A new dawn for the Nigerian gas market
 - The development of the natural gas market in Nigeria

A country rich in natural resources

Nigeria is a country rich in natural resources, oil, gas and coal. It is probably best known for its oil reserves and its plentiful supplies of gas that until relatively recently has been flared in order to access the oil. The proven Nigerian oil reserves are 23 Billion barrels; the gas reserves are 160 Trillion cubic metres. Whilst until now the exploitation of the oil reserves has predominated with potentially more gas than oil, the development of the gas market is very much on the agenda. (NB: On the basis of the current figures the country's oil reserve could last for about 31 years, whereas the gas reserves could last for around 72 years.) 

Gas – From by-product to primary fuel

Historically Nigeria ’s hydrocarbon industry has seen oil as the primary product with gas being seen as an irritating by-product. Consequently gas has been flared in huge quantities, with little regard for the environment. However more recently this has all begun to change with political and environmental pressure on the Nigerian hydrocarbon industry and the Nigerian Government to reduce flaring. Although a number of targets have come and gone, nevertheless flaring is being reduced significantly with a zero flaring goal for 2008, although it remains to be seen how realistic this is.  

Clearly one of the major effects of reducing gas flaring has been to increase the amount of gas available both to the local gas market in Nigeria and for use by a number of the prospective LNG projects. The key has been and continues to be as follows:

(1)   Develop the infrastructure to enable the gas to be transported from its source to the market place.

(2)   Facilitate the development of the market itself.

(3)   Ensure that an appropriate commercial, legislative, and regulatory structure is in place.

(4)   Ensure security and continuity of supplies at relatively low prices.

The presence of these factors will enable the development and growth of a local gas market in Nigeria .    

The development of gas transmission infrastructure

Despite the apparent abundance of gas in Nigeria it does appear to have taken a considerable time for the infrastructure to be developed, and as a result local gas usage has been constrained by limited transmission systems and even a total absence of them in some parts of the country. Clearly this lack of infrastructure has and continues to hinder the transmission, distribution and marketing of the product in many parts of Nigeria . However the Nigerian gas industry are currently considering a number of possible plans to develop the gas transmission infrastructure, which would involve investing some $2Billion, in order to move the available gas from its source in the gas fields to the location of potential customers. Businesses who wish to establish energy intensive industries such as cement factories, iron smelting and foundries should be able to save a considerable amount of money if gas is used as fuel.  

The Nigerian Gas Market is growing

Anyone who has been to Nigeria recently will have noticed both the relative frequency of power cuts, and the extensive use of small scale generation producing power for residential houses, and hotels etc in order to ensure continuity of power supplies when the main power supply fails. Therefore the Nigerian Government in conjunction with the Nigerian power generation industry are currently in the process of building new power stations to meet the growing electricity requirements of needs of the domestic, retail and process industries. Many of these power stations will be supplied with natural gas that would otherwise have been flared. Similarly gas is also being used or considered for use in other feedstock or process type industries such as the production of LNG (Liquefied Natural Gas.)  

The consumption of gas in liquefied natural gas projects is also growing

Along with large quantities of readily available gas that needs to find a gas market, LNG projects are also growing with Nigeria LNG adding additional capacity at their Bonny Island plant, and other international players seeking to invest in the production of LNG for sale in the worlds LNG markets. Although it took sometime for the Nigerian LNG industry to get established, it has grown rapidly since it started up in 1999.  The Nigerian LNG energy market has huge growth potential, NLNG is looking to build more trains with an ability to potentially supply over 30 mtpa of new supply. Other LNG projects are also beginning to develop with Brass LNG and OK LNG being the current front runners.  

A changing regulatory and commercial framework

There is a clear need to see ‘best practice’ energy law, structures and commercial practices introduced into the Nigerian gas market, this area is currently under discussion, and it is hoped that the Nigerian Government manage to strike an appropriate balance between the current nationalised industry structure and a fully liberalised gas market which may not work in a market where considerable sums of money need to be invested in physical infrastructure.  

NGC the national gas company and currently a part of NNPC, buys gas from producers, then transports and distributes throughout Nigeria, is also being considered for restructuring.  

In conclusion then it is against this background of plentiful supplies of gas, that need to find customers, in a market that is hungry for cheap supplies of gas that the Nigerian energy industry along with its Government are seeking to restructure an entire industry. It is a tough challenge that will involve hard work, and a great deal of creative thinking and diplomacy, the prize, however  which connects the nation to the abundant supplies of gas in Nigeria, will be worth it.  

By Mike Madden.