The potential for CNG in Nigeria

Nigeria

Pulak Sen, managing director of Powergas Nigeria, and Sumeet Singh, the company’s director of sales and strategy, talk to The Energy Year about CNG penetration in Nigeria, the national autogas plan and how the company’s business model has changed over time. Powergas Nigeria is a subsidiary of Powergas Africa Limited, Africa’s largest CNG distributor.

How has the penetration of CNG in Nigeria increased in the last decade?
Pulak SEN: The main reasons are cost-driven, with a focus also on the “leaner energy solutions” angle. Companies were running on diesel, which is predominantly imported at a high price. Gas is produced domestically, is a local resource and doesn’t have the same financial burden. Diesel as fuel does not represent a profitable solution today for industries and manufacturing companies looking to stay competitive while using it as the source of energy for their power and process requirements.
Even if a company could afford to run on diesel, it would still have to face rising environmental concerns. CNG is a viable local, cheaper alternative fuel solution to combat rising carbon emissions and high diesel cost. In addition, it can be used as a backup supply if there are any disruptions in the pipeline distribution network. The efforts made by the government, such as the declaration of the Decade of Gas, played a crucial role in generating a growing demand for CNG in the Nigerian market.
Powergas Nigeria continues to organise workshops to spread information and knowledge about the importance and advantages of CNG as an alternate fuel. Most people were not aware that gas could be transported using specialised high-pressure tankers (“tube skids”) and trucks at sites in the absence of any gas pipeline network. Now there is a better understanding of the CNG business.

How would you evaluate the national autogas plan?
PS: The plan to convert many passenger vehicles to gas has been discussed for a long time. It has never managed to unfold due to a lack of market incentives. There is a vast market for converting to gas vehicles, but the current subsidies on gasoline (PMS, as popularly known in Nigeria) are restraining the market growth. The government is called to remove them in the near future in order to spur investments in the autogas segment. We do expect a faster growth in the trucks and buses segment, as they operate on diesel fuel. They will be converted or replaced sooner than standard passenger vehicles.

Can you give us an overview of Powergas Nigeria’s history and main milestones?
Sumeet SINGH: Powergas Nigeria is one of Africa’s largest compressed natural gas producers and distributors. We pioneered off-pipeline gas distribution, providing CNG to clients where a piped natural gas distribution network did not exist. Originally, our group’s primary business was selling power on a gas-based solution even when natural gas was not as available as it is today. Most industries were mainly using diesel as fuel.
We started to provide gas-based generators and engines, but the main challenge was the high capital expenditure for our clients. We therefore promoted an in-house utility company by putting up one of the first off-grid gas-based IPP plants for an industry in Nigeria way back in 2008.

What is Powergas Nigeria’s value proposition?
SS: We aren’t just gas suppliers; we are partners and solutions providers. We consult our customers, understand the problem with their power and process systems requirements, and provide the most efficient techno-commercial solution. Our most strategic advantage lies in our EPC expertise. All of our projects are managed and constructed in-house; we have strong relationships with OEMs globally.
We are very strong in HSE: every operator, station and customer has to undergo an in-house training programme on a regular basis. Additionally, we provide an uninterrupted supply of CNG, as we have alternate sources of gas supply and CNG plants, to mitigate local gas supply disruptions or gas outages. During the peak of the pandemic, we did not shut down operations for one day, while ensuring the safety of our staff and stakeholders. We prepared all the documentation and authorisations required, and we continued to supply gas to our customers.
In our organisation, most of the employees are local. We have a strong local capacity development programme, and the graduates are trained onsite. We have even sent some people to be trained abroad. Nigeria has the required expertise to become self-reliant in the energy sector. Most of our CNG plants are operated entirely by indigenous staff supported by local and community stakeholders.

How has Powergas Nigeria’s business model changed over time?
SS: Gas distribution via pipeline in Nigeria faces severe challenges due to constant disruptions and pipeline vandalism. It disrupts our operations and our ability to supply uninterrupted CNG to our clients. We needed to deal directly with the gas producers and this is why, with NDPR (Niger Delta Petroleum Resources), we executed our first willing-buyer, willing-seller contract. We purchase natural gas from them near their gas well and gas gathering, and then we clean and process it to remove condensates and moisture content.
The treated gas is then compressed and transferred into the specialised high-pressure gas tube skids for delivery and decompressed into natural gas at the customer site. Our client-base is 90% industrial clients, and most of the gas is used for power generation and processing.

What is the company’s contribution to reducing gas flaring in Nigeria?
PS: We have witnessed gas flaring in the southern part of Nigeria. We used to go to upstream players asking them to sell us their gas instead of flaring it, but since the flare penalty was low, their interest wasn’t very encouraging. The gas industry and its regulation have since evolved. It is now a more competitive market. We have recently established a processing and compressing facility at the Platform Petroleum Ltd facility under a long-term gas contract. It is the first CNG project entirely aimed at reducing gas flaring. The producer company with our CNG plant and their additional compressors has reduced the gas flaring to zero.

What is Powergas Nigeria’s growth strategy?
SS: Our business is scalable and modular. We want to expand geographically within the country and also beyond its borders. If there is gas available, we can process, compress and truck it anywhere. We are trying to raise more capital to fuel this growth. From a shareholder perspective, we were a private family-owned business with recent investments from private equity in one of the compression stations, but for faster growth we’re always open to external investors to transform our financial structure.
We can leverage our brand, business model and technical know-how. We already have a good production capacity and we are looking to increase our distribution fleet and network. We currently have 120 gas tube skid trucks, and each skid carries about 7,000 cubic metres of gas. We plan to add additional distribution capacity to reach 150 gas tube skids by the end of this year. We are looking closely at the AKK pipeline project because it will unlock several opportunities for gas distribution in the northern states in Nigeria.
Our client reach is evolving as well. Multinationals were the first to switch to gas because they were on an emissions reduction path and understood the savings of gas as fuel over diesel. Since 2020, we have several new clients from smaller- and medium-scale industries and local entrepreneurs showing interest in CNG. This is an entirely new growth market for us. We want to increase our market share considerably by placing two additional plants.
The NGV [natural gas vehicle] market for trucks and buses is likely to grow due to the high cost of diesel and emission control.

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