NIGERIAN GAS MASTER PLAN (NGMP) AND KEY STAKEHOLDERS: MARKET DYNAMICS AND CHALLENGES

NIGERIAN GAS MASTER PLAN (NGMP) AND KEY STAKEHOLDERS: MARKET DYNAMICS AND CHALLENGES

The Nigerian Gas Master Plan (here after NGMP) is a road map instituted by the Nigerian government to monetise its abundant natural gas resources which according to BP statistical bulletin (2018) stands at 183.7 trillion cubic feet (Tcf). It is a plan laid out to ensure that the domestic gas needs of Nigeria are met, with a multiplier effect on the economy for overall economic growth. NGMP is made up of three (3) main components, which are; (a) Domestic Supply Obligation (b) Gas Pricing Framework (c) Gas Infrastructure Blueprint. All these components, tackling key challenges from different perspectives using a holistic approach, seek to ensure that the gas monetization policy of the government is achieved. In order to meet the target, NGMP has three key objectives. NNPC states that these objectives are; (a) Stimulate the multiplier effect of gas in the domestic economy (b) Position Nigeria competitively in high value export materials (c) Guarantee the long term energy security of Nigeria. Meeting these objectives has not been a roller coaster ride for the country. There have been several challenges both in the part of the Federal Government and oil and gas companies alike. This article therefore addresses challenges faced by oil and gas companies in meeting their respective Domestic Supply Obligation (here after DSO) in the face of unfavourable Nigerian market dynamics.

Since the inception of the NGMP, there has been a continuous effort by both FG and oil and gas companies to increase the amount of gas produced, reduce gas flaring and consequently increase the domestic gas supply to the Nigerian market. But this has not resulted in meeting the stipulated DSO target. As at 2017, the amount of natural gas delivered to the Nigerian domestic market is half the targeted DSO. In face of setbacks in meeting the DSO, the government has rather decided to take a more pragmatic approach. The current administration’s policy has therefore ensured that no award or licenses will be renewed for companies that are failing to meet their DSO. Project approvals will not be granted unless players have a gas monetisation plan. Even producers who re-inject gas for Enhanced Oil Recovery (EOR) will likewise face restrictions. These has cumulated in oil and gas companies being “forced” to make the Nigerian domestic market a priority in their gas monetisation plans. A downside to this is the unfavourable market conditions in which these key players have to do business in; a market that is constrained by infrastructure and credible offtakers.

At this juncture, it is pertinent to state that the FG regulates who oil and gas companies can sell gas to. It has therefore mandated that the power sector which consumes two third of the DSO (650mn cf/day) should be first amongst equals when sourcing natural gas to the domestic gas market for sale. Unfortunately, this is where a major part of the problem lies. The Nigerian power sector (Gencos) is “notorious” for owing gas suppliers. The debt owed electricity Generating Companies (Gencos) by the FG and Distributing Companies (Discos) has been one of the main reasons for their inability to pay for gas supplied. During a stakeholder meeting in 2018 hosted by Sahara Group which had in attendance several key players in the power sector, it was revealed by Mr. Ayigbe Olotu, group finance officer of Sahara Group that the total amount owed Gencos for electricity supplied is approximately N800bn, but when interest is added, it amounted to over N1trillion. This is of course enough to send any business sector that kick started its operations on the basis of loans acquired from different financial institutions into economic extinction. Even though a N701bn Payment Assurance facility was set up by FG, Ministry of Works, Power and Housing, Nigerian Bulk Electricity Trading (NBET), CBN and Gencos from which funds will be drawn to pay Gencos for electricity supplied from January 2017 to December, 2018, the sustainability challenge of such payment option still makes Gencos rather unattractive offtakers to gas suppliers.

The oil and gas companies are in a business of making profits within a regulated framework and not philanthropy. This therefore necessitates they are look for reliable and credible offtakers that can pay the stipulated $2.50/mn Btu at a sustainable and regular time frame. Since the gas suppliers cannot boycott the power sector, they have resorted to testing different payment methods so that the issue of debts owed can be obliterated. One of such is the Pre-Payment plan but the off/on of supply is counter –productive for reservoirs and turbines alike. So before producers will begin to do business in a deregulated market, where forces of demand and supply drive market dynamics, they would definitely have to source for buyers that can at least pay for gas supplied to them even at lower prices. This is necessary as the policy framework driving the natural gas industry necessitates that they must meet their DSO or face sanctions.

Fig. 1. Adura Edo Independent Power Project (IPP)

Alternatives in the face of Unfavourable Market Dynamics

In the face of meeting DSO and a government regulated power sector that cannot reliably pay for gas supplied, oil and gas companies have therefore resorted to looking for “private” offtakers in the power sector. Example of such deals is evident in the Adura Edo power project shown in Fig. 1. This is a permanent independent power project (IPP) with a capacity of 459MW. The project is backed by multiple donors that ensure that its private investors are protected from risks which projects that are without Power Purchase Agreements (PPA) are likely to face. This therefore makes Adura Edo power project attractive to gas suppliers. Seplat supplies gas to the project at $3/mn Btu which is even higher than the regulated price of $2.50/mn Btu. Of course projects of this sort would create problems for other power projects that are without Power Purchase Agreements (PPA). A resultant effect of this is that, gas suppliers who are contracted to those power projects without PPA will be put out of business. This does not of course mean that this scenario is the status quo in the power sector.

Total signed an offtake agreement with private owned Greenville LNG, situated at Rumuji, Port Harcourt. The contract involved the delivery of natural gas (74 mn cf/day) to the facility. Greenville LNG shown in Fig. 2 will take gas from OML 58, the Rumuji manifold where the high pressure gas pipeline systems 1, 2 and 4 all converge. This is a landmark deal in the mini-LNG industry involving LNG transport by road. The issue with the reliability of Greenville as an offtaker is the one of sustainability. Considering the cost of liquefaction, regasification and state of Nigerian roads, it remains uncertain if Greenville will prove to be a reliable offtaker. Total also signed an offtake agreement with Indorama, Port Harcourt. In this agreement, Total will use its Northern Option pipeline to supply natural gas to the petrochemical plant at the capacity of over 100 mn cf/day. This will commence as from 2021 at the Indorama petrochemical plant expansion. It is noteworthy to note that these deals were brokered by Gas Aggregator Company of Nigeria (GCAN) which serves as a middleman between gas suppliers and buyers in Nigeria.

Fig. 2. Greenville LNG located at Rumuji, Port Harcourt

The Lekki Free Trade Zone (LFTZ) is another hotspot where gas suppliers are looking at selling their commodity to reliable offtakers. LFTZ is located on the Lekki Peninsula, home to the largest industrial complex under construction in Nigeria. The Dangote refinery (shown in Fig. 3), a petrochemical plant, a 570MW power station and a deep port are one of the high points of the trade zone. Dangote group is looking at constructing a 20 km pipeline to the Excravos-Lagos transmission line, from which gas can be sourced. There are also other opportunities that key players can take advantage of using existing infrastructure. It is important to state that there is an option to connect the Trade Zone to Shell’s offshore gas gathering facility which could even be a more attractive option for offtakers and gas suppliers alike

Shell signed a US$300mn deal with Shoreline to finance and develop a pipeline network in Lekki Franchise area. This will afford Shell the infrastructure to supply gas to commercial centres such as Victoria Island, Ikoyi and Epe. LFTZ is also part of the target markets in this deal. In 2017, Shell also signed a deal with Rivers state government to develop a distribution grid in the greater Port Harcourt area. The aim of Shell is to displace the present 18GW power capacity of diesel generators currently used in Nigeria. Absence of such diesel generation capacity has been revealed to consume 4000 mn cf/day of natural gas. It is of course pertinent to bring to bear at this point that gas distribution is not regulated in Nigeria. This has resulted in some end users paying fairly above the stipulated cost of gas. It is reported that some consumers pay as high as $8 /mn Btu but this is of course still below the equivalent cost of operating a diesel generator plant in Nigeria.

Fig. 3. Aerial view of Dangote Refinery under construction

Expected trends in Nigerian domestic market for Gas suppliers

Gas suppliers no doubt have to meet up their DSO even in an unfavourable market. They would have to seek ways to surmount the challenges (such as infrastructural, ready market and credible offtakers) and find a reliable market and credible buyers that would consume their gas supplies. In the face of a state-controlled market, it is obvious that the Nigerian domestic market growth will continuously be below its potential. The value chain from which the economy is expected to benefit will continue to suffer chronic illiquidity, non-payment, under-investment and intermittent supply. Unfortunately, this defeats the key objectives of the NGMP. It is imperative to state that if the government is serious about letting natural gas help grow the nation’s economy, it is of utmost importance that the federal deregulate the gas supply market and let it be controlled by the forces of demand and supply. 

For gas suppliers, they would have to device innovative solutions through which they can meet their DSO and at same time, stay in business. Therefore there are trends that market is expected to follow so that private investors can avoid any market challenge wherever possible. Wood Mackenzie expects to see the following;

Ø  More point-to-point supply and demand between gas suppliers and large private offtakers.

Ø  More supply to clusters or “islands” of private-sector industrial demand in the form of free trade zones.

Ø  The creation of new islands of industrial, commercial and even residential demand for those willing to go downstream and build gas distribution networks where none exist.

Ø  Smaller islands of gas demand from embedded generators powering small-scale private distribution networks outside existing franchise.

Ø  State governments increasingly promoting their own grids to the private sector rather than looking to the federal government.

The Nigerian oil and gas industry no doubt is faced with different problems but if laid down plans, policies (NGMP, NGFCP, PIGB etc.) and regulations are followed and consciously enacted, the world in a very short time will begin to feel the influence of the Nigerian oil and gas abundant resources.