for the year 2021 to 2030.

What are the reasons behind the lack of gas utilisation and monetisation in Nigeria?
There have been a couple of reasons why Nigeria has underperformed in the spaces of gas monetisation and utilisation. Historically, most of the players exploiting these gas reserves have been IOCs with little interest in our domestic market which had previously been seen as an undeveloped market. And the undeveloped state of our domestic market, has in itself been due to a couple several reasons: firstly, limited gas infrastructure. The existing backbone pipeline infrastructure is limited to the country’s south depriving most parts of the country of access to gas. There is barely 3,000 kilometres of gas pipeline built, with a significant fraction dedicated to supply the NLNG, an export gas project. By comparison, Egypt and Pakistan with similar landmasses have 8,000 kilometres and 12,000 kilometres, respectively. Thus, most parts of the country are not connected to any pipeline grid.
In addition to this, domestic gas prices are regulated and have historically been cost-unreflective, although this has changed in the last few years with the gas pricing framework in the Nigeria Gas Master Plan. To this we must add the absence of a strong regulatory framework necessary for the development of a viable domestic gas sector. There are no terms for PSC gas development and there is uncertainty around the PIB. There is an array of legacy debts, along with illiquidity of the power sector, a major offtaker of gas supplied to the domestic market, accounting for circa 60%.

What legacy has the Nigerian Gas Master Plan had in establishing the basis of this space?
The Nigerian Gas Master Plan was put together to kick-start a viable domestic gas market. It consisted of a series of policy interventions such as Domestic Supply Obligation (DSO) imposed on gas producers to supply gas to the domestic market. There was also a pricing framework developed to ensure that gas prices increase gradually to a point where they become cost reflective and create the incentives for gas producers to supply to the domestic market.
A holistic gas infrastructure blueprint was also developed, identifying key backbone infrastructure which was meant to be built by either the government or the private sector. This plan has definitely impacted positively on the domestic market considering that pre the NGMP in 2008, we had barely 600 mcf [171 mcm] of daily gas supply to the domestic market, which has now increased by over 100%. However, there is still a lot of work to be done.
The masterplan forecast was that by now, the domestic industry should have achieved around 5 bcf [141.6 mcm] per day of gas. We are still far from that. However, we have seen the build-up of some key infrastructure that was identified in the gas infrastructure blueprint. OB3 is part of that, and it is 90% complete, and the AKK pipeline is ongoing. The gas masterplan gave birth to these pivotal ventures.

In what ways is the Nigerian Gas Transportation Network Code (NGTNC) contributing to a viable and inclusive domestic market?
The NGTNC is a contractual framework between the gas transportation network operator and gas shippers that specifies the terms and guidelines for operation and use of the gas network. The code aims to provide open and competitive access to gas transportation infrastructure. There was a need to have open access, allowing people who do not have infrastructure but have gas volumes, such as gas traders, to put gas into the system.
NGTNC was launched in February 2020 and we are now beginning to see how it is helping in the gas trading and utilisation business. For example, an offtaker can take advantage of NGTNC and source gas from the Niger Delta and then have a contractual relationship with a transporter to bring that gas to a delivery point in Lagos. This initiative will help to grow Nigeria’s gas infrastructure, expanding gas utilisation, curbing gas flaring and providing codes to standardise the gas value chain in line with global best practices.

How key is private investment when developing a gas network and what levels of assurance should be granted?
Gas infrastructure is capital intensive and typically requires a long time before cost recovery. The AKK [Ajaokuta-Kaduna-Kano] pipeline project for example is valued at USD 2.8 billion. This is significant and about 8% of the country’s federal budget for 2021. Some studies suggest that about USD 50 billion of investment is needed to build the required gas infrastructure to adequately develop our gas sector in Nigeria. This quantum of funding cannot come from the government and it is therefore imperative that the government partners with the private sector to attract these investments and allow the government to focus on other areas.
Secondly, gas infrastructure projects are usually long-term investments requiring a considerable time to cost recovery. Investors require basic levels of certainty as they want the assurance that, once they make this long-term commitment, policies will remain stable over that timeframe so they can recover their investment.

How will the Obiafu-Obrikom-Oben (OB3) and AKK pipelines connect regions, spur industries and boost gas-to-power?
The OB3 pipeline is a 127-kilometre, 48-inch interconnector pipeline being built by NNPC and meant to connect the massive gas resources in the eastern part of the country to the existing western transmission system and the south-north transmission system (Oben-Ajaokuta). The pipeline will have the capacity to transport 2 bcf [56.6 mcm] per day of gas and its objective is to bring additional gas supplies to serve the western and northern demand. Completion is targeted for within the next 12 months, although a section of the pipeline is already being used.
The AKK venture is a 614-kilometre, 40-inch pipeline that extends our existing pipeline infrastructure to the northern part of the country. The project was awarded in 2020 and its completion is expected by 2023/2024. The pipeline will also interconnect with the eastern and western transmission systems and it will have a capacity to transport about 2.2 bcf [62.3 mcm] per day of gas.
As of today, the northern part of the country is stranded and disconnected due to the limitations in our physical pipeline network. This is why industries in that part of the country depend on alternative fuels such as diesel, which are three or four times more expensive. Hence, the AKK venture opens the tap for the affordable and available gas we have in-country.
This mega-project will trigger the revival of industries, many of which have crumbled due to high energy costs. For instance, the AKK line passes through Kaduna and Kano, cities that are historically northern manufacturers, but high energy prices have hampered their economic activities. This pipeline presents an opportunity to resuscitate some of those industries and attract new ones. By piggybacking on this line, we can also start looking at other gas-based industrialisation spaces such as the fertiliser industry. The north is a very agriculturally intensive area, which means that there is huge demand and potential.
Along similar lines, gas-to-power is also on the verge of developing. NNPC is looking to develop three power plants on the back of the AKK line in Abuja, Kaduna and Kano with a total capacity of 3,600 MW. This is vital due to the current dynamics of our power sector. Most of our gas-fired power plants are in the south but there are major issues around transmission. With more distributed generation, we can optimise our transmission network, reducing power losses and thereby also reducing the cost of power, which will eventually be passed on to the customer.

In what ways can CNG and mini-LNG serve as complementary alternatives to pipelines?
Virtual pipelines, as in CNG and mini-LNG, have the capacity to take gas to stranded markets that are not connected to any pipeline infrastructure, using trucks. Given the lack of gas infrastructure, these technologies are now becoming an attractive way to transport gas. Also, pipelines are typically capital intensive and most times there is a minimum demand threshold that you must have before making that investment. Both CNG and mini-LNG help serve pockets of smaller demand where a pipeline might not be economically viable. Additionally, these technologies serve as a good way to market gas.
Nigeria is still one of the largest gas flaring countries in the world, with pockets of gas flares in the Niger Delta. These technologies can make flare gas commercialisation viable. While building pipelines would be deemed uneconomical due to the high investment and small volumes coming from these flare sites, gas from these locations can be put on trucks and taken to the end user. Virtual pipeline alternatives should therefore complement physical gas pipelines, playing a more significant role in our gas supply mix moving forwards.

What options are on the table for boosting the use of autogas?
Autogas can become the alternative to petrol and diesel as fuel for the transportation sector, either with CNG or LNG. These could potentially result in a cost reduction of up to 45% compared to diesel, and 20% compared to petrol. At the same time, the government is spending a lot to subsidise fuel – NGN 120 billion-140 billion [USD 289.8 million-338.2 million] monthly based on current prices – and this is no longer sustainable.
Likewise, this is a great opportunity to utilise our natural gas resources, which would reduce pressure on foreign exchange for alternative liquid fuels which are mainly imported. According to the PPPRA [Petroleum Products Pricing Regulatory Agency], 19 billion litres of petroleum products were imported in 2019, equivalent to USD 8.7 billion. On top of this, autogas is aligned with the overarching decarbonisation agenda, as a cleaner and greener fuel.
Thus, the government is promoting autogas and seeking to encourage the conversion of vehicles to run on gas. The benchmark is set at 1 million units to be converted by the end of 2021. It is also encouraging the development of autogas retail stations and associated infrastructure. In this regard, an NGN 250-billion [USD 603.8-million] intervention fund has been set up by the CBN [Central Bank of Nigeria] to provide financing at discretionary interest rates to catalyse private-sector investment in this space.
However, the government needs to make additional efforts to ensure the push for CNG and mini-LNG is a success. Further fiscal incentives for equipment manufacturers for example, as well as duty waivers on the importation of equipment and inputs will be welcoming. At the same time, there should be appropriate gas pricing to further incentivise people setting up CNG compression plants. This would make CNG more affordable, encouraging the conversion to gas.
Mandating the conversion of government-owned fleets and urban mass transit buses, as is witnessed in other countries, is also a good starting point to consider. A carrot and stick approach might be also interesting: implementing a tax on vehicles that do not have a dual-fuel engine.

How is ALDG contributing towards a more robust gas distribution sector?
ALDG was established in 2020 to promote all activities within the natural gas distribution value chain, especially in the downstream segment, encouraging the development of the safe transmission, distribution and utilisation of natural gas in Nigeria. Other specific objectives include: promoting best practices, exploring technologies, enhancing capacity building, championing gas-based industrialisation, undertaking lawful activity to boost the industry and being a platform to attend to member issues and disputes.
Likewise, we engage with key stakeholders responsible for policy implementation and regulations and also interact with legislators at the National Assembly. For example, we were invited as a key stakeholder at the ministerial committee on the review of domestic gas pricing to help revise the framework.
We are also engaging with the presidential task force on autogas, where we are sharing our thoughts on the best way to come up with the right policy that will cater to everyone’s needs. We have also sent in our thoughts to the National Assembly committee on the PIB, a key piece of legislation which will drive the gas market in the future.
ALDG membership is open to companies who are playing in the gas distribution space, supplying gas via either physical or virtual pipelines. Most of our members are building last-mile infrastructure, and together they have built close to 500 kilometres of last-mile gas network in the last couple of years. Two of the recent projects completed by some of our members are the 18-kilometre Sagamu Gas Distribution Zone completed by Transit Gas Nigeria and the 20-kilometre pipeline developed by Shell Nigeria Gas to Aba.
Moving forwards, we want a lot more involvement in regulatory engagement and advocacy. We also want to do a lot around sensitisation as there is not much awareness about the opportunities in the gas space. We have to let people know that we are a gas-rich nation with many opportunities, even for indigenous investors to tap into. Through sensitisation and awareness-raising we aim to get even more Nigerians interested in investing in this space so that they can realise the opportunities that abound.

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