Trends

Evaluating the economic ripple effects of optimum gas utilization in Nigeria.

Nigerian Natural Gas Trends

Over the years Nigeria has grown in its natural gas utilization. In 1970, 98.6% of gas

produced was flared, and only 1.4% was utilized as gas injection or for power

generation (IISD, 2008). However in 2010, 581 Bcf of gas flared of the 2,392 Bcf

produced (EIA, 2012), which implies 76% of the gas produced in that year was

utilized. The table below shows country’s gas production rate and depicts the increase

in utilization of gas.

Year Production rate (Bcf) Amount of gas

Flared and

vented (Bcf)

Amount of Gas

utilized (Bcf)

Percentage

of Gas

being

Utilized (%)

1990 978 744 234 23.9

1991 1052 800 252 23.9

1992 1155 879 276 23.8

1993 1189 910 279 23.4

1994 1189 950 239 20.1

1995 1234 926 308 24.9

1996 1301 965 336 25.8

1997 1140 798 342 30.0

1998 1121 738 383 34.1

1999 1084 666 418 38.6

2000 1231 607 624 50.7

2001 1388 678 710 51.2

2002 1346 667 679 50.4

2003 1554 653 901 58.0

2004 1603 653 950 59.3

2005 1918 812 1106 57.7

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2006 2182 788 1394 63.9

2007 2416 788 1628 67.4

2008 2565 674 1891 73.7

2009 1836 509 1327 72.3

2010 2392 581 1811 75.7

2011 2400 619 1781 74.2

Table 1: Nigeria’s natural gas production from 1990Source: EIA, 2012

Gas utilization infrastructure

Driven by the desire to create more wealth and diversity in the Nigerian economy, the

government has embarked on a number of gas utilization projects to achieve the

above figures. Also under pressure from environmental agencies and rising domestic

need, the government has put in place facilities, infrastructures, and legislature to

ensure the sustainable development of the NG sector. One of the first facilities built

by the government to utilize gas was the Delta-Ughelli Thermal Power Plant located

at Ughelli, Delta State. It was commissioned in 1966, to generate electricity and with

a capacity of 942 MWe (Global Energy Observatory, 2011)

Since the Delta-Ughelli Power plant, other gas to power plants have been built in the

bid to optimize the natural gas resource. The table below shows a list of Gas to Power

plants and with only a few operating at full capacity.

Power Plants LocationYear of

commissioning

General capacity

(MWe)

Afam IV-V GT

Power Plant Nigeria

Okoloma, Rivers 1982 724

Afam VI CCGT

Power Plant Nigeria

Okoloma, Rivers 2008 685

Agip-Okpai CCGT

Power Plant Nigeria

Delta 2005 480

Alaoji Power Plant

Nigeria

Alaoji, Abia N/A N/A

Calabar OCGT

Power Plant Nigeria

Calabar, Cross

River

N/A 562.5

Delta-Ughelli II Ughelli, Delta 2002 143

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OCGT Power Plant

Nigeria

Delta-Ughelli

Thermal Power

Plant Nigeria

Ughelli, Delta 1966 942

Egbema OCGT

Power Plant Nigeria

Orashi, Imo 2011 338

Gbarain Ubie

OCGT Power Plant

Nigeria

Bayelsa N/A 225

Geregu OCGT

Power Plant Nigeria

Geregu, Kogi 2011 438

Ibom Power Plant

Nigeria

Ikot Abasi, Akwa

Ibom

N/A 191

Ihovbor OCGT

Power Plant Nigeria

Benin City, Edo N/A 450

Olorunsogo OCGT

Power Station

Nigeria

Papalanto 2008 500

Omoku (Omuku)

OCGT Power Plant

Nigeria

Omuku, Rivers 2006 150

Omotosho I and II

Power Station

Nigeria

Ondo 2005 785

Rusal Alscon

OCGT Power Plant

Nigeria

Ikot Abasi, Akwa

Ibom

1997 534

Trans-Amadi I and

II OCGT Power

Plant Nigeria Rivers

Trans-Amadi, Port

Harcourt

2002 136

Table 2: Electricity power plants across NigeriaSource: Global Energy Observatory, 2011

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Nigerian LNG Company: Nigeria’s first LNG facility was incorporated as a limited

liability company on May 17, 1989 and is a joint venture between the Nigeria

National Petroleum Corporation (49%), Shell (25.6%), Total (15%) and Eni (10.4%)

(Ukpohor 2009). Its aim is to harness Nigeria's vast natural gas resources and produce

Liquefied Natural Gas (LNG) and Natural Gas Liquids (NGLs) for export and

domestic use. Located on Bonny Island, NLNG has six trains in operation. Trains 1

and 2 were completed in February 2000 and August 1999 respectively. Train 3 began

operation in November 2002, Train 4 in November 2005, Train 5 in February 2006

and Train 6 in 2007. The current capacity of the six operating trains is some 22

million tonnes per annum of LNG and 4 million tonnes per annum of LPG, from a

feedgas of over 3.5Bcf/d at full production (NLNG 2012). Thus far the Nigeria has

received a total of $9 billion as dividends from the company (YISHAU 2012). 

West Africa Gas Pipeline: The effort to increase gas utilization by the Nigerian Gas

Industry includes a regional market involvement. The West Africa Gas Pipeline

project was established in 1982 aimed at capturing the regional market of countries

within the Western African coast. The project originated from a proposal put forward

by the Economic Community of West Africa States to have a NG pipeline pass

through West Africa. After being deemed commercially viable by feasibility reports, a

Memorandum of Understanding on the project was signed by four countries on

August 1999 (Ukpohor 2009). The pipeline is to expand over a distance of 681km,

starting from the Lagos terminal (Nigeria) to three delivery points near, Cotonou

(Benin), Lome (Togo) and Tema (Ghana). The West Africa Gas Pipeline Company

Limited was set up by the four countries as a public-private partnership, to build, own

and operate the pipeline. The shareholders stakes are Chevron-Texaco West Africa

Gas Pipeline Ltd (36.7%), Nigeria National Petroleum Corporation (25%), Royal

Dutch Shell (18%), Volta River Authority of Ghana (16.3%), Societe Togolaise de

Gaz (2%), and Societe Beninoise de Gaz (2%) (Ukpohor 2009). Construction of the

West African Gas Pipeline (WAGP) began in January 2005 with commissioning

occurring in early 2011 (Shell 2011). “The WAPCo pipeline is seen today by

Economists as a catalyst for clean economic growth, a tool for environmental benefit,

and a cornerstone for regional integration.” (Ukpohor 2009).

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Figure 1: West African Gas Pipeline Source: Google image

Gas Exports

Gas exportation was non-existent prior to 1999, when the Nigerian Liquefied Natural

Gas Company came on stream and exported its first cargo in October of 1999

(NLNG, 2012). Table 3 below shows the yearly exports of natural since 1999.

Year Gas Exports (Bcf)

1999 26

2000 202

2001 307

2002 277

2003 416

2004 441

2005 425

2006 621

2007 773

2008 726

2009 565

2010 848

2011 1,593

Total 7,220

Table 3: Nigerian natural gas exports Source: EIA, 2012 and NNPC Group, 2012

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Through these developments Nigeria has become one of the world’s leaders in LNG

exports. According to the CIA’s The World Factbook (2012), it estimated Nigeria

ranked 11th in the world when it comes to natural gas exports in 2011.

Domestic gas trend in Nigeria

The domestic gas market has always been limited by the inadequacy of the gas

transmission and distribution infrastructures (Centre for Energy Economics 2005).

This has evidently slowed the growth of the domestic market in the past. However,

according to a study done by the International Institute for Sustainable Development

(2008), they described the domestic use of NG in Nigeria to have experienced a

quantum jump. This jump was propelled by the increase in options for NG gas

utilization.

Despite this jump it is the opinion of a few (Sawyerr et. al. 20011) that gas utilization

is still very low and has also attributed this to poor infrastructure and the market

availability. The figure and table below show a graphical and detailed description of

the nation’s consumption levels.

Figure 2: Nigerian gas consumption Source: EIA 2010

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Year Consumption (Bcf) Change

1980 37.79 NA

1981 76.00 101.11 %

1982 50.00 -34.21 %

1983 81.20 62.40 %

1984 97.00 19.46 %

1985 108.00 11.34 %

1986 116.00 7.41 %

1987 130.70 12.67 %

1988 133.14 1.87 %

1989 165.98 24.67 %

1990 131.00 -21.07 %

1991 168.00 28.24 %

1992 173.04 3.00 %

1993 178.34 3.06 %

1994 160.68 -9.90 %

1995 183.28 14.07 %

1996 192.82 5.21 %

1997 206.59 7.14 %

1998 208.36 0.85 %

1999 219.31 5.25 %

2000 237.67 8.37 %

2001 219.31 -7.73 %

2002 224.60 2.42 %

2003 300.53 33.81 %

2004 329.14 9.52 %

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2005 365.86 11.16 %

2006 385.64 5.41 %

2007 374.34 -2.93 %

2008 433.49 15.80 %

2009 146.56 -66.19 %

2010 175.52 19.76 %

Table 4: Nigerian gas consumptionSource; Index Mundi 2011

Gas Legislation and Policies

Various regulations apply to the sector. For instance the Petroleum Act (PA)

considers ‘natural gas’ under ‘petroleum’ therefore the act applies to the gas sector as

well (Okorie, 2010). Other general regulations overseeing the gas sector include the

Petroleum Profit Tax Act (PPTA), which regulates taxation at the upstream section

and the CITA which regulates taxation at the downstream section. The Oil Pipelines

Act and the Oil and Gas Pipeline Regulation regulate all oil and gas pipelines. The

Department of Gas and the Ministry of Environment are in charge of issuing pipeline

construction permits. However, listed below are the legislations that cover the gas

sector specifically.

The Petroleum Regulation Decree: According to the decree, a lessee or licensee was

obligated to submit a feasibility study or a proposal on their gas utilization prospects

no later than 5 years after commencement of production (Okorie 2010). This decree

was active before 1970 up until 1979.

The Associated Gas Re-injection Act: This act was put in place in 1979 and required

all companies to submit a plan on gas utilization and gas re-injection by 1980. By this

legislation no company was to flare gas after January 1984, with a penalty put in place

for gas flaring (Okorie 2010). Re-adjustments were made to the Act when companies

complained of the penalties being too severe. The final Act came into force in 1984

with lesser penalties.

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The Nigerian Liquefied Natural gas Decree: The government made provisions for

certain fiscal incentives such as tax holidays, guarantees and assurances to encourage

the utilization of associated gas as LNG (CMD 2012).

The Associated Gas-Frame work Agreement: Cognizant of the amount of revenue

loss associated with flaring and the desire to encourage investment, the government

set up this agreement as a fiscal incentive for gas utilization. The agreement was

introduced in 1992 and includes the following incentives:

- Tax holiday for three years

- All investments necessary to separate oil from gas from reserves into suitable

production is considered as part of the oil field development.

In 1998 additional incentives were offered with the aim of increasing the economic

utilization of gas. They include;

- Gas projects taxes at 30% vs. 85% for oil projects

- Capital expenditures for gas projects chargeable under Petroleum Profits Tax

- Tax holiday of 5 to 7 years

- Exemption on custom duties and VAT on gas related development equipment

- Investment capital allowance of 15%

- Interest deductibility on loans

- Dividends during tax holiday are tax free.

Cyril Odu, vice chairman, Mobil Producing Nigeria Unlimited, stated at the Nigerian

Association of Petroleum Explorationists conference, “That the way to get

investments into the gas industry was to give incentives rather than use penalties to

drive it.” (Ayankola 2008). In view of this statement one may conclude that the above

listed incentives are enough encouragement for investments in the sector by interested

parties.

The Gas Master Plan: The gas master plan under the National Gas Policy 2008 is a

downstream gas policy focused on encouraging the private sector’s involvement in

the commercialization of the country’s natural gas industry (Okorie 2010). Its key

objectives are:

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1. Maximising the multiplier effect of gas in the domestic economy

2. Optimizing Nigeria’s share and competitiveness in high value export markets

3. Assure the long term energy (gas) security for Nigeria

The Gas Master Plan comprises of the National Domestic Gas supply, the Pricing

Policy and Regulations and the Gas Infrastructure Blueprint.

The issue of domestic supply is addressed through the Domestic Gas Supply

Obligation. The Domestic Supply Obligation is the first major attempt to refocus the

gas resource for domestic use in Nigeria. Through this obligation the government

insures adequate gas resources are dedicated for the rapid domestic industrialization

(Onyeukwu 2009).

The Pricing Policy adopts a pricing framework which categorizes the demand sector

into three strategic sectors, then applies individual prices to the respective sectors

(Onyeukwu 2009). It dictates only floor prices while the actual prices are negotiated.

The strategic sectors are namely: the Domestic sector such as the power sector, the

Industrial sector comprising of industries that use gas as feedstock, and the

Commercial sector which refers to users of gas as industrial fuel such as

manufacturing companies.

Present State of Gas Sector

In a newsletter written by Sawyerr et. al. (2011) on Nigerian gas reserves, the shortfall

in electricity supply and the apparent case of under utilization, they mentioned that

over time Nigeria has come to be seen as a gas province with drops of oil in it. This

conclusion may have arrived due to the fact that Nigeria has a proven gas reserve of

about 180.5 Tcf (BP Statistical review, 2012 and EIA, 2012), and the Nigerian

National Petroleum Corporation (NNPC), the country’s national oil company,

estimating that its gas reserve could reach about 600Tcf in 15 years with the

commencement of focused gas exploration processes (Sawyerr et. al., 2011).

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“This is why natural gas is envisaged as the fuel to power Nigeria’s economy”,

(Sawyerr, 2011). Experts estimate the country’s gas life expectancy at over 100 years

at its current proven gas reserve. With the commencement and eventual finding of

more reserves, Nigeria is set to be a world energy power if it utilizes this natural

resource.

Nigeria has about 40% of its total proved gas reserves identified as stranded gas caps,

meaning they are not available in the short term. In addition, non-associated gas

constitutes a vast majority of the reserves that are available in the short-medium term

(Odumugbo, 2010) – is this part necessary?

By harnessing its natural gas reserves, Nigeria could alone provide the energy needs

for the West Africa sub-region (Sawyerr, 2011).

Gas Utilization projects

The nation’s gas commercialization agenda involves gas utilization through gas

facilities and transmission and distribution projects. Described below are the current

gas utilization projects operating and under construction.

NLNG Train 7: The NLNG is set to make its Final investment Decision (FID) on its

Train 7, according to NNPC’s Group Managing Director, Austen Oniwon (YISHAU

2012). The Train 7 will bring in an estimated $8 million in Foreign Direct Investment

(FDI) as well as help reduce gas flaring, and improve the country’s revenue profile.

The country also stands to reap an additional $2.2 billion annual dividend (YISHAU

2012). The additional train 7 will increase NLNG’s production to 30 MTPA.

Brass River LNG: The Brass LNG is a $3.5 billion project located between Ogun and

Ondo States. The shareholder structure of the plant is as follows; NNPC 49%, Eni,

17%, Conoco Phillips, 17 % and Total, 17 % (Ukpohor 2009). According to the

Group Manager of NNPC the FID for the Brass will be ready by the year’s end

(Vanguard 2012). Brass LNG is designed to have two trains each nominally sized at 5

MTPA , facilities for liquefied butane and propane extraction, segregation, and

treatment, two 110,000 cm LPG storage tanks, two 185,000 cm LNG storage tanks,

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one 500,000-barrel capacity NGL tank, marine facilities for the products export and

accommodation for plant operators (Ukpohor 2009).

Olokola LNG (OK LNG) project: The plant is located at the western axis of the Niger

Delta and will cost over $7 billion. It has been designed with an initial capacity of

11mtpa and is funded through a joint venture whereby the Nigerian government holds

49.5 % stake, Royal Dutch Shell, 18.5 %, Chevron, 18.5 % and the British Gas Group

13.5 % (Ukpohor 2009). OK-LNG at completion will have four trains with a capacity

of 22m t/y and the complex will also produce about 300,000 b/d of LPG and

condensate (Ukpohor 2009). Former Head of State Chief Ernest Shonekan during a

visit to NLNG said the FID for OK LNG will be ready in 2014 (NLNG 2012). Shell

Global Solutions International, SGSI, a world leader in LNG technology, marketing

and investment consultancy have said, “The OKLNG has good fundamentals capable

of taking advantage of world LNG market opportunities in year 2018, but only if it

proceeds rapidly to the implementation stage.” (Vanguard 2012)

Escravos Gas to Liquids (GTL) project: A Chevron-operated project currently

underway and at over 70% completions stage (Bala-Gbogbo, 2011). The project is a

joint venture with NNPC and South Africa's Sasol and began in 2008 costing $1.7

billion (Ukpohor 2009). The facility has the capability to refine natural gas to

produce 33,000 barrels per day of fuels from converting over 300million cubic feet of

natural gas a day. Fuel products will include Diesel – 75%, Naphtha – 20%, LPG –

5% (Usman, 2007). Escravos GTL has faced multiple delays and cost adjustments

but is scheduled to be operational by 2013 (EIA, 2011). It is expected to begin

production in 2013 (Chevron 2012).

The Trans-Saharan Gas Pipeline (TSGP): On July 3, 2009, Nigeria, Algeria, and

Niger signed an agreement to create the TSGP. This is a proposed natural gas pipeline

from Nigeria, passing through Niger to Algeria. The pipeline is designed to supply

gas to Europe by connecting to the existing Trans-Mediterranean, Maghreb-Europe,

Medgaz and Galsi pipelines across the Mediterranean coast (Conan 2011). The

pipeline will cover roughly 1,037 kilometres (604 miles) in Nigeria, 853 kilometres

(530 miles) in Niger, and 2,310 kilometres (1,435 miles) in Algeria, an estimated total

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of 4,200 kilometres (2,609 miles) (Conan 2011).. The project is estimated at a cost of

$13 billion: $10 billion for the pipeline, and $3 billion for the gas collecting and

Nigerian infrastructure (Conan 2011). Once in full operation the TSGP is expected to

reach a capacity of 1,059 Bcf/year. The following factors support the necessity and

viability of this cross border project

Depletion of European gas fields

Demand for energy in Europe is likely to remain high

Uncertainty over the feasibility of shale-gas production in Europe

The preference for a gas pipeline over liquefied natural gas (LNG) technology

The presence of sufficient Nigerian reserves

The need for an alternative to Russian gas

Nigeria stands to gain political influence through this project. In his article Russia’s

new weapon: the politics of pipelines, Goldman (2009: 1) says, “In particular, Russia

has turned its natural gas into an especially effective weapon.  This is because Europe

still is mostly dependent on its pipeline system for its natural gas supplies.  This

means that if for some reason Russia curbs its pipeline deliveries, its customers in

Europe have no other option than to agree to whatever Russia may demand.” He goes

on to speak on Europe’s efforts to broaden its gas supply through NABUCCO, a

pipeline from Central Asia. TSGP is viewed also as an alternative gas supply pipeline

and Nigeria can exploit this pipeline for its political gains.

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Figure 3: The Trans-Saharan Gas PipelineSource: Ukpohor 2009

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Figure 4: Gas Infrastructure Blueprint layout.Source: Ukpohor 2009

Gas distribution projects

For the country to receive the needed gas resource, gas distribution pipelines need to

be put in place to deliver gas round the nation. NNPC through NGC has began

developing several domestic pipelines in order to meet the growing domestic demand.

According to a report written by the International Institute for Sustainable

Development (2008), the NGC have implemented several gas supply systems with a

collective throughput of 2.5 Bcf/d, over 1800 km of gas gathering and transmission

lines as well as 14 compressor stations. The table below provides information on

existing major gas transmission pipeline in Nigeria.

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Gas Pipelines Systems

Design Capacity (MMSCFD)

Line Diameter (INCHES)

Pipeline Length (Kilometers)

Aladja Gas Pipeline System 70 6,8,14 &16 130

Oben-Ajaokuta Gas Pipeline System

200 24 198

Sapele Gas Pipeline System 200 10 & 18 44

Obigbo North/Afam Pipeline System

90 14 19

Imo River Aba Gas Pipeline System

35 12 28

Alscon Gas Pipeline System 160 14,16 & 24 117

Alakiri-Onne Gas Pipeline System 138 14 17

Escravos-Lagos Gas Pipeline (ELP) System

1100 30 & 36 514

Ibafo-Ikeja City Gate System 50 24 48.4

Table 5: Major Gas transmission line in Nigeria Source: IISD 2008

Nigerian Gas Company (NGC) currently has 30 firms in the Agbara/Ota industrial

area of Ogun State connected to gas supplies via eight of its operating gas supply

systems. The current plant capacity is 2 Bcf/d (Odumugbo 2010).

Already benefiting from the gas transmission lines is the Greater Lagos Industrial

Area (GLIA). The project is phased into Ikeja 1A, Ikeja 1B and the Greater Lagos II.

The entire project covers an estimated 146.2 km. Already over 38 companies are

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connected to the transmission line with another 125 customers awaiting to be

connected (Oando 2012).

Figure 5: Gaslink distribution networkSource: Oando Plc 2012

In order to meet up to the demand, three major gas transmission systems are to being

developed; the Western System comprising the existing Escravos Lagos Pipeline

System (ELPS) and an additional offshore extension to Lagos, the South-North gas

transmission pipeline, the inter-connector which will link Eastern gas reserves to the

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other two transmission systems (Sawyerr 2011). The South –North gas transmission

pipeline consists of 48 inch pipeline, from Akwa Ibom/Calabar to Ajaokuta to Abuja

to Kano, Kaduna and Katsina. It also connects the Eastern states of Anambra, Abia,

Ebonyi, Enugu and Imo. The overall pipeline system will cover an estimated distance

of 1000km and is expected to cost $1.3 billion (Pipelines International 2010).

Summary of gas projects – should I do this?

Regulation and legislation

The Downstream Gas Bill seeks to institute a separate legal and regulatory framework

for the Downstream Gas sector for the purpose of achieving a more effective

regulation (uche 2011)

PIB law - The law is designed to introduce a new regulatory framework that will

provide for separate regulation of the upstream and downstream as their activities are

different. If the PIB becomes law, a regulatory authority, a gas transportation

company and a gas marketing company are expected to emerge.

Incentives– should I do this?

Impediments to the Growth of the Domestic Natural Gas Sector

Although the Gas Master plan set by the government is to increase multiplier effect in

the domestic economy, the plan is hinged on harnessing of the country’s abundant gas

resource. Therefore the first impediment will be gas supply. Gas supply is governed

by the practical issues of linking the upstream (exploration) and downstream

(distribution and marketing) activities. In a study done by Humphrey (2009), he

classified the supply challenge issues into Availability, Affordability and

Commerciality of supply, Deliverability and its cost effectiveness, Legal and

regulatory framework and Funding issues.

The Nigerian gas market is controlled by few major IOCs with a natural favouritism

for the export market and this creates a major conflict and potential resistance to gas

supply to the domestic market (Humphrey 2009). The table below shows the strong

portfolio interest of the major IOCs towards exporting gas.

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Table 6: IOCs export portfolios Source: (Yar'adua 2007).

The remedy to this problem is impeded by the huge cost incurred and long term gas

supply agreements to the IOCs (Yar'adua 2007).

Humphrey (2009) states that, “The most critical challenge to the Gas Master Plan is

the varying capacities of the various sectors to afford gas.” By this statement he

referred to the affordability and commerciality of gas supply, thus stressing the notion

that gas resources must be economically produced and transported to markets for

development to occur.

Another key impediment is the absence of clear legal and regulatory framework

governing the Gas sector. Two piece of legislature that would change the face of the

sector are the Downstream Gas Act and the Petroleum Industry Bill. These bills have

been delayed and have cost a loss of an estimated $4-5 billion since they were present

at the National Assembly in 2005 (Humphrey 2009).

According to Ademola Adeyemi-Bero of British Gas, he emphasised on funding and

security challenges as impediments to developing the industry (Ayankola 2008).

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Domestic growth has been impeded by government’s minimal investment in gas

infrastructure and by its aim to increase its foreign exchange through focusing on

improving export capacity via the means of LNG technologies and pipeline systems.

While insufficient supply of gas has been a major impediment to steady power supply

in Nigeria, the NGC, continues to transport the gas that would have been utilized to

feed the nation’s power plants, industries and manufacturing firms to other countries

to meet their requirement under the WAGP project (Uche 2011). The WAGP project

agreement was subject to first meeting the demand of the domestic market, including

the power plants. Anthony Uche (2011) relates the reason for the low production and

distribution to the lack of gas infrastructure to feed produced gas to the various power

stations, and industries that need the product, and a concrete pricing regime.

Nwosu et. al,. (2006) list impediments to include:

Failure of local contractors to fulfil basic prerequisites; e.g., the provision of

detailed and authenticated banking proposals, comprehensive business plans,

legally binding quotations, agreed delivery deadlines, and having adequate

finance available to achieve what is promised.

Low equity-base of local contractors.

High costs of borrowing in the domestic economy.

Scanty or lack of financial documentation, particularly audited accounts.

High risk-rating occasioned by recurrent community disturbances.

Lack of ready access to foreign currency.

Single obligation limitation/constraints imposed on local banks by regulation.

Excessively long gestation/courtship/completion periods both in securing and

executing oil contracts.

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Natural Gas Utilization

Nigeria once ranked in the world gas industry as the number one in gas flaring, has

over recent years has seen a significant reduction in gas flaring as a result of the

domestic demand boom being experienced. With Domestic Market demand growing

at a projected annual rate of 25%, one the fastest demand growth in the world

(Adesina 2012). The intervention of the government through LNG facilities and other

gas utilization projects has brought about this much anticipated economic growth

factor. During a conference on “Gas and the Nigerian economy”, Emmanuel

Egbogah, special adviser to the president on petroleum matters, stated that the

domestic gas market was witnessing one of its most significant transformations. From

a low level of utilisation of about 500 Mcf/d in 2000, the domestic market is expected

to see an unprecedented demand increase to as high as 10Bcf/d by 2015. This

translates to a compound annual growth rate of about 22 %. When compared to the

global growth rate of about 3-5 %t, this trend is phenomenal (Ayankola, 2008).

According to a new report released by Business Monitor International, Nigeria’s gas

production will increase from an estimated 34.71 Bcm in 2011 to 82.61 Bcm by 2021.

Gas demand expected to rise at 12.60% per annum and domestic gas consumption

rising from an estimated 5.75 Bcm in 2011 to 17.19 Bcm by 2021 (Salau 2012)

Natural Gas consumption by Sector

Detailed below is the consumption expectation of the natural gas by sector.

The Power Sector

This sector majorly comprises of the power sector. The major gas utilizing sector is

the power generating sector. This sector is controlled by the Power Holding Company

of Nigeria (PHCN). The power sector is said to take up 70% of domestic consumed

gas and gas to power supply is expected to grow by 35% with gas consumption by the

power sector increasing from 1,350mmcf/d in 2010 to over 3,800mmcf/d in 2020

(Olomu 2007` and Adesina 2012).

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Figure 6: Gas consumption projections for future gas power plants Source: Joint UNDP/World Bank Energy Sector Management Assistance Programme 2004

The Industrial Sector

This sector consists of industries that use gas as feed stock and source of power.

Cement Industry

Powering cement factories on gas is deemed far less expensive than liquid fuels and is

also seen as an environmentally friendly way to generate power. The country’s

development is increasing and based on this factor the growth rate of cement is

expected to double potentially every 10 years. This sector is expected to see a gas

demand increase of 32%, translating to 85mmcf/d in 2010 to 270mmcf/d by 2020

(Olomu 2007). This would lead to plant expansions and new grassroot capacity

additions. The major gas consumer for production of cement is the West African

Portland Cement Company.

Steel Industry

The steel industry in Nigeria may be considered inactive, with very little steel being

produced by the two steel plants, Aladja and Ajaokuta steel mills. An improvement in

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the industry will see plant gas demand increase by double every 10 years. Revitalizing

the existing steel plants and revamping them to meet the estimated demand of

2.0MTPA by 2020 would result in total gas demand increase of 70mmcf/d by 2010

and 130mmcf/d by 2020 for this sector (Olomu 2007).

Aluminium Industry

The aluminium industry in Nigeria is cantered around the Aluminium Smelter

Company of Nigeria (ALSCON) facility. The facility has the capacity to produce

200,000 tpy (Olomu 2007). In 2008 the company was taken over by Russian

Aluminum Smelter, RUSAL and is in production.

Petrochemical Industry

The petrochemical industry makes use of gas as its feedstock and the gas demand for

this industry is an estimated 60 mmcf/d. Projections considering additional facilities

to the currently operating ones, put gas demand by this sector to increase by 80%

from 80mmcf/d in 2010 to 100mmcf in 2020 (Ukpohor 2009).

Fertilizer Industry

The fertilizer industry is an dependant on fertilizer imports however demand is

expected to increase by 7 % per year over the next 20 years. Gas demand in this sector

could reach 110 mm cfpd by 2010 and 170 mm cfpd by 2020 (Olomu 2007)

Residential Sector

Residential and small-scale industry consumption of bottled liquid propane gas (LPG)

is expected to increase by 7.5% per annum. The total current average domestic gas

demand in Nigeria is estimated at about 2,000mmcf/d and is expected to increase to

4,800mmcf/d (Ukpohor 2009).

CNG

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Export Sector

Nigeria currently ranks eleventh in the world export rankings with exports of 20 Bcf

last year (Index Mundi 2012). This currently is Nigeria major gas utilization sector

and is to grow with the addition of new LNG plants currently at some stage of

implementation. Gas is mainly exported as LNG from the NLNG. Other LNG plants

to come on stream in the coming years include; Brass LNG, OK LNG, Progress LNG.

Evidence of a Possible Ripple effect

Gas utilization benefits are numerous and include, increased domestic energy

availability, release of more premium fuel oil for export, diversification of export base

for foreign exchange earnings, increase in value-added to the petroleum sector, sharp

reduction of energy waste in gas flaring, and major contribution to a clean

environment (Odumugbo, 2010).

The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, recently was

quoted saying “The current domestic gas utilization level of 1 billion standard cubic

feet (scf) would achieve a 400 percent increase by 2015 as the federal government has

concluded plans to boost in-country utilization by another 4 billion scf of gas over the

next 4 years.” (Adeoye 2011)

Shonekan, Nigeria’s ex interim head of state, during a visit to the NLNG Finima,

Bonny Island, Rivers State facility, said, “With the success of Nigeria LNG Limited

on Bonny Island, doubts about Nigeria’s capability to successfully see a project from

construction to operation have now paled into insignificance.”

“It is pertinent to observe that the linkage of the gas sector to the power, industrial

and agricultural sectors present the most important opportunity for rapidly

accelerating the nation’s industrial and economic development.” (Uche 2011)

Evaluating the multiplier effect caused by increase in natural gas utilization

When the economy is growing, we all benefit. Economists call it the multiplier effect.

It is the idea that a dollar earned and spent in a community circulates among us all,

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again and again, lifting everyone’s fortune. Every time there is an injection of new

demand into the circular flow there is likely to be a multiplier effect (Economics

Online 2012). This is because an injection of extra income results in more spending,

which creates more income and so on.

Direct jobs are one thing, but even more impressive is the ripple effect that

economists credit for job creation in the natural gas industry. In many ways, these

additional jobs have the greatest impact on local economies.

Case Study of Shale Gas Ripple Effect on the United States

The US shale gas revolution has given the country enormously beneficial economic

effects and it will continue to do so. These effects are felt through investments and job

creation in the energy sector, and one major important effect which is low energy

prices. These low energy prices will support the economic growth over a long period

of time and that growth will spread throughout the entire economy (Schirach 2012).

The report written by Schirach (2012), explains with statistics the ripple effects shale

gas will have on the economy over a period of time.

Shale gas adds to energy supply, employment

In 2011 shale gas contributed 34% of total gas production in the US and according to

IHS Global Insight, this number will continue to increase. Predictions indicate that by

2015 it will contribute 43% and by 2035, 60% (Schirach 2012). The natural gas sector

in the US contributed $76.9 billion to the country’s total economic output, will

contribute $118.2 billion in 2015 and $231 billion in 2035 (Schirach 2012). For jobs,

it creates new high paying jobs in the energy sector. The gas industry supported

600,000 jobs in 2010. Projections indicate 870,000 by 2015 and up to 1.6 million by

2035 (Schirach 2012).

Ripple Effects

Various ripple effects have and will be experienced across board. The supply increase

in natural gas means a reduction in price which is a definite benefit for consumers and

especially for industrial sectors with heavy energy needs (Schirach 2012). Already

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American consumers pay less for electricity and for space heating, while steel and

plastics industries have seen cost of production reduced and their global

competitiveness gone up (Schirach 2012).

Increased GDP

It is estimated that the positive ripple effect of lower US energy costs could increase

average growth by 0.5% or even 1% of GDP for the next decade. Judging by the fact

that the US economy has grown by an average 2.5% rate a year over the past 20 years,

this 0.5% or 1% growth is a really huge increase (Schirach 2012).

Cheaper fuel equals cheaper goods

In the aspect of transportation, converting trucks used to move goods around the

country to run on LNG instead of expensive fuels such as diesel, will translate into

cheaper products on the selves. People will spend less for their day to day living and

will have more to put away as saving for big ticket items and/or for new investments.

The aspect of converting vehicles to run on LNG will create new jobs in the

automotive industry as companies will have to develop new lines of product (Schirach

2012).

New chemical industry investments

The US chemical and plastics sectors will see significant new investments.

Corporations will move to gain from low electricity costs and abundant natural gas

which is used as feedstock in their manufacturing processes (Schirach 2012).

Energy Security

The US finally has energy security. The US has 862 Tcf of shale gas and with a

consumption rate of 66.8 Bcf/d, shale gas alone can supply energy from gas for anoth

35 years (EIA 2012). The means reduced reliance on foreign energy sources such as

oil from the Middle East. Its reduced reliance will cause a transformation in US

foreign and security policies (Schirach 2012).

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An economic impact assessment on the oil and gas industry in Pennsylvania was

carried out by the Pennsylvania Economy League of Southwestern Pennsylvania,

LLC (2008) and the results of their findings are summarized below. They arrived at

their conclusions assessing the direct, indirect and induced economic impacts of the

industry. Direct impact comes from the money put in the hands of workers of the

energy companies. Indirect impact comes from the spending done by these high paid

workers in the local, regional and state economies. Induced impact comes about when

employees of other businesses use their wages and salaries to purchase goods and

services from other businesses.

Figure 7: Showing the impact on the broader economy

The table below shows a summary of the direct, indirect and induced impacts caused

by oil and gas activities in Pennsylvania for a year.

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Direct Impact Indirect ImpactInduced

ImpactTotal Impact

Multiplie

r

Output$4,548,437,60

0

$1,237,268,26

8

$1,318,469,46

1

$7,104,175,23

91.56

Employment 10,538 5,260 10,761 26,559 2.52

Employee

Compensatio

n

$342,815,212 $271,141,839 $372,413,532 $986,370,574 2.88

Proprietors

Income$725,998,108 $65,718,800 $50,998,475 $842,715,414 1.16

Other

investors and

Property

owner income

$1,424,504,23

2$232,295,601 $274,364,972

$1,931,164,87

41.36

Table 7: Summary of industry economic impact in Pennsylvania.

Summary

Looking at the overall view of the natural gas sector in Nigeria, there are potential gas

utilization projects either in operation or still yet to come on-stream. Legislature such

as the PIB and Downstream Gas Act will enable the development of the gas sector.

The combination of gas utilization facilities and supportive legislature will see the gas

sector develop to a sustainable level, allowing the nation and its citizens to gain from

the ripple effects caused by the industry. These ripple effects will be enormous with

gains being felt by various industries through direct, indirect or induced impacts.

Projects for gas utilization, distribution and transmission are being constructed

however the impediments mentioned above need to be resolved for the success of

plans such as the GMP to work.

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