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We lack effective strategy to deliver gas to homes – Chima Ibeneche, NLNG boss

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Nigerian Community
By LOUIS IBA

Chima Ibeneche, first indigenous Managing Director/CEO of the Nigerian Liquefied Natural Gas (NLNG) says the quest to export natural gas to boost foreign exchange earnings for the country is one that should not be undertaken at the expense of domestic consumers of gas. 

Ibeneche spoke against the backdrop of recent complaints that the government had focused more attention to exporting gas at the expense of the domestic market, where for instance, the price of industrial and cooking gas is considered to be too exorbitant for citizens of a gas endowed country.  

Ibeneche, who spoke at a recent oil and gas forum in Abuja, said it was possible for all stakeholders to work towards boosting gas exports at the same pace with the development of the domestic gas industry. 
“Domestic gas supply needs can be met side by side with sustaining viable export gas supply to earn necessary revenue to support development of much needed gas infrastructure,” said Ibeneche.  

“There is no doubt that commerciality of domestic gas supply is essential to attracting necessary investment for that sector. The right incentives will remove the preference of project developers for export projects and this has been demonstrated by Nigeria LNG‘s supply of cooking gas into the domestic market,” he added.  
He also spoke on the NLNG and the Nigerian gas master plan.

Excerpts:  
Nigeria’s gas reserves
Nigeria’s proved reserves of natural gas is currently about 185 trillion cubic feet (Tcf) which makes it the seventh largest in the world and indeed, the largest in Africa. It is worthy of note that all of those reserves have been discovered whilst searching for oil. NNPC therefore, projects that Nigeria’s proved reserves could reach 600trillion cubic feet (Tcf) in 15 years with the commencement of focused gas exploration. If this happens as projected, Nigeria will be amongst the top three or four largest gas reserves holders in the world in 15 years. 
The Federal Government’s prioritization of domestic gas supply, especially gas to power is therefore, entirely legitimate. The point, however, is that domestic gas supply needs can be met side by side with sustaining viable export gas supply to earn necessary revenue to support development of much needed gas infrastructure.  
Nigeria LNG’s current gas export revenue represents about seven per cent of the Gross Domestic Product (GDP). Nigeria LNG has also since 2007 commenced domestic supply of LPG with 150,000 tons dedicated to the Nigerian market, demonstrating that the domestic market can reasonably compete with the International market if appropriate incentives are made available. 

It is also true that some domestic natural gas buyers like industrial consumers have already achieved and in some cases have surpassed price parity with export projects. One approach therefore will be to develop integrated projects which combine domestic and export gas supply and may well incorporate a domestic power plant. In this way, revenue stream from export gas will help subsidize domestic supply requirements that are below export price parity especially in power generation. Happily, this approach has been recognized in the Gas Master Plan and will no doubt be a sustainable way of developing the domestic gas market. 

Global gas demand and supply balance

In the second half of 2008 as well as in 2009, the world experienced what has since been described as the most severe financial crisis since the great depression. We saw the failure of key businesses, decline in consumer wealth estimated in the trillions of US Dollars, significant decline in economic activities in major economies as well as emerging ones and substantial financial bailouts/interventions by governments across the world.  

Needless to say that the global recession has taken its toll on energy demand and invariably energy prices. Growth in natural gas demand observed in most countries up to the first half of 2008 reversed dramatically in late 2008 and continued to decline in 2009. 

Nevertheless, the longer term outlook is that demand for natural gas is expected to grow by 2.1 per cent per year from 2,854billion cubic meter (tcm) in 2005 to 4,779 Bcm in 2030. Gas demand, like oil demand, is expected to increase the most in developing economies. The biggest regional increase in demand is expected to occur in the Middle East followed by Asia-Pacific especially in China and India. However, North America and Europe will remain the leading gas consuming regions perhaps up till 2030.  

Analysts forecast that with a lot of projects delay due to depress market and the growing demand in domestic markets of producing countries, the global gas demand is expected to rebound post 2015 and supply will again lag behind demand. To this end, producers are taking a closer look at how to find the much needed cooperation and balance between domestic and International supply requirements. 

Of course, LNG demand growth projections must take into account the impact of growth in unconventional gas production in the United States and other parts of the world. Unconventional gas production capacity in the U.S. has doubled since 2000 and continues to grow. These sources now account for more than 40 per cent of total domestic gas production capacity. On the supply side, Nigeria and Australia will increasingly become important as Indonesian and Algerian supplies decline. 

Challenges

Nigeria LNG with installed capacity of 22 million tonnes per annum (mtpa) is the only operational LNG facility and one of the fastest growing LNG facilities in the world, expanding rapidly from two trains in 1999 to six trains in 2007. The seventh train is presently awaiting final investment decision. When other LNG projects on the drawing table are considered and if actualized, Nigeria could become one of the three top LNG producers in the world, after only Qatar and Australia reaching over 60 mtpa of LNG liquefaction capacity. Attaining the above target will surely require overcoming the challenges presently confronting the gas industry in Nigeria. The key amongst these challenges include funding, fiscal, commercial and regulatory issues as well as security and safety of personnel and assets. A lot has been done in this regard including the Government’s amnesty program in the Niger Delta region. Nevertheless, a lot more needs to be done to make the gains of the amnesty program sustainable. In 2009, Nigeria LNG lost over $2 billion of revenue due to sabotage of feed gas supply pipelines in the Niger Delta. 

The Petroleum Industry Bill (PIB)

What is now required is to put in place the necessary legal, fiscal and regulatory framework to attract relevant investment to the domestic gas sector. Some of these matters are now being considered under the Petroleum Industry Bill (PIB) and hopefully will be resolved in a manner that is satisfactory to all stake holders.  
The Petroleum Industry Bill (PIB) has set out laudable objectives which include a comprehensive reform of the upstream energy business which reforms will include changes to NNPC and the establishment of Incorporated Joint Ventures (IJVs) to carry on the upstream energy operations. The Incorporated Joint Venture is a model that has worked well for Nigerian LNG especially in terms of raising funds and speedy decision making. Clearly, open dialogue and transparent engagement by all stake holders will be crucial in reaching a satisfactory landing and enactment of the Petroleum Industry Bill into law. 

The gas master-plan

The government has launched the Gas Master Plan to address the under-development of the Nigerian gas sector - with particular emphasis on domestic gas consumption. . The plan seeks to satisfy the acute domestic shortage of gas and realize efforts to improve power generation and help raise generation capacity to 6,000 megawatts. The Gas Master Plan comprises: the Gas Pricing Policy, which provides a framework for the minimum price that any purchaser of gas can be charged; the Domestic Reserves Obligation, which aims to ensure the availability of gas for domestic consumption in order to stimulate economic growth; and the Gas Infrastructure Blueprint, which provides for the establishment of a network of gas hubs which would ultimately reduce the cost of supplying gas within Nigeria. The PIB is ultimately expected to lay down the legal, fiscal and regulatory framework for moving the Gas plan forward and we therefore need to wait to see how this pans out. 

The way forward
I will say that the Nigerian gas industry is rapidly evolving not only as a catalyst for national development but also helping to meet global demand and National GDP growth.  

There is no doubt that there are sufficient gas reserves in Nigeria that can effectively meet both the international and domestic supply/demand needs. What has been lacking over the years is an effective strategy, necessary structure and incentives as well as an integrated pipeline network to enable delivery of domestic gas. It is my hope that these matters will be resolved satisfactorily for all stakeholders in both the Petroleum Industry Bill and the Gas Master Plan.

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Godwin Ibe

Medical Doctor (GP), IT professional, Web Designer, CELTA Certified Teacher of English, Economist and International Trade Marketer.

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