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This paper was prepared for presentation at the Nigeria Annual International Conference and Exhibition held in Lagos, Nigeria, 31 July – 2 August 2017.
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Abstract
Nigeria aims to stimulate its economy by taking advantage of its gas reserve base to drive power generation
and industrial growth. Several steps have been taken to achieve this. The study aims to identify the
impediments to the desired results and proffer solutions to fast track the implementation of existing policies
and structures.
To identify the current challenges militating against fast tracked gas development for the economic
benefit of Nigeria, one needs to appreciate the successes gained so far by the nation. The gas industry pre
development of the Nigeria LNG Project is considered. National power generation data is presented pre and
post the advent of gas generating power plants. National gas demand data over a 20 year period is analyzed
and compared to reserve growth. Gas midstream infrastructure pre and post approval of the Nigerian Gas
Master Plan (NGMP) in 2008 is identified and compared. Effects of implementation of the commercial
frameworks for upstream development and the Gas Master Plan are also analyzed.
Although a lot of successes have been recorded by the country, certain impediments have hampered the
desired national economic growth. The following although still existing, are being addressed by the various
stakeholders;
1. Gas supply issues
2. PSC Gas Terms
3. Funding challenges
4. Non alignment of priorities by NNPC's different JV partners
5. Community issues
6. Security issues
7. Competing projects by prospective investors
8. Non passage of the PIGB
9. Policy somersault
The paper analyzes the challenges and proffers innovative solutions towards addressing the issues. These
solutions will not only help to provide a different line of thought for policy makers and other stakeholders
in the Nigerian oil and gas industry but will also provide a sort of "lessons learnt" for other developing
2 SPE-189176-MS
countries with recent oil and gas finds to fast track the development of their gas industry thereby achieving
the desired economic growth.
Introduction
Nigeria termed as holding the 9th largest gas reserves globally (CIA World Factbook: Nigeria) is considered
more of a gas province than an oil province. With a current 2P (AG+NAG) reserves of 192 Tcf (Department
of Petroleum Resources Reserves Report 01/01/2016) and a potential for gas reserve growth up to 600 Tcf
(Peter J. McCabe et al. USGS), the country aims to stimulate its economy by taking advantage of its gas
reserve base to drive power generation and industrial growth.
In view of the above, the Federal Government developed the following three (3) pronged strategies as
a means of achieving its objective;
i. Aggressively unlocking both proven and undiscovered gas reserves
ii. Accelerated development of the domestic gas market in a manner that significantly drives the
multiplier effect on GDP
iii. Repositioning Nigeria competitively (cost effectiveness and in market share) in high value export
markets.
The Nigerian Gas Master Plan (NGMP) evolved from the identified strategies and was approved by the
Federal Executive Council (FEC) in February 2008. The plan was drawn out to fast-track the opening up
of the domestic gas market and comprised of the following;
i. The National Gas Supply and Pricing Policy
ii. The National Gas Supply and Pricing Regulation
iii. The National Gas Infrastructure Blueprint
Nigeria discovered oil in commercial quantity in 1956. It took the country fifty two (52) years to produce
a plan backed by government for the growth of the nation's domestic industries via the use of its vast
gas resources. Before the advent of Nigeria LNG in 1999, over 90% of Nigeria's produced gas was flared
resulting in environmental degradation and other attendant effects over time.
Other policies and structures have also been put in place to aid in achieving the country's aspiration for
gas development. Effects of these strategy adoptions although progressive, have not produced the desired
results at projected periods.
Charges as penalty started with two (2) Kobo in 1985 which was increased to Ten (10) Naira in 1998. The
Nigerian Federal Executive Council (FEC) passed a resolution in 2008 to increase the gas flare penalty to
US$3.50/Mscfd. This was proposed in the Flare Prohibition Bill of 2010 which is still under consideration
with the Nigerian National Assembly. Other incentives such as the Associated Gas Framework Agreement
(AGFA) was introduced in 1992 and promulgated into law in 1998. The incentive ensured that Oil Producers
in a Joint Venture Agreement with the Nigerian National Petroleum Corporation (NNPC) could invest
in gas infrastructure and recoup their costs from oil proceeds. 1999 saw the extension of incentives for
AG development to NAG developments. The Nigerian LNG Project which targets gas for export came
on stream in 1999. Diagram 1 depicts a considerable rise in gas utilization and a drop in gas flare during
the 90's. A sharp rise in gas utilization can be noticed from 1999 onwards. The commissioning of the
Nigerian LNG Project has till date been the major factor responsible for the declining of gas flares. The
LNG project has expanded to 6 trains so far with a current daily gas consumption of approximately 3.5Bscfd
from the 8.0Bscfd gas produced daily in-country. This figure amounts to about 45% of the nation's daily
gas production. The Nigerian LNG Stakeholders (NNPC, Shell, Total and AGIP) are considering the
construction of additional Trains which if embarked upon will have the ability to consume additional gas
volumes of approximately 1Bscfd.
Although considerable progress has been achieved towards the curbing of gas flaring having dropped to
an average of 10% of current produced gas, the act still occurs due to;
• Non-passage of the Gas Flare Prohibition Bill of 2010 thus making the penalty of ₦10/Mscf ($0.02/
Mscf @ ₦ 360 to $1) very affordable to oil and gas producers
• Lack of adequate midstream infrastructure
• Economic dependency on oil thereby making it difficult for the Federal Government to enforce the
shutting down of oil production because of gas flaring
• Immature gas market commercial framework
• Vandalism
Hydro energy was the major source for power generation before the Federal Government invested in
four (4) gas fired thermal power plants between 1966 and 1986. The combined installed power generation
capacity for the four (4) plants namely Ughelli, Sapele, Afam IV and Egbin Plants was 3,966 MW with
a gas supply requirement of approximately 1Bscfd. The 2000's period witnessed a rapid growth in the
construction of gas fired thermal power generation plants. The effort was led by the Federal Government of
Nigeria. The Niger Delta Power Holding Company (NDPHC) was formed in 2004 and is jointly owned by
the three tiers of government in Nigeria (Federal, State and Local Government). The company embarked
on the National Integrated Power Projects (NIPP) and have so engaged in the construction of ten (10) gas
fired independent power plants with a combined installed generation capacity of approximately 4700 MW
and a corresponding gas supply requirement of approximately 1.5Bscfd.
Recent data supports that Nigeria has enough gas supply volumes to support steady generation of
5,000MW. The country presently has a total installed power generating capacity of 11,367 MW from both
hydro and thermal sources. Thermal power accounts for approximately 83% of the generating capacity
with a gas supply requirement of approximately 3.0Bscfd. NNPC is also working towards contributing over
2000MW to the nation's generation capacity by 2020 through the development of three (3) additional power
plants by its Gas and Power Subsidiary and along with other Joint Venture partners. The Corporation also
has among it's plans, the development of eight (8) other thermal power across different parts of the country
in the short and medium term. Among the enablers for the successful development of these planned thermal
power plants is the completion of the following backbone gas supply infrastructure which form as part of
the Nigerian Gas Master Plan (NGMP) approved by the Federal Executive Council in February, 2008;
1. Escravos-Lagos-Pipeline-System (ELPS) Phase II: The Gas Pipeline System is located in the
western part of the country and is 36″× 342km. The system is expected to transport up to a maximum
of 1.1Bscf. It runs parallel to and will complement the existing ELPS Gas Pipeline System which
also has a total gas transportation capacity of 1.1Bscfd. The gas pipeline infrastructure is at 95%
completion stage and will come on stream before the end of 2017.
2. Odidi-Warri Gas Pipeline Expansion (OWEP): The 40″×30Km gas pipeline is expected to enable
the supply of additional 440mmscf/d gas through the ELPS line. Tender Evaluation exercise of the
Engineering, Procurement and Construction (EPC) for the OWEP Pipeline is currently concluded for
final award. The pipeline is expected to be completed within 18 months from contract award.
3. Obaifu/Obrikom - Oben (OB3) Pipeline: The OB3 is the all-important gas transportation corridor
which is meant to transport gas from the Eastern part of the country to the Western and Northern parts.
The 48″/36″ × 127km line has a gas transportation capacity of 2Bscfd. Construction work is at 77%
completion stage with a planned commissioning by 2018.
4. Ajaokuta-Abuja-Kano (AKK) Gas Pipeline System: This pipeline is part of the Phase 1 of the
Trans-Nigeria Gas Pipeline (TNGP). The AKK Gas Pipeline is planned to deliver gas to the northern
part of Nigeria for power generation and resuscitation of erstwhile, thriving agro and textile industry.
The 40″× 614km pipeline will have the capacity to transport up to 1.8Bscfd. The pipeline construction
SPE-189176-MS 5
will serve as the first model for Contractor financing as the Nigerian Government is finding alternative
means towards delivering the urgently needed domestic gas infrastructure. The success of this model
will open up its application on the construction of other similar gas infrastructure. Tender Evaluation
exercise of the Engineering, Procurement and Construction (EPC) for the AKK Pipeline is currently
about to be concluded with plans for contract award before end of Q2, 2017. The target completion
date for the gas pipeline is in 2020.
5. QIT- Ob/Ob Gas Pipeline: This pipeline is referred to as the Early Gas Phase (EGP) of the Trans-
Nigeria Gas Pipeline (TNGP). The 36″×261km gas pipeline is meant to transport gas from Qua Iboe
to OB3 Pipeline. The Tender evaluation process for the pipeline has been kick started and is also
targeted for completion by 2020.
These critical gas infrastructures are required to open up the domestic gas market by transporting gas
from the upstream to the downstream Power and manufacturing industries. Construction of these strategic
infrastructures has not progressed as desired due to;
So far, over 590 km of pipelines (28% of total) has been laid in accordance to the NGMP.
6 SPE-189176-MS
• Companies operated along the LNG value chain (from the LNG Plant to Regasification to the
downstream consumer)
• Guaranteed payment for gas
To achieve the desired domestic gas prices, the following were approved via regulation for upstream gas
to the three (3) domestic gas consuming sectors;
• Growth of gas price to Power sector from $1/Mscf in 2011 to $2.5/Mscf (2016), to be capped by
export parity. This is meant to encourage upstream gas sales to the Power
• Increase in Commercial sector gas price of $2/Mscf in 2011 to $3/Mscf 2015.
• Gas based industries floor price of $0.9/Mscf+ net- back product factor to be capped at $3/mscf
Gas transportation price was also increased from $0.30/Mscf in 2014 to $0.80/Mscf in 2016. The price
of gas to power and for transportation took effect on 1st January, 2016. Even though the price for gas to
the power sector is currently more attractive than gas to LNG, Upstream companies are hesitant towards
supplying gas to that sector due to;
• Irregular payments by Power sector for gas supplied thereby accruing huge debts
• Insufficient capacity to receive gas volumes due to inadequate power transmission infrastructure
The country's oil and gas industry regulator Department of Petroleum Resources (DPR), based on the
NGMP, set up Domestic Gas Supply Obligations (DGSO) mandating Oil and Gas Producers to supply a
percentage of gas volumes under their operatorship to the domestic market. Priority was given to the power
sector. These gas volumes were derived as a percentage of the gas reserve base, gas utilized and gas flared
for each of the major gas producers in the country.
Because the gas reserve base was used as a factor, Oil and Gas Producers argued that the DGSO were not
realistic as one could have huge gas reserves but may not be able to unlock them based on certain factors.
Also, the producers complained on non-ability of certain off-takers to receive gas volumes made available to
them. DPR has since revised the method for allocation of the DGSO and set up an industry wide committee
to determine the National Gas Requirements (NGR). The exercise will be revised annually.
Nonetheless, the Nigerian domestic gas sector is growing astronomically. Diagram 3 below highlights
the Gas Sectors and their existing and projected demand from 2016 to 2035.
SPE-189176-MS 7
Diagram 3—Existing and Projected Nigerian Gas Demand from 2016 to 2035
Courtesy: Nigerian National Petroleum Corporation
*WAGP – West African Gas Pipeline extending through Benin Republic, Togo and Ghana
Compared to the estimated 2P gas reserves potential of 600Tcf, Nigeria will need to undertake more
exploration activities to achieve a measureable increase in its gas reserve base. Diagram 5 below depicts
the nation's total 2P gas reserves from 2011 to 2016 vs the respective P3 gas reserves which are additional
potential for gas reserve growth. There isn't significant migration of these reserves to augment 2P category
reserve growth which ultimately, can support Final Investment Decisions (FID) on gas projects targeted
for national economic growth. Rise in 2016 2P gas reserves also witnessed a spike in P3 reserves. This is
attributed to the same reason noted earlier. Furthermore, significant gas volumes are located offshore in
Oil Leases which are produced under a Production Sharing Contract (PSC) Agreement. Under the PSC,
100% of the gas volumes in the lease belong to the Nigerian Government through NNPC. The PSC does not
include commercial terms for gas production. This has discouraged the PSC Contractors from monetizing
such gas volumes. The Ministry of Petroleum Resources along with NNPC is working towards developing
an acceptable PSC Gas Commercial Terms to enable the unlocking of these huge gas resources.
SPE-189176-MS 9
Diagram 6 below attempts to highlight a situation where Nigerian Gas Reserves remains within the
01/01/2016 figure of 192 Tcf (AG+NAG). It should be noted that at least 40% of these gas reserves cannot
be unlocked in the short and medium term (NNPC estimates). The inaccessible gas volumes are from;
◦ Community issues
• Re-injected gas
• Gas cap and solution gas in the remaining Associated Gas reservoirs
The implication is that only 115 Tcf of Nigeria's gas reserves will be accessible within the short and
medium term. Based on the 2016 –2035 existing and projected demand figure of 113Tcf, Nigeria will
struggle to meet its projected gas supply commitments. This makes a compelling case for aggressive reserve
growth and resolution of commercial issues.
10 SPE-189176-MS
Diagram 6—Comparism between Nigeria's Projected Demand and Current 2P Gas Reserves
Source of Data: NNPC and DPR
pronouncement on the exiting of Cash call is a welcome development. This will enable the Joint
Venture approach the financial market for funding of it's numerous oil and gas development projects.
For the first time, EPC Contractor financing is been adopted to construct the AKK which is a major
gas trunkline that will deliver gas to the northern part of the country. The success of this model will
lead to its application in delivering other gas trunklines as enshrined in the NGMP. The NGMP should
be realigned to match current realities as the gas industry is highly dynamic and changes based on
policy shifts, gas reserve concentration and new domestic projects
5. Non alignment of priorities by NNPC and it's different JV partners: NNPC and it's JV partners
often a times have differing priorities. While the IOCs are in a Joint Venture strictly for commercial
purposes, NNPC as a wholly owned government body may wish to embark on projects solely for
strategic reasons. Also, the different IOCs in JV partnership or PSC arrangements with NNPC
may also have priorities that differ based on their individual business objectives. These issues end
up delaying and in some cases, stagnating priority projects. NNPC as the major investor in the
Nigerian Oil and Gas Industry should leverage on its majority shareholding and ensure synergy
in the development of oil and gas reserves. This will curtail the heavy cost involved in upstream
development. Upstream development cost when compared to Midstream development cost e.g for
a gas pipeline of the same dimensions are a times almost 300% higher. Open access in the use of
upstream gas facilities should be enforced to derive maximum benefit.
6. Community and security issues: Cordial relationship with host oil and gas communities facilitates
timely and successful completion of oil and gas projects. Continuous engagement with community
members is vital. Inclusion of these members in work activities and provision of corporate social
amenities ensures ownership of projects by all stakeholders. Security of oil and gas facilities will be
a priority for such communities because they understand that they are co-owners of the project.
7. Competing projects by prospective investors: Different investors propose different gas
development projects with excellent economic returns. These projects are competing for usually, the
same gas resources. The introduction of the Gas Aggregator Company of Nigeria (GACN) by the
major gas producers has gone a long way towards solving this problem by ensuring the issuing out
of Gas Purchase Orders (GPO) and ultimately, Gas Supply Aggregation Agreements (GSAA). This
ensures that no two parties scramble for the same gas resources. The GACN is meant to cease existence
once the gas market is mature and "willing buyer and willing seller" scenario is established in the
industry. The body will also steer existing GSAAs to the end of its contract term over a ten (10) year
period. Such a body will have a role to play in the future of the gas industry and should not be hastily
wound down.
8. Non passage of the PIGB: The slow progress recorded in the passage of the Petroleum Industry
Governance Bill has introduced a lot of uncertainty in the oil and gas industry. The bill was originally
introduced in December, 2008 and has since then gone through series of modifications. Almost nine
(9) years after, the bill is yet to be passed by the Nigerian Legislature. The quest for reforms in
the industry actually started in April, 2000 when the Oil and Gas Sector Reform Implementation
Committee (OGIC) was inaugurated by the Federal Government. Different lobby groups were formed
to advance individual interest. The impact on the oil and gas industry has been negative. Immediate
passage of this bill will clear the air of uncertainty and allow the industry to progress
9. Insufficient gas infrastructure: Based on the DGSO developed for gas producers, several upstream
gas development projects could not deliver gas to the domestic market due to the absence of adequate/
robust domestic gas infrastructures. Although progress is being made towards the development
of the gas trunklines, the recent model adopted for delivery of the AKK pipeline should be
applied for development of similar critical gas infrastructure. Such arrangement affords government
the opportunity to utilize its resources in other critical sectors. EPC contractor financing for the
12 SPE-189176-MS
development of gas infrastructure will also guarantee timely delivery of the project to enable
contractors recoup their investments.
10. Policy summersault: Repercussions should follow, once a red line set by the Federal Government
is crossed. Several policy deadlines have been reversed because of government's dependency on oil.
Oil and Gas Industry Operators have called the bluff of government on several occasions. DPR as the
industry regulator must be empowered by government to carry out such tasks.
11. Power Generation and Evacuation Challenges: Electricity Generating Companies (Gencos) have
been faced with challenges of evacuating power due to insufficient power transmission capacity and
as such, cannot receive the agreed gas volumes from upstream. The Nigerian government needs to
urgently expand its power transmission network to enable the power generating companies receive
its full gas compliment and generate as much as its installed power generating capacity.
The above recommendations will go a long way towards fast tracking gas development and unlock
industrial growth in Nigeria. Job opportunities will be created thereby curbing the numerous social vices
bedeviling society. The paper will also hopefully provide a sort of "lessons learnt" for other developing
countries who have recently discovered substantial oil and gas finds assisting them in taking the right
decisions for the benefit of their economies.
References
Department of Petroleum Resources, 2016, Current Data and Framework for Gas Flaring in Nigeria, DPR, Victoria
Island, Lagos
Department of Petroleum Resources, 2016, Nigerian Oil and Gas Annual Reserves and Production Report (ARPR), DPR,
Victoria Island, Lagos
https://www.cia.gov/library/publication/the_world_factbook/rankorder/2253rank.html
https://en.m.wikipedia.org/wiki/list_of_power_stations_in_Nigeria
https://www.worldenergy.org/data/resources/country/nigeria/gas
Mohammed, S., Dahiru, 2016, Simplified Schematics of Major Existing and Planned Gas Infrastructure, Nigerian National
Petroleum Corporation, Abuja.
Nigerian National Petroleum Corporation, 2016, Gas and Power Database, NNPC Towers, Abuja.
Peter, J., McCabe, Donald, L., Gautier, Michael, D., Lewan, and Christine, Turner, 1993, The Future of Energy Gases:
U.S Geological Survey Circular 1115, United States Government Printing Office, Denver Colorado, p. 40–41