June 27, 2022

Rising price pushes Q1’22 gas revenue up 64.3% to N119.4bn

How Nigeria missed out on high gas demand windfall —FG

As focus shifts from crude oil to gas

By Obas Esiedesa, Abuja

Propelled by rising prices, Nigeria’s revenue from gas sales rose by 64.32 percent in the first quarter of 2022 (Q1’22) to N119.4 billion compared to N72.64 billion recorded in the corresponding period last year.

Latest data from Nigerian National Petroleum Corporation, NNPC, also showed that gas revenue in the first quarter of this year was 17.6 percent higher than N101.5 billion recorded in the fourth quarter of 2021.

The revenues came from gas export, feedstock to Nigeria LNG Limited and domestic gas sales to Nigerian Gas Company, a subsidiary of NNPC Limited.

Nigeria, with the eight largest gas reserves in the world amounting to over 206 trillion cubic feet of gas, last year declared the year 2021 to 2030 as the decade of gas, a policy that seeks to power the economy with gas resources.

Research report

Despite the increase in revenue, research report from ‘Meristem Gas Industry Update’, a study by a Lagos based investment and corporate finance firm, showed that production actually declined in recent months.

According to the report by the group, Nigeria LNG export fell by 19.79 percent in April 2022 to 59.48 thousand metric tonnes from 74.16 thousand MT recorded in January.

The report, however, stated: “Only a fraction of the country’s gas reserves has been tapped. Few players exist in the space owing to the capital-intensive nature required in setting up gas infrastructure, as well as its storage difficulties, making it hard for producers to engage in gas exploration without potential off-takers”.

It further noted: “Other factors such as the growing divestment of oil assets by International Oil Companies (IOCs) and pipeline sabotage has led to production decline.

‘‘For context, about 70 percent of total gas produced in Nigeria is Associated Gas (AG), which refers to natural gas captured when drilling for crude oil. Hence, this highlights the impact of the waning oil activities on gas production.

‘‘Nonetheless, export sales began to rise in February this year, a turnaround from its year-on-year downtrend. NNPC monthly report shows gas export sales in February 2022 more than doubled compared to the same period last year. Surging gas prices in the international market have anchored gas sales given the declining export.

“However, we believe a now clearer fiscal guideline put in place via the Petroleum Industry Act would spur investment into the sector. Also, as the President declared the decade of gas demonstrates key interest is taken towards growing the sector. Various gas infrastructural projects so far have been proposed, and some nearing completion”.

New Developments

Despite production capacity limitations, the Federal Government has pushed to implement projects that would bring its gas closer to the European market.

One of these is the $13 billion Trans Sahara Gas Pipelines, TSGP, a project in partnership with Niger Republic and Algeria. The pipeline will originate from the Ajaokuta-Kaduna-Kano, AKK pipeline, in Nigeria through Niger Republic to the Mediterranean coast of Algeria with Chad and Mali also targeted for supplies.

Speaking at a meeting of the parties in Abuja, Nigeria’s Minister of State Petroleum Resources, Chief Timipre Sylva, said the project presents a huge opportunity for the countries to tap into the European markets especially with the high cost of gas occasioned by the war between Russia and Ukraine.

He explained that the project “takes our gas to the European market directly. Today a lot of gas in Nigeria is stranded or re-injected because there are no infrastructures to take the gas to market. This project is going to take the gas all the way from where it is produced to the European market, and it cannot be a better time, because gas prices are quite firm at this point and I believe that it is a very good time for us to take advantage of very high gas prices globally”.

Sylva pointed out that besides taking the gas to European markets, the project would boost economic growth on the African continent.

He stated further: “What this project is going to do is first to create a corridor for development across Africa. So, of course, when the gas line passes along that corridor, a lot can happen and it connects like I said before, and Niger and Mali are also not very far away from the corridor of this project. Chad is also not far away from the corridor of this project. So this project has a lot of potential for growing the economies of African countries, West African countries and North Africa”.

Sylva had at a different forum also stated that natural gas would play a crucial role in Nigeria’s energy transition plan.

According to him, “Nigeria is one of the world’s last energy frontiers, a nation brimming with enormous opportunities. As a nation, we are following a transition pathway that combines technology, investment, business strategies, and government policy that will enable Nigeria to transition from its current energy system to a low-carbon energy system with natural gas playing a pivotal role over the next generation, roughly between now and 2060.

“Natural gas is a key resource for a just energy transition and has all the credentials to support Nigeria meeting up with her commitment with the UN 17 Sustainable Development Goals (SDGs)”.

IOC’s dimension

On their part, International Oil Companies (IOCs) operating in Nigeria have made it clear that they would be scaling down crude oil production in the coming years in favour of natural gas development.

The companies said while they viewed gas as transition fuel, transition to cleaner energy is inevitable.

While acknowledging that crude oil would continue to play a major role in the global energy mix in the next few decades, they pledged to help Nigeria make the best use of the resources.

Speaking at a summit in Abuja, the Deputy Managing Director (Deepwater), TotalEnergies E&P Nigeria Limited, Mr. Victor Bandele, the Chairman Shell Companies in Nigeria/MD SPDC, Mr. Osagie Okunbor, Chairman/MD Chevron Nigeria Limited, Mr. Rick Kennedy, Chairman/MD ExxonMobil, Mr. Richard Liang agreed that with the enactment of the Petroleum Industry Act 2021, making investment decisions has become clearer.

Bandele in his remark said implementing energy transition policies must be deliberate, saying that the company’s recent rebranding to a multi-energy company was clear indication of its deliberate plan to move into cleaner energy space.

He noted that Nigeria with its growing population must move in line with the global community by deliberately reducing its carbon intensity.

He said Nigeria’s move to boost natural gas development was in the right direction, saying “we believe strongly that gas is the transition fuel, we need to embrace gas to transit from purely oil to the new (oil)”.

He added: “Today in Nigeria, we say we are 200 million people, we are going to something like 300 million by 2050. The 200 million that we have today, how many people have access to very good energy? So in Nigeria our challenge is even much more so we in TotalEnergies find this space to be a very good space to invest in and for that reason, TotalEnergies is investing continuously in Nigeria and that is our trade mark”.

On his part, Mr. Okubor said would be looking to maintain current crude oil production level, taking production one to two percent annually over the next decade, while boosting gas development and production.

“The way I look at it is that hydrocarbon is still important to us and we will continue to invest heavily in deepwater but within the clean energy space we have substantially substantially expanded our footprint in terms of domestic gas distribution in Nigeria”, he added.

What NNPC is doing

In his remarks, the Group Managing Director of NNPC Limited, Mallam Mele Kyari said Nigeria needs oil revenue to develop its resources, but pointed out that no new project for oil production would be approved if it contains gas flare.

He said: “For us as the national oil company we are seeing how we can increase the resources of today by getting more endorsement into the industry in terms of producing the liquid sales or promoting the gas development.

“We know for sure that gas is a transition fuel. We have not seen peak gas probably until 2030 or probably after 2030. We knew that the way to go is to build our resources of today, elevate our production  today and also continue the resources on gas so that they can become the source of revenues as we go forward”.

The NNPC boss added: “There is a problem of gas flares. We are flaring gas in very many locations that we shouldn’t because we don’t know what to do with it. Today we are pooling resources and partners together to take out those flares.

“At the Central level no projects with any flare plan will pass again. We, as their partner, any project with flaring as part of the plan will not scale through. This is one thing we are doing that is very practical”.