FG inaugurates National Gas Master Plan PDF Print E-mail

Nigeria is determined to become a major international player in the international gas market as well as laying a solid foundation for the expansion of gas supply infrastructure within the domestic market.

Since coming into office in May 2007, President Umar Musa Yar’Adua had given approval to two guidelines aimed at realizing this vision.
They are the:

1. Gas Pricing Policy

2. Domestic Gas Supply Obligation Regulation, and

3. The Nigerian Gas Infrastructure Blueprint

The first of its kind in Nigeria, the Gas Infrastructure Blueprint was approved by the Federal Executive Council (FEC) during it bi-weekly meeting on Wednesday February 13 2008.

Taken together, the three inter-related approvals constitute the Master-Plan to guide the commercial exploitation and management of Nigeria’s gas sector.
Government explained the aspiration of the Nigerian Gas Master-Plan to grow the Nigerian economy with gas by pursuing three key strategies:

1. Stimulate the multiplier effect of gas in the domestic economy

2. Position Nigeria competitively in high value export markets, and

3. Guarantee the long term energy security of Nigeria

The gas sector in Nigeria is presently faced with significant challenges which are manifested in the numerous power plants sitting idle for lack of gas. For many years, gas was flared in the country because there was no domestic market to utilise the gas. The situation has however changed very rapidly. From a very low level of gas utilization of about 700mmscf/d in the domestic market, we are now faced with a huge gas utilization potential estimated at about 6000mmcf/d – 10,000mmcf/d by 2010. This demand is underpinned by a rapidly growing power sector, numerous investment plans in gas based industries such as Methanol, Fertilizer etc. inherent in this demand growth is a major opportunity for the industrialization of Nigeria. Unfortunately, the gas sector has been unable to respond rapidly to this demand growth. The slow response of the sector threatens the aspiration outlined above. It is in the light of the above that the NNPC has led a 2year effort in developing comprehensive Gas Master Plan, the components of which have now all been approved.

In understanding the approvals, it is important to understand the causes of the supply crunch. These include:

1. Reserves and production availability

2. Inadequate gas infrastructure, and

3. Major commercial issues which prevent gas suppliers from wanting to invest in gas supply

The three approvals are aimed at addressing these issues holistically

The Domestic Gas Supply Obligation Regulation:

This is Nigeria’s first major attempt to refocus the gas resource for domestic use. The regulation has the following elements:

. Mandates all oil and gas operators in the country to set aside a pre-determined amount of gas reserves and production for the domestic market

. The Honorable Minister of Energy (Gas) will stipulate the requisite amount of gas periodically for a period lasting about 5-7yrs

The gas obligation will take into consideration government’s aspirations for the domestic economy ensuring that adequate gas resources are dedicated for rapid industrialization

All operators will be required to comply with their obligations or face penalty of $3.5/mcf of gas under supplied, restricted export or both as the Honorable Minister of Energy may decide,and

The regulation also stipulates the establishment of a Department of Gas within the Ministry of Energy (Gas) that will oversee the execution of this regulation in concert with the DPR

The regulation also highlights the pricing policy which has the following key elements:

Unequivocal commitment of the Federal Government of Nigeria towards making gas available and affordable within the domestic market

Stipulates that IOCs align their gas portfolios such that gas rich natural gas liquids (for which the dry gas is relatively cheaper) be directed to the domestic market. This will ensure that Nigeria benefits from the richness of its gas by making it relatively more affordable for domestic use

It formally groups the Nigerian domestic market into 3 categories:

The strategic domestic sector – this being the sector with the greatest multiplier effect on economy namely Power (to residential and light commercial users)

The strategic industrial sectors – this being the sector that takes gas as feedstock in the creation of new products e.g. fertilizer, methanol, GTL, and

The commercial sector – this being the sector that uses gas as industrial fuel e.g. manufacturing industries

The categorization of the domestic market forms the basis for the pricing framework which determines the floor price for the different sectors. Based on this, the Power sector can expect a floor price of about 0.4/mcf ($0.1/mcf for gas and $0.3/mcf for transmission).

The pricing policy also stipulates the establishment of a Strategic Gas Aggregator. This entity will manage the demand and supply of gas in the domestic market and align the reserves obligation accordingly.

The Gas Infrastructure Blueprint recently approved has the following elements:

It presents a blueprint for gas infrastructure development in Nigeria. Henceforth, investment in gas infrastructure will be guided by this blueprint. This will ensure that synergies are maximized and infrastructure is aligned to deliver the aspirations of Nigeria The infrastructure comprises the creation of 3 domestic central processing facilities at the Warri/Forcados area, Akwa Ibom/Calabar area and Obiafu area (north of Port Harcourt)

The Central Processing Facilities will be the major gas hubs where wet gas from gas fields will come, get treated and processed. LPG and condensate will be extracted at these facilities and the dry gas fed into a network of gas transmission lines, and With this arrangement, more LPG will be available for domestic use and the recurrent problem of liquids ingress into pipelines which has continually impacted on Power Supply will be permanently eliminated.

The blueprint also stipulates the development of 3 major domestic gas transmission systems in Nigeria:

The Western System comprising the existing Escravos Lagos Pipeline System (ELPS) and a new offshore extension to Lagos

The first South-North gas transmission line. This will take dry gas from the Akwa Ibom/Calabar facility to Ajaokuta, Abuja, Kano, Katsina. The line will serve the Eastern states of Anambra, Abia, Ebonyi, Ebonyi, Enugu and Imo,and

An inter-connector that likns the Eastern gas reserves centre with the 2 transmission systems above

The transmission infrastructure will enable the industrialization of the astern and Northern parts of Nigeria, enable connectivity between the East, West and North, which currently does not exist

In addition, the system is developed as a grid, ensuring redundancy and multiple access to gas markets from any gas source. This increases the resilience of the gas market to pipeline disruptions

The infrastructure as proposed ensures synergies are optimized and is expected to result in an overall cost reduction of about $4-5bn

The blueprint will delineate 3 franchise areas around the Central Processing Facilities. In essence, only licensed investors within a franchise area will be allowed to develop and operate the facility. This will prevent proliferation of gas facilities with attendant cost impacts

The blueprint is premised on the grounds of commerciality and primarily 3rd party private sector investment lead

The foregoing provides the basis for the establishment of a robust and liquid Nigerian gas market. With these, gas availability can be assured and the deliverability as well as commerciality also assured. It is anticipated that over the next 4-5 yrs, a great part of the infrastructure will be delivered.

Whilst the above plan deals with the medium term, the FEC also approved the short term gas supply proposed by the Master Plan. The plan will double domestic gas availability to 1400mmcf/d by end 2008 and triple it to 2050mmcf/d by end 2009. With this plan, it is expected that power generating capacity will grow to about 4.5GW (excluding hydro) by end 2008 and 6.2GW (excl hydro) by end 2009. Furthermore, this plan will also triple the gas availability to existing domestic industrial users by end 2009 at about 450mmcf/d.

In order to put the Domestic Gas market on a sustainable growth path where buyers are assured of gas availability at affordable prices and suppliers are encouraged to invest in gas development for the domestic market, the Federal Executive Council also approved a gradual migration of the domestic aggregate price (currently depressed due to low gas price to power sector) to a more commercially viable price that is comparable to feed-gas prices to dominant export projects such as LNG.

source: nigeriafirst.org

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