Nigeria’s vast natural gas reserves appear to be favourably matched with its population, thus creating a huge potential market for gas within the country. Although the potential for a huge market exists, it remains virtually untapped and most of the country’s gas production is being exported abroad, despite critical local energy demands. What are the barriers to growing this local gas market? How are these barriers being overcome to unlock opportunities for growth, expansion and utilisation of gas, particularly for power generation within the country? This article examines emerging trends shaping the growth of opportunities within the domestic Nigerian gas market.
Since the first exploratory drills for Nigeria’s hydrocarbon resources, the country’s gas market has evolved over two main dispensations, the first being an era of minimal gas production accompanied by intense gas flaring, as well as a later dispensation still marked by continued gas flaring but with an increased domestic gas utilisation and commencement of gas exports.
Forcing more gas into the domestic market Over time, the government, alongside private sector players, has embarked on initiatives to grow the market domestically. Three drivers have been identified by government and have been stated in the Nigerian Gas Master Plan (NGMP) since 2008: 1. Legislated domestic supply obligations; 2. Gas pricing strategy; and more recently, 3. Power supply commitments, projections and targets. Indeed these drivers have a potential to open up opportunities for growing the gas supply and utilisation market locally, as well as stimulate the expansion of gas-related ventures locally, particularly gas-to-power (and other gas-based industries such as methanol production and fertiliser manufacturing, which are not the focus here).
The first driver, domestic gas supply obligation, is an element of the NGMP. Primarily, the NGMP sets out a strategic framework of actions, interventions and policies to help open up opportunities for the domestic gas market. It also highlights interventions that will help eliminate barriers preventing the growth of gas-based businesses and endeavours within the Nigerian economy. Through the domestic gas supply obligation, the government has legislated that multinational oil and gas companies (i.e. the super majors) necessarily channel certain proportions of the gas production to the local market, or face sanctions and penalties. Since the late 2000s, the federal government sets minimum requirements for gas supplies to be sold by upstream gas production companies to the domestic market. Although the exact percentage of gas production that must go into the domestic market is determined on case-by-case basis, it is generally between 20% and 35% of the output of all oil and gas operators. As Nigeria’s population increases and the local demand for gas continues to grow, there are indications of an eventual rise in this percentage of domestic supply obligations required from gas operators.
Low domestic prices for gas The second driver – government’s gas pricing strategy – is a measure aimed at stimulating the expansion of gas infrastructure and sustaining the domestic gas market. Government seeks to ensure that the local pricing of gas is competitive with gas prices traded at the export market, rendering the domestic gas market economically viable. For instance, the domestic price of gas-to-power was raised by government from US$ 0.5 per mcf to US$ 1 in 2010. It was further raised to $ 1.50 in 2011, then to $2 by the end of 2013 and another increment to $2.5 at the end of 2014/early 2015. Although prices on the global market were still quite above local prices, government expected that this kind of gas pricing strategy would stimulate domestic availability of gas and spur a boom in the local gas market even beyond the mandatory local supply obligations by making the area attractive to investors.
The third driver was government’s setting of electricity generation targets, both for the total amount of power generated in the country, as well as the percentage of power generated by gas within Nigeria’s energy mix. However, these targets have been shifting substantially, and most promises were not kept, from Vision 20:2020 to the National Energy Master Plan (2014) projection of generating over 33,000 MW from gas by 2020. There are indications that government is reviewing the Gas Master Plan and is developing a new gas or natural gas policy.
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Resolutions from the recent National Conference on Power (NACOP) held in July 2016 show that the government is making increased commitments to raise the national wattage from gas. And in addition to traditional use of natural gas for power generation in the country’s existing gas power stations, a diversified mix of gas fuels – including Liquefied Natural Gas (LNG), Liquefied Petroleum Gas (LPG), and Compressed Natural Gas (CNG) – is now being welcomed by the Federal Ministry of Power. These commitments – both on the gas fuel mix and gas-to-power projections – are due to be publicly released in a energy mix road map/policy document to be made available by the Federal Ministry of Power later in 2016.
These power commitments might unlock opportunities to utilise compressed natural gas (CNG) and liquefied petroleum gas (LPG), which are becoming increasingly available in the local market. While corporate members of the Nigerian Liquefied Petroleum and Gas Association (NLPGA) make LPG available, CNG may be equally accessible from other private players in the industry, as well as subsidiaries of major oil and gas companies. These gas fuels can be used for independent power production, captive generation, and even public facilities. And perhaps most conveniently, domestic gas utilisers may approach the Gas Aggregator Company of Nigeria (GACN), the DPR-regulated special purpose vehicle set up by the Nigerian Gas Master Plan to act as intermediary between suppliers and buyers of natural gas in the Nigerian domestic gas market.
Although captive generation is possible for use in industrial and residential estates; embedded generation is also possible to be channeled into the national electricity grid. National policies on the electric power sector reforms make it clear that the government (through the National Electricity Regulatory Commission, NERC) is willing to purchase power from any responsible independent power provider (including gas-to-power). In July 2016, the government signed Power Purchase Agreements (PPAs) with power providers in the Renewables sector. These PPA successes recorded for Renewables affirm the possibility of success in the gas-to-power sector as well.
Christine K heads the Nigeria Office of the Heinrich Böll Foundation. Before joining the Foundation, she worked for the BBC as a radio producer (in Hausa) and as a journalism trainer. She has developed and run nationwide behaviour change campaigns in Nigeria. She's lived in Nigeria for more than 15 years (Kano, Lagos, Abuja) and is an Alumni of Bayero University Kano.
