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The Nigerian Gas Industry (Posted 27th July, 2003) Tell your friends about this page! Email it to them.

Nigeria is blessed, no doubt with a number of mineral resources one of which is natural gas. Record shows that natural gas reserves in Nigeria are, in energy terms at least twice that of crude oil reserves. Presently, Nigeria’s oil and gas reserves stand at 26.5 billion barrels of oil and 159 trillion cubic feet (TCF) of gas and potentials in excess of 200 TCF. At present utilisation levels, this will last for over 100 years.

The search for hydrocarbon deposits in Nigeria commenced as early as 1908. Since the discovery of oil in 1956, crude oil production has grown from a modest 5,000 barrels of per day to a record level of 2.4 million barrels of oil per day in 1979 to the present level of 2 million barrels of oil per day as in 2001. About 170,000 barrels of condensate and 3.5 billion cubit feet (BCF) of gas are also being produced daily.

Natural gas is a naturally occurring gaseous mixture of hydrocarbon gases found in underground reservoirs. It consists mainly of methane (70% to 95%) with small percentages of ethane, propane, butane, pentane and other heavier hydrocarbons with some impurities such as water vapour, sulphides, carbon dioxide etc. Hydrocarbon components of natural gas are collectively called Natural Gas Liquids (NGLs). Also, studies show that NGLs are found in larger quantities in associated gas than in non-associated gas streams.

Since the inauguration of the President Obasanjo administration in 1999, developments in this sector of the economy have moved into top gear. According to Dr. Rilwanu Lukman, President Olusegun Obasanjo’s senior adviser on petroleum and energy, the government intends to fully develop the enormous gas potential available in Nigeria. Already, he says an Memorandum of Understanding, MOU has been signed for the feasibility studies to commence on a second LNG facility, the Western Niger Delta LNG project.

In order to harness the country’s enormous gas potentials and reduce the high level of gas flaring with its attendant environmental implications, the government evolved a process of monetising the abundant gas resources. To realise this objective, government adopted a 3-prong approach to the gas issue viz: improve domestic consumption, embark on export-oriented projects and imposition of penalties for flaring.

The administration in collaboration with its Joint Venture, JV partners has carried out a comprehensive gas utilisation study. The study recommended that for proper and adequate utilisation of Nigeria’s abundant gas resources, conscious effort must be made to improve domestic consumption as well as embark on new export oriented projects of which the LNG is the most feasible.

Consequently, in addition to the expansion of NLNG with trains 4 and 5, government has in conjunction with some oil companies initiated four feasibility studies for the establishment of new LNG projects. Such studies include the WND LNG, Stat oil FLNG, Brass FLNG and Shell flouting LNG. Other export-oriented projects that are vigorously being pursued are the West Africa Gas Pipeline (WAGP) and the proposed Trans-Saharan Gas Pipeline project for which discussions, between Algeria and Nigeria, have been going on for sometime.

Similarly to stimulate the domestic consumption of natural gas, government is reactivating dormant gas utilisation projects such as power, steel, aluminum and fertilizer plants as well as encouraging the building of Independent Power Plants. As a further demonstration of its resolve to stimulate growth domestically, government has put in place a number of incentives which include investment tax holidays, investment tax credit, VAT and Custom Duty exemptions.

Government’s efforts are beginning to yield dividends. At present, about 51 per cent of the associated natural gas produced in Nigeria is flared as against 71 per cent in 1999 while the remaining 49 per cent is utilized mainly in commercial gas projects and for re-injection to enhance crude oil recovery. Ultimately, government’s objective is to derive a level of revenue from gas that is comparable to that from crude oil before the end of this decade.

The government is of the view that further development in the sector can be enhanced by the involvement of the organised private sector (OPS). Dr. Jackson Gaius-Obaseki, Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), said at a recent forum that the private sector via the Manufacturers Association of Nigerian (MAN) and other business associations must take up the challenge. He points out that investment opportunity are open in material, technical and financial input into engineering procurement construction (EPC), investment in free zones among others.

A private company in Lagos, Gaslink Nigerian Limited has taken up the initiative. The company has committed a lot of financial resources to achieve equitable gas distribution in the metropolis. The company has commissioned 2 multi-billion naira gas distribution systems in Lagos sourcing gas from the Escravos-Lagos pipeline. More industries and companies in Lagos and indeed Nigeria have begun a gradual process of utilising gas for their production.

Recently, stakeholders in the sector met to fashion out an institutional framework that will serve as road-map for the development of the nation’s abundant gas resources. Part of their resolve is to pass an act called the “Gas Act” at the National Assembly and also hoist a regulatory commission for the sector by 2004.

Though, the huge financial requirement for investment in the gas industry has greatly slowed development in the sector, it is perceived that cooperation through joint ventures and mergers can help pool resources. Foreign direct investment (FDI) is also encouraged as the government has made the Nigerian economy more investor friendly, though much is still desired in the provision of functional basic social infrastructures.


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