naice 2010 spe powerpoint

Nigeria Annual International Conference and Exhibition (NAICE) 2010

Nigerian Gas Nigerian Gas Master-Plan and Master-Plan and

Policy: Is it a Policy: Is it a Constrained Constrained

Energy Policy?Energy Policy?Humphrey Onyeukwu, Humphrey Onyeukwu, The Lagos Oil The Lagos Oil

ClubClub


OutlineOutline

Overview of Nigerian Gas SectorOverview of Nigerian Gas Sector Evolution of Gas Utilization and Policies Evolution of Gas Utilization and Policies

in Nigeriain Nigeria Nigerian Gas Master-Plan – Key Nigerian Gas Master-Plan – Key

ObjectivesObjectives Elements of the Nigerian Gas Master-Elements of the Nigerian Gas Master-

PlanPlan Analysis of the Nigerian Gas Master-PlanAnalysis of the Nigerian Gas Master-Plan ConclusionConclusion


OVERVIEW OF NIGERIAN GAS OVERVIEW OF NIGERIAN GAS SECTORSECTOR Nigeria has huge gas reservoir reputed to be the 7Nigeria has huge gas reservoir reputed to be the 7thth largest in largest in

the worldthe world

Gas reserves estimated to be up to 600TCF with about 185TCF Gas reserves estimated to be up to 600TCF with about 185TCF being proved reserves*.being proved reserves*.

The gas resources are largely unexploited. Daily production is The gas resources are largely unexploited. Daily production is 4.6bcf/d and about 55%(2.1bcf/d) of the daily production are 4.6bcf/d and about 55%(2.1bcf/d) of the daily production are split between re-injection, NLNG feedstock, internal fuel usage split between re-injection, NLNG feedstock, internal fuel usage and a small quantity marketed.and a small quantity marketed.

The effect of the unexploited gas is at a huge cost to the The effect of the unexploited gas is at a huge cost to the economy. The gross monetary value is about US$2.billion and economy. The gross monetary value is about US$2.billion and the environmental impact at 70million tons of CO2 emissions the environmental impact at 70million tons of CO2 emissions per yearper year

* Based on IHS Energy Yr. 2004 estimates* Based on IHS Energy Yr. 2004 estimates


OVERVIEW OF NIGERIAN GAS OVERVIEW OF NIGERIAN GAS SECTORSECTOR

TOTAL GAS RESERVES (BSCF)

SPDC

MPN

CNL

EPNL

NAOC

OTHERS

DEEP OFFSHORE

SPDC MPN CNL EPNL NAOC OTHERS DEEP OFFSHORE

• Proved Reserves of 184 TCF with AG = 95TCF, NAG = 89TCF

• Growth in the gas reserves linked to Crude Oil reserves growth.

• The gas found in Nigeria is of high grade quality, low in sulphur and rich in liquid.


Evolution of Gas Utilization Evolution of Gas Utilization and Policies in Nigeriaand Policies in Nigeria

The Demand Constrained Era (Pre-The Demand Constrained Era (Pre-1999 Period)1999 Period)

The NLNG Era (1999 – 2005 Period)The NLNG Era (1999 – 2005 Period)

The Demand Boom/Supply The Demand Boom/Supply Constrained Era (Post – 2005 Period)Constrained Era (Post – 2005 Period)



The Demand Constrained Era (Pre-1999 Period)The Demand Constrained Era (Pre-1999 Period)

Period marked by intense gas flaring and the market Period marked by intense gas flaring and the market focus of most exploration companies was export-focus of most exploration companies was export-oriented.oriented.

The domestic gas market was greatly The domestic gas market was greatly underdeveloped and demand constrained by poor underdeveloped and demand constrained by poor state of infrastructure and limited storage capacitystate of infrastructure and limited storage capacity

Feeble Government attempts at ameliorating the Feeble Government attempts at ameliorating the extent of the financial loss and environmental impact extent of the financial loss and environmental impact of flared gasof flared gas



The Demand Constrained Era (Pre-1999 Period)The Demand Constrained Era (Pre-1999 Period) The initial regulatory measures at checking flared gas and The initial regulatory measures at checking flared gas and

encourage gas utilization include:encourage gas utilization include:- Regulation 42, Petroleum (Drilling and Production) Regulation 42, Petroleum (Drilling and Production)

Regulations (Pursuant to the Petroleum Act)Regulations (Pursuant to the Petroleum Act) mandates the mandates the Oil Companies to deliver programmes to the Minister for Oil Companies to deliver programmes to the Minister for the utilization of associated gas discovered in their fields the utilization of associated gas discovered in their fields within 5 years of putting such field into production.within 5 years of putting such field into production.

- Associated Gas Re-Injection Act Associated Gas Re-Injection Act imposed a mandatory imposed a mandatory

requirement of Oil Companies to submit programmes of requirement of Oil Companies to submit programmes of utilization of associated gas and re-injection of gas not utilization of associated gas and re-injection of gas not required for any industrial project. Flaring is allowed required for any industrial project. Flaring is allowed subject to the consent of the Minister and penaltiessubject to the consent of the Minister and penalties..



The NLNG Era (1999 – 2005 Period)The NLNG Era (1999 – 2005 Period) Marked by the kick-off and subsequent growth of Marked by the kick-off and subsequent growth of

Liquefied Natural Gas (LNG) and new projects in Liquefied Natural Gas (LNG) and new projects in Gas-to-Liquid Plants.Gas-to-Liquid Plants.- Examples, NLNG Project, Bonny (now in its 7Examples, NLNG Project, Bonny (now in its 7thth train), train),

US$3.5billion Brass LNG, US$7billion OKNLG, West US$3.5billion Brass LNG, US$7billion OKNLG, West African Gas Pipeline project.African Gas Pipeline project.

Steady decline in gas flares through the Steady decline in gas flares through the Government Flare-Out policy directivesGovernment Flare-Out policy directives-- Different target dates have been set for a Zero Gas Different target dates have been set for a Zero Gas

Flare directive. Fixed severally at 1Flare directive. Fixed severally at 1stst January 1994, 31 January 1994, 31stst December 2008 and now speculated at 2011.December 2008 and now speculated at 2011.



The Demand Boom/Supply Constrained Era The Demand Boom/Supply Constrained Era (Post – 2005 Period)(Post – 2005 Period)

Boom in demand from both the Domestic and Export sectorsBoom in demand from both the Domestic and Export sectors

Divers of this Boom include:Divers of this Boom include:- Rising gas price in key export markets- Rising gas price in key export markets

- Declining reserves in other gas provinces propelling resort - Declining reserves in other gas provinces propelling resort to reserve-rich low cost countries like Nigeria, Egypt, to reserve-rich low cost countries like Nigeria, Egypt, Trinidad & TobagoTrinidad & Tobago

- Aggressive Power Sector reforms- Aggressive Power Sector reforms

- The Nigerian Gas Master Plan and Policy- The Nigerian Gas Master Plan and Policy


The Nigeria Gas Master The Nigeria Gas Master Plan and Policy (NGMP)Plan and Policy (NGMP)

Key Objectives:Key Objectives:- Prescribes an appropriate natural gas strategyPrescribes an appropriate natural gas strategy

- Create a viable market structure for the Create a viable market structure for the development of the Downstream Gas sector in development of the Downstream Gas sector in NigeriaNigeria

- Increase private sector participation and minimize Increase private sector participation and minimize public sector investment in infrastructurepublic sector investment in infrastructure

- Develop a legal, regulatory and policy framework Develop a legal, regulatory and policy framework for safe and profitable private sector investment in for safe and profitable private sector investment in the Gas sectorthe Gas sector


Elements of Nigeria Gas Elements of Nigeria Gas Master Plan and Policy Master Plan and Policy

Critical Elements of the Gas Critical Elements of the Gas Master-PlanMaster-Plan

- - The National Domestic Gas Supply The National Domestic Gas Supply and Pricing Policyand Pricing Policy

- The Nigeria Gas Infrastructure - The Nigeria Gas Infrastructure BlueprintBlueprint


Elements of Nigeria Gas Elements of Nigeria Gas Master Plan and PolicyMaster Plan and Policy

National National Domestic Gas Supply and Pricing PolicyDomestic Gas Supply and Pricing Policy::

- - The Domestic Gas Supply Obligations requires The Domestic Gas Supply Obligations requires mandatory reserve allocation by the international mandatory reserve allocation by the international oil companies for the domestic sector.oil companies for the domestic sector.

- The regulation stipulates meeting domestic supply - The regulation stipulates meeting domestic supply obligation as a condition for the export of gas by obligation as a condition for the export of gas by the IOCs.the IOCs.

- A Domestic Gas Aggregator to manage the - A Domestic Gas Aggregator to manage the domestic supply regime and acts as intermediary domestic supply regime and acts as intermediary between the gas producers and wholesale gas between the gas producers and wholesale gas purchasers.purchasers.



Gas Pricing FrameworkGas Pricing Framework The Pricing Policy adopts a gas pricing framework The Pricing Policy adopts a gas pricing framework

that categorizes the demand sector into three that categorizes the demand sector into three strategic sectors and applies appropriate pricing strategic sectors and applies appropriate pricing regime for these strategic demand sectors regime for these strategic demand sectors groupings.groupings.

The strategic sectors are: The strategic sectors are: Strategic Domestic Sector: composed of industries that Strategic Domestic Sector: composed of industries that

have significant direct multiplier effect on the economy like have significant direct multiplier effect on the economy like the Power (residential and light commercial users), the Power (residential and light commercial users), domestic fertilizer.domestic fertilizer.

Strategic Industrial Sector: made up of industries that Strategic Industrial Sector: made up of industries that utilize gas as feedstock in the creation of new products, utilize gas as feedstock in the creation of new products, e.g. fertilizer, methanol and GTLe.g. fertilizer, methanol and GTL

Other Commercial Sector: which refer to the sector that Other Commercial Sector: which refer to the sector that uses gas as industrial fuel, e.g. manufacturing industries, uses gas as industrial fuel, e.g. manufacturing industries, Cement, Steel, CNG, domestic industries etc. Cement, Steel, CNG, domestic industries etc.


Elements of Nigeria Gas Elements of Nigeria Gas Master Plan and Policy Master Plan and Policy

Gas Pricing FrameworkGas Pricing Framework The gas pricing framework stipulates The gas pricing framework stipulates

the threshold prices for each of the the threshold prices for each of the strategic groupings.strategic groupings.

The actual prices will be negotiated The actual prices will be negotiated between the parties as only the floor between the parties as only the floor prices is suggested under the pricing prices is suggested under the pricing framework.framework.



The Nigeria Gas Infrastructure BlueprintThe Nigeria Gas Infrastructure Blueprint

designed as an integrated infrastructure strategy to designed as an integrated infrastructure strategy to support the domestic, regional and export LNG markets. support the domestic, regional and export LNG markets.

It ensured connectivity between major gas reserves It ensured connectivity between major gas reserves sources and the demand centers through the Central sources and the demand centers through the Central Processing Facilities (CPFs). Processing Facilities (CPFs).

The CPFs serve as major gas hubs where wet gas from the The CPFs serve as major gas hubs where wet gas from the gas fields are treated and processed to provide a flexible gas fields are treated and processed to provide a flexible supply grid nationwide and facilitate more flexibility in gas supply grid nationwide and facilitate more flexibility in gas supply deliverability across the country. supply deliverability across the country.

Leveraging on existing synergies between the JVs and Leveraging on existing synergies between the JVs and reduce overall cost of infrastructural development.reduce overall cost of infrastructural development.



The Nigeria Gas Infrastructure BlueprintThe Nigeria Gas Infrastructure Blueprint

It provided 3 major domestic gas transmission It provided 3 major domestic gas transmission systems in Nigeria:systems in Nigeria: The Western System comprising the existing Escravos The Western System comprising the existing Escravos

Lagos Pipeline System (ELPS) and a new offshore Lagos Pipeline System (ELPS) and a new offshore extension to Lagos. extension to Lagos.

The South-North gas transmission line. This will take The South-North gas transmission line. This will take dry gas from the Akwa Ibom/Calabar facility to dry gas from the Akwa Ibom/Calabar facility to Ajaokuta, Abuja, Kano, Katsina. The line will also serve Ajaokuta, Abuja, Kano, Katsina. The line will also serve the Eastern states of Anambra, Abia, Ebonyi, Ebonyi, the Eastern states of Anambra, Abia, Ebonyi, Ebonyi, Enugu and ImoEnugu and Imo

An inter-connector that links the Eastern gas reserves An inter-connector that links the Eastern gas reserves centre with the 2 transmission systems above centre with the 2 transmission systems above



The Nigeria Gas Infrastructure The Nigeria Gas Infrastructure BlueprintBlueprint


Analysis of The Nigerian Analysis of The Nigerian Gas Master-PlanGas Master-Plan

What is the Current Situation?What is the Current Situation?

What are the Constraining Factors?What are the Constraining Factors?

Is it the elixir for Nigeria’s domestic Is it the elixir for Nigeria’s domestic gas development?gas development?



What is the Current Situation?What is the Current Situation?

The Petroleum Industry Bill (PIB) currently The Petroleum Industry Bill (PIB) currently under the deliberation has adopted under the deliberation has adopted provisions to strengthen the Gas Master-provisions to strengthen the Gas Master-Plan.Plan.

Short listing of 15 companies -Gazprom, Short listing of 15 companies -Gazprom, BG, Shell, Centrica, EoN, Statoil Hydro and BG, Shell, Centrica, EoN, Statoil Hydro and Chevron etc. in the $30billion development Chevron etc. in the $30billion development of the infrastructure blueprintof the infrastructure blueprint



Constraining Factors:Constraining Factors: The availability of gas for domestic The availability of gas for domestic

utilization due to the export orientation of utilization due to the export orientation of the major players in the Industry.the major players in the Industry.

- Balancing gas supply for domestic use with Balancing gas supply for domestic use with competing export marketcompeting export market

- Potential resistance from the IOCs because of Potential resistance from the IOCs because of natural bias for the export marketnatural bias for the export market



Constraining Factors:Constraining Factors:•Table shows that though the IOCs post-1999 have highly diversified downstream interests, it tend towards LNG/export market.

•Structural weakness issues like inflexible structure of Nigerian gas market, infrastructure control and 3rd party access



Constraining Factors: Constraining Factors: Culled from Culled from NNPC Annual NNPC Annual Statistical Bulletin 2007Statistical Bulletin 2007



Constraining Factors:Constraining Factors: Affordability and Commerciality of SupplyAffordability and Commerciality of Supply

- The staggering nature and complexity of the gas value The staggering nature and complexity of the gas value chain makes it economically inefficient chain makes it economically inefficient

- The varying demand capacities of the different sectors The varying demand capacities of the different sectors and their ability to afford gas and their ability to afford gas

- Appropriate gas pricing and the affordability of Appropriate gas pricing and the affordability of strategic sectors like the Power sector. strategic sectors like the Power sector. At present, the At present, the total grid capacity in Nigeria, a population of about total grid capacity in Nigeria, a population of about 140million is 6000MW and only about 4000MW are 140million is 6000MW and only about 4000MW are available. available.



Constraining Factors:Constraining Factors:

Absence of a gas-specific legal and Absence of a gas-specific legal and regulatory frameworkregulatory framework- Previous attempts at promulgating the - Previous attempts at promulgating the

Downstream Gas Downstream Gas and the Fiscal Reform Act and the Fiscal Reform Act submitted in 2005 to the National Assembly now submitted in 2005 to the National Assembly now subsumed in the PIB.subsumed in the PIB.

Political WillPolitical Will

Derived demand for domestic gas Derived demand for domestic gas consumptionconsumption


ConclusionConclusion

The Nigerian Gas Master-Plan and Policy: Is it the

elixir for Nigeria’s domestic gas development?


THANK YOU!THANK YOU!

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