Gas Exports: Nigeria Misses Another Critical Opportunity

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It’s no gainsaying that Europe is desperately in need of Africa’s natural gas as it seeks to wean itself off Russian exports. But despite Nigeria’s huge reserves, it’s currently difficult, if not impossible to ramp up production, writes Emmanuel Addeh.

 As it is in the crude oil market, so it is in the gas supply space. Nigeria cannot meet its Organisation of Petroleum Exporting Countries (OPEC) oil production quota. The country also appears helpless in its seemingly pretentious ambition to supply more gas to Europe on the back of the Russian-Ukraine war.

The heart of the matter is that Europe, mostly Western Europe, looks to stop its over-dependence on gas from the Vladimir Putin-led country, which experts presently put at about 40 per cent of total consumption.

In an effort to achieve that, Europe has sent several delegations to Nigeria recently to discuss ways of increasing production and by extension, supply to the continent. But the truth is that given the current realities, any such ambition remains what it is: a pipe dream.

EUROPE’S DILEMMA

Although the fuel supply situation was already bad before the present situation, many European leaders are facing more wrath from their people as oil and gas prices have surged, following Russia’s invasion of Ukraine on February 24 this year.

Taking a cue from the United States, which has banned imports of oil and gas and the United Kingdom which is phasing out imports, the European Union, has also said that it is halting its reliance on Russian gas. But this means that it will need alternatives or starve.

The action taken by the West is part of a series of Western sanctions aimed at cutting off Russia from the world’s financial arteries and punishing the country for, depending on whose argument one falls for, invading a neighbouring country, Ukraine.

 According to BP’s Statistical Review of World Energy, 2021, Russia has the world’s largest reserves of natural gas, followed by Iran and Qatar, accounting for half of the world’s natural gas reserves in 2020.

The International Energy Agency (IEA), in 2021,stated that European imports of gas from Russia were more than 380 million cubic metres (mcm) per day via pipelines and totalled about 140 bcm for the year while an additional 15 bcm was delivered in liquefied natural gas (LNG) form. 

The EU’s announcement of a two-thirds reduction of Russian gas by the end of 2022, therefore remains an uphill task.

HUGE RESERVES, POOR PRODUCTION

Although gas has the potential to power the anticipated growth of the Nigerian economy, but the country has hardly scratched the surface of the enormous amount of the resource.

With 209 TCF, Nigeria houses the largest gas reserves on the African continent and is the ninth in the world.  

Earlier in the year, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) had announced that Nigeria’s proven natural gas reserve had risen to 209.5 Trillion Cubic Feet (TCF) as of Jan. 1, 2022.

Chief Executive, NMDPRA, Farouk Ahmed, said the new figure represented a major increase of 2.97 TCF in proven natural gas reserves, representing 1.42 percentage increase from the 206.53 TCF recorded on Jan. 1, 2021.

In all, Nigeria’s gas reserves are more than five times its oil reserves, and although the government acknowledges this every time, it has been unable to get it out of the ground as fast and as efficiently as possible.

The country’s gas production and supply system is largely under-developed, and has hampered industrial growth as well as stifled foreign exchange earnings.

 Nigeria’s domestic gas supply hasn’t been optimal despite having 3 per cent of global gas reserves with the gas value chain suffering from poor infrastructure, payment issues, lack of investment as well as pricing issues in the downstream segment, thereby reducing the incentives for upstream gas companies to prioritise supply.

Even domestic supply is largely hampered as a major section of the country’s citizenry still depends on firewood for cooking and power supply remains erratic due to inadequate and inefficient gas supply value chain.

Nigeria’s case has been likened to a person with a river in their backyard dying of thirst. With proven reserves equivalent to 306.3 times its annual consumption, it is estimated that the country has about 306 years of gas left, at current consumption levels and excluding unproven reserves.

Although there are no clear victors in any war, however it is also trite to accept that such situations, no matter how unfortunate and undesirable would ordinarily come with its beneficiaries. Again,  the country has failed to grab the opportunity.

ALL TALK, LITTLE RESULTS

From the “Year of Gas” to the “Decade of Gas”, Nigeria has never been short of platitudes and slogans. But in spite of the much-talked-about renewed attention to the use of natural gas in boosting Nigeria’s foreign earnings, there has no significant growth in the country’s production level.

For instance,  between 2016 and 2020, a THISDAY review from the latest report from the Nigeria Extractive Industries Initiative (NEITI), covering 2020, revealed that indeed the country produced more of the commodity when there was little focus on it compared to when programmes to expand its exploration and use gained national prominence in recent years.

Since the current administration took over the reins of governance, a number of programmes to reduce gas flaring and make it more available for use nationwide have been launched, while other initiatives to expand the growth of the commodity have taken centre stage.

But despite all the “efforts” and billions of dollars down the drain, there’s was no marked growth in gas production during the period under review, even though gas utilisation increased in-country marginally.

For example, in 2017, the federal government launched the national gas policy to end gas flaring and create an enabling environment for investors, seek value addition for gas, and improving governance in the sector.

A year later, President Buhari signed the Flare Gas Regulations, 2018, which provides a fiscal and commercial framework for the implementation of the NGFCP.

Similarly, in December 2020, the National Gas Expansion Programme (NGEP), which aims to deepen domestic usage of natural gas in its various forms, was launched.

During the period, the government stated that it completed the 342KM Escravos-Lagos Pipeline System Phase 2 (ELPS 2), running from Oben node in Delta State to Itoki in Ogun State, and doubling the capacity of the ELPS from 1,100MMscfd to 2,200MMscfd.

This was in addition to the completion and commissioning of the Integrated Gas Handling Facility and LPG Processing and Dispensing Plants, said to be the largest onshore LPG plant in the country.

It was built and is being operated by the Nigerian Petroleum Development Company (NPDC), an upstream subsidiary of NNPC in Oredo, Edo State.

Furthermore, the federal government has touted the commissioning of the Lot 2 of the 130KM Obiafu-Obrikom-Oben (OB3) Gas Pipeline, running from Obiafu/Obrikom in Rivers State, through the Oben Metering station in Edo state, to link to the Oben node on the Escravos Pipeline system (ELPS), in Delta state as one of its achievements. The OB3 Pipeline has a capacity to deliver 2,000MMscfd of gas.

 In 2018, the NNPC signed agreements on what it termed seven “critical gas development projects”, to deliver about 3.4 billion standard cubic feet of gas per day, to boost domestic gas supply, and support power generation and industrialisation.

They include the development of Assa North/Ohaji South field, Samabri-Biseni, Akri-Oguta, Ubie-Oshi and Afuo-Ogbainbri unitised gas fields, among others. But the projects appear to have done little to boost the country’s overall supply.

MANY DELEGATIONS, LITTLE GAINS

In the last few weeks, the European Union has sent delegations upon delegations to the key government players in the oil and gas sector. But while various agreements have been signed in other countries like Egypt and Algeria visited by the European countries, with Nigeria, it has been all talk, no substance.

From the delegations’ visits to the Minister of State, Petroleum, Mr Timipre Sylva, to the Group Managing Director of the Nigerian National Petroleum Company (NNPC), Make Kyari to even the midstream/downstream authority, no gains, short or long-term, have been announced and no deals have been signed.

Nigeria has simply been unable to increase production and supply despite its over 206tcf of proven gas due to under-investment and inadequate infrastructure.

Earlier, a delegation which met with Sylva, included the European Union Ambassador to Nigeria and the Economic Community of West African States (ECOWAS), Samuela Isopi and French ambassador to Nigeria, Emmaunelle Blatmann.

Others were: The Spanish ambassador to Nigeria, Juan Sell; Portuguese ambassador, Luis Barros, and Italian Deputy Head of Mission, Tarek Chazli.

At the event, the federal government had urged Europe to step up investments in gas and other hydrocarbons in Nigeria to be able to help meet the EU energy demand.

Sylva said that although Nigeria was ready to step in as an alternative gas supplier to Europe,  the continent has to encourage its oil and gas companies such as Shell, Eni, Total Energies among others to scale up investments in the gas sector in Nigeria.

Aside Nigeria, the Italian Prime Minister Mario Draghi, THISDAY learnt, arrived in Algeria last week,  with an agenda to prioritise the acquisition of larger volumes of Algerian gas.

Algeria currently supplies 30 percent of the gas required by Italy, and 40 per cent comes from Russia, according to official figures.

Draghi’s visit was a prelude to that of the chairman of the Italian energy group Eni, Claudio Descalzi, during which he met with Toufik Hakar, president of Sonatrach, the Algerian hydrocarbons agency, with whom he reviewed the state the bilateral partnership.

In addition, Egypt and the EU have held a meeting pledging to enhance cooperation in energy, during consultations between Prime Minister, Mostafa Madbouly and Frans Timmermans, the EU’s climate chief, in Cairo.

In Nigeria, speaking on behalf of the group, the EU Ambassador to Nigeria, Isopi, said as a result of the current geopolitical situation in Europe, the continent was interested in strengthening its cooperation with Nigeria, particularly in the area of possible increase in the supplies of Liquefied Natural Gas (LNG).

“Nigeria is the fourth gas supplier to Europe. At least 40 per cent of the Nigerian LNG is currently exported to Europe. We are not only major clients for Nigeria, we are also major partners in the oil and gas sector because some of the companies that are working with you are from Europe.  So we share the same interest and same objectives,”  Isopi was quoted as saying.

Responding,  Kyari assured the delegation that the company would continue to deepen its historical relationship with EU companies in Nigeria in order to add more value to its business, particularly towards increasing gas supply to the global market and enhancing domestic gas utilisation.

Other diplomats from the European delegation on the visit, according to the statement,  were: The Ambassador of Portugal, Barros; Ambassador of Spain, Sell; Ambassador of Italy, Stefano De Leo and Deputy Head of Mission (France), Olivier Chatelais.

Also, a delegation from Netherlands led by Mr Ewout de Wit, the Counsellor/Deputy Head of Mission, Embassy of the Kingdom of the Netherlands to Nigeria, has visited the NMDPRA on the possibility of increasing gas supply from Nigeria.

NO SHORT CUTS

A number of analysts who spoke on the matter believe that there’s no miracle that can be performed in the short term.

“Where is the infrastructure?” an Energy Expert, Dan Kunle quipped when asked what Nigeria can do in the short term to ramp up supply to Europe?

However, he added: “If I were government, I will revisit the drawing board, I will say where is Brass LNG paper, Where is Olokola clean it up and then you invite big figures like Aliko Dangote, like Mike Adenuga to the table and say look, come and join the IOCs and get this project done because government doesn’t have the money to continue.”

Stressing that the energy sector is very capital intensive, he stated that government must find a way to incorporate its own citizens, insisting that the orientation that only America can do it was wrong.

A lawyer and former Nigerian Electricity Regulatory Commission (NERC)  Chairman, Dr Sam Amadi, on his part , stated that Nigeria needs to worry about capacity to improve production. 

He contended that at present, the sector in Nigeria has structural constraints,  technical issues and even commercial challenges, pointing out that these issues have to be resolved before any progress.