A Review of the Nigerian Energy Industry

Nigeria: Govt to split gas from oil leases to boost output

David Ige, Group Executive Director, NNPC
David Ige, Group Executive Director, NNPC

*Says Trans-Sahara gas pipeline project not dead

Oscarline Onwuemenyi, with agency reports

20 May 2015, Sweetcrude, Abuja – The Federal government has revealed plans to issue separate leases for gas assets in order to attract more investors to boost output of the fuel, the state-owned oil company said.

The Group Executive Director, Gas, at the Nigerian National Petroleum Corporation (NNPC), Dr. David Ige, who made the disclosure in an interview noted that, “Gas, over the last few years, has become a very prominent commodity on its own, which requires a life of its own.”

He added that the nation needs companies such as Russian exporter OAO Gazprom and Centrica Plc, the U.K.’s biggest energy supplier, to enter the market to “drive our gas agenda aggressively.”

Ige explained that almost all of the nation’s reserves of 184 trillion cubic feet of gas, the world’s eight-largest, were found in the course of searching for crude. The new plan seeks to provide opportunities for companies specifically exploring for gas, he said.

More than 80 percent of Nigeria’s hydrocarbon reserves are in leases held by Royal Dutch Shell Plc, Chevron Corp., Exxon Mobil Corp., Total SA and Eni SpA, whose priority continues to be oil, Ige said. These companies run joint ventures with the state-owned NNPC that pump most of the country’s crude.

Nigeria currently produces about 9 billion cubic feet a day of gas, half of which is exported as liquefied natural gas.

While 1 billion cubic feet a day is flared in the course of oil production, another 1 billion cubic feet is re-injected into oil wells daily for pressure stability. Almost 2 billion cubic feet a day is supplied to industries and power plants, where demand is estimated to more than double to 5 billion cubic feet a day in two years.

NiGaz Energy Co., a joint venture created in 2009 between the NNPC and Gazprom, Russia’s gas export monopoly, couldn’t get a foothold because all the acreages with significant reserves are held by other companies including Shell, Chevron and Exxon Mobil, Ige said. Gazprom withdrew from Nigeria in 2012.

“When current industry reforms are completed and a new industry law is passed, companies that “are not oil players can have access to gas, and we will begin to see more vibrant interest from players like Gazprom,” he said.

While the nation was the world’s fourth-biggest exporter of LNG in 2012, it’s struggling to meet local demand of the fuel used to generate at least 70 percent of its electricity needs.

The NNPC GED explained that the country is expanding its gas pipeline network to supply the fuel to industries and power plants in different parts of the country and create a node for a proposed trans-Saharan pipeline to Europe.

According to him, nine investors were shortlisted to help fund a $5 billion national network, including the 40-inch, 683-kilometer (424-mile) link from the coastal city of Calabar to the northern city of Kano, the start of the Sahara pipe.

He added that funds for the project, which will be built through debt and equity finance, will be sought from development finance institutions, export credit agencies and private finance through World Bank unit International Finance Corp. A lead arranger to syndicate the loans will be appointed in the second half of the year.

The Saharan link was first proposed in 2009 to take gas through northern neighbors Niger and Algeria through the Mediterranean to Europe. Since then, natural gas prices have slumped 58 percent, raising questions about its viability.
Natural gas traded at $3.072 per million cubic feet on the New York Mercantile Exchange as of 1:22 p.m. in London, according to data compiled by Bloomberg.

“The trans-Saharan gas-pipeline project is not dead,” Ige said. “Given the global dynamics and our energy security considerations, it has become prudent for us in Nigeria to re-evaluate the project and redefine it.”

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