Stimulating Nigeria’s gas transitionJuly 30, 2021
Ed Ubong, managing director of Shell Nigeria Gas (SNG), talks to The Energy Year about how Nigeria is laying the foundations for a gas industry and the company’s strategies for supporting gas-to-industry and expanding domestic supply across the country. Fully owned by Shell, SNG supplies natural gas to industrial customers in Nigeria.
How has Nigeria laid the foundations for a gas industry?
When Nigeria’s Liquefied Natural Gas Act was drafted in 1989 – the nation’s first serious legislation on gas – Nigeria announced to the world, as it were, her readiness to play in the gas sector. In that same year, Nigeria commissioned its first regional domestic gas infrastructure, the ELPS [Escravos to Lagos Pipeline System]. The NLNG Act was seen as government determination to support the LNG export market, LNG business galloped on and the subsequent decade witnessed the construction of several gas trains. Today, exporting LNG has become a success story in Nigeria and is continuing with Train 7.
On the other hand, domestic supply of gas has encountered several ups and downs. Even though we had the original infrastructure with the ability to do about 2 bcf [56.6 mcm] per day, we were not getting enough gas for domestic power plants. The government had to implement a domestic supply obligation [DSO] regime under which producers are obliged to send gas to the domestic market.
In 2008, we saw the minister of petroleum resources introduce different sets of pricing regulations that applied different pricing regimes for what we call the strategic sector, the power sector and the commercial sector. All these were attempts to see how the domestic market could be stimulated.
What has been Shell’s holistic approach to Nigeria’s oil and gas arena?
As Shell, we have tried to look at different parts of the gas value chain. The Shell Petroleum Development Company [SPDC], our upstream joint venture, has overseen gas development projects. The latest of such projects is the Assa North Gas Development Project, which will bring about 300 mcf [8.5 mcm] of gas per day to the surface and is the largest domestic gas venture in the country.
Through SNEPCo, we also operate the Bonga deepwater field, which has the capacity to produce more than 225,000 bopd and 150 mcf [4.25 mcm] of gas per day.
For LNG, we have a presence thanks to Nigeria LNG, where Shell has a 25.6% share. NLNG involves us in the export market, which has become one of Nigeria’s energy strongholds. In addition, we also decided to be active in gas-to-power, developing the Afam Power Plant VI, which at one point was contributing 10-14% of Nigeria’s total power supply.
Lastly, through SNG, we are covering the need for getting gas to industry, aiming to supply gas to spur industrial clusters across the country.
Considering the impact of gas-to-industry, what cluster-based approach does SNG propose?
Gas-to-industry is an area we want to deepen, as we have seen that industrial clusters allow communities to flourish, developing economic activities like trading and manufacturing. This is a more sustainable ecosystem than the oil-extractive one, spurring development and employment. At the same time, gas is more resistant to theft and sabotage, which has been one of the major concerns surrounding oil pipelines.
SNG has large industrial clusters, namely the Agbara-Ota gas transmission and distribution system, the Aba cluster, and the Port Harcourt cluster, where we currently distribute gas to over 120 industrial customers. We are also building clusters in Bayelsa State and Oyo State. Our plan is to grow by getting as much gas as possible to power industries and manufacturing plants and to support Nigeria’s industrialisation drive.
We are also looking at the Ajaokuta-Kaduna-Kano (AKK) pipeline project as an opportunity to target northern Nigeria. This region has a huge population and major manufacturing potential. The AKK pipeline will be extensive and someone needs to build local distribution networks that will take gas to the various industrial areas. That is where we could come into play.
What are the major obstacles for Nigeria’s gas roadmap and how is SNG contributing to overcoming these?
In regards to regional infrastructure, our real backbone runs from the south to the west. This was built to target the business-oriented Lagos market. However, a lot of the gas in Nigeria today sits in the east and parts of the delta. Thus, one of the challenges has been the interconnectivity between the east, where the largest resources are found, and the west, which has the largest demand. The Obiafu-Obrikom-Oben (OB3) pipeline project aims to provide that interconnectivity.
Despite delays, the government is confident that the line will be commissioned this year. This development will take away some of the constraints that prevent high-paying customers in the west from access to gas from the east. A second hurdle has been regulation, as investors were waiting for the passage of the Petroleum Industry Bill [PIB]. In addition to these, pricing reviews are also taking place.
At SNG, we have built significant local distribution infrastructure. Today we have about 150 kilometres of pipeline infrastructure laid in the southern area. There is a need to build physical lines for the last mile, but there is also a need to work with virtual pipeline operators who can move gas where there is no pipeline. Here, we have around four CNG offtakers, who are essential as they can open the market wherever there is a viable customer base.
There is a lack of major gas distribution lines going to Abuja and the northern axis, so CNG and mini-LNG are options. Therefore, the solution ought to be hybrid – a combination of virtual pipeline operators to open the market and new pipeline infrastructure being built to connect the regions.
Last, but not least, the matter of safety regulations needs to be tackled. We need to put in place proper laws mandating, for example, that wherever there is a gas corridor, power or telecoms line, you cannot dig until you get approval. Such safety regulations are not yet in place and we are working with various stakeholders’ groups and regulators on this.
What is behind the declaration of the so-called “gas decade” in Nigeria?
The “gas decade” mantra is the realisation that Nigeria is, indeed, a gas province. With our reserves, we are one of the top 10 countries worldwide, while, in terms of production, we are among the top 20. However, when you look at consumption rates, which is where gas translates to economic empowerment, we drop down to the top 50. The question is: How do we increase the utilisation of gas in Nigeria during this “gas decade”?
The reality is that Nigeria has enough resources for both exports and domestic use. So, it’s not a trade-off. The export of gas is an area that the country is tackling very well via Nigeria LNG. But it is the domestic needs that now require more attention and awareness. For example, LPG consumption per capita is still relatively low in comparison to many neighbouring countries. To this end, the government is implementing LPG schemes to enhance its usage while reducing the use of firewood for cooking. At the same time, laudable efforts have been made in the autogas and industries domains.
Now, SNG has more than 150 agreements to deliver gas to various customers in different parts of the country. The demand keeps increasing, which means that companies keep coming to set up industries that consume gas, create employment and provide internally generated revenue for the corresponding state.
These are exciting times for Nigeria, which is experiencing its own energy transition. However, we need to do a lot more. We need to retool all our professionals to work as gas professionals. This includes training people who come out of our tertiary institutions. There is a lot of work to do around capacity building for a sector that is transitioning from oil to gas.
What reliability does SNG offer to industries so that they can run smoothly?
As SNG, we give clients the reliability and assurance to plan their business and know that power issues due to lack of gas supply are being resolved. Around 30-40% of the costs for a typical Nigerian industrial player comes from power, and they need constant feedstock to keep power flowing. In our clusters, there are a lot of different industries that support the local economy and export of goods to other parts of the world. They need assurance that this supply of gas to power their industries will function reliably. SNG provides this assurance. That is the strength of what we want to achieve – a diversified economy that is not solely dependent on oil but dependent on people running industries powered by gas.
What commitments does SNG have with its Agbara-Ota and Aba clusters?
Agbara-Ota is the cluster with the highest industrial density in the country. In January 2021, we signed a 20-year agreement that allows us to continue providing gas to industrial and manufacturing companies in Lagos and Ogun states. This is a long-term testament to our confidence and commitment.
We invest in the region, build the required infrastructure and partner with the government to ensure that we continue to deliver gas reliably to the more than 100 industries in this zone. This is a win-win equation in which they pay for gas and we continue to supply them a cleaner source of energy over the next 20 years.
In the Aba cluster, we have a pipeline that connects the Osisioma, Ogbor Hill and Ariaria industrial zones. This pipeline brings energy to Ariaria Market, one of the largest open-air markets in West Africa with 37,000 stalls and an estimated 2 million traders. We partnered with Ariaria IPP to provide them with gas so that they can generate captive power for all the shops in the area. This development is empowering the local population while providing a cheaper and cleaner source of energy.
What industrial-cluster projects do you intend to develop across the country?
SNG is currently building clusters in Bayelsa State and Oyo State. For Oyo, we signed an MoU in September 2020 with the state government to facilitate domestic gas infrastructure development in the state. In the case of Bayelsa, we have already awarded the contract and construction has started on gas pipeline infrastructure to deliver gas to the NCDMB Industrial Park in Polaku. We also have a CNG offtaker who then plans to compress the gas and take it to areas not yet accessible via pipeline. Gbaran is our largest gas node, so it’s important for us to trigger local industry in the area.
Also, Shell is carrying out the Assa North project in Imo State. When that project comes to fruition, we will need to distribute gas to Imo and Anambra states to support the local economy. Our intention is to explore activating an industrial cluster in every state in the core delta. From there we will begin to see how we will support the gas expansion in the north. We are at a market assessment stage, but our goal is to build clusters in a concentric manner: creating a first cluster and then developing a second one that overlaps the first. We are constantly seeking to add value.
What are SNG’s expectations for the coming year?
We aim to see first gas flow in Bayelsa in the next 12 months. It is a critical stakeholder state for us. Yet, the regulatory environment (the PIB, pricing reviews) will be key to determining how fast we move. Our planned cluster in Oyo State will mature in the next 12-24 months as well. In addition to this, we expect to grow the local distribution network in other states, especially in the delta, while also looking to work in northern states like Abuja and others which run along the AKK corridor.
We know the industries are in the north and, truth be told, you cannot play in the Nigerian domestic market long-term without covering the north. This strategy of going up north could start from Kogi, Abuja, Kano, Kaduna – following that line. Initially we will get gas there via virtual pipeline but we know that the most reliable way of getting gas to that area is through a physical one.
Moreover, we recently signed an agreement to get pipeline gas into the Lekki Free Trade Zone to supply some of the major industrial players in that axis. The pipeline is coming, as we want to make sure gas flows into this viable free trade zone area.