LNG Market Outlook: Investmentworthy opportunities By Muhammad A. Yar’Adua 1 NG & LNG OUTLOOK: THE NIGERIAN GAS MARKET Report by Muhammad Abubakar Yar’Adua To Osprey Investments Group.
LNG Market Outlook: Investment-‐worthy opportunities
By Muhammad A. Yar’Adua
1
NG & LNG OUTLOOK: THE NIGERIAN GAS MARKET
Report by
Muhammad Abubakar Yar’Adua
To Osprey Investments Group.
LNG Market Outlook: Investment-‐worthy opportunities
By Muhammad A. Yar’Adua
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Diagram depicting the value chain of LNG
LNG Market Outlook: Investment-‐worthy opportunities
By Muhammad A. Yar’Adua
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Abstract Key Words: Nigerian National Petroleum Corporation (NNPC), Nigeria Liquefied
Natural Gas Ltd (NLNG), International Oil Companies (IOCs), Natural Gas (NG),
Natural gas Liquids (NGL), Gas to Liquids (GTL), Liquefied Petroleum Gas (LPG),
West Africa (W/A)
This report’s main aim is to determine sectors in the Nigerian gas market worth
investing in. In order to identify such opportunities, we will look at the role of
gas and Liquefied Natural Gas (LNG) in the Nigerian market and economy, and
the global outlook on LNG in terms of demand and supply.
First of all the Nigerian National Gas Master-‐plan developed by the Nigerian
National Petroleum Corporation (NNPC) must be understood as it describes
Nigeria’s key interests with its gas resource. First conceived in 2008 and now
being implemented, Nigeria has three key value drivers for its gas all with the
aim of developing the Nigerian economy. These are; to maximise the multiplier
effect of gas in the domestic economy, optimize Nigeria’s share and
competitiveness in high value export markets and lastly to secure Niger’s long
term energy (gas) security.
The above-‐mentioned master plan shows that other investments are possible
within the gas sector apart from LNG. This report will strive to explore these
opportunities. The value chain of LNG will be demonstrated alongside a more
comprehensive look at global market factors, to enhance understanding of the
worth of gas and LNG.
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TABLE OF CONTENTS
Abstract ................................................................................................................................. 3 Introduction ........................................................................................................................ 5
Nigeria’s National Gas Master-‐plan ............................................................................. 6 Stakeholders ................................................................................................................................ 6 SWOT Analysis of The Nigerian Gas Sector ....................................................................... 8 Nigeria’s Gas Reserve .............................................................................................................. 10
Global Outlook on LNG .................................................................................................. 11 LNG Supply and Demand Global Overview ...................................................................... 11 LNG Supply Facilities: Existing & Under Construction ................................................. 11 Nigeria’s position in the LNG world ................................................................................... 12 LNG demand by Countries ..................................................................................................... 13 LNG Value Chain ........................................................................................................................ 14 Global Corporate Players in The LNG Value Chain ........................................................ 15 LNG Shipping Supply vs. Demand vs. Fleet Size ............................................................. 15 LNG Shipping: Charter and Ownership Profile ............................................................... 16
Investment Opportunities ........................................................................................... 17 Gas Opportunities: Pipeline Infrastructure & Processing Plants ............................ 18 Gas Revolution Industrial Park @Ogidigben .................................................................. 19 Compressed Natural Gas (CNG) ........................................................................................... 20 Service Sector Opportunities: Engineering, Procurement, Fabrication & Construction .............................................................................................................................. 20 Export Projects .......................................................................................................................... 21 The Trans-‐Sahara gas Pipeline (TSGP) ........................................................................................ 21
Comparison of Export Projects ............................................................................................ 22 Conclusions ................................................................................................................................ 22
LNG Market Outlook: Investment-‐worthy opportunities
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Introduction
Liquefied natural gas (LNG) is natural gas that is converted to liquid form for
ease of storage or transport. The primary natural gas storage is methane (or
CH4). The liquefaction process involves the removal of water, hydrocarbons and
other impurities to facilitate transportation of gas. To transport natural gas
across water, the fossil fuel must be filtered and liquefied by cooling the gas
down to -‐260o Fahrenheit. This will shrink the natural gas by 600 times, allowing
for economical transportation.
Global energy demand will continue to rise, driven by population growth and
improved standards of living. At he same time, emphasis on sustainability
becomes more critical. As an abundant resource and cleanest-‐burning fossil fuel,
natural gas will be a key energy source over the coming few years. LNG trade is
expected to grow at a faster rate than natural gas consumption due to disparities
between natural gas consuming and supplying regions.
Fig 1
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Nigeria’s National Gas Master-‐plan The main objectives of the Gas Master-‐plan are:
1. Enable successful and sustained delivery of the 3 key value levers
2. Ensure ongoing, dynamic balance between the 3 key drivers
3. Provide framework for NNPC to optimise Nigeria’s resourced and
allocation in pursuit of the key value drivers e.g. harmonization of NNPC
investment plans
4. Provide guideline for relevant institutional/structural changes to support
the delivery of the key value drivers
NB The Master Plan will have a 20-‐year long term planning horizon.
Stakeholders
The table above shows a stakeholder map whereby various stakeholders are
classified according to their power/influence and interest from an Osprey’s
perspective.
Keep Satisfied Manage Closely • Other Financiers • Consumers • Osprey Shareholders • Suppliers
• Nigerian Government • NNPC
Monitor Keep Informed • Competitors (Other
Institutional Financiers) • International Oil
Companies (IOCs) • Government
• Investors • Shareholders • Other players e.g. DPR
Power
Interest
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An assessment of the stakeholders would highlight the potential issues an
investor may encounter. For example;
• NNPC is the dominant gas resource owner but has limited operatorship
• They strive for more balanced focus on domestic vs. export
• Strategic Interest in international operations imply gas assets could be
leveraged
• The key issue here is the intent on driving domestic usage of own gas
The fully integrated suppliers though such as Shell, ExxonMobil, and Agip hold
the dominant resources and infrastructure both in the upstream and
downstream.
• They have highly diversified downstream interest but trend is towards
LNG as core downstream.
• Strategic focus on growing global LNG market share
o Secure and guarantee supplies
o Secure value at the end of the downstream value chain
• The Key issue here is balancing the gas supply to own export with
competing domestic supply
Already a conflict of interest is noticed between National need for domestic use
of resource as priority above exports and IOCs priority interest in export via
LNG.
Another key stakeholder, although emerging in evolving gas sector is the
institutional financier. The significant funding requirement by NNPC for its
domestic gas projects means more 3rd party financers. These could be FDI’s or
investment companies such as Osprey.
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SWOT Analysis of The Nigerian Gas Sector
Strengths Opportunities
• Significant gas resource base in available
reserves and unappraised discoveries
• Strategically located to serve export and
regional pipeline supply opportunities
• Reserves required to serve all potential
growth are concentrated in finite clusters
which can be harnessed rapidly and flexibly
• Network of core infrastructure and facilities
which can be leveraged rapidly to meet
growth
• Diverse export market potential
o LNG, GTL, NGL, LPG
o Regional pipeline supplies
– W/A, EG, Trans Sahara
• Significant evolving domestic
market geographically spread
across nation
o Power, Industries
• Estimated gross upstream revenue
over 20 years estimated at about
$70bn (at $0.5/mscf upstream gas
price)
Weaknesses Threats
• Significant portion of booked reserves are
long term reserves (gas cap gas) reducing
short term availability by 50%
• Market power concentration in a few players
with cross-‐value chain interests – may impact
liquidity of supplies
• Disconnected infrastructure reducing optimal
deployment of available reserves
• Fragmented facilities development – under-‐
exploitation of synergies resulting in
avoidable costs and sub-‐optimal
• Some uncertainty in market
development (timing and pace
implication for sector activity)
o Export LNG capacity
growth dependent on
actual US LNG growth
o Possible domestic growth
critically dependent on
infrastructure, but broadly
some uncertainty exists re
size and pace growth
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infrastructure configuration
• Artificial boundaries across JVs sub-‐optimises
resource availability -‐ limited inter-‐IOC
collaboration
• Infrastructure coverage of North in-‐existent,
limiting ability to exploit northern domestic
growth market
• Limited infrastructure capacity and integrity
relative to market potential
• Sub-‐commercial gas price for supplies to
domestic power
• Market dominance of integrated
players and implication for access
to facilities and infrastructure by
smaller players as well as overall
liquidity
Above is a detailed SWOT analysis of the Gas Sector in Nigeria and highlights
some of the Key factors to consider in terms of investment risk assessment.
Some key positive points are highlighted e.g. estimated gross revenue over 2
decades at about $70bn.
Fig 2
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Nigeria’s Gas Reserve
Fig 3: Source: BP Statistical Review of World Energy 2014
Fig 4: Overview of key NG Reserves
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Fig 5
Fig 6
Global Outlook on LNG
LNG Supply and Demand Global Overview
LNG Supply Facilities: Existing & Under Construction
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Nigeria’s position in the LNG world
Fig 7 Source: Gas Strategies (GS)
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Fig 8: Source: Corporate Planning & Strategy Division (NNPC)
Fig 9: Source: Corporate Planning & Strategy Division (NNPC)
LNG demand by Countries
The above picture shows demand growth projected to 2020 with Japan being the
main demand hub. Nigeria’s best market for export is Japan. Further evidence to
prove Japan’s favourable market is given below, where Japan’s price is
favourable at $16/mmbtu.
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LNG Value Chain
The value chain of LNG is shown above where all the stages involved in LNG
production and usage is depicted and their global status as of 2013. The market
is ever growing due to global fluxes such as unconventional shale production by
the US (Fig 2) and Australia investing into increasing output starting this 2015.
Fig 10
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Global Corporate Players in The LNG Value Chain
LNG Shipping Supply vs. Demand vs. Fleet Size
Fig 11. Source: Corporate Planning & Strategy Division (NNPC)
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LNG Shipping: Charter and Ownership Profile
Fig 12
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Investment Opportunities After having observed the gas market in Nigeria and a global outlook into LNG,
including its value change, we now will look at the investment opportunities
pertaining to the Nigerian NG & LNG industry. First of all, understanding the
structure of the Oil & Gas industry in Nigeria is necessary. Understanding this
structure will enable for easier linkages for investor such as Osprey in the future.
Fig 13. Showing the structure of Nigeria’s Oil & Gas Industry. From the Federal Government and Ministry of Petroleum Resources (left) to the IOCs with Joint ventures and Public Sharing Contracts in he upstream, and the subsidiaries of NNPC (right)
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For the purpose of this report, Osprey’s attention will be focused on the Gas
midstream and downstream sectors, and also possible service sector
opportunities that are available.
Gas Opportunities: Pipeline Infrastructure & Processing Plants
Fig 14; Showing some investment opportunities in the upstream, midstream and downstream sectors of the industry
Fig 15
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Fig 17
Gas Revolution Industrial Park @Ogidigben
Fig 16
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Fig 19
Compressed Natural Gas (CNG)
Service Sector Opportunities: Engineering, Procurement, Fabrication & Construction
Fig 18
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Export Projects
The Trans-‐Sahara gas Pipeline (TSGP)
Fig 20: The TSGP will provide access to export gas to a new European market, expanding export portfolio. NNPC and Algeria’s Sonatrach would build and operate the pipeline together with the Republic of Niger. However terrorists incidents and lack of general security have delayed any further progressive actions on the plan.
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Comparison of Export Projects
Conclusions Key Trends in he coming decade, especially in Africa
Key Investment Drivers & Opportunities within Nigeria’s Oil & gas industry
Fig 21
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