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As NLNG prepares Nigeria for net zero amid global gas challenges

By Femi Adekoya
14 September 2022   |   4:10 am
With gas at the epicentre of the global energy crisis and rising inflation, all eyes are on gas producing countries for increased supply and long-term contracts to ensure not just accessibility but reliability.

Mshelbia

Enhanced production and improved infrastructure in Nigeria and other developing countries can help the countries accomplish the twin goals of addressing energy poverty, and helping to accelerate the transition to net zero. At the just-concluded GASTECH exhibition and conference in Milan, Italy, Nigeria, through the NLNG, showcased its capacity and potential through the upcoming Train 7 to warm up to the global market and unveils plans for the future. FEMI ADEKOYA writes.

With gas at the epicentre of the global energy crisis and rising inflation, all eyes are on gas producing countries for increased supply and long-term contracts to ensure not just accessibility but reliability.

Presently, Europe’s energy market is out of control. The gas crisis is feeding directly into power through the wholesale pricing mechanism, exacerbating major supply constraints that continue to dog power markets across the continent.

The gas market is projected to be tight through this winter come what may, with the weaponisation of Nord Stream just one of the innumerable variables in play. Despite constraints on Nord Stream capacity, European storage levels are already 80 per cent full and ahead of schedule. Weather is another variable.

Assuming Nord Stream flows remain at current (low) levels, according to Wood Mackenzie, a warm northern hemisphere winter could limit the pain for consumers. Sentiment, a key driver of current price volatility, might shift. A warm winter could lead to a sharp sell-off if traders start to think the worst is over.

In contrast, a further reduction in Russian flows or a cold winter – or both – will test the energy system’s flexibility and resilience to the absolute limits and push prices higher still. Every lever has to be pulled to draw gas into the system at whatever the cost. Power systems will have to bring on rarely used coal and oil plants held as strategic reserves, regardless of carbon intensity. Even then, governments may have to ration gas and power selectively to dampen demand.

Current stratospheric prices for gas and power pose risks to economies and households – much of Europe’s population will fall into fuel poverty in coming months. Minimising collateral damage to economies – not to mention, saving lives – depends on the energy industry, governments and consumers themselves all doing the right things.

All eyes on Nigeria, other producers for gas
High gas prices are all the incentive producers need to eke out and sell any incremental, uncommitted molecules from existing facilities. Realistically, though, it won’t be much – existing sources of pipe gas and LNG are already maxed out.

Presently, Europe has become a prime market for LNG, attracting massive volumes from all around the world. Countries have turned to LNG as Russia, Europe’s major gas supplier, has cut flows following Western sanctions on Moscow over the Ukraine war.

For gas producing nations like Nigeria, this is an opportunity to expand market access and maximise opportunities in upstream industry for gas production.

Nigeria has ridden on the back of oil for over 50 years, with production output below capacity and fiscal benchmark. Infrastructure challenges, theft and pipeline vandalization continue to hamper oil production.

With associated gas forming the majority of the country’s gas production, challenges with oil pipelines and production are beginning to impact gas production volumes and export.

Timipre Sylva. twitter/HETimipreSylva

Though Train 7 is expected to increase NLNG’s production capacity by 35 per cent, generating huge value for the company, shareholders and the country, domestic security challenges remain a concern for the country to maximise opportunities in the LNG market.

Notwithstanding the challenges, Nigeria LNG is hopeful the country will come out stronger, going by the dedication to utilization of gas as a transition fuel.

LNG prices have lurched from record lows under $2 per million British thermal units (mmBtu) in 2020 to record highs of $57 in August. Benchmark prices currently stand at about $55 per mmBtu.

NLNG positions Nigeria for transition goals, new markets
shough there are arguments as to diversification of energy sources and move away from fossil fuels, NLNG’s Managing Director, Philip Mshelbia, noted that reducing carbon footprint starts from providing cleaner alternative energy sources for a population that depend on dirty fuels.

To him, monetising associated gas has helped Nigeria to reduce flares, provide thought leadership on the decade of gas agenda and generate revenue for investment in critical infrastructure to improve the well-being of the people.

According to him, by monetising over 60 per cent of flared gas through its different trains, Nigeria is already on the path of achieving its energy transition goals.

He argued that energy transition does not have to be a huge leap, adding that getting out of dirty fuels and flare reduction are steps in the right direction.

Speaking on the sidelines of this year’s GASTECH exhibition and conference in Milan, Italy, Mshelbia, while speaking on “Concerted industry action on ending energy poverty”, added that in line with its goal, the company has equally committed to supplying 100 per cent of its Liquefied Petroleum Gas (LPG) production to the domestic market to support the growth of LPG utilisation in the country and help reduce the health, safety and environmental risks associated with the use of other domestic fuel sources.

He added that through the supply of LPG, NLNG prioritised the supply of clean energy in Nigeria while working collaboratively with the government to grow LPG consumption in Nigeria as part of the national journey to a clean energy future.

“We also expanded our capability in running our plants to generate electricity. We generate over 300MW of electricity to power our community on the Island from where we operate”, he added.

The Deputy Managing Director of NLNG, Olalekan Ogunleye, explained that with the firm’s expansion plan through the ongoing Train 7, which will add an additional eight million metric tonne per annum or 30 per cent additional capacity, the firm hopes to further increase its contribution to addressing energy security concerns.

“But more importantly, we’ve delivered over 5400 LNG cargoes safely and counting. As an enterprise, we have completely embraced energy transition. And there are many elements to that. There is a business necessity to that because our stated vision is to be a globally competitive energy company that is helping to build a better Nigeria.

“We cannot be globally competitive if we are not in touch with market dynamics and new realities, and if we are not embracing decarbonization. So, another important element is that we have integrated energy transition into our business at all levels. We have a Carbon Council that has been in place for over one year.

“We are also creating a green culture within the organisation by recasting energy transition in personnel channels. It is about job security and sustainability, future proofing our business, and so all the members of staff can see the benefits in real concrete terms. These are great learnings and We also found that we cannot embark on this journey in a silo. We have got to reach out and touch base with what is going on globally.

“We have basically developed and approved an energy transition roadmap that is robust, navigable and comprehensive, with specific milestones are short term targets, mid-term and long-term targets with different deliverables and work plans in them. For us, it is all encompassing. It’s not just the plant but also non-plant assets. We are revisiting our shipping assets and replacing steam engine ships with modern engines that are more environmentally compliant.

“We are gradually focusing on decarbonizing all across our value chain. In terms of key learning, we’ve found an easy transition to be an opportunity to validate our business model and deepening embrace of digitalization and creating efficiency across our business. We also see that as an opportunity to create new partnership, a relationship and to learn and to grow as an organization”, he added.

On his part, Minister of State for Petroleum Resources, Timipre Sylva, has said Nigeria is positioning to become a major gas supplier to Europe following the global energy crisis caused by the ongoing conflict between Russia and Ukraine.

The minister, during a panel session on the topic: “Just Energy Transition for Developing Nations”, maintained that funding of gas development at this point was a win-win for Europe and Africa.

“Today we are seeing gas being weaponised and every country will at least require some alternative supply.

“We believe that Europe needs this gas and it is a win-win for all of us and it is in their interest to reduce these discriminatory investments that their banks are doing.”

Beyond the winter
As a reminder for Nigeria and others lagging in production volume, Wood Mackenzie argued that the big investment opportunity the crisis presents is for developers that can fill the supply gap in the next few years.

There’s a narrow field of contestants – Qatar and US projects will account for seven out of every ten new LNG cargoes by 2030 on Wood Mackenzie’s estimates. Buyers may welcome the additional volumes but are right to be uneasy about the concentration of new supply in just two countries.

Most other potential suppliers can’t deliver new volumes as swiftly or as competitively on cost—Nigeria is a typical example.

Indeed, the conversations around this year’s GASTECH mildly showed that IOCs are still averse to developing typically capital-intensive and long-payback conventional pre-FID Greenfield LNG projects. With such postures, there are hopes that host governments will be jolted to seize the moment and commercialise undeveloped gas resources. Nigeria’s time is now if it can get its fields back to production and get IOCs to re-open shut wells or wait longer for NLNG’s Train 7.

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