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‘How majors’ stake in gas, lower margins hedged against price volatility’

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As the world groans under the impact of the coronavirus, oil majors with portfolio investments in gas in Nigeria, and many other developed climes, may have helped to provide strong resilience to the current oil price volatility.
 
Already, the need to plough more gas for domestic consumption, especially in power generation is pushing majors to increase their stake in gas-linked liquefied natural gas (LNG) projects locally.
 
While new investments decisions may not be taken this year, ramping up existing platforms for gas uptake may further help operators.
 

 
Stakeholders in the gas sector noted that gas-fired power generation represents the most economically viable and immediate means to fuel Nigeria’s energy needs, considering the amount of stranded gas that can be utilised for domestic consumption.
   
Nigeria’s gas reserves have increased by 7.3 per cent from 187 trillion cubic feet to 200.79tcf, according to the Director, Department of Petroleum Resources (DPR), Sarki Auwalu.
   
In its call transcripts on the first quarter results for 2020, Chief Executive Officer, Royal Dutch Shell, Ben van Beurden, said the company is targeting a reduction in underlying operating costs by about $3billion to $4billion yearly, over the next 12 months, compared to 2019 levels.
   
He also confirmed the deferral of final investment decisions and exit from early stage projects, saying: “For instance, we do not have to invest further in feasibility expenditure. We will, of course, still look for opportunities to protect or generate further value, where that then makes sense.”
 
In Nigeria, Shell Petroleum Development Company (SPDC) last year, said it would be expending about $15billion across 24 oil and gas projects in the country over the next five years.
 
Already, the oil major said its ongoing Assa North/Ohaji South gas development in Imo State, will produce 600 million standard cubic feet of gas daily, energy equivalent of about 2400 Mega Watts of electricity enough to provide uninterrupted power to 2.4 million homes.
 
 
For Seplat Petroleum Development Company Plc, its Chief Executive Officer, Austin Avuru, in a statement made available to The Guardian, said: “The business is hedged against low oil prices and a significant proportion of our revenues now come from gas, which offers further protection from oil price volatility. The Company has low production costs and can remain profitable even at lower oil prices.
   
“We have significant cash resources available and will continue to manage our finances prudently in 2020, expecting now to invest $120million of capital expenditure across the year, including two new gas wells and associated infrastructure.
 
“We have the benefit of long-term contracted gas revenues that are insulated from oil market volatility. We are achieving substantial cost reductions from our suppliers and managing our own costs even more carefully in this unprecedented and challenging period.”
    
Total, the sixth-biggest LNG producer in the world in 2018, is also looking to expand its gas footprint as evidenced by its deal to buy Anadarko’s LNG-focused assets in Africa from Occidental, if Oxy’s bid for the US independent is successful.


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