‘Gas-to-power scheme will turnaround economy, save consumers money’
What are the key attractions really for domestic gas in Nigeria?
The efforts to displace diesel-generated power with gas will save the consumer and the economy a lot of money and that is the huge potentials we saw in gas production and we are in the front of the business.
I like to always talk about the domestic energy security because before this time, we saw gas and oil as just commodities for revenue earning, but I think that the paradigm is shifting all over the world because government is determined and private sector is supportive, working hard to increase refining capacity so that crude oil is not just a revenue earner, but we can benefit from it here and do more with it.
That is exactly what we are doing with gas.
It is not just to regenerate it as LNG and export it for domestic energy security in Europe and USA and Far East; we need the demand for domestic gas to equate the provision of domestic energy security. You measure the potential growth of an economy, not by the resources it produces, not by the energy it sells to the outside world but by the energy it consumes. So we know that energy consumption has to go up in this country as the economy improves and one of the sources of that energy security is gas. So we saw this and made the projections.
The key thing here is the kind of supply that this country needs versus how much money.
Just attempting to displace diesel-generated power with gas will save every body, the consumer, the government a large sum of money, that was the huge potentials we saw and it is still there. So we tapped into it and what we see today is increasingly financial contribution of gas to our business.
How would your investment in gas increase shareholders returns?
Government talks about gas development project, this is one of it and it is the foremost coming ahead of the remaining six gas projects. We are excited about it because it is one of the priorities of the government as the strategic partner in NGC, which is the company of NNPC. It gives us the excitement that we are in the forefront of the project.
In 2013, when we were doing our road show for our listing, we said that our aspiration was for our gas business to account for 25 to 30 per cent of our bottom-line. We are just about there now. In 2018, we made $156 million gross revenue from gas. It is a business to us. In addition, we are so proud that we can turn this business into a major contribution to national economic development.
Today, of the 3,000 to 4,000 giga watts of grid capacity and about 800-900 million scuff of gas that drives that power generation, we contribute between 320-375 million scuff per day, so really, 30-35 per cent of gas to the domestic market today is supplied by Seplat. Capital investment for gas in 2018 was $48 million. So when we paid 10 cents dividend for the full year, 20 per cent , the two cents out of that was contributed by our gas business.
Our gas business was first anchored on our Oben gas complex. When we bought this asset from shell and partners in 2010, we also inherited a gas plant that was doing about 50 million scuff a day. We went in there and build a new 375 million scuff plant in addition to what we saw there including the 60 million of plant that we inherited from Sapele.
We are replacing with 75 million-scuff plant. So we also went in there and put in 50 million scuff of compression capacity, so the associated gas that would have been flared was actually compressed and put into the market, so we have a total installed capacity today of 525 billion of gas processing capacity and additional 50 million scuff associated gas compressing capacity. We have invested quite heavily between 2012 and now.
Earlier this year, we took fib to put in along with our partners an additional $700 million to build a 300 million scuff gas this time in Imo state. The project is funded through equity of $420 million; among other financing options with government. The project, when completed would enable the company to produce 800 million gases per day, which would ultimately account for 40 per cent of total domestic gas production. Our gas project is already impacting on our bottom-line.
How is the sustainability of the $700 million gas project against the backdrop of government involvement?
We have a $700 million project, with total equity of $420 million, that means $210 million from government, which is NGC, and $210 million from Seplat.
Of the $210 million equity injection that is required, NGC has already paid $150 million as we speak, with just 60 million left to pay. So, the question of sustainability of the project with government risk does not arise, as the biggest government risk would have been whether they will pay their money in their equity and as a matter of fact, our fib happen only when we receive the first $100 million.
Only $60 million is left to inject from them and the project delivers first gas in Q1, 2021.
There is no further risk and government will no longer need to inject any extra kobo, I mean, you see the kind of cash flow generation that we spoke about earlier, just to sit down and be receiving dividend from the $210 million investments. So, we have already crossed the hurdle of the biggest risk.
The timing of the upstream, which is the source to the plant is very much planned as a unit and it has been factored in such that the well are going to be ready by the time the Anoh plant would be ready.
What are the benefits that will come out of this interface with Imo State communities?
Employment mood has already started, we have cleared 86 hectares of land and people are working continuously. We are going to spend between now and Q1, 2021 in our activities, where you are spending $700 million dollars in a project, it drops to every body. All the civil works are being done by local contractors, most of them from Imo state and when we will start delivering gas, truck load daily, you can visualise the full impact on the economy of Imo state. This project is one of government’s seven critical gas projects and it is the only one that has reached this stage and we initiated that.
The power company would be the significant off takers, buying directly from the NGC, giving the general illiquidity and insolvency in the power sector, how do you mitigate potential payment risks from the off takers.
For the power sector risk, our confidence comes from the fact that over the last three years, we have been delivering over 350 million scuff of gas into the domestic market so it is an area we are familiar with. The risk is there but we also know that of all the suppliers in the market, if you are an anchor supplier, if the demand centre knows that you will always deliver, you probably be the first to get paid. The payment risk guarantee in our view is minimal; it is something we can manage.
Can you explain how your gas transportation infrastructure operates?
You mean how we transmit gas. We have the escravos Lagos pipeline system, we have that pipeline system that runs from Lagos to escravos to Egbim and through West African to Ghana, so we have a pipeline system that can deliver gas all the way to West Africa and all the way in North to Ajaokuta, and we have OB 3 to Oben pipeline which is connecting to the existing pipeline.
We have a pipeline system that can deliver three bcf of gas a day and our locations are smart connected by this two pipelines systems. So you have Oben where we build the additional 375 million scuff of processing capacity and to the South East is where we are going to build the Anoh gas plant in Imo state.
When we finish this, we will have a total processing capacity of between Oben, Anoh and Sapele, almost processing capacity of about 850 million scuff of gas per day, which is already connected to the existing pipeline of transmission and distribution. So this is why it is a very attractive business for us because it is a major contributor to the national energy security.
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