Gas Sector: Why is Nigeria not Making a Lot from Gas?
Natural gas is the cleanest burning fossil fuel and is abundantly available in Nigeria, which has the largest reserves in Africa and the ninth largest in the world.
Africa’s biggest economy is set to expand gas exports but domestic distribution remains a trickier proposition
Nigeria’s domestic gas sector is struggling to capitalise fully on the potential of its sizeable gas reserves even though some big-ticket projects are emerging in the country.
Shell Companies in Nigeria continue to contribute to economic development in the country by supplying gas to meet domestic needs, such as power generation and industrial processes. Gas is also delivered to the Liquefied Natural Gas (LNG) export market.
Nigeria is known as a crude oil giant, relying heavily on the black gold to shore up revenues and FX reserves. However, one narrative is often downplayed – ‘Nigeria has more gas than oil’.
According to the latest data from the Department of Petroleum Resources (DPR), Nigeria has proven gas reserves of 200.8tcf – equivalent to 35.8tn barrels of oil, about 1,000x higher than the country’s proven oil reserves of 37.0bn barrels. This begs the question, ‘Why is Nigeria not making a lot of money from gas?’
Analysing data from the NNPC, Nigeria’s monthly gas production has remained static, below
300bcf. Notably, gas investments have slowed, partly due to the capital intensive nature of capturing and transporting gas. Also, given that gas is an associated product of crude oil, the nonfunctional status of several oil-fields across the country, have limited the prospects for gas production.
Again, under-utilisation of power generating capacity has limited the demand for gas in Nigeria, as the power sector only takes 8.8% of annual gas produced. Finally, gas flaring continues to be a major obstacle. Over 2019, using the Domestic Supply Obligation price of $2.5/mscf, gas worth $517.1mn was flared. Clearly, the goal of eliminating routine gas flaring or reducing it to 2.0% by 2020, through the Nigerian Gas Flare Commercialization Programme, has to remain unachieved.
Nigeria’s Gas Sector: Why is Nigeria Not Making a Lot Of Money From Gas?
As 2020 unwraps, several positive recent developments have come to fore. The DPR has shortlisted 200 firms, to capture and commercialise gas flared from 45 sites. Also, the Final Investment Decisions (FIDs) on Nigeria’s LNG Train 7 project, as well as the FG’s electrification roadmap, will create massive demand for gas. However, gas infrastructure remains a key obstacle, in cementing the sector’s profitability.
United Capital Research