Natural Gas Utilization Master-Plan in Nigeria Essay (Critical Writing)

Proposal

Context

The Nigerian natural gas industry is young. There is appreciation for the need to develop a consistent strategy in the sector. This project seeks to identify current efforts that the government is using to develop the natural gas sector of the petroleum industry. It focuses on the aspects of the current strategy in use by Nigeria and seeks to propose ways in which the country can get more out of its current efforts. The context of the project includes looking at international trends in the trade of natural gas. It also includes an examination of how those trends affect domestic energy policy in Nigeria.

Novelty

The novelty of the project lies in the fact that it takes up on previous studies that have examined the issues surrounding the Nigerian natural gas economy. It seeks to identify the key influences in that economy. It identifies how their interplay affects the Nigerian economy. In the end, it will provide a unified view of all the influences and propose the best strategy that cuts across the influences to yield a master plan for the Nigerian natural gas economy

Aims

The aims of the project will be as follows:

1. To identify the factors that influences the natural gas industry in Nigeria such as human resource development, research and development, economic and regulatory, and the outlay of requisite infrastructure.
2. To examine energy utilization factors in Nigeria relevant to the extraction and marketing of natural gas.
3. To develop a coordinated strategy that offers direction to the Nigerian policy making organs on the best way to take advantage of the countries natural gas deposits

Main work packages

The main work packages for the project are as follows:

Literature Review

This will involve looking at key literature relating to various aspects of the Nigerian economy, its energy needs and portfolio, and its petroleum industry

Data Collection

After the production of a questionnaire, there will be a data collection exercise relating to the areas of the project requiring testing and development.

Data Analysis

This will involve the use of SPSS software to analyze data to find patterns, and trends to determine the efficacy of the master plan.

Final Project Report writing

This report will cover the findings and recommend elements of the Nigerian gas utilization master plan that require adjustment

Expected Outcomes

The project anticipates the following outcomes

1. Literature review that contains the key elements of the Nigerian natural gas utilization master plan
2. A report that critically evaluates Nigeria’s energy supply options and puts them in context

Technical Risks

The project will rely on the quality of data collected. Any biases in the data will influence the outcome of the report

Resources Required

The resources required include:

1. Airtime
2. Internet access
3. Travel Allowance
4. Computer
5. SPSS Software

Project Beneficiaries

The key project beneficiaries are as follows:

Nigeria National Petroleum Corporation (NNPC)

As the main implementing agency of the Natural Gas Utilization Master plan, the NNPC stands to benefit most from this project. It will provide them with a view of the status of their implementation and the areas to focus on to attain sustainability.

Regulators

Energy sector regulators will also benefit because it will provide them with the metrics that influence the Nigerian gas economy. It will empower them to produce better strategies for regulation of the energy industry.

Regional Planners and Economists

As a federal republic, Nigeria depends on regional decision makers to push for national agenda within the regions. The report will empower regional planners and economists to develop and implement proactive policies

Gantt chart

Outline 2

Literature Review

1. Introduction
2. Nigeria’s Energy Supply Challenge
3. Nigerian Petroleum Industry
4. Natural Gas in Nigeria
5. Natural Gas Utilization Master Plan
6. Areas of Further Research
7. Conclusion

Literature Review

Introduction

Nigeria is a very significant country regionally and globally on many fronts. It is one of the largest economies in Africa, ranked only behind South Africa. It boasts of a very well educated population. Nigeria’s economy benefits hugely from oil exports, which contribute the lion’s share of its income from exports. For a long time, natural gas that surfaced during crude oil mining did not end up in economic use. Oil companies chose to flare it to reduce the risk of accidents. On the political front, Nigeria has had many rulers, with the better part of its post-colonial history under military rule. Political instability and poor macroeconomic planning resulted in a very high poverty incidence where over fifty percent of the people still live under the poverty line (Obaje, 2009). However, the situation has been improving. Nigeria has had three civilian rulers in the last decade, which has provided it with the political and macro-economic stability it has needed to take advantage of its natural resources. For the last ten years, the civilian rulers have shown a lot of interest in the development of Nigeria’s natural gas reserves.

Nigeria’s Energy Supply Challenge

Nigeria is the seventh most populous country in the world, with a population of over 155 million. Such a large population requires huge amounts of energy to meet its needs. Nigeria has had perennial energy problems despite being a key oil exporter. Nigeria’s electricity production, at 2300MW meets only a quarter of the known demand (Oxford Business Group, 2010). The country has two times the production capacity but lack of natural gas processing capacity hinders its use for power production (Oxford Business Group, 2010). Economists project that the current known electricity demand will soar if there is guarantee of reliable supply. This means that required capacity will be much larger than the projections based on current demand only. Many companies in country use alternative ways to generate power. Diesel powered generators provide power for many of them. These generators are expensive to maintain, and hence they contribute to higher operational costs for businesses in the country (Oxford Business Group, 2010). Because of the underdeveloped power sector, Nigeria has the lowest per capita consumption of power in the world, at 155kw/h (Oxford Business Group, 2010). This statistic is not one to be proud about. This is because there is a direct correlation between development and power consumption. This correlation shows up in the large poverty incidence in Nigeria. While there are other energy sources available for exploitation in Nigeria, their application remains limited. Solar and wind are readily available and may form part of a future energy mix for the country (Mwalimu, 2005). At the moment though, their use does not contribute significantly to the Nigerian energy mix. With vast amounts of crude and some of the largest known reserves of natural gas, Nigeria may not be going green any time soon. There are two major problems with the Nigerian energy system. Its electricity distribution infrastructure is in bad shape leading to consistent power failure and poor power quality (AfDB & OECD, 2010). Secondly, the distribution channels for natural gas are not well developed. These two conditions make the Nigerian energy situation dire.

Nigerian Petroleum Industry

When Nigeria got its independence from Britain in 1960, it was essentially an agrarian economy. Its oil sector was not well developed. However, with the soaring demand for oil in the succeeding years Nigeria’s oil sector blossomed and became the player that it is today. In a twist of fate, Nigerian leadership ignored many of the needs for infrastructure that it had over time at the cost of developing its oil sector. This has resulted in the current situation where Nigeria has a very huge dependence on oil (Ariweriokuma, 2008). Its economy relies on oil for over ninety percent of its foreign exchange earnings (Obaje, 2009). This situation exposes Nigeria to setbacks associated with the fluctuations that attend to the international oil market, which exposes it to catastrophic consequences.

The lack of a balanced growth strategy for Nigeria has resulted in a skewed income portfolio for Nigeria. With a contribution of over eighty percent to the national budget, the exploitation of oil and gas is the single most significant activity in Nigeria (Mwalimu, 2005). The development of the gas sector is a way to begin easing Nigeria from its heavy dependence on crude for foreign exchange and for local job creation opportunities. Natural gas promises to develop new supply chains and marketing infrastructure that will diversify the products sold from Nigeria. The natural gas economy does not operate in the same way as the crude oil economy. By operation in the two economies, Nigeria will have a better economic portfolio whenever there are fluctuations in either of the economies.

Natural gas development also promises better power generation opportunities for Nigeria. Currently, Nigeria uses some of the natural gas that it produces to run gas plants. However, it still has a large capacity to develop its natural gas generation by the installation of more natural gas fired plants.

Natural Gas in Nigeria

While Nigeria developed its crude deposits over the years, it did not go with the same zeal to develop its natural gas deposits. During extraction of crude, miners observed that the crude had a lot of gas in it. Since it did not interest the initial prospectors much, flaring became the mode of disposal of the unwanted gas. In recent times, the economic viability of natural gas has made its processing attractive. The natural gas deposit in Nigeria is three times larger than its petroleum deposits (Obaje, 2009). Nigeria is poised to become a major player in the natural gas market because of its compressed natural gas reserves are in excess of 180 trillion cubic feet. However, Nigeria has a more serious domestic energy supply problem. Development of the natural gas potential must put this into consideration.

The Natural Gas Utilization Master Plan

An economically viable development of the natural gas deposits in Nigeria requires a coordinated strategy. The Nigerian government has developed a natural gas utilization master plan. Onyeukwu (2009) identified three stages in the development of the Nigerian gas sector. He refers to the first stage as the Pre 1999 era. During this era, development in the natural gas sector did not have any coherence. Much of the gas produced at the time went to flares causing environmental damage and financial loss (Onyeukwu, 2009). There was constrained demand for natural gas during this era. After this era, there was the 1999-2005 NLNG (Nigerian Liquefied Natural Gas) era. The key developments here included mainstreaming of natural gas with a better-coordinated sector development. There was stricter enforcement of legislation to banning the flaring of natural gas. This era gave way to the Post 2005 Demand Boom/Supply Constrained Era, which coincided with increasing local and international demand for natural gas (Onyeukwu, 2009). There was a trend internationally that favored the development of natural gas deposits in low production countries such as Nigeria. The driver for this demand was the dwindling of reserves in traditional international sources.

The Nigerian government’s master plan developed under civilian rule sought to deal with both upstream and downstream issues. The three components of the Nigerian Gas Master Plan are “National Domestic Gas Supply, Pricing Policy and Regulations, and the Gas Infrastructure Blueprint” (Onyeukwu, 2009). The first component places constraints on gas suppliers to ensure they provide the conditions that make natural gas available for the domestic market. The pricing policy places a floor on the gas prices in the three divisions of the demand sector and leaves space for negotiations for actual prices. Finally, the gas infrastructure Blueprint addresses the need to develop infrastructure to handle local, regional, and international markets. Without adequate infrastructure, the exploitation of natural gas will remain elusive.

In line with the chellenges that Nigeria faces, the Nigerian National Petroleum Corporation (NNPC) identifies three priority issues for the Nigerian gas sector. The first one is building the infrastructure and developing the human resource pool required to manage the sector. The second part is the development of a local market for natural gas. At the moment, the demand for natural gas is low because petroleum prices in Nigeria are rather low, hence there is no price incentive to invest in natural gas burning equipment (Umukoro, 2009). This is changing gradually by because of the rising petroleum prices. The third area is expanding participation in the sector to include as many stakeholders as possible. While natural gas contributes to global warming, its pollution rate is lesser than that of equivalent fossil fuels (Low, 2005). This means that natural gas provides the world with an alternative to other fossil fuels in the race to reduce emissions. Also, commercializing the gas reduces the environmental effects that flaring brings along (Umukoro, 2009). When natural gas is flared without economic use, the result is net loss including environmental pollution.

There are three key weaknesses in the Nigerian gas utilization master plan. These weaknesses include a lck of strategic focus in research and development, poor physical infrastructure and an uncoordinated regulatory environment. Nigeria will need to up its game in research and development in the oil and gas sector if it will retain its place as a profitable user of natural gas (Obaje, 2009). The need to generate more power for Nigeria requires the coordinated action to develop solutions for Nigeria’s problems. The master plan must address the human resource constraints that relate to the successful translation of a gas mining country into an energy sustainable one. The low investment in R&D places Nigeria at a disadvantage. The reason for this could be the huge investment by multinationals in the oil sector, making the need for investment in oil and gas R&D unnecessary for the Nigerian economy. However, this limits the benefits that Nigeria gets from its reserves since it remains reliant on foreign owned technology to harness and distribute the resources. Most successful oil extracting companies, private or publicly owned, have very impressive R&D centers to which the Nigerian one under the NPC does not compare (Obaje, 2009).

The second and third areas that require critical attention is that of physical infrastructure and legislative and regulatory framework to govern the distribution of natural gas (Ford Business Group, 2010). The infrastructure required for proper distribution of natural gas does not exist to an appreciable extent in Nigeria. On one hand, Nigeria needs to develop a pipeline to carry natural gas to its energy utilization centers such as the city of Jos. The gas can run gas fired turbines to generate electricity and for combustion by gas engines. On the other hand, Nigeria needs to develop its power generation capacity to meet its needs by selling some of the natural gas, because the market in Nigeria is not large enough to take up all the supply available. By selling natural gas, Nigeria can use the proceeds to develop its local power generation capacity.

The challenges that the Nigerian government needs to address before it makes the use of natural gas in Nigeria profitable include policy changes such as removal of subsidies and development of carrying capacity. The oil and gas sectors of Nigeria continue to benefit from government subsidies. The Oxford Business Group (2010) argues that Nigeria needs to unshackle the two sectors from the subsidies if they will compete profitably in the international market. A key challenge in natural gas trading is the rather expensive forms of transport that it requires (Low, 2005). This calls for identification of large demand centers located near supply centers. In fact, part of the reason why there was a lot of flaring of natural gas in Nigeria was the lack of a viable market. Many oil producing countries however realized the potential for tapping natural gas during crude mining and developed the requisite business systems. To meet the strategic goals of improving the uptake of natural gas in the country, Nigeria has introduced Compressed Natural Gas (CNG) for use by cars and other automobiles (Mwalimu, 2005).

The implementation of the master plan continues to face the administrative challenges that attend to the Nigerian federation. The three tier federal system in Nigeria is full of replication and duplication of authority, making doing business difficult (AfDB & OECD, 2010). The function overlap by competing agencies only serve to reduce the speed of implementation of reforms in the sector.

On the economic front, Nigeria relies on the US dollar to transact in the international market. This leads to losses in foreign exchange. Muller et al. (2007) contend that part of the way to deal with the Nigerian over reliance of the US dollar is to trade using its national currency, the Naira, at least regionally. They contend that using the dollar in international trade robs Nigeria of the capacity to bring home some of the jobs in the natural gas value chain thereby worsening its unemployment situation. In addition Nigeria should work harder to rope in trade in oil and gas in the informal sector to increase revenues from the sector (Muller et al., 2007). They continue to say that Nigeria has very many professionals in the global oil and gas industry, hence only qualified Nigerians should get employment with the Nigerian National Petroleum Corporation and not similarly qualified foreigners. (Muller et al., 2007).

The unique selling proposition of gas is that it competes very well with other fossil fuels in as far a as green house gas emissions are concerned. Also, natural gas has fewer handling requirements in its production and development stage because it leaves no sludge or ash to deal with after utilization (Ariweriokuma, 2008). In addition it is very flexible as a fuel, providing better design development options for engines. These factors contributed to the increasing importance of gas since the mid 80’s. Security is a key concern for the gas business in Nigeria. Insecurity in the Niger delta led to dramatic losses in the closing years of the last decade (Maritz, 2010). The development of a long-term strategy needs to take into account the security situation in the country.

Areas of Further Research

There is need to research on the bottlenecks to the implementation of the plan In use because the development of another master plan will run into the same problems if they are not adressed. This area requires the determination of the impact of corruption, political expediency and incongruent planning to the implementation of the masterplan.

Conclusion

In conclusion, the Nigeria’s Natural Gas Utilization Master Plan needs cut across the energy sector and must take into account the different situations attending to the Nigerian economy. There is need to market the natural gas to other countries in order to develop the systems required for Nigeria to take full advantage of the natural gas deposits it has. In the meantime, Nigeria will do well to invest in gas fired plants to generate energy for domestic use. The Nigerian government must take a serious look at the infrastructural outlay it has in relation to the supply of electricity. The production capacity that coal fired plants will bring cannot serve their purpose with the current infrastructure. It is too weak to carry the nations needs. The third issue that requires attention is human resource development, including research and development. By developing these two areas, Nigeria will increase its profits by benefiting from both upstream and downstream activities in the natural gas sector.

Reference List

AfDB & OECD, 2010. African Economic Outlook. OECD Publishing.

Ariweriokuma, S., 2008. The Political Economy of Oil and Gas in Africa: The Case of Nigeria. Illustrated ed. New York: Routledge.

Low, P.S., 2005. Climate Change and Africa. Illustrated ed. New York: Cambridge University Press.

Maritz, J., 2010. Nigeria Like it is: A Practical Guide to Doing Business in Nigeria. Maritz Publishing.

Muller, J., Reder, M. & Network, S.-E.J., 2007. Africa and Europe: Co-operation in a Globalized World: Conference of Scribani-European Jesuit Network. Berlin: LIT Verlag Munster.

Mwalimu, C., 2005. The Nigerian Legal System. New York: Peter Lang Publishing.

Obaje, N.G., 2009. Geology and Mineral Resources in Nigeria. Ilustrated ed. New York: Springer.

Onyeukwu, H., 2009. Nigerian Gas Master Plan and Policy: Is it a Constrained Energy Policy? From the Selected Works of Humprey Onyeukwu. Lagos: Selected works Bepress.

Oxford Business Group, 2010. The Report: Nigeria 2010. Lagos: Oxford Business group.

Umukoro, B.E., 2009. Gas Flaring, Environmental Corporate Responsibility and the Right to a Healthy Environment:The Case of the Niger Delta. In F. Emiri & G. Deinduomo, eds. Law and Petroleum Industry in Nigeria: Current Challenges. Lagos: African Books Collective. pp.49-64.