Why Large Reserve to Production Ratio Threatens Nigeria’s Gas Economy
At the current pace of Nigeria’s exploitation and utilization of its natural gas resources, it may be difficult for the nation to deliver adequate energy to its growing population and to supply the required feedstock to power its industrial expansion and economic growth, according to industry expert’s opinions, YANGE IKYAA writes.
Nigeria is Africa’s largest economy with abundant hydrocarbon resources that have become the mainstay of its own economy for over 50 years. The country remains a dominant player and major force in the global energy market, most notably for crude oil supply but is also now trying to grow its share of the international gas market, while expanding domestic marketing and consumption at the same time.
As of 2017, Nigeria held 187 trillion cubic feet (tcf) of proven gas reserves, ranking 9th in the world and accounting for about 3% of the world’s total natural gas reserves of 6,923tcf, but official figures of the Nigerian government put the current figure of the country’s proven gas reserves at 206tcf. Although the country has ambitious targets and multiple projects in utilizing its gas resources as a fuel of its future economic development, expert opinions suggest that its large reserve to production ratio may stand in its way of actualizing this national growth agenda.
By definition, reserve to production ratio is an estimate of the number of years that the site of a natural resource will continue to be productive based on current production rates. In other words, reserve to production ratio, which is also called RPR, is the remaining amount of a non-renewable resource, expressed in time. While applicable to all natural resources, RPR is most commonly applied to fossil fuels, particularly petroleum, coal and natural gas.
Ironically, while large reserves of natural resources mean a huge economic advantage to any nation, large reserve to production ration or RPR, on its part, could sometimes be viewed as a measure of economic stagnation or disadvantage for a nation in the sense that the nation may simply be lacking the needed capacity to adequately exploit its natural resources to use in developing its own economy.
For instance, in 2020, the ratio of global natural gas reserves to production, measured in years, was 48.8, according to figures quoted by Statistica. This means that if extraction continues at the current pace, the world will run out of its proven gas reserves in just a little below 50 years.
On its part, Nigeria has proven gas reserves equivalent to 306.3 times its annual consumption, indicating that it will take the country about 306 years to deplete its gas reserves at the current level of consumption, excluding unproven reserves, and also meaning that the country is 256.3 years below the global average in the area of gas extraction and utilization.
“There is no doubt that we have huge proven reserves of gas in Nigeria and in other countries in Africa, and if you look at the global outlook in this regard, Nigeria falls within the first 10 of largest proven gas reserves, but if you look at the production and utilization, it is falling far below,” said the Chairman and Group Chief Executive Officer, Oilserv Group, Engr. Emeka Okwuosa, in a speech at the recently concluded Sub-Saharan African International Petroleum and Exhibition Conference (SAIPAC), where he was represented by Engr. Chuka Eze, who is the Managing Director of Frazimex Engineering, a subsidiary of Oilserv Group.
In comparative terms among fossil fuels, coal reserves have the largest R/P ratio of 120 years, meaning that if production rates remain the same the current coal reserves will last 120 years, which is 70 years larger than the RPR of 50 years for gas and indicative of the fact also that gas is by far being globally mainstreamed economically, and at an accelerated rate, as compared to coal.
Yet, Nigeria is still lagging behind by over two and half centuries in this regard, precisely by 256.3 years, as the country consumes 609,290mcf of natural gas per year, and ranks 38th in the world for natural gas consumption, accounting for about 0.5% of the world’s total consumption of 132,290,211mcf. In per capita terms, the country consumes 3,192 cubic feet of natural gas per capita every year (based on the 2017 population of 190,873,244 people), or 9 cubic feet per capita per day.
In an attempt to contribute to the development of the Nigerian gas economy, the Oilserv Group says it is playing its own part and, according to Okwuosa, “for us to have industrialization, it is very important for us to have stable power and our contribution as an oil servicing company is that we basically focus on the downstream sector where we build the infrastructure such as pipelines.”
Oilserv is an integrated EPC company, providing Engineering, Procurement, Construction, Installation and Commissioning, especially in the midstream sector of the oil and gas value chain. It has been involved in supplying gas to six major power plants in Nigeria across six states, and it leverages its technological innovations in the construction process. Currently, the company is engaged in the AKK project, which is taking gas from the Middle Belt region of Nigeria in Kogi State up to Kaduna and Kano in the northern part of the country. This is one of the largest projects in Nigeria that is currently in progress, covering a total of 614 kilometers distance, of which Oilserv is handling 303km portion of the construction and its engineering was done in-house by Oilserv.
Already in place are 12 more power stations and two intermediate stations, capable of handling 1 billion scf of gas per day and the project is expected to be completed in 2023.
As Okwuosa said, “yesterday we were talking about in-country capability to be able to do some of these things, we need to believe in ourselves to be able to perform in-house engineering works.”
In the Southern part of Nigeria, Oilserv has taken a pipeline connecting from production sites to a cement factory at Calabar, which is about 130 kilometers of 18-inch pipes. In Lagos State also, it has contributed to the distribution of gas through the pipeline to various industrial hubs, ranging from Ikeja to Ilupeju, Apapa and up to the Port. This has helped to keep the industry stable by providing electricity to them.
The company’s services include generation, transmission, and it also has the OB3 project, which is one of the major projects that have been done by Oilserv, a 430-kilometer pipeline. This is also a pair to the AKK pipeline that is bringing gas to the north of Nigeria. The company says it is basically there to actualize and support the government and IOCs to bring gas supplies to where they are needed.
The choice of gas for Nigeria as a transition fuel is hinged on the fact that gas is cheap, is significantly available, and the country just needs to deploy the available technologies to bring it out. Gas also forms a substitute for renewables because it is readily available, it can be modularized, and it can be easily deployed to support renewable energy. So, it is very important as it plays a significant role and is needed to generate revenue, stimulate the economy, support industrial base, and facilitate economic growth.
Gas may now be an acceptable baseline transition fuel, with the EU even classifying it as a green fuel, but if not adequately and timely utilized, things may change in the future and Nigeria may end up giving its abundant gas resources what has been called “the coal treatment” by Simbi Wabote, who is the Executive Secretary of Nigerian Content Development and Monitoring Board (NCDMB).
His words: “We have an abundance of these resources without using it when it mattered most. We have now been told that coal is dirty fuel and we have moved away from it since we do not have the capacity for successful production and utilization.
“Other nations that have coal as their local resource for energy and the wherewithal to produce required equipment for extraction and coal-powered plants for utilization have continued to maintain coal in their energy mix, as countries like China still have 50 per cent coal in their energy mix, and this is my message to Nigerians, you have the local resource, do not begin to wait on people to tell you that the only way for your existence is foreign resources that will provide your energy needs.
“Like I said, China remains the largest producer and consumer of coal in the world and the largest user of coal-generated electricity, with over a thousand coal-fired power stations, while Australia uses coal to produce about 80 per cent of the nation’s energy requirement.
“We don’t need people to come and school us on the need to use local resources for development. South Africa ranks 7th in the world for coal consumption and about 77 per cent of South Africa’s primary energy needs are provided by coal. Statistics also reveal that most of the users of coal today are the largest spenders on research and development.
“For example, China, which is the largest user of coal in the world spent $574 billion on research and development in 2020 alone. This means that we need to develop our homegrown technologies to avoid treating our hydrocarbon resources the same way we treated coal.”
The viewpoints expressed above may be responsible for the policies of NCDMB where Wabote is the leader concerning accelerated development of gas infrastructure across Nigeria. Recently, Nedogas Development Company Limited (NDCL), a joint venture company between Xenergi Limited and NCDMB Capacity Development Intervention Company, in collaboration with the Nigerian Gas Company Limited (NGC), a subsidiary of the Nigerian National Petroleum Company (NNPC), successfully completed the construction and technical commissioning of a 300mmscf per day capacity Kwale Gas Gathering (KGG) and injection facility located in the Umusam Community, near Kwale in Delta State.
The KGG facility was designed to handle stranded gas resources in Nigeria’s OML56 by providing the opportunity for independent operators in the area to monetize natural gas from their fields through the gas gathering, compression, injection and metering infrastructure of the KGG for quick access to market.
The KGG hub, which has been tied-in to the NGC-owned and operated 48-inch OB-3 gas trunk line, is now fully commissioned with an initial gas injection capacity of 25mmscf per day from the Nedogas plant located 3 kilometers away in Energia’s Ebendo field, and injected gas volumes are gradually being ramped up.
This project represents a significant milestone in Nigeria’s decade of gas, as well as a major achievement in the quest to provide gas into the OB3 trunk line and monetize natural gas resources from the OML 56 producer cluster. With the successful injection of gas from the Energia-operated Ebendo field into the OB3, the KGG facility is now poised to receive additional gas from nearby fields, including those operated by First Hydrocarbon Nigeria (FHN), Pillar Oil, Chorus Energy and Midwestern Oil & Gas, all aimed at positioning KGG as a fully-fledged gas-gathering facility and hub with single point injection of up to 300mmscfd of gas into the OB3 via the KGG tie-in.
The Managing Director of NDCL, Debo Fagbami, explained that with the completion of the KGG facility, the proof-of-concept to readily monetize gas has now been established to the extent of eradicating the pain of seeing an invaluable resource being wasted. Rather than seeing gas flaring, he sees “opportunities to harness the potential of the flare sites from these oilfields which will ultimately convert a wasting resource into an economic asset used to generate cleaner energy.”
Wabote expressed his delight to see the completion of another project under the series of projects being catalyzed by NCDMB to realize the “Decade of Gas” initiative of the Federal Government. “Our partnership with NDCL to complete the Nedo Gas plant and construct the KGG hub represents another important achievement in our 10-year Strategic Roadmap to utilize local resources, develop in-country capacities, and create job opportunities in line with the mandate of the Board,” he said.
Wabote believes that “this project provides opportunities to address gas flaring within its captive areas with positive impact on health and the environment.”
Natural gas remains a relatively clean fossil fuel and represents a viable transition to renewable energy, which plays a pivotal role in powering the growth of developing economies like Nigeria. The KGG facility is set to create hundreds of direct and indirect jobs for indigenes of its host and nearby communities.
NDCL is a 100% Nigerian company with proven interest in creatively innovating and inventing cleaner energy sources for Nigeria’s growth and economic development, while NCDMB is responsible for promoting the development of local content capacity and related projects in the Nigeria oil and gas industry.
In another development, NCDMB has secured approval to work with selected partners to produce Liquefied Petroleum Gas (LPG) or cooking gas that would meet 10 per cent of current nationwide demand.
The Board recently secured the approval of its Governing Council for a partnership to produce 123,000 metric tonnes per annum of LPG, which is about 10 percent of current demand nationwide, from the Utorogu Gas Plant, in Warri, Delta State, to enhance local production of LPG and reduce import requirements.
The Board’s latest efforts are also geared towards actualizing the Federal Government’s Decade of Gas Policy as well as the overarching Nigerian Content aspirations which are to deepen in-country capacities in the oil and gas industry, create jobs for teeming youths and retain spending in the economy.
Yet, there is still the mother of all Nigerian gas projects, Nigeria Liquefied Natural Gas (NLNG), whose 7th train, or Train 7 Project, is now under construction, aimed at boosting Nigeria’s liquefied natural gas output by a projected 35 per cent.
The $10 billion project is expected to add around 8 million tonnes a year of liquefied natural gas to NLNG, taking the total to around 30 million tonnes per year, after the country’s LNG has faced some decline in production in recent years. It is also expected to provide 12,000 direct jobs, even as the Train 8 Project is already being planned.
According to official data, NLNG has earned the Federal Government of Nigeria revenues of about $114 billion over the years, giving $39 billion in taxes and $18 billion in dividends to the Federal Government. The company is a consortium between of the Nigerian National Petroleum Company (NNPC) Limited, Shell, Eni, and Total. It has been stated by the Federal Ministry of Petroleum Resources that since NLNG became operational in 1999, Nigeria has recorded a drastic reduction in its flare status from 65 per cent to just 12 per cent at present.
Nigeria has increasingly introduced clear policies to make the nation become a gas-powered economy, one of which is the Decade of Gas that seeks to leverage the country’s huge gas reserves to become not just a major exporter but to become a major gas consuming nation.
Some of the investments and partnerships made by NCDMB in the gas sector of the country include the creation of a 10-hectare gas hub in Polaku, Bayelsa State for hosting gas-based infrastructure and facilities, as well as LPG jetties/terminals, storage facilities, inland transportation facilities, cylinder manufacturing plants, bottling, and retail infrastructure.
“Our partnerships in the gas sector have unlocked 6,000 metric tonnes of LPG storage facilities, annual production of 1.2million LPG composite cylinders, and infrastructure and facilities for processing of 840mmscfd of gas across fourteen states of the federation, namely Bayelsa, Delta, Edo, Lagos, Kano, Kaduna, Katsina, Bauchi, Nassarawa, Zamfara, Niger, Plateau, Gombe, Jigawa States and the Federal Capital, Abuja,” said Wabote.
He maintained that various transitions from one form of energy to another have been driven by the availability and utilization of local resources, recalling that mankind used various energy sources, ranging from biomass in the 15th century, coal in the 19th century, and crude oil and its derivatives at the beginning of the 20th century, while gas was adopted in the late 20th century, and now the push for renewable sources in the 21st century is gaining more momentum by the day. And just that the past energy transitions did not witness the total jettisoning of the previous forms of energy, he also believes that what would be experienced in this era would also be a re-adjustment of the energy mix.
It has been argued that the Western world’s agenda for energy transition was motivated by the depletion of hydrocarbon reserves and forests in their locality, leading to their push for renewables and green energy to power their economies. Now, the United Kingdom and most European nations currently rely heavily on oil importation, and they consider this scenario a threat to their energy security, thus their push for the locally available form of energy to come into prominence in the mix, which is gas. And this remains a huge advantage for Nigeria, but the country must act fast in order not to be left behind with its gas resources in the decades to come in case of a total global shift to solar, wind, geothermal and other cleaner energy sources.