The Demand Side to Creating a Gas Economy

This is the first of twin write-ups on the possibilities, potentials, benefits and challenges of creating a full-blown gas economy in Nigeria, an economy that is driven by the supply and utilisation of the resource. This could be either as an industrial feedstock - where it is used as a raw material in the manufacture of various products ranging from plastics to fertiliser to fabrics to methanol, for commercial use where the resource is used as a fuel in industry or domestic or light industrial use.

In this instalment we shall briefly discuss the demand side, or utilisation, of the resource while next week we shall look at the supply side, or the sourcing, of gas.

Nigeria is a said to be a gas region with some oil. It is estimated that Nigeria has about 197.4 trillion cubic feet (tcf) of proven gas reserves, placing it 9th in the world. The country’s proven gas reserves are little more than 5.1% of global total. In the 2014 edition of the authoritative BP Statistical Review of World Energy, Nigeria and Algeria are first and second in gas reserves in Africa. Nigeria also featured as the fourth in production after Algeria, Egypt and Libya. However, for total annual consumption, only three nations in Africa made the cut; Algeria  with 29.1 million tonnes of oil equivalent (Mtoe), Egypt with 46.3 Mtoe and South Africa came third with 3.5 Mtoe. Nigeria’s consumption is so insignificant that it was not even worth mentioning. The consumption of the rest of the entire African continent (Nigeria included) is about two-thirds that of Egypt alone.

At the turn of the decade, according to the US Energy Information Administration, the per capita total energy consumption of the three largest African economies is 35.2 Watts-Hours and 12.01 Watts-Hours for South Africa and Egypt respectively while Nigeria came a lamentable third with only 1.96 Watts-Hours. 75% of the countries in Africa have a more positive per capita energy  consumption statistics than Nigeria. Considering that a nation’s energy consumption is directly proportional to its industrial productivity it is then no wonder that Nigeria’s industrial sector is almost moribund.

Such a situation is not tenable. Not when the country is far from sufficient in electrical power generation, not when the country has over 40% youth unemployment crisis that creating gas based industries can solve and definitely not when the country has the capacity to provide raw materials needed for the small, medium and mega scale gas-powered industries.

Enter the Nigerian Gas Master Plan (GMP). This is a gas development framework document developed by the Nigerian authorities and approved for implementation in 2008. It outlines both infrastructural and policy directions for the refocussing the nations gas resources for domestic utilisation. The contents of the GMP are well thought out and if implemented will achieve the framework’s core aim of actualising the country’s ambition to use its gas resource for its industrial take off.

An important component of the GMP that is relevant to the demand side is its take on infrastructural development. The plan stipulates the creation of three central processing hubs where the produced gas will be treated and processed; and three major gas transmission systems that will form a network that delivers the gas to points of demand. The hubs are to be located at Warri/Forcados, Obiafu (near Port Harcourt) and Akwa Ibom/Calabar areas and are the points from where the processed gas is fed into the transmission networks. The three transmission systems are the Western System (from the delta to Lagos, with an extension to OKLNG) which includes the existing Escravos Lagos Pipeline System (ELPS), the South-North Transmission System (from Calabar to Ajaokuta, Abuja, Kano and Katsina with possible extension to the proposed Trans-Saharan Gas Pipeline and also a line to southeastern Nigeria), while the third line will act as a connector line that links the eastern gas reserves with the two transmission systems.

Added to the GMP - and seen as an acceleration of one of it core objectives of infrastructural development and enhanced industrial use of gas, the outgoing government also introduced the Gas Revolution. A major highlight of the Gas Revolution is the creation of gas industrial parks (GIPs) that will support major gas based industries that will use gas as a raw material and also to power their plants. Construction of an industrial park and a deep sea port has recently been flagged off by the present administration in Delta State as a take off point to the revolution.

So the will and the plan seem to be there. The incoming government will do well to continue on the laid down path to creating a gas-based industrial lift-off. If delivery of gas to power generation plants and the industrial parks similar to the one mentioned above can be achieved within the life of the next government, that will create millions of jobs and place Nigeria as a major economic power not only in Africa but globally. The power plants are mostly ready, albeit starved of gas and, as mentioned above, the industrial parks are on the drawing.

In all developed countries of the world, a greater majority of the employed work in small and medium scale enterprises. When gas is provided to the Power Holding Company of Nigeria (PHCN) and all the constructed independent and joint venture power plants, the acute power shortage that the country faces shall, hopefully, become a thing of the past. Small scale industries that now operate minimally will have greatly improved capacity utilisation and those that do not even exist will mushroom, which will in turn see the unemployment situation in the country abate rapidly.

The domestic sector presents an ocean of opportunity that flows parallel to the industrial demand side. For instance, with careful planning and very conspicuous and ‘in-your-face’ marketing campaign, the country can completely phase out the use of firewood and kerosene as cooking fuel for the vast majority of its citizens and replace it with liquefied petroleum gas, (LPG). No nation can afford to continuously use firewood as cooking fuel for over a hundred million people without damaging the environment irreparably.

Likewise, many countries in the world, some with no known gas reserves are moving from petrol and diesel to the cheaper and cleaner burning compressed natural gas (CNG) for their cars and public transportation. Iran, particularly, is driven by necessity to develop a robust CNG economy to survive the crippling sanctions visited on it by the western powers as a consequence of its nuclear ambition. The country anchored its energy independence drive on building a sustainable supply of cheap transportation fuel based on CNG. The aggressive plan initiated by the Mahmoud Ahmadinejad government started a programme to convert all the vehicles in the country to run on CNG within five years at a rate of 1.2 million vehicles a year. During the same period, over 10,000 filing stations were retrofitted to dispense CNG. Today, at almost three million vehicles, Iran has more natural gas vehicles on the road than any other country in the world.

In addition to the enormous opportunities that exist in the delta region for even more industrial parks, the vast swathe of arable land in the northern part of the country can provide enough primary agricultural raw materials to feed the African continent. With access to gas, many agro-based industries, from small scale concerns to major international players, will find an almost inexhaustible source of agricultural commodities to process for local consumption and export. For a change, Nigeria’s land borders could be made to overtake its seaports in how much revenue is earned for the country through them. An industrial corridor from the Niger Delta to the Lake Chad based on the twin factors of access to gas and availability of raw material is achievable in less than a decade.

If the last sixteen years are defined by inefficient petroleum products retail and opaque import deals, the next four can be defined by the increase in national productivity, job creation and countless economic benefits that are  anchored on gas utilisation. The foundation to achieve that has already been laid for by the outgoing government.

It is doable. Back in the 70s and 80s Saudi Arabia had similar industrialisation desires as today’s Nigeria. They rolled out an ambitious programme not very dissimilar to the GMP which they call the Master Gas System (MGS). They extinguished their flares and gathered their associated gas and further developed non-associated gas resources and pumped all into a network that includes power and water desalination plants and many industries. The MGS was designed to handle up to 3.5 billion cubic feet (bcf) of gas per day but it is processing almost triple that figure today. It is the same system that supplies feedstock and power to the refineries, petrochemical and fertiliser plants and the steel rolling mill and other industries in the new industrial cities of Jubail and Yanbu - two cities created with the singular purpose of being industrial cities. At 92.7 Mtoe of gas consumed annually, Saudi Arabia currently utilises more gas per capita than Japan, the USA and most western European nations.

It is often said that Nigerians are very good in writing policies but very poor in implementing them. Considering the state of gas utilisation in Nigeria, the ideas contained in the GMP are both revolutionary and necessary. Elements of the framework are already being implemented and what is required is for the country to remain on track in actualising their objectives. If there is one surefire approach that guarantees industrial take off for the country, it is to exponentially increase the amount of gas it uses domestically. The celebration that Nigeria is doing this now is almost diluted by the regret that it took this long to do it.

Next week we will take a brief look at the situation in the supply side to this gas equation. The Domestic Gas Supply Obligation, an integral part of the GMP will be looked at closely. We will also look at the possible pitfalls on the way to this industrialised promised land. That we have started on the journey is enough to get everyone excited.