A PAPER PRESENTED AT 17TH WORLD PETROLEUM CONGRESS

(September 1-5, 2002, Rio de Janeiro, Brazil)

GAS SUPPLY AND POWER GENERATION FOR THE NIGERIAN AND WEST AFRICAN CONSUMER.

Author:

Mr. Jackson E. Gaius-Obaseki Group Managing Director Nigerian National Petroleum Corporation Herbert Macaulay Way Centre Business District Abuja, Nigeria.

Abstract Nigeria has abundant gas resources currently estimated at over 159 trillion cubic feet (TCF) made up of roughly equal amounts of associated and non-associated gas. This ranks Nigeria as the tenth largest gas province in the world and is second only to Algeria in the African continent. Presently, Nigeria produces an average of 5.5 BCF per day out of which about 2.6 BCF per day or over 40 percent is utilised. With gas-targeted exploration and appraisal programmes, the Nigerian gas resources are expected to increase beyond the present level. With the planned supply and utilization programmes, Nigeria will soon be included in the list of top twenty gas producing and utilizing countries in the world. The prospects of gas development in the country have improved with fiscal incentives, national gas policy now in place, move towards a deregulated petroleum products market and the Nigerian government proactive steps in encouraging gas development projects for domestic use and for export. Associated gas is also being processed for export of LPG and LNG. In Nigeria and the African continent, the prospects for gas projects are excellent especially for power generation. There is considerable room for electricity demand to grow since the current consumption in Nigeria is 85 kWh/capita, which is far below the expected 425 kWh/capital. A high demand for gas-fired power plants and encouragement for Independent Power producers to supply power to the national grid is, therefore, inevitable and is being actively encouraged. Using a growth factor of 2.5 per decade, which equates to a 10 percent annual growth rate, as a base estimate, gas consumption by power sector in Nigeria could increase to 1.35 BCF per day in 2010 and over 3.8 BCF per day in 2020. The Nigerian power sector is currently going through deregulation.
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The West African Gas Pipeline Projects estimated at US$400 million will supply between 100 and 150 million cubic feet per day of gas from Nigeria to neighbouring West African countries at a cost saving to them of about US$500 million in energy for over 20 years. The abundance of gas resources in the country coupled with the present low utilisation of gas for power generation indicate the need for new power generating capacity additions. The development of a comprehensive gas policy and generating capacity additions will enhance future investments and market development in Nigeria and the West African sub-region.

INTRODUCTION
The first major gas discovery in Nigeria was made at Afam in 1956, the same year that Oloibiri oil field was discovered. This discovery, which has a gas reserve of 850 BCF, was incidental to exploration for oil as is the case for all gas discoveries in Nigeria. Other important gas discoveries, such as Soku (1958) with a reserve of 3.5 TCF, were made as the search for crude oil continued. The discovery of crude oil reserves also resulted in an enormous amount of associated and non-associated gas finds in the Niger Delta. From 1956 to date, over 16 billion barrels of oil and 5.7 TCF of associated gas have been produced in Nigeria, all from the Niger Delta Basin. About 5.0 TCF or 88% of the total gas production has been flared. The Nigerian gas is, therefore, grossly under-utilised and there exists an abundant potential for gas utilisation especially since the gas resource is increasing with increased upstream activities in the Nigerian sedimentary basins. The worldwide proven gas reserve is about 5,365 TCF, with Africa contributing 360 TCF, thus making the continent the fourth largest gas province in the World behind Soviet Union, Middle East and Asia Pacific (Figure 1).

Figure 1: World Gas Proven Reserves 4

The estimated reserve of 159 TCF in Nigeria represents over 44% of the gas reserves in Africa and over 90% in the West African sub-region. At the current production rate this reserve will last 100 years. In spite of this vast endowment of gas reserves, Nigeria is not listed in the top twenty gas producing and utilising countries of the world. Apart from the high export potential of the Nigerian gas due to its lack of impurities, local demand opportunities are tremendous. Some of the demand centres are power, refining, petrochemical, cement, fertilizer, aluminium and iron and steel (Table 1). The potential for distribution to industrial centres for sourcing their energy requirements is also tremendous because of the growth being currently experienced in that sector. In recent times, natural gas consumption has increased significantly due to the LNG that utilises about 0.8 BCFD. The domestic demand of about 0.4 BCFD is small compared with the available reserves. (Table 1)
Table 1: RECENT NATIONAL GAS UTILISATION STATISTICS

SECTOR Power Steel Cement Fertiliser Others Total

GAS VOLUME (BCF) 93.51 0.07 8.98 8.74 7.41 118.71

PERCENT 78.78 0.06 7.56 7.36 6.54

The West African Gas Pipeline is also being proposed to run from Nigeria across West African countries such as Benin, Togo, and Ghana in order to meet their domestic gas requirements. The project has an initial demand of some 50 million standard cubic feet per day and is projected to rise to 160 million standard cubic feet per day in ten years. GAS RESERVES Gas reserves growth has been remarkable though gas discoveries have been incidental to oil exploration. From a level of 2.260 trillion cubic feet in 1958, gas reserves have grown in consonance with the growth in oil reserves to a level of 159 trillion cubic feet in 2000. The Nigerian gas reserve of 159 TCF is distributed over 470 fields covering the whole Niger Delta region, thus allowing for an unconstrained location of any gas-related project in this region. This recoverable gas reserve comprises 85 TCF of associated gas and 74 TCF of non-associated gas. In particular, the associated gas is made up of gas cap and solution gas that can be produced with oil. A recent preliminary study estimates the undiscovered Nigerian gas resources within the coastal area of the Niger Delta, which is considered mature with exploration, activities to be between 70 and 120 TCF. The discovery of gas in some inland basins supports the notion that they could hold some good potential for oil and gas.
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The deep offshore operations (see Figure 2) have shown that this frontier area holds some good prospects in terms of oil and gas reserves. This has could further increased the known reserves of oil and gas resources in the country. About 29 TCF of recoverable reserves have been discovered in this region. This is expected to increase as more discoveries are made in the deep offshore region.

Figure 2: Map of the Nigerian Deep Offshore

As expected, the current reserve is limited to the actively explored part of the Delta and will increase to over 200 TCF when the undiscovered and deep offshore resources and marginal discoveries are included. The unique characteristics of the Nigerian natural gas make it premium fuel in many applications in the industrial, commercial and domestic sectors. Nigeria's gas reserves are rich in light hydrocarbon components (methane, ethane, propane), but very low in the hydrogen sulphide (H2S), carbon dioxide (CO2) and mercury, thus making it a good resource for any gas-related investment. The gas reserve is distributed over 470 fields covering the whole Niger Delta region, thus allowing for an unconstrained location of any gas-related project in this region. Based on the above, Nigeria has the highest potential for gas in Africa, followed by Libya and then Algeria. In spite of this vast endowment of gas reserves, Nigeria is not listed in the top twenty gas producing and utilising countries of the world. Incidentally, Algeria has been
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top twenty gas producing and utilising countries of the world. Incidentally, Algeria has been the most aggressive in terms of the marketing of gas to the developed countries probably due to her proximity to the markets in Western Europe. PROSPECTS FOR GAS UTILIZATION Various measures have also been introduced to improve the prospects for gas development and monetization purposes in order to fully harness the Nigerian gas. Some of these measures include establishment of a Gas Grid for the nation and the West African sub-region, fiscal incentives, national gas policy development, deregulation of the petroleum products market and encouragement of gas development for domestic use. Each of these is expected to immensely encourage the development of gas projects. Gas Infrastructure Significant progress has been made in the last few years in gas development in the country. One of these is the establishment of the Nigerian Gas Company a subsidiary of the Nigerian National Petroleum Corporation (NNPC) with the responsibility to transmit to various economic centres within Nigeria and the West African sub-region. Export oriented gas projects are being encouraged. These include new LNG, expansion of existing LNG, Gas-to-Liquid, Chemical plants and NGL. The NGC currently has 1,100 km of pipelines ranging from 4-in to 36-in in diameter with an overall design capacity of more than 2 BCFD. The existing gas transmission line and supply node, which is currently under-utilized, is shown in Figure 3.

Figure 3: Existing Major Gas Pipeline System

A recent study carried out by Nigeria and ExxonMobil concluded that: With respect to power generation alone, the projected peak gas demand on the trunk-line system by year 2005 will be over 820 MMCFD. This will require an additional 401 km 24-in to 36-in pipeline with smaller branch line to industrial facilities. The projected peak demand on the trunk-line system by year 2010 will be in excess of 1,830 MMCFD requiring an additional 280 km 24-in and 36-in pipeline. By 2015, the studies estimated that 400 km of 24-in and 30-in pipeline would be laid for the expected peak demand of about 3,290 MMCFD. In order to achieve the expected peak gas demand of 5,250 MMCFD by year 2020, pipeline loops and gas compression facilities will be added to the existing system. The above-expected increase in gas demand will result in the improved gas infrastructure covering the whole nation that will in turn provide opportunity for other economic demand centres. The expected gas infrastructure is shown in Figure 4.

Figure 4: Gas Pipeline System Expansion

Incentives for Gas Projects The Nigerian Government has in the past negotiated fiscal terms that are available for various projects. These fiscal terms are already documented in the Nigerian laws, gazetted enactments and decrees. The existing incentives for gas production, transmission and distribution in the country are: Finance (Miscellaneous Taxation Provision) Decree 18, 1998 (Amendment to Petroleum Profit Tax Act): - This allows the investment required to separate crude oil and gas from reservoir into useable products to be considered as part of oil development. Finance (Miscellaneous Taxation Provision) Decree 19, 1998 (Amendment to Petroleum Profit Tax Act): - This allows for interest on loans for any gas project to be tax deductible if permission has been obtained from the Federal Ministry of Finance before the loan is taken. Details of these packages are available in the Department of Petroleum Resources and the Nigerian National Petroleum Corporation. In addition, there is a tax holiday under pioneer status, which shall be for a period of five years for gas transmission and distribution. Provision has been made to ensure that incentives for Associated Gas (AG) utilization where applicable shall not be inferior to that of Non-Associated Gas (NAG) utilization and preference shall be given to the use of AG over NAG. Also, gas transferred to NGL and GTL will be at zero royalty and zero Petroleum Profit Tax (PPT). National Gas Policy The national gas policy includes a strategy for restructuring the national gas transmission system for interrupted gas supply to facilitate the development of local gas markets. The commercial structure of the national gas transmission system presently operated by the Nigerian Gas Company (NGC) is to be significantly modified to encourage the development of domestic gas markets. The expansion of the gas pipeline system to accommodate expected increase in power generation, supply and distribution is a major government policy initiative. The Nigerian Government is vigorously putting in place mechanisms that will lead to sustained market growth and industrial participation in the gas projects. The policy will also ensure that all future Field Development Plans must be accompanied by utilisation plan for AG. The Nigerian Government has always respected the sanctity of contracts and will continue to abide by the obligations of contracts entered into. A national Gas Plan designed to deal with the problem of associated gas production and eliminate gas flaring has been in place and is being vigorously pursued.

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Deregulation of Petroleum Products Market The Nigerian government is planning a re-structuring of the oil industry to ensure efficiency in providing open access to the populace and all players in the upstream and downstream sectors at the lowest possible cost. The guiding principle for the deregulation is to develop the markets by promoting laws and enabling legislation that shall embrace free market mechanisms based on commercial principles. The expected outcome is the stability of the market, elimination of obstacles to building, owning and operating of facilities (for example refineries, gas plants etc) that are in the best interest of the country. This is expected to bring about the liberalisation of import and export and encourage investors to negotiate commercial arrangements and structures. Encouragement of Gas Development Projects for Domestic Use Nigeria recognises the need to create opportunities to utilise its abundant natural gas resources and is determined to create an environment that would sustain gas demand growth for both domestic and export oriented projects. Presently, there exist regulations, policies, and incentives that encourage investments in both domestic and export gas development projects. Further to this, the Nigerian government is proposing strategies that will encourage the growth of the domestic gas market. Some of these strategies are: Development of a national power transmission grid that will link major industrial and population centres. (Figure - 5).

H H H

2015

2005
H H H

KWARA

2005 H H

2010

2010
H

2015

H H 2005

OGUN

H 2020 H H H

2015
TRAS MISSION LINE LEGEND

2020
H

2010 2020 H

2005

2023

330KV Lines - Approved 330KV Lines - Existing 330KV Lines - Additions in 2005 330KV Lines - Additions in 2010 330KV Lines - Additions in 2015 330KV Lines - Additions in 2020 330KV Bulk Supply Hydroelectric Power Supply Thermal Power Stations

Figure 5: Nigeria National Power Transmission Lines

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 Promotion of new basic industries that utilise natural gas as a feed stock. Provision of financial incentives for existing thermal power generation plants to convert to natural gas and for the establishment of new gas fired power plant called Independent Power Plants (IPP). Aggressive participation in partnership with corporate organisations of the development of several export-oriented LNG, GTL, NGL and chemical plant projects. Aggressive promotion, with the private sectors, of the construction of a West African Gas Pipeline grid, which will export Nigerian gas to neighbouring countries in the West African sub-region. (Figure - 6).

Mali Burkina Faso B E N I N

u Lag os

Niger

GHANA
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T O G O

NIGERIA

Cot ono

Effa su

Tem

Figure 6: West African Gas Pipeline

POWER GENERATION AND SUPPLY Power Demand in Nigeria The power industry in Nigeria has not been able to meet customers electricity demand requirements. Electricity consumption growth from 1993 to 1998 was approximately 0.5% per year. However, the expected growth rate for a developing country such as Nigeria is
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approximately 8% per year. This rate is consistent with Nigerias actual growth levels before 1988. The inability of the countrys electricity company, National Electric Power Authority (NEPA), to deliver power is due mainly to insufficient generating capacity of 2.0 to 2.5 GW, which in turn has suppressed the demand growth in the country. NEPA is presently operating at a generation capacity that is incapable of meeting peak demand, as illustrated in Figure 7. This figure highlights the pattern at maximum, or peak demand, since the early 1970s. It also illustrates the inability of NEPA to maintain an adequate generating capacity to meet demand growth.

Figure 7: NEPA System Generations Capacity ChartMW versus GWh

This inability constrained the system peak demand growth to a level well below what was expected when compared to other countries. This indicates that NEPA is only meeting a suppressed level of demand. In other words, NEPA is not meeting the nations total electricity demand. Nigerias average growth rate factor, estimated from the average growth rates for electricity consumption over two ten-year periods (1973 1983 and 1983 1993) for some developing countries is shown in Figure 8.

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K W H Avr 10 Year Gro w th R atio s fo r V ario u s C o u n tries

6.00

Years 1963 - 83 Years 1983 - 93

5.00

4.00

3.00

2.00

1.00

0.00

ria ge Al

a re Ko S.

a in Ch

ey rk Tu sia lay Ma

ile Ch a bi m lo Co a el zu ne Ve

dia In

Ar

Figure 8: kWh Average 10-Year Growth Ratio Chart for the Various Countries

A correlation of Kilowatt-hour (kWh) use of electricity per capita to Gross Domestic Product (GDP) per capita in a number of countries showed an average consumption rate of 425 kWh/capita in Figure 9. On the other hand, Nigerias current consumption is 85 kWh/capita, which is significantly below the average. By comparison, Ghana, with a GDP per capita of $400, averaged about 340 kWh/Capita from 1991 to 1995, which is still below the average.

d an ail Th h es led ng Ba

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Countries

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Kwh/cap vs GNP/cap
for Selected Countries,1993

8000 7200 6400 5600 4800 4000 3200 2400 1600 800 0
V A M Ta A C S en rg .K al lg hi iw ay le er en ez or an ia si ti n ue ea a la a Tu rk C Th E ol gy ai om pt la ey nd bi a C hi na N ig er ia In di a P ak is ta B

5,000 4,500 4,000 3,500 3,000 2,500

GNP, $/Ca

Interpolated Kwh point for Nigeria corresponds to 426 kwh/cap instead of actual value of 111 kwh/cap.

2,000 1,500 1,000 500 0

an gl ed n e

sh

Figure 9: 1993 kWh versus GNP Capacity Chart for Selected Countries

POWER DEMAND FORECAST A recent study estimated a total present-day "unsuppressed demand" on the NEPA system to be 3440 MW. This compares very well with systems similar to Nigerias and with the analysis conducted in 1991 by the London School of Economics whose projection for peak power demand in 2000 was sufficient to meet the unconstrained demand growth. This estimate is substantially above the current peak demand of about 2500 MW and reflects the current constraints of insufficient generation capacity and, in some areas, transmission constraints. The same study made two other projections extending to 2020; both of these extensions reflect the range of growth and industry experience that other developing countries have achieved. For example, The base case assumes a 7% per annum growth rate in peak demand, which is considered a conservative growth case and The improved case assumes a 10% per annum growth in peak demand and considers independent power producer (IPP) investment environment, and a more rapid development of the needed infrastructure systems.
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Kwh/Cap

This forecast can by extension be used to estimate a projected demand pattern for the West African sub-region. This forecast is reasonable because the historical average growth rate in peak demand for NEPA from 1978 to 1988, when sufficient generating capacity was available, was 8.2% per annum (against a backdrop of reported GDP growth during the same period of less than 1% per annum). Also, with a favourable and longer-term investment environment, the Nigerian power sector should be able to achieve growth rates exceeding the 10% per annum case. Figure 10 illustrates the peak demand forecast. Figure 10 illustrates that in the 1980s, when adequate capacity was available; peak demand grew at 8.2% per annum. If that rate of growth had continued to 2000, the peak demand would be approximately 5000 MW, well above the current level of 2500 MW. Due to insufficient generating capacity, the peak demand has remained in the 2500 MW area over most of the 1990s. This level is well below the 3440 MW estimated by the studies as the unsuppressed demand in 2000. The 7% and 10% growth rate cases contain what is considered a reasonable future demand range for Nigeria.

Figure 10: PB Power Peak Demand Forecast

Nevertheless, as indicated by the experience of other countries, with a favourable investment environment for power, higher growth could be possible, particularly given the abundant supply of gas. Therefore, Nigeria currently has significant demand for electricity, beyond what the NEPA system can presently provide.

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Figure 11: Existing NEPA Transmission system

Additional power generation capacity is urgently required in Nigeria to meet existing and new demand, as well as to ensure a reliable level of service for all Nigerian consumers. The resultant increase in reliable electricity supply will increase investor confidence and spur economic growth. A favourable climate has been created for the construction of Independent Power Plant resulting in investors like Shell, Agip, ExxonMobil, Asea Brown Boveri Limited and M. S. Radiotronic S. A. of Spain operating, constructing or in the process of starting new gas fuelled power plant. There is, therefore, significant potential to implement gas-fuelled generation to help meet Nigeria's urgent need for electricity.

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Figure 12: New Gas Turbine Capacity and Transmission Additions

The pattern of increasing demand is almost a familiar trend in Africa. Therefore, there is considerable room for electricity demand to grow in the continent and especially in the West African sub-region. Electricity can thus be generated close to the source of gas and transmitted to consumers in other countries. It is conclusive that in Nigeria and the African continent, the prospects for gas projects are excellent especially for power generation. GAS DEMAND FORECAST IN RELATION TO POWER GENERATION From the earlier analysis, it is estimated that over a ten-year period, Nigeria could double or even triple the amount of power it generates (Figure 12). This implies that with an improved investment environment in Nigeria, a 10% annual growth rate is achievable. This would result in the increased gas consumption by the power sector from the 1999 level of 270 MMCFD to 1,350 MMCFD in 2010 and over 3,800 MMCFD by 2020. POWER POLICY The Nigerian government policy is to create a successful power sector that will better meet the countrys growth objectives. Therefore, aggressive efforts are currently being made to restore power generation capacity to present demand level. The national transmission and distribution systems are being rehabilitated and strengthened to ensure a high level of reliability.
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NEPA is being restructured to meet the requirements that will attract private investment into the Nigerian energy sector. Government, with various organisations and private investors, is presently working out the legal and financial frameworks for such investments. The creation of proper investment environment to attract the needed capital to expand both the power and gas infrastructure systems is of utmost importance to the government. The extension of the gas transmission grid to accommodate new power plants that could be located closer to some of the major demand centres and simultaneously develop new demand and industrial investment is a key focus of government policy for utilisation of Nigerias abundant gas resources. WEST AFRICAN GAS PIPELINE PROJECT Essentially, all major potential pipeline export markets from Nigeria will be exploited by the West Africa Gas Pipeline project. The West African Gas Pipeline project is expected to have sufficient capacity to meet demands in Ghana, Togo, and Benin well beyond the next decade. Current estimated demand for these markets ranges from 120 to 180 MMCFD. Ghana, by far the largest market along the 620-mile route, is expected to account for about 75% of total demand. Ghana will use the gas as fuel for its existing and new thermal plants in Tano, Takoradi, and Tema. There is currently no major competition to the Nigerian gas in the West African sub-region. The West African Gas Pipeline Projects estimated at US$400 million will supply between 100 and 150 million cubic feet per day of gas from Nigeria to neighbouring West African countries at a cost saving to them of about US$500 million in energy for over 20 years. CONCLUSION The highest valued use of gas in Nigeria is in power and other domestic markets. Export oriented projects are needed to fully exploit Nigeria's gas resources Abundant gas resources at reasonable cost give Nigeria the potential to be competitive in World markets with other large-gas-resource countries. The present low utilization of gas for power generation indicates the need for increased power generating capacity. A comprehensive gas policy and increased power generating capacity will enhance future investments and market development in Nigeria and the West African sub-region.

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