Gas Utilisation and Commercialization: Next Big Thing in Sub-Sahara Africa?

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By Godspower Ike

The growth of sub-Saharan Africa has over the years been stunted mainly due to its inability to harness its vast potentials, especially its human and natural resources. Specifically, the abundance of gas in sub-Saharan Africa, notwithstanding, the major challenges has been the effective utilization and commercialization of the resources.

Of the about 19 gas producing countries in the continent, only a few have been able to utilize their gas reserves to the benefits of their people. This is against the huge developmental opportunity presented by the effective utilization and commercialization of the abundant gas reserves in sub-Saharan Africa.

The resultant effect of the state of sub-Saharan Africa’s gas industry is that the region is suffering from loss of revenue, waste of valuable non-renewable national resource, environmental pollution and degradation among others.

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Apart from generating huge foreign earnings for the region, the abundant gas reserves in Africa could also have been used to boost power supply in most of the countries and also serve as alternative sources of cooking and transportation fuel.

Chief among the factors hampering the effective utilization and commercialization of gas in sub-Saharan Africa is the absence of necessary policies and fiscal incentives to encourage the development of the industry. This is in addition to low local demand, unattractive gas pricing, cheaper alternatives, political instability, corruption and lack of infrastructure.

The United States’ Energy Information Administration (EIA) had projected natural gas production in Sub-Saharan Africa to grow at an annual average rate of around five per cent from 2010 to 2040.

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According to the EIA, West Africa is projected to dominate natural gas production in Sub-Saharan Africa in the long term, accounting for 81 per cent of the region’s natural gas growth from 2010 to 2040. It further stated that East Africa’s dry natural gas production is expected to grow by an annual average of six per cent from 2010 to 2040, adding that recent offshore discoveries in Mozambique and Tanzania are expected to boost production in the region.

The EIA noted that offshore natural gas resources in Namibia and coalbed methane exploration in South Africa, Zimbabwe, and Botswana could add to southern Africa’s natural gas production.

Nigeria, according to the EIA, is the 9th largest holder of proved natural gas reserves in the world, holding about 182 trillion cubic feet of proved natural gas reserves, accounting for 82 per cent of the total in Sub-Saharan Africa.

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Sub-Saharan Africa had 221.6 trillion cubic feet of proved natural gas reserves; the Middle East has almost 13 times that amount, while Eurasia has almost 10 times that amount.

As at 2011, sub-Saharan Africa produced 1.69 trillion cubic feet of natural gas in 2011, accounting for one per cent of total global natural gas production, while between 2002 and 2011, natural gas production in sub-Saharan Africa grew by an annual average of 10 per cent over the past ten years.

Growth was led by Nigeria, Equatorial Guinea, and Mozambique. Nigeria produces around two -thirds of the region’s natural gas, although Nigeria’s production could be higher but it flares 20 – 25% of its gross production.

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Sub-Saharan Africa exported 1.22 trillion cubic feet of natural gas in 2011 via pipeline and liquefied natural gas (LNG).

Nigeria, Equatorial Guinea, and Mozambique were the only natural gas exporters in the region, while Angola joined the group in 2013 when it began exporting LNG.

Mozambique sends all exports to South Africa via pipeline; Equatorial Guinea exports LNG mainly to Asia, followed by Latin America and Europe; Nigeria’s vast majority of natural gas exports are LNG, with small amounts exported via the West African Gas Pipeline.

In 2012, Nigeria was the fourth largest LNG exporter in the world in 2012, accounting for eight per cent of total LNG exports worldwide. Nigeria exported about 950 billion cubic feet of LNG in 2012.

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In 2012, Asia overtook Europe as the largest regional importer of Nigeria’s LNG, largely due to Japan, which more than doubled its LNG imports from Nigeria in 2012 compared with the previous year.

In addition, KPMG noted that gas reserves in Africa have all but stagnated over the past decade after having expanded at a robust pace during the 1980s, 1990s and early-2000s.

According to the global consultancy firm, this is mainly due to the slow expansion of reserves in Africa’s top two gas producers – Nigeria and Algeria – over the past decade.

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It said, “In Algeria’s case, this can be explained by a lack of investment due to unfavourable fiscal terms and a challenging business environment. Meanwhile in Nigeria, all of the country’s current gas reserves were found while searching for oil.

“There has been little incentive for energy companies to explore specifically for gas due to a lack of fiscal incentives and the high set-up costs and time needed to develop liquefied natural gas (LNG) facilities in order to export gas.

“On top of this, the risk of attacks (mainly vandalism and banditry) on onshore gas infrastructure would also reduce the incentive to invest, while Nigeria’s challenging business environment can also make investment a daunting task for many companies. If the government is able to make the investment environment more attractive, the country has massive prospects. “Indeed, industry experts have said that Nigeria’s gas reserves could potentially be as high as 16.8 trillion m3 (compared to the current proven level of 5.2 trillion m3) if deliberate steps are taken to explore for gas as opposed to coincidental discovery during oil exploration.”

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Majority of the gas produced in Nigeria and other sub-Saharan African countries are flared, making it impossible for the region to harness the enormous gas resources common good.

In his article titled, ‘Natural gas utilisation in Nigeria: Challenges and opportunities’ Charles Odumugbo noted that irrespective of sub-Saharan Africa’s huge gas reserve, not much has been accomplished with respect of the effective exploitation and utilisation of this abundant natural gas reserve.

According to him, following Nigeria’s gas reserves currently estimated at 182 trillion cubic feet (TCF) with a projected growth rate of over 70 per cent by 2025, the country’s gas sector has proven to have the potential of being a key player in the emergent global natural gas market.

“Unfortunately, even with this huge gas reserve, not much has been accomplished with respect to the effective exploitation and utilisation of this abundant natural gas reserve of which some of this gas reserves are termed ‘stranded’ whose volume and location are often considered as non-commercial and difficult to exploit,” he said.

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He lamented the fact that up until now, most of sub-Saharan Africa’s natural gas production has been flared or re-injected to enhance greater crude oil recovery.

According to him, with electric power generation at its ground state, crippling rate of unemployment, emergent global climate change caused by green house emissions from flare-out, it has become imperative to further find ways to exploit and utilise the region’s natural gas reserves and translate it to the improvement of the region’s economy.

Also, commenting in their paper titled, ‘Current Legal Issues for Gas Production and Utilisation in Nigeria,’ Mr. Richard Akinjide, Mrs. Jumoke Kola-Balogun and Mr. Abayomi Akinjide, lamented that in Nigeria, for example, current estimates show that Nigeria produces an average of 34 billion cubic metres (bcm) of gas yearly out of which 75 per cent is flared.

According to them, the gas flared daily is said to be sufficient to meet the energy requirements of a small industrialised nation.

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They attributed the non-utilisation and commercialization of the region’s gas resources to limited commercial demand, stating that the local market is only able to absorb a relatively small percentage of daily production of associated gas.

Continuing, they said, “Others are unrealistically low gas pricing. It was generally said to be uneconomic to embark on admittedly costly gas utilisation facilities. On the export front, Nigeria is far from the major international gas markets, the sub-regional market is not attractive, hence exports are limited to liquefied gas transported by sea, which is an expensive process.

“Associated gas is more expensive to harness than non-associated gas. This again means that prevailing economic factors militate against the development of facilities to use associated gas.

“There is also the issue of the absence of necessary policies and fiscal incentives to encourage the development of the industry, especially in the downstream sector; low liquid hydrocarbon fuel prices which makes industrial and commercial enterprises reluctant to invest funds necessary to convert their energy source to gas.

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“In addition, there are major investment disincentives leading to the flight of foreign investment from Nigeria. These negative factors are well known and include: Lack of infrastructure and the deterioration of existing infrastructure; Political instability, insecurity and the break down in the rule of law.

“Others are: Slow pace of development and economic activity in the country; unwieldy, inefficient and ineffective administration of justice system; corruption and inadequate government funding necessary to attain planned growth and development of the industry.

They are of the view that sub-Saharan African countries should expedite action to stop gas flaring as rapidly as possible and to promote the production and utilisation of the region’s abundant gas reserves and to improve the business and political environment of the country in order to attract, and keep, both local investment and foreign direct investment.

To stimulate investment and grow the gas industry ensuring that it makes meaningful contribution to economic development, Akinjide and Co said, “Local markets must be created for gas utilization, while gas prices must be set at commercial levels to stimulate development of gas facilities.

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“Also, investor confidence must be restored in order to attract investment through business friendly policies, improved services, efficient administration of government agencies, improvements in the administration of justice system and the eradication of corruption.”

However, the low price of crude oil in the international market has presented both an opportunity and a major setback for gas utilization and commercialization in sub-Saharan Africa, especially as gas is benchmarked against crude oil.

According to Mr. Patrick Olinma, General Manager – Commercial, Nigeria Liquefied Natural Gas (LNG), the Nigerian economy as well as the economy of other sub-Saharan African countries has taken a major hit from the oil price decline in several sectors, adding that the full effect of the price decline is yet to be felt.

Specifically, he stated that the global oil price decline has affected NLNG’s revenue and profitability and would likely affect its contributions to the Nigerian economy.

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However, as a means to cushion against the effect of the declining oil prices as it affects gas utilization and commercialization, Mr. Isa Inuwa, Deputy Managing Director, Nigeria LNG said, “Whilst we have witnessed relative stability in the upstream, which has guaranteed reliable feedgas supplies to our plant, the need for stable and reliable feedgas supplies with minimal or no disruptions remain paramount.

“Future feed gas supplies continue to be hampered by regulatory uncertainties which have impacted on investments in the upstream. NLNG is however continuing to liaise with our partner companies to find innovative solutions to ensure project financing and development.

“We have also embarked on a review and rejuvenation of our feedgas supply infrastructure and plant to ensure they are robust and reliable for our future operations. Based on the above initiatives, NLNG remains confident that it will continue to be a reliable and trusted supplier to our customers.”

Analysts are of the view that the effective utilisation and commercialization of sub-Saharan African gas resources will help increase revenue generation by the government; eliminate environmental pollution and attendant health risk and promote local industrial development.

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It is also expected to promote technology transfer; aid in the conservation of local forests and ensure the substitution of gas a cleaner, more efficient energy source for more traditional sources such as coal and hydrocarbon fuel.

On its own part, the World Bank in an article titled, ‘Harnessing African natural gas: a new opportunity for Africa’s energy agenda?’, said, “In West Africa, the resources in Nigeria are sufficient by themselves to power all of Africa. But the export potential of Nigerian gas is again constrained.

Expanding pipeline deliveries to Ghana through the existing West Africa Gas Pipeline (WAGP) is clearly economically attractive, and extending WAGP further to Côte d’Ivoire could also be interesting.

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“However, the reliability of WAGP deliveries must improve before planners can be expected to move seriously on these ideas. Extending WAGP further up the coast of West Africa to serve smaller, more distant countries is not a viable option, and transmission lines are likely to be the preferred approach.

“But even this option would depend on removing the bottlenecks on Nigerian gas and power supplies.”

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