Revving up gas utilisation capacity in Nigeria

Presently, the Nigerian economy needs huge capital through foreign direct investment from foreigners or Nigerians in diaspora into critical sectors or industries. It needs serious infrastructural investment howsoever it can be achieved.

A key policy objective of sustainable economic development, especially in any developing country like Nigeria, is to establish energy development paths that are both economically efficient and sustainable.

However, this depends significantly on full utilization of such resources.

Undoubtedly, natural gas has the enormous potential to diversify and grow the Nigerian economy, power its industries and homes, produce ever-so-lacking wealth, create jobs, develop associated industries in the petrochemical sector, raise people out of poverty, among others.

The Honorable Minister of State for Petroleum Resources, Timipre Sylva even declared 2020 as the year of gas for the nation.

He said: “Nigeria has an estimated 200 trillion cubic feet of gas reserves. It is high time to put them to use. With the right policies we could change the face of the country completely.

“We could give light to our people; we could power our industries, releasing them from the handicapping dependency on diesel generators that make it all but impossible for them to be competitive.

“We could relinquish ourselves from our dependency on imported fuel for power and heat, we could create new opportunities for job creation and industrial development, we could take millions of people out of poverty.”

“ Furthermore, strong domestic gas and gas-based industries could help boost intra-African trade, create new synergies with our neighbours, boost integration of power generation networks, establish new partnerships, even contribute to peace.

Indeed, there is no doubt that Nigeria needs gas domestically. Electricity supply remains intermittent, despite successive administrations putting gas at the centre of their power sector reforms.

More so, distribution to households and industrial plants is being hampered by a lack of investment in power and gas distribution infrastructure, in part due to market uncertainties such as those resulting from the botched privatisation of the electricity sector in 2013.

Investment is also being constrained by the lingering impact of the deep economic recession of 2016-17; customers’ inability to pay left gas suppliers and power companies out of pocket.

Nigeria is endowed with abundant natural gas resources, which in energy terms, is in excess of the nation’s proven crude oil reserve. Moreso, the gas was discovered whilst searching for crude oil, as no deliberate effort had been made to search for natural gas then.

The current reserve estimate of the Nigerian gas is over 120 trillion cubic feet, with about 50/50 distribution ratio between Associated Gas (AG) and Non-Associated Gas (NAG).

Unfortunately, only a small fraction of this quantity is currently being utilised. This reserve estimate indicates an inherent possibility of exploiting Nigeria’s gas reserves for at least the next 100 years with the potential for a further 600 tcf in undiscovered reserve.

Due to unsustainable exploitation practices coupled with the lack of gas utilisation infrastructures, Nigeria flares a substantial proportion of the gas it produces and the country lags far behind when compared to other oil producing nations in terms of associated gas conservation and utilisation.

The nation’s gas sector has proven to have the potential of being a key player in the emergent global natural gas market.

Orjiakor

Unfortunately, even with this huge gas reserve, not much has been accomplished with respect of the effective exploitation and utilisation of this abundant natural gas reserve of which some of this gas reserves are termed ‘stranded’ whose volume and location are often considered as non-commercial and difficult to exploit.

That notwithstanding, up until now most of the nation’s natural gas production has been flared or re-injected to enhance greater crude oil recovery.

With electric power generation at its ground state, crippling rate of unemployment, emergent global climate change caused by greenhouse emissions from flare-out, it has become imperative to further find ways to exploit and utilise the nation’s natural gas reserves and translate it to the improvement of the nation’s economy.

As part of efforts to support government effort at boosting Nigeria’s domestic gas supply, Seplat Nigeria Plc in January 2017, incorporated a new subsidiary, the Assa North-Ohaji South project (ANOH) Gas Processing Company (AGPC) Limited, a midstream gas company committed to the processing of gas from OML 53 for distribution to the local market.

ANOH is one of the largest greenfield gas condensate development projects being undertaken in Nigeria.

The project involves the development of the Ohaji South gas and condensate field located within the license block OML 53 and the Assa North field in license block OML 21.

The two fields are together expected to produce 600 million standard cubic feet per day (Mscfd) of gas, equivalent to approximately 2.4GW of electricity. The generated electricity is sufficient to supply for approximately 2.4 million homes.

ANOH Gas Processing Company (AGPC), incorporated in 2017, is responsible for the project development and operation and maintenance. Seplat holds 50% stake in AGPC, while Nigerian Gas Company (NGC), a wholly owned subsidiary of Nigerian National Petroleum Corporation (NNPC), holds the remaining stake.

Funding of the ANOH gas-processing project expected to significantly boost Nigeria’s domestic gas supply would be sourced through equity financing.

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 $3 billion to $4 billion per annum 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 that it would be expending about $15 billion across 24 oil and gas projects in Nigeria in the next five years.

Already, the oil major has stated that its ongoing Assa North/Ohaji South gas development in Imo state will produce 600 million standard cubic feet of gas per day, energy equivalent of about 2400 Mega Watts of electricity enough to provide uninterrupted power to 2.4 million homes.

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.

The Chairman of the company, Dr ABC Orjiakor, while providing highlights on the funding structure at the company’s seventh yearly general meeting, in Lagos at the weekend, said the cash-call required for the project has been made, adding that only a proportion will be funded through sources from debt financing.

Besides, shareholders at the meeting approved a dividend distribution $59million for the 2019 financial year.

Orjiakor said Seplat is constantly seeking acquisition opportunities to help grow and enhance its profitability and increase shareholders’ value.

He said: “We are delivering on ANOH as it is incidentally the first incorporated Joint Venture between an indigenous oil company and the NNPC. We are going to make sure that funding will not be a problem despite the difficulties because of the ongoing novel coronavirus (COVID-19) pandemic.

“But we are doing everything to make sure that we do not postpone the date of our first gas because gas is very critical to our growth. ANOH is a key project and we are looking to have the first gas in 2021, and everything is on course to meet that target.”

He said one area of priority for the company is to ensure that the liquidity, cashflow and balance sheet of the company remains strong.

“We set up a liquidity committee, which meets regularly to make sure that our liquidity remains healthy and our cash flow remains robust. With free cash of over $300 million as of last year, we will make sure that we maintain healthy balances in 2020.”

“With respect to 2020 challenges, one thing I highlighted to shareholders was the area of prioritizing our gas monetization. Even before COVID-19, we made sure that our priority was to commercialize gas for the long term and this is for many reasons;

“The first is that we are committed to identify with the Federal Government in terms of closing the gap in power infrastructure. As a result, we have invested heavily in gas, and today Seplat is happy to say that we provide 30% of gas to power in Nigeria, and still growing.”

He continued: “We would make sure that we support the government and the people of Nigeria to make sure that the narrative of the diversification of the economy is built on the platform of growth in power infrastructure.

“At present, statistics show that off grid power supply in homes through gas, diesel and petrol generators is accounting for as high as 20 gigawatts of power. That tells you that the level of pollution in our environment is very high.

Seplat will continue to contribute to cleaner energy from its gas supply. This will power the industries, support SMEs and create jobs on a continuous basis.

“The other point of course is that gas is lucrative in the domestic market and is a significant contributor to our revenue base. The contribution of gas to our revenue is increasing year-on-year and we expect to see this continue to increase as the volatility in global oil price persists.

“We are going to leverage on all of these stated factors and make sure that we would not only survive the hardship, but also remain positive in terms of performance indicators.

He said the company would continue to seek for acquisition opportunities, as part of its long-term strategy

“We concluded a very successful acquisition last year, despite the collapse of oil price globally and despite the hardship in the global economy.

“We remain focused on acquisitions. we have continuously said that we are very committed to price sensitive acquisitions. That means, we do not overpay.

“`So, as the industry changes, it means that the prices that buyers are willing to pay will continue to change and we would adapt and continue to do our acquisitions. The real reason for us to continuously stress the strength of our balance sheet as well as our free cash flow is that it puts us in an advantageous position.

“We have a major competitive advantage as a result of this because Seplat, being that we are dually listed in the Nigerian Stock Exchange (NSE) as well as the London Stock Exchange (LSE) means that we have access to global investible capital.

“That is why you will see that our cost of borrowing is one of the lowest among peers; our access to new investible capital in terms of equity is very strong.

“At the back of all of these, free cash, strong and robust balance sheet, availability of internationally available investible capital, we have a strong competitive advantage to play in the consolidation market as well as acquisitions

“Today, Seplat is happy to say that we have provided 30 per cent of gas in Nigeria, which is still growing. We have made sure that we support the government to ensure that the narrative of the diversification of the economy is built on a platform of growth in power infrastructure and this is where Seplat is doing a lot of work,” he added.

The Chief Executive Officer, Seplat, Austin Avuru, described 2019 as a solid year, saying: “The strong cash generation we realised from our low-cost production base meant that our capital expenditures, debt service obligation and dividend distributions to shareholders were more than covered by cash generated from operations by a comfortable margin.”

From a strategic perspective, Avuru said 2019 will prove to be an inflection point in the company’s history, as it took a final investment decision (FID) for the 300 MMscfd ANOH midstream gas processing project in March.

“Once completed, the plant will process gas produced at the upstream unitised gas fields in OML 53, where Seplat has a 40 per cent working interest, and Shell’s OML 21.

“Now that we have gone live, so to speak, with the project in partnership with government, we have set a clear trajectory that will see us become the largest supplier of processed gas to the domestic market once it becomes operational,” he hinted.

On the outlook or 2020, Avuru said company faces the same challenges as the rest of industry in terms of managing oil price volatility and other macro-economic risks, adding that the emergence of the COVID-19 pandemic has thrown in another variable that has impacted the global economy.

“As these factors are not in our control we can only make sure that we have plans in place that can mitigate and de-sensitise the business to these risks as far as is possible,” he said.