Prospects for gas-to-power, investments under network code

Nigeria is a major oil producer with significant gas reserves, owing to the associated nature of oil and gas production. Despite 206 trillion standard cubic feet (tcf) of gas reserves, gas as a fuel source has not been adequately commercialised in Nigeria due to infrastructure challenges, inability to meet domestic gas demand and gas flaring practices among other factors. With the Nigerian Gas Transportation Network Code (the “Network Code”), stakeholders are hopeful that challenges of gas-to-power, transportation will be addressed, FEMI ADEKOYA writes

Nigeria flares an excess of 700 million standard cubic feet (SCF) of gas per day from 178 flare sites, which translates to Nigeria losing approximately $10 billion of revenue yearly, equating to $2,00 per MMBtu, due to its inability to capture and commercialise flared gas in the country.

If flared gas is properly harnessed, Nigeria can produce 600,000 MT of LPG per year and generate 2.5 GW of power from new and existing Independent Power Plants to power the economy.

Considering that electricity generation from the grid is largely thermal-based, which means that about 80 per cent of the power plants in Nigeria are fuelled by gas, reducing flaring and increasing gas utilisation is key to addressing energy deficit.

There is currently a dire lack of adequate infrastructure to transport gas to power producers coupled with insufficient domestic gas price incentives. Gas pipeline vandalism exists as a barrier to gas-to-power projects.

From January 2020 to January 2021, NNPC documents showed that the company spent a total of N59.1 billion on the repair and management of pipelines within a year.

Although figures from various sources on how much products Nigeria lose from the breakages vary, it is estimated that between 200,000 barrels per day and 400,000 bpd is being lost to the menace today.

Although associated gas incurs no added costs of exploration, the difficulties and high costs of transportation to a domestic market, which is not sufficiently large or concentrated to absorb the costs, has always been a major incentive for upstream operators in Nigeria to adopt the “easy route” of gas flaring

Lack of critical gas capturing and transportation infrastructure
GAS infrastructure is critical to harnessing Nigeria’s gas reserves; although there is insufficient gas capturing and transportation infrastructure, the key infrastructure deficit is primarily on the nation’s gas transmission backbone.

Thus, gas projects have been experiencing a relatively slow pace of growth. Again, a major transformation of the Nigerian gas sector is hinged on the Nigeria Gas Transportation Network Code (NGTNC), which was launched by the Federal Government last year as the uniform protocol for users of the Gas Transportation Network (GTN) in order to provide open and competitive access to gas transportation infrastructure and development in Nigeria.

The introduction of the NGTNC provided windows of opportunity to various industry players, investors and potential gas off-takers to engage in different aspects of the gas value chain.

Upon the successful development and launch of the code, the Department of Petroleum Resources (DPR) coordinated the implementation process of the network code (NC) through extensive alignment of all players in the industry, development of operationalisation procedures for the code, adaptation of critical technology enablement for the administration of the code.

The concerted enabling actions of the Department led the second key achievement in the gas sector, which was the NC GO-LIVE on the 10th August 2020 and launch of the Network Code Electronic Licensing and Administrative System (NCELAS) by the Minister of State for Petroleum, Timipre Sylva.

The NC GO-Live declared by the minister opened up the opportunity for all gas requirements across Nigeria and the African sub-region to access gas from all the hydrocarbon resource bearing assets in a safe and efficient manner.

Speaking on the significance of the network code, Sylva said it would help to grow gas infrastructure, expand gas utilisation, curb gas flaring, and provide codes to standardise the gas value chain in line with global best practices.

The minister said the NGTNC was part of the key reforms instituted by the President Muhammadu Buhari administration to expand domestic gas-to-power, gas-to-industry, gas-to-manufacturing and mitigate the challenge associated with gas flaring in the country.

He noted that the gas codes would go a long way in deepening economic development, improve gas supply, boost liquefied petroleum gas supply, and attract more investment opportunities in the nation’s gas value chain.

Understanding the Network Code
PRIOR to the issuance of the Nigerian Gas Transportation Network Code (the “Network Code”), transportation of gas through pipelines was governed by the Petroleum Act, currently compiled as Cap. P10 Laws of the Federation of Nigeria (“LFN”) 2004; Oil Pipelines Act, currently compiled as Cap. O7 LFN 2004; the Land Use Act, currently compiled as Cap. L5 LFN 2004; the Oil and Gas Pipelines Regulations and the Environmental Guidelines and Standards for the Petroleum Industry in Nigeria (“EGASPIN”).

The contractual regime for the transportation of gas was governed by gas transportation agreements which made provisions for delivery of accumulated gas at delivery points via dedicated gas transportation and distribution infrastructure.

However, the Network Code was launched in August 2020. The Network Code sets the terms and conditions for the operation and use of the gas transportation system.

The system is comprised of the following pipelines: Escravos-Lagos Pipeline System, Oben-Ajaokuta Pipeline System, Obiafu-Obrikom-Oben Pipeline System, and all owned by the Nigerian Gas Company (“NGC”) and used to provide services for the conveyance of gas in accordance with the terms of the Network Code as well as all other pipeline system that may be in may be in existence or constructed in future and used to transport gas in line with the Network Code (the “System”).

The Network Code creates a contractual framework between the NGC or any other pipelines system owner that is granted an Operator License or Authorisation by the Department of Petroleum Resources (“DPR”) to become an operator under the Network Code as “Operator” of the System; and, entities which could be electric power generation companies, transporting gas through the System (“Shippers”), in order to guarantee open and competitive access to the gas transportation network.

Access to the System is through System Entry Points through which gas is delivered to the System (possibly by upstream gas companies or distribution companies providing gas for power generation companies) and System Exit Points through which gas is off-taken from the System by power generation companies. The Operator is required to publish an annual list of all System Entry and Exit Points.

A typical electric power generation company is likely to obtain a licence as an Offtake Shipper as would be expected to offtake gas at a System Exit Point to fuel their generation plant. An electric power generation company would also register for System Exit Capacity to be entitled to sufficient gas capacity within the system. That is, capacity at the exit point of the pipeline system.

Investors indicate interest
INDEED, the DPR stated that it has received about $500 million gas development investment proposals since the implementation of the Nigerian Gas Transportation Network Code (NGTCN) began a year ago.

Director, DPR, Sarki Auwalu, while reviewing the programme, noted that it had improved investors’ confidence in the evolving domestic gas market. He said: “Confidence of investors across the domestic gas value chain has shown positive trend through specific requests for DPR’s support for gas supply to the tune of over 500 million standard cubic feet per day and for investments of over $500 million.

“The network code investment areas that the DPR has received proposals on include power generation, ammonia for fertiliser, methanol plant and domestic liquefied natural gas.

“Others are virtual pipeline systems, new gas hubs and the establishment of a Nigerian Gas Trading Exchange.” According to him, the NGTNC has also improved domestic gas market linkage between downstream demand points and upstream gas supply opportunities. He said the construction of gas pipelines across the country and the increased investment brought by the NGTCN would create job opportunities for Nigerians.

Auwalu said it had also increased the activities of investors like gas shippers, suppliers, agents on the network and had further promoted gas availability, accessibility, affordability and awareness.

He added that the network code had improved transparency and predictability in gas trading, thereby stimulating the growth of gas business and deepening the performance of the Nigerian gas value chain.

He said the impact of the network code since the introduction last year, has led to an upgraded gas transmission into the non-discriminatory open access regime, saying that natural gas transmission and distribution in Nigeria shall henceforth be conducted only through global industry best practice regime of the network code.

The DPR boss stated that the code has also eliminated discriminatory access to gas transportation in the domestic gas market and has also created access to transportation of natural gas from gas supply points to gas demand areas across the entire value chain in Nigeria using standard, fair, transparent and non-discriminatory manner.

The Group Managing Director of NNPC, Mele Kyari, restated NNPC’s commitment to working with relevant partners and stakeholders in the oil and gas sector to boost delivery of gas to the domestic market.

Kyari said the corporation was at the centre of gas delivery to the domestic market, stressing that it was involved in the entire available gas delivery infrastructure in the country either directly or indirectly through joint venture partnership.

The NGTNC is a contractual framework between the gas transportation network operator and gas shippers that specifies the terms and guidelines for operation and use of the gas network. The code aims to provide open and competitive access to gas transportation infrastructure.

“We will continue to give our support to this process to ensure that the full delivery of this process is achieved. We commit to working closely with the DPR to ensure that the target of the government is attained. This opportunity has provided the right framework for the transportation of gas from the source to the end-user in order to get value,” said Kyari.

He added: “We are happy to have this framework on ground and we are ready to collaborate with all our partners, the gas off-takers, gas producers, transportation companies, shippers, and all those involved in the gas value chain.”