New gas pipelines and opportunities for Nigeria’s ailing industrial zones

To many operators in the productive and services sectors, access to power remains a critical concern, especially as generated capacity from the grid remains inadequate to serve as feedstock. Alternative energy from generating sets accounts for at least 40 per cent of manufacturers’ production costs. If access to clean energy improves, there are chances manufacturing GDP will rise. Will the activation of gas pipeline projects help bridge this gap? FEMI ADEKOYA writes.

Recently, Shell Nigeria Gas (SNG) completed the final phase of its 20km domestic gas pipeline expansion project in Abia State, connecting Agbor Hill, Osisioma and Ariaria industrial zones.

To local producers, access to domestic gas supply addresses a critical part of the many production challenges as well as a good chunk of production cost.For manufacturers, while electricity outages average about 10 hours daily, electricity expenses still constitute about 40% of total cost of production with average cost of self-generated electricity estimated at N119 billion in 2019.

The operators, comprising the Manufacturers Association of Nigeria (MAN), Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Nigeria Employers Consultative Association (NECA), Nigerian Association of Small and Medium Enterprises (NASME), and the Nigerian Association of Small Scale Industries (NASSI), blamed the unfriendly operating environment for the oscillatory performance of the real sector in the past few years.

However, the flag-off of the Ajaokuta-Kaduna-Kano (AKK) pipeline project is expected to address the anxiety among Nigerians over the government’s non-responsive posture towards unending calls for a congenial business environment.

It also marked a significant leap in the implementation of the nation’s lingering gas infrastructure blueprint designed to enable the industrial sector of the economy optimize its potential.

At the flag-off the AKK project President Muhammadu Buhari had directed the Minister of State Petroleum Resources, and the Nigerian National Petroleum Corporation (NNPC) Group Managing Director to authorise the Engineering, Procurement and Construction (EPC) consortia involving indigenous pipeline giant, Oilserv Limited, to commence construction operations at the project camp sites without further delay.

“We promised the Nation that we will expand the key critical gas infrastructure in the Country to promote the use of gas in the domestic market. These include the Escravos to Lagos Pipeline System-2 (ELPS-2), Obiafu to Obrikom (OB3) pipeline and the AKK. I therefore directed NNPC to ensure that these critical projects are completed on time, within budget and specification,” he stated.

President Buhari noted that when completed the project will provide gas for generation of power and for gas-based industries, which would facilitate the development of new industries, and the revival of moribund industries along transit towns in Abuja (FCT), Kogi, Niger, Kaduna and Kano states.

“This will ultimately create numerous direct and indirect employment opportunities while fostering the development and utilization of local skills and manpower, technology transfer and promotion of local manufacturing. The project is therefore part of the delivery of our Next Level Agenda for sustainable development and enhancement of the economic prosperity of our country,” he added.

Project concept and goal
The AKK pipeline, which was conceived by former administrations as part of the Nigerian Gas Master Plan (NGMP), had remained in the policy shelf for nearly a decade. Its implementation by the present administration is a significant progress from the delivery of the Obiafu-Obrikom-Oben (OB3) gas grid development.

The AKK project is designed to enlarge the domestic gas market by using the energy demand from the northern parts of the country to enhance the commerciality of domestic market play and confer viability on investments in the government’s gas commercialization agenda.

The NNPC has said the gas commercialization programme is meant to leverage Nigeria’s huge natural gas reserve base to stimulate growth and enable the migration from the current mono-economy into a diversified economy.

The AKK project would enable the injection of 2.2 billion standard cubic feet of gas per day (bscf/d) into the domestic market upon completion, and facilitate additional power generation capacity of 3,600 megawatts (MW), the Corporation said.

The 614-kilometre pipeline is expected to spark off economic activities that would ultimately deliver on a bundle of broad national economic aspirations in the petroleum industry through which the government targets to position the country’s abundant natural reserves as the key enabler for economic diversification from oil dependence.

Processes in realizing the policy targets include clearly mapped out strategies to deepen the domestic gas market, arrest gas flaring at oil production sites, enhance national revenue through natural gas commercialization, boost the Nigerian Content of the huge budget petroleum industry, and build sustainable energy infrastructure for the domestic economy.

According to the NNPC’s project profile the $2.592 billion AKK pipeline project will provide a channel for the upstream and midstream petroleum industry operators to deliver their natural gas output into the grid, and spur industrial evolution along the new pipeline corridors in northern Nigeria.

Economic Significance
Energy is considered most critical among all factors of production, and acute shortage of energy has been the major bane of industrial and commercial enterprises in Nigeria. The AKK pipeline is therefore considered a key factor in sustainably resolving issues of industrial energy for the present and future generation.

Manufacturing capacity in Nigeria today is highly constrained by energy issues. Running manufacturing by liquid fuel is far too expensive and unprofitable; power supply for industrial activity is grossly inadequate.

To operators, the AKK pipeline holds potential to feed power plants with adequate fuel energy to generate adequate electricity for homes and businesses.The pipeline can also directly feed industry and commerce with cleaner, cheaper gas energy. In both ways the AKK pipeline is going to enable the industrial sector of the economy to optimize its potentials for growth, job creation and contribution to gross domestic product (GDP).

Leaders in the country’s organised private sector agree that the best response government has given to the agitation from the business community is to provide hope for production infrastructure that would make the domestic environment more attractive to investment. So, AKK pipeline when realized will be a sustainable factor of production that would enhance the local operating environment for business in the country.

The facility will also remain central to all aspects of Nigeria’s industrial development: boosting power generation, stimulating manufacturing activities and de-constraining new field development in the oil industry.

In the upstream sector of the petroleum industry, the AKK pipeline is expected to aid more oil production by helping operators to meet the condition of zero flare development plans. So, operators who have been held down by market limited destination for associated gas are now provided space in the AKK pipeline.

Again, expanding the domestic gas market with the pipeline project will boost investor confidence in the government’s flare gas commercialization programme by providing ready off-take channels for harnessed gas. This strongly propels Nigeria’s drive to attain zero emission at oil production sites and probably enable the country exit the inglorious global greenhouse emission chart.

Nigerian content development
Perhaps the principal value of the AKK pipeline is that it holds the biggest valid testament to the government’s commitment to the Nigerian Content Policy. Save the funding arrangement which necessarily entails Chinese content in the project, the full project scope would have been delivered by the indigenous Oilserv consortium, which also delivered the even more challenging Obiafu-Obriko-Oben (OB3) pipeline on which the AKK pipeline is anchored. Chairman of the Petroleum Technology Association of Nigeria (PETAN), Nik Odinuwe, noted that the $2.8 billion gas pipeline project will help to further deepen local content in the country.

Odinuwe congratulated the Chairman and CEO of Oilserv Limited, Dr Emeka Okwuosa, and the Group Managing Director of NNPC, Mele Kolo Kyari for making the project a reality.

The project is expected to greatly enhance the nation’s energy security, create direct and indirect employment and promote development, technology transfer and local manufacturing.

Speaking on the content development, Okwuosa said the consortium led by his company is working in concert to provide best-in-class EPC services for NNPC and Nigeria, in consonance with the company’s track record of delivering world class pipeline construction even in most challenging terrains.

“Oilserv is a 100 per cent indigenous company currently employing more than 600 staff. With this new AKK development, it probably will go to between 1,500 and 2000 at the peak of the personnel matrix. “But the fact remains that we are ready. This is not the first project. We are commissioning the OB3 gas project, which is slightly larger than this in terms of diameter. The OB3 is 48 inches in diameter. So we have the experience, we have the personnel, we have the equipment and we are capable and we would deliver this project.

On the project’s potential for job creation, he declared that the company would significantly increase its workforce during the project’s time frame, adding that additional staff would be recruited from communities that host the project.

“Like I said, we will crank up our employment by more than 1,000, and a major part of this 1,000 will be indigenes of the areas where we are. We have a clear programme to develop the areas where we build pipelines.”In advancing Oilserv’s performance profile in petroleum industry pipeline delivery, Okwuosa said the consortium is conversant with driving through tough and challenging terrains.

“Every project comes with its challenges. There are challenges in driving a project like this in virgin forests, to go through rivers, rocks, to deal with security issues. These are challenges but I don’t have fears because we have the knowledge and the experience to deal with it all. We are very ready to deliver the project and deliver the project on time.”

The Group Managing Director, NNPC, Mele Kyari, expressed confidence in the contractors selected for the project, saying: “We are confident that the EPC contractors will deliver the project on time, within budget and to quality specifications.”

Kyari continued: “The current administration under the leadership of His Excellency, President Muhammadu Buhari has made it a priority to ensure revenues from oil and gas resources are utilized to support the emergence and growth of other non-oil sectors of the economy,” inferring that the pipeline is one of the economic diversification efforts of the government.

To Governor Yahaya Bello of Kogi State, the use of indigenous Oilserv consortium in delivering the Ajaokuta-Kaduna-Kano pipeline project is one of the most significant economic stimuli that will catalyze growth activities in Nigeria in the prevailing coronavirus era.

The waiting game begins
Although the pipeline runs into the northern parts of the country; its full economic chain connects the south by providing market and viability for gas production, processing and monetization investments in the Niger Delta.

With its economic benefits connecting all sections of the country and integrating its full business cycle, critical stakeholders hope that support for the AKK pipeline will be enough to see it deliver full objectives and benefits for all.