How Natural Gas Can Fuel Nigeria’s Industrial Revolution

0


Given the overarching importance and intrinsic value of gas resources to Nigeria’s economy and industrialisation  as well as the wellbeing of the people, Kunle Aderinokun writes on the need for the federal government to pay more attention to the development of gas industry, necessary to nurture the fuel of the future, and be free from the vagary of oil, the liquid fuel, which is even less profitable  

In 2017, the US Energy Information Administration released a report confirming the presence of an estimated 7,923 trillion cubic feet (tcf) of total world reserves of natural gas beneath the earth’s surface.

Approximately 80 per cent of this valued resource is located in 10 countries of which Russia tops the list with an estimated 1,680 tcf, about one-fourth of the total. Global gas demand has risen significantly over the past decade. This growing demand is highest in Asia, which consumes about one-third of global supplies. China’s gas demand makes up the largest within Asia and is driven by the country’s coal-to-gas substitution policy targeted at addressing environmental concerns arising from carbon emissions. According to the International Energy Agency (IEA), natural gas is expected to overtake coal as the world’s second-largest energy source by 2030.

Nigeria holds the ninth-largest proven gas reserves in the world with reserves estimated at 190 tcf as of December 2018. Earlier, in October 2018, the Ministry of Petroleum Resources estimated the country’s reserves-to-production ratio (which measures the remaining amount of a non-renewable resource expressed in time) at 46 years for oil and 102 years for gas. Nigeria is actually “a gas province with some oil”. The gas produced in the country has primarily been for LNG export, reinjection for oil recovery and domestic utilisation by power and gas-based industries, with the balance flared. 

Yet, natural gas is the fuel of the future as it is abundant, more cost-effective than liquid fuels, safer and environmentally friendly; lighter than air, odourless, colourless and contains the least carbon among fossil fuels. This methane-rich fuel has proven to be one of the fastest paths to industrialisation, and there is evidence of a correlation between GDP growth and gas consumption by productive sectors of the economy.

Before the widespread utilisation of gas, the only sources of energy were liquid fuels (mostly by-products of crude oil), and in Nigeria, predominantly automotive gas oil (AGO), low pour fuel oil (LPFO) and premium motor spirit (PMS). For industrial production, AGO and LPFO were the fuels of choice. These fuels, however, are plagued by issues such as scarcity, labour strikes, pilferage, port delays, refinery shutdowns, and unpredictable product pricing, especially for deregulated fuels. Many of these issues are intensified by the linkage to crude oil and, very recently, at the height of the all-time high crude oil prices at over $100 per barrel, prices of liquid fuels were unsustainable and partly responsible for the shutdown of some manufacturing facilities. 

Then came gas, the cheaper and much cleaner alternative with an entirely domestic value chain. The advent of gas solved the issues associated with liquid fuels including reliability, price predictability, and local abundance, and as the manufacturing industry gradually embraced the methane-rich fuel, the industry has become more profitable and productive overall. Thus, we can assert that: gas is a solution to fuel pilferage; gas is a reliable energy source; gas is a cleaner alternative; and gas is the enabler for increased profit. As a relative solution to fuel pilferage, the incidence of fuel theft is relatively non-existent with natural gas. Natural gas, which is mostly transported via underground pipelines is not prone to such pilfering. Gas usually must meet a specific quality threshold to be transported via pipeline, and thus only pipeline-quality gas is transported to last-mile users. In contrast, liquid fuels are mostly transported via trucks and so usually untraceable and difficult to track in the event of theft. In addition to incidences of theft are the issues of spillages that result in the pollution of farmlands, water bodies, and overall environmental degradation. The associated costs of cleanups further acerbate this issue. There is also the problem of product adulteration where stolen fuel is mixed with foreign substances and resold to unsuspecting users. This results in equipment breakdown, human fatality, catastrophic failures and in the long run, litigations.

The application of natural gas completely solves all of this. While pilferage is unlikely, incidental leaks on gas pipelines are relatively easier to detect and can be easily managed by proper ventilation of the facilities since gas is lighter than air after leakage is arrested. 

Gas is a reliable energy source. It is locally sourced and the entire gas value chain – from upstream production to transportation and final delivery to last-mile users – is domestic. In contrast, liquid fuels are susceptible to a myriad of issues that make them unreliable. Port delays, labour strikes, the underperformance of refineries, etc. make it difficult to predict when products will be available. Also, because liquid fuels are mostly imported, the lack of foreign exchange currencies impacts the availability, and a lack of predictability will usually make it difficult for manufacturers to plan operations and be efficient. With liquid fuels, the issue of end product stock-outs is prevalent because manufacturers are not able to effectively manage inventory. This ultimately results in loss of sales, customers and market share.

Save for the few militancy attacks; for many years, there have not been any gas supply interruptions. Natural gas, therefore, comes to the rescue, making it easier for companies to effectively manage production schedules with minimal interruptions and ultimately run very efficient and predictable operations.

As a viable cleaner alternative, natural gas is environmentally friendly, odourless, colourless and produces only water vapour and small amounts of carbon dioxide during combustion. Combustion of liquid fuels typically produces 2-3 times more carbon dioxide, thus polluting the atmosphere and accelerating global warming. Also, liquid fuels produce other harmful substances such as soot, SOx and NOx and sometimes deadly carbon-monoxide due to incomplete combustion. All these affect the health and productivity of staff of manufacturing organisations as well as present them in a bad light as contributors to environmental pollution. Consequently, organisations with such record may find it difficult to attract financing. Staff attrition and absenteeism may also be high leading to unstable operations. 

Natural gas equipment also tends to require less maintenance and last longer, thereby reducing overall total cost of ownership.

In enabling increased profit, natural gas is generally about 30 to 40 per cent cheaper than most liquid fuels. 

Also, while the initial Capex requirements for gas equipment may be higher, they generally have lower maintenance costs and therefore, a lower total cost of ownership compared to liquid fuels. Such low costs also stem from the fact that there are no spills, effluents or soot with gas equipment and by implication no costly requirements for cleanup, lower staff medical bills given that employees are not exposed to inhaling dangerous gases and so on as is prevalent with liquid fuels. 

Against this backdrop, the government must focus its efforts on creating an enabling environment for the development of the gas industry. 

Natural gas provides a strong base for industrial development and thus developing the sector will position the country for unprecedented growth while creating an alternative source of public revenues. A critical enabling factor for the development of the sector is “pricing”, and significant efforts must be directed at promoting a framework that attracts quality private capital. The framework must be such that it balances the need to guarantee investors a reasonable return on investment alongside the need to deepen domestic gas utilisation.