In a bid to provide a viable alternative, both for the country’s oil-dependent economy and its struggling citizens, the Federal Government recently launched quite a number of ambitious gas expansion and utilisation goals. We looked at some internal strategies that can be adopted before they can be actualised.
About two decades ago, Nigeria launched its goal of achieving gas-based industrialisation in the country. Whilst this goal was largely left unachieved, the need to actualise this goal became even more urgent in the years that followed. Over the past decade, Nigeria has continually buckled under several bouts of oil-induced economic recession, a near-stagnant industrial sector due to epileptic power supply, and the increasing unaffordability of Petroleum Motor Spirit (PMS) in the domestic market.
About two decades ago, Nigeria launched its goal of achieving gas-based industrialisation in the country. Whilst this goal was largely left unachieved, the need to actualise this goal became even more urgent in the years that followed. Over the past decade, Nigeria has continually buckled under several bouts of oil-induced economic recession, a near-stagnant industrial sector due to epileptic power supply, and the domestic market's increasing unaffordability of Petroleum Motor Spirit (PMS).
In a bid to provide a viable alternative, both for the country’s oil-dependent economy and its struggling citizens, the Federal Government recently launched quite a number of ambitious gas expansion and utilisation goals, including increasing the country’s LPG consumption capacity from 1 million tons in 2020 to 5 million metric tonnes in 2022 and converting 1 million cars to Compressed Natural Gas (CNG) by the end of 2021. Whilst these goals are an indication of the federal government’s commitment to gas utilisation, the question of how it plans to actualise such a widespread gas transition in the country has largely remained unanswered.
Nigeria is not the first country to seek out gas utilisation. Iran, Brazil and India have successfully boosted the use of Natural Gas Vehicles (NGVs) in their respective countries. However, taking a look at Nigeria’s LPG performance report for the past two decades, it has been far from impressive. In 2004, the country launched an LP Gas Sector Improvement Study, with the goal of increasing Nigeria’s LPG consumption per capita to an average of 3.7kg. Yet, 17 years down the line, Nigeria’s LPG consumption per capita still stands at a meagre 2.3kg.
Drawing from the economic and environmental benefits of gas utilisation, there is an urgent need to rewrite Nigeria’s poor gas utilisation performance and catapult the country to the global stage as one of the world’s biggest gas players— both in terms of production and utilisation. However, this cannot be achieved without the adoption of intentional strategies.
End Gas Flaring
Every year, thousands of cubic feet of associated gas are flared at Nigeria’s oilfields. The ripple effect of such a large-scale flaring extends far beyond huge economic losses. It has largely undermined Nigeria’s climate change mitigation efforts, continuously crippled the development of gas resources, and grievously endangered the health of members of host communities. In spite of the fact that 2020 was declared as the deadline for routine flaring in Nigeria, the country still flared about 318 million cubic feet (mmscf) at the end of 2020. This volume of flared gas could singlehandedly generate about 93197 mwh of electricity—a load that far exceeds Togo’s domestic electricity generation.
Only a meagre 5% of Nigerian households currently use LPG, and CNG is barely used by cars that ply Nigerian roads. As it stands, the major market for natural gas in Nigeria is the Gas-to-Power sector. However, that, in itself, is problematic as it is not exactly a viable market.
Last year, Nigeria kickstarted the bidding process for Nigerian Gas Flare Commercialisation Programme. The program involves auctioning out flare gas from selected flare sites, for bidders to produce the gas and sell to the market. Whilst this program undoubtedly holds huge potentials for reducing flaring activities, its effectiveness has largely been stalled by undue delay and limited organisation.
Investors have reportedly been pulling out due to poor data on the production capacity of flare sites, and huge economic losses occasioned by constant delays. Yet, the bidding process has still not been concluded, several months after it was kickstarted. This delay is highly costly, as it would give room for more flaring, and largely undermine the program’s ability to solve Nigeria’s gas flaring problem. Hence, the Department of Petroleum Resources needs to urgently conclude the program’s bidding process, and give room for immediate gas production, as this is one of the most effective means through which gas wastage can be curbed.
Create a Viable Market
Nigeria is currently brimming with a population of about 200 million people. At first glance, a country with such a massive population will undoubtedly present a juicy market for gas investors. However, this has not been the case.
Only a meagre 5% of Nigerian households currently use LPG, and CNG is barely used by cars that ply Nigerian roads. As it stands, the major market for natural gas in Nigeria is the Gas-to-Power sector. However, that, in itself, is problematic as it is not exactly a viable market.
Over the years, the power sector has positioned itself as a major consumer of natural gas, as Gas-to-Power accounts for the largest share of Domestic Gas Supply Obligations. However, even with the large gas consumption capacity of this sector, the illiquid state of the electricity value chain has put a major strain on the ability to generate companies (GenCos) to pay for the supplied gas. As a result, gas suppliers are faced with constant issues of non-payment for supplied gas by GenCos. For example, just last year, Accugas issued a notice of non-payment on an outstanding debt of $15.8m owed by the Calabar GenCo, for the supply of natural gas.
Considering the fact that this sector is currently a major demand source in the gas market, more measures need to be adopted to fix the illiquidity of the electricity value chain. This way, a profitable gas market can be created, and investors will be able to receive prompt returns on their investment.
Similarly, wider gas usage can equally be fostered through the launch of a Grassroot Gas Transition Programme which will involve large-scale sensitization on LPG usage and CNG transition processes, as well as the distribution of free LPG cylinders. Ghana instituted a similar measure in 2013, with its Rural Liquefied Petroleum Gas Programme. Since the program’s launch, LPG has been extended to over 149,000 Ghanaian households.
Expand Gas Infrastructure
The Nigerian gas industry currently suffers from a dearth of transmission and distribution infrastructure. CNG and LPG refilling plants are rarely located in close proximity to most Nigerians, and pipeline distribution networks in most regions are poor. For example, in 2018, Nigeria’s gas pipeline capacity was projected at 2.9bscf/d, with a non-existent capacity allocated to the North. In fact, in the same year, about 110777 million standard cubic feet of gas (MMscf) was left unsupplied to the domestic market, due to lack of gas infrastructure.
Whilst the challenge of an inadequate gas pipeline system is set to be considerably tackled with upcoming pipeline projects like the Ajaokuta-Kano-Kaduna pipeline project (which is projected to be completed in 2023), the gas retail distribution network is still extremely weak in most areas. Users often have to walk distances in order to be able to refill their LPG cylinders. This acute lack of infrastructure was the major reason that Ghana’s free cylinder system did not necessarily translate to higher LPG consumption. It was reported that only 8% of the program’s beneficiaries had continued to use the cylinders. This low result was largely attributed to poor LPG access, with users having to travel as far as 25km to get an LPG refill.
Essentially, in order to realise any considerable energy transition in the country, an expansion of the current gas infrastructure needs to be prioritised. This is basically the final push that would incentivize investors and average Nigerians to pull their weight into gas utilisation.
Conclusion
In conclusion, Nigeria’s abundant gas resources and its large population, undoubtedly provide the country with a significant leverage for the successful production and utilisation of gas. With a combination of specially-tailored gas policies, the country will be able to achieve its gas utilisation goals, and equally, maximise the economic and environmental benefits attached to the usage of gas.
Author
Oyin Komolafe | Research Assistant, Energy | k.o@borg.re