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Economic Uncertainties, Renewable Energy Breakthroughs Threaten Gas Projects —Report

…Nigeria’s natural gas will support renewables Expert

-By Gideon Osaka

Global gas demand is set to come under pressure from breakthrough investment in renewables, energy storage in the power sector, efficiency improvement and adoption of new technologies in non-power sectors.

In addition to these, green hydrogen would become a game-changer in the long-term as it would emerge as a key competitor to gas consumption in the next two decades while achieving a 10 per cent share in the total primary energy demand by 2050.

These and many more are highlights of Wood Mackenzie’s latest report which projected that over three quarters or 77% of new liquefied natural gas (LNG) supply are at risk.

Valuechain findings show that if the predictions by Wood Mackenzie is anything to go by, gas just like oil may become a less fancied fuel source in the future thereby undermining current efforts by Nigeria, one of the world’s top gas producer, to harness its 203.16 trillion cubic feet (TCF) gas reserves.

Aggressive effort by the government to unlock revenue and economic potential of gas resulted in the declaration of 2020 to 2030 as ‘the Decade of Gas’. So far, some significant step towards growing the nation’s gas resources which rank among the 10 largest worldwide, have recorded significant milestones.

Prof. Wunmi Iledare

The expansion of the Train 7 of the Nigerian LNG Limited, following the conclusion of Final Investment Decision (FID) on the project and subsequent signing of the engineering, procurement and construction (EPC) contracts, triggered the effective commencement of the detailed design and construction phase of the multi-billion dollar project. On completion, the project is expected to raise the plant’s current six-train capacity by 35 per cent, from the extant 22 million tonnes per annum (MTPA) to 30 MTPA.

Nigeria’s single biggest gas pipeline project, the 614km Ajaokuta-Kaduna-Kano (AKK) pipeline, has been commissioned and is scheduled for completion by 2023. It is expected to add 2.2bn cubic feet of gas to the domestic market and support the addition of 3,600MW of power to the national grid.

Underlining the move towards gas is the Nigerian Gas Flare Commercialisation Program (NGFCP), which aims to provide oil and gas companies an alternative to gas flaring.

To help push the National Gas Expansion Programme launched earlier in the year, the Nigerian central bank in September offered a N250bn ‘intervention facility’ to provide loan to companies willing to invest in the gas value chain.

In line with its 2020 strategy to drive key policies and regulatory initiatives that would enhance gas reserves growth to support domestic and export projects, the federal government had launched  the Gas Transport Network Code (NGTNC) to deepen the growth of domestic gas market.

The medium term projection of the Nigerian Petroleum Development Company (NPDC), which is currently the highest supplier of natural gas to the domestic market, is to grow production from the 1billion standard cubic feet per day (bscf/d) it currently produces, by adding another 600mmscf to its production portfolio in the next three to five years. This is in addition to the seven Critical Gas Development Projects (7CGDP) being pursued by NNPC to deliver about 3.4 billion standard cubic feet of gas per day (bscfd) to bridge the foreseen medium term supply gap.

From the project and programmes mentioned, the traction achieved by Nigeria in implementing some of the policies introduced for gas in 2020 (dubbed as the “year of gas”), has made stakeholders become more optimistic that the government is dedicated to stimulating the necessary investments in the sub-sector.

But plans to boost domestic production and consumption of gas will still have to compete with potentially much more lucrative renewable energy opportunities, going by Wood Mackenzie predictions.

Even in countries like Nigeria, where gas-fired power plants are key electricity sources, industry players, as well as consumers, are already looking towards renewable options. Most distribution companies in Nigeria as well as NNPC have signed contracts for renewable energy projects.

Similarly, the United Nations Environment Programme (UNEP) had said global investment in new renewable energy capacity hit $2.6 trillion by the end of 2019 to close out a record-breaking decade in renewable energy investment.

Wood Mackenzie Principal Analyst, Kateryna Filippenko noted that weaker global gas demand creates space for limited new developments, stressing that the development signaled a significant challenge for companies considering final investment decision (FID) on new projects.

Commenting on the report, Professor of Petroleum Economics and Policy Research and the Director of Energy Information Division of the Center for Energy Studies Prof Wunmi Iledare said Nigeria needs to use its gas less for revenue to balance the budget but for industrialisation. According to him, renewable development may actually be a blessing for Nigeria.

“Nigeria just needs to build a niger delta energy corridor with energy intensive industries that would bring another layer of industries with gas as feedstock all over Nigeria,” he said in a WhatsApp post.

Also agreeing with the report’s conclusion, the Rector, Kaduna Polytechnic (Kadpoly), Prof. Idris Muhammad Bugaje said the best way out is for gas to be dedicated to petrochemicals which other energy sources like solar can not provide.

“Why should we use fossil gas to generate electricity? It is best to convert natural gas to petrochemicals which other energy resources may not privide. Solar energy should be made the main electricity source of the future. This will ensure lower emissions and so less disruption of the climate. If you apply the second law of thermodynamics and determine the second law efficiencies of these conversions, you will see what I’m pointing. But I’m sure the transition will take time,” Prof. Bugaje, an engineer and also Fellow of the Solar Energy Society of Nigeria (SESN) said.

On his own part Justice Derefaka who is the Technical Adviser (Gas Business & Policy) to Minister of State for Petroleum said he personally does not think the position canvassed in the report is very true.

He said: “Agreed renewables’ resilience is driven by the electricity sector, plus despite looming economic uncertainties, investor appetite for renewables remains strong.

For instance from January to October 2020, auctioned renewable capacity was 15% higher than for the same period last year, a new record you’ll say. Globally, at the same time, the shares of publicly listed renewable equipment manufacturers and project developers have been outperforming most major stock market indices and the overall energy sector. This is thanks to expectations of healthy business growth and finances over the medium term. In October 2020, shares of solar companies worldwide had more than doubled in value from December 2019.

We all know the inherent limitations of renewables, and gas being the closest ally to renewables.

Don’t forget, the idea that the world can sharply curtail gas use in the next decade or so and still meet its climate and environmental goals is not very convincing to some pundits. But equally questionable is the idea that gas must have a privileged position in the energy transition, that a low-carbon future must be good for gas.

Kateryna Filippenko

The reality is somewhere in between. Gas does different things in different markets and at different costs, so broad statements about how gas will fare in the future especially for Nigeria is huge. Providing more energy to people while reducing its impact on the planet is one of the 21st century’s greatest challenges.

Our Natural gas can help to meet that challenge by reducing emissions and improving air quality when it replaces coal and diesel.

Nigeria’s Gas is also a reliable partner for renewable energy sources; providing critical support for wind, solar and hydroelectricity by helping to match supply and demand.

Our Natural gas usage and drive is also vital in parts of the economy that are more difficult to electrify, including industrial processes and freight transport.

Overall, Nigeria’s natural gas will support renewables because it can quickly compensate for dips in solar or wind power supply and rapidly respond to sudden increases in demand. Plus our natural gas will continue to be a central component to produce everyday products such as plastics and fertilisers.”