Growth in Natural gas utilisation in the last decade

 by Omosomi Omomia

Between 2003 and 2012, gas utilization grew significantly by 103 percent and accounted for 79 percent of total gas produced in the first nine months of 2013 as shown in the statistical data made available by Nigerian National Petroleum Corporation. In 2012, gas utilised accounted for 77% of overall production.

In the first nine months of 2013, an aggregate of 1,615.79 billion cubic feet of natural gas was produced with 79 percent of the quantity utilised. An analysis of the supply chain as conducted by BusinessDay Research and Intelligence unit (BRIU) revealed that 33 percent of gas utilised was sold to third parties, 30 percent was for re-injection purposes for enhanced oil recovery, while 12 percent was sold to NGC for power generation and 10 percent was for LNG.

In addition, 7 percent was utilised for fuel while 6 percent was for gas lifting and the remaining 2 percent for LPG/NGL as feedstock to Eleme Petrochemical Company Limited (EPCL). Globally, Nigeria is the 6th largest producer of liquefied petroleum gas (LPG) and the second largest on the African continent.

However, the country has the lowest LPG utilisation per capita in Africa though potential demand exists of 1.5 million metric tonnes per annum. In July 2013, the Nigeria LNG (NLNG) Limited, which controls over 70 percent of the market, increased supply of the product by 67 percent to the domestic market.

In spite of the increased volumes, penetration remains marginal exacerbated by lack of affordability and accessibility, which is further intensified by the inadequacy of the policy framework to encourage the required investment in the sector.

Historical production pattern of natural gas reflects a growth of 41 percent in the total output of the energy resource since 2003. Concurrently, the percentage of gas flared has been declining, dropping from 46 percent of total output to about 23 percent.

Despite this seeming improvement, progress towards zero gas flaring has been slow and undermined by inadequate infrastructure and investment; ineffective regulation; unattractive fiscal/pricing regime and incentives, among others. Furthermore, Nigeria is ranked as the second highest gas flaring country in the world by OPEC.

Subsequently, of total gas produced from January to September of 2013, 21 percent or 331.81 billion cubic feet was flared. Gas flared in monetary terms translates to N237.73 billion (US$1.53 billion) using the current international price of US$4.60. The opportunity cost is estimated to be equivalent to 792 megawatts (MW) of electricity generating potential.

Based on an analysis by BRIU of NNPC’s projected gas production plan developed in 2009, it is clear that actual output within the same period exceeded its forecasted production, as contained in BRIU’s current edition of the Nigerian Oil and Gas Industry report yet to be released to the public domain.

Consequently, once Q4 production results are released, we expect the final aggregate gas production for full-year 2013 estimated at 2,154.38 billion cubic feet to be higher than its projected figure, though the estimate is 17 percent below the corresponding actual output in 2012. We also project a conservative trend for total output of gas in 2014 to remain within level forecasted as shown in the chart below, which is 19 percent below actual 2012 output due to similar detrimental factors hampering oil production as bulk of gas produced is associated.

Gas Producers in 2013

The JVs unsurprisingly, have consistently been responsible for the bulk of total gas produced with 80.1 percent in nine-month period of 2013. This was followed by the Production Sharing Contract (PSC) representing 15.6 percent of overall production, while the Sole Risk/Independents and Marginal fields brought up the rear with 3.8 percent and 0.5 percent respectively.

Breakdown of the fiscal regime for full-year 2012 also indicated that Joint Venture (JVs) gas production accounted for a huge slice of total production with 84.5 percent. This was followed by Production Sharing Contracts (PSC) with 10.4 percent.

Sole Risk and Independents came third with production of 4.2 percent, while Service Contracts accounted for 0.4 percent. Marginal fields brought up the rear and were responsible for the remaining balance of 0.1 percent during the period under review.

Hence, the top 5 gas producers are the JVs and comprise SPDC (33 percent), Mobil (15 percent), NAOC (18 percent), Chevron (10 percent) and Total E&P (9 percent) revealing the oligopolistic structure of the gas supply market in Nigeria.

The next major contributor to overall gas output is the sole risk company, the Nigerian Petroleum Development Company (NPDC) with 4.2 percent of the total. Subsequently, the Company’s production grew significantly by 88 percent over the preceding year in the period under review.

Going forward, the NPDC plans to produce 900 million Standard Cubic Feet (SCF) of gas per day by 2018, as part of the Company’s drive to enhance the country’s power supply with estimated electricity generation capacity of 3,000 MW, according to NPDC.

Meanwhile, gas supplied to the Nigerian Gas Company (NGC) for power generation in the period of January – September of 2013 amounted to 158.9 million standard cubic feet, according to the quarterly petroleum report by the NNPC.

Total allocation of gas is capable of generating only 520 MW of electricity daily. Gas-fuelled power plants currently dominate the electricity generation landscape. Overall, total gas supplied to the NGC of 310 millon SCF was a shortfall of 26 percent of normal volumes due to pipeline sabotage.

Conclusion

In energy terms, the quantity of natural gas in Nigeria is said to be more than twice the quantity of crude oil. It is estimated that the country’s reserve-production ratio is about 120 years compared to that of crude oil of 42 years. Furthermore, Nigeria’s gas reserve-production ratio is of 55.7 years is above the global average.

Consequently, petroleum experts often describe Nigeria as a natural gas province with some oil in it. The Niger Delta Basin is primarily designated as an oil province with original proven plus probable oil and condensate reserves found to date of 37 billion barrels. 

This compares with natural gas reserves found to date of 182 trillion cubic feet (TCF). Overall, Nigeria’s gas stocks are equitably distributed between associated and non-associated.

As an energy resource, the gas industry in Nigeria is a highly strategic commodity not only because of its export capacity but for its domestic capability, especially as a key contributor to electricity generation, as well as for the sustainable growth of other segments of the local market such as cement, steel, fertiliser, methanol, aluminium and the entire industrial sector as a whole.

Globally, the country is one of the top 10 countries (ranking in the 7th position) in the world in terms of proven natural gas reserves.  Subsequently, the total volume of 2, 580.17 billion standard cubic feet (Bscf) of natural gas was produced by sixteen (16) oil producing companies during their operations in the year 2012 thereby averaging 7.068 bscf per day.