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FIX IT: NIGERIA’S POWER SECTOR IS TOO EXPOSED TO GAS

Power Outage

By Adedamola A. Adegun
Nigeria’s electricity mix still ranks as most imbalanced amongst the MINTs.

The electricity supply situation in Nigeria has evolved considerably in the last decade, so much that an observer has aptly named it the ‘decade of power’.By 2002, the incessant power shortages, inefficiencies of a government monopoly, a rapidly growing economy and a dearth of investments in the sector had brought the electricity supply industry to its knees. Infact, from 1990 – 2001(a whole decade), not a single mega watt of generating capacity was added to the electricity grid while the available capacity dwindled rapidly.

However, after a return to democracy, a splurge of investments bygovernment and a comprehensive reform programme was established, installed generation capacity1has been scaled up from about6000 MW (4 Gas Fuelled & 3 Hydro Powered)2in year 2002to about 13,700MW(25 Gas Fuelled & 3 Hydro Powered) in 2013 – a very significant growth in gas fired generating capacity.

Given the circumstances as at then, government’s focus on developing gas fired generation capacity was a no-brainer. An average gas plant can be constructed and commissioned relatively quickly – within three (3) years, construction costs compared to other fuel sources are quite competitive, gas flaring would be considerably reduced and the long term availability of gas were guaranteed. But these advantages have now created a different challenge for the country. We have built an electricity mix that is mono-fuel dependent and a fragile energy infrastructure system which Nigeria considering its security and political peculiarities cannot afford.

THE GAS PROBLEM

Hardly would any day pass since the conclusion of the Phase I privatization without the problem of gas supply being recanted by government and its agents. There seems to be a real challenge with getting the power plants around the country to run due to gas supply issues. About 20% of gas fired generating capacity is ‘left on the table’ due to gas availability. Gas pipelines and infrastructure are being continually sabotaged.Several power plants are down because of gas supply constraints and other technical faults.There are uncertainties and increasing regulation around gas prices. The whole eastern part of the country gets a dismal 300MW of electricity because of gas supply constraints.  The consequence of all of these is a significant drop in power supply far worse than the PHCN days.

By now in other climes, a ‘state of emergency’ would have been declared on the issue of gas supply security because it has morphed into a serious danger to the nation’s economy. Moreover, it would be naïve to ignore the core underlying challenges which include the lack of a robust energy policy, an unreliable/inflexible gas infrastructure (pipelines, underground gas storage) and a disproportionate dependence on gas for electricity generation. Infact,if the major arterial gas pipeline, the Escravos – Lagos Pipeline is sabotaged today, at least seven (7) major power plants (mostly located in the high demand centers of the south west) with installed capacity of about 3500MW would be knocked out of the grid completely. Nigeria’s electricity supplyis too exposed to gas.

ELECTRICITY MIX: NIGERIA AND OTHERS.

The challenge of finding a balanced energy mix is universal and very germane for every country’s economic prosperity. Various governments try to enact laws and establish policies around the natural resources available, the variety of energy needs and the economic, social, environmental and geopolitical situation. The overarching aim is to achieve a useful balance and control over energy security and also limit exposure to a mono-fuel and its attendant risks. Most developed/emerging countries have succeeded and continue to evolve and Nigeria must follow suit. The current narrow focus on gas fired generation even with the abundance of natural gas must be carefully balanced.

It’s noteworthy that other nations with bigger gas resources than Nigeria have pursued a balanced electricity mix. The chart below shows the current electricity mix of Nigeria and other very populous member nations of the Gas Exporting Countries Forum (GECF), the ‘OPEC’ of gas exporters.

Source: Wikipedia (List of Power Plants) & Enipedia

Note that Russia is the most developed of the quartet and also has the biggest gas reserves in the world but it has the most balanced electricity mix – gas, hydro, coal and nuclear contributing adequately. Iran, also arguably the more developed of the remaining trio has managed to achieve a better balance of its electricity but Egypt just like Nigeria has a disproportionate dependence on gas for its power supply. Egypt is suffering badly from this imbalance.Power cuts and rationing is now the order of the day due to gas supply/production constraints just like Nigeria. The government has resorted to draconian diversions of gas meant for export by International Oil Companies (IOCs)3.Qatar, a smaller country and ally  is sending ‘LNG bailouts’ to Egypt4. It’s a crisis. Infact, the government of Mohamed Morsilost the people’s confidence and was easily overthrown by the military because of the acute power shortages that hit the nation especially during the hot summer months5.If Egypt had managed to diversify its electricity base earlier, the impact of gas shortages would have been minimized. The lessons for Nigeria is, no matter how abundant your resources are; don’t depend on it solely for your electricity. Establishing a balanced energy mix is a matter of national security.

Let’s take a further look at our economic ‘peers’, the MINT countries’ (Mexico, Indonesia, Nigeria & Turkey) energy mix.

Source: Wikipedia – List of Power plants.

Nigeria’s electricity mix still ranks as most imbalanced amongst the MINTs, underscoring the humongous work ahead for the nation’s energy policy makers. It is very critical.

Many other developed nations have very susceptible electricity generation mix but the protection the energy sources get from government is usually enormous. France is a good example as the country is just one nuclear accident away from possible electricity emergency. The country has about 60 nuclear power plantsgenerating about 80% of its electricity needs. Protecting the nuclear industry means that France will continue to invest and risk lives in Uranium rich countries like Niger and fight wars to protect its supply lines (Mali).Little wonder some government officials are campaigning vigorously for ‘clean fracking’6 despite adverse public opinion. South Africa also generates about 95% of its power through coal. But there is a possibility that baring very extensive investments in infrastructure, the cheap coal resources left would only be enough for just about half a decade7. In reaction, government is planning to amend the country’s mineral and petroleum law to constrain the export of certain ‘strategic’ resources’ like coal. Truly, many are the challenges of a mono-fuel dependent country.

THE EBEANO – MAMBILLAALTERNATIVES

If diversification of the electricity mix is imperative and essential for economic growth and prosperity, then what are the options?

HYDRO POWER

Hydro power currently supplies about 16%8of worldwide electricity needs and is the most popular of all ‘renewable’ energy sources. Hydro power is well understood, is clean energy, has longer economic lives and less susceptible to sabotage. Nigeria used to be keen on hydro power and was a key element in the old days of ‘National Plans’ but over time we seem to have abandoned this very important resource. It is time to return.

By world standards, the existing hydro power stations in Nigeria are just medium sized. The total installed capacity of all the three operational hydro stations (Kainji, Jebba & Shiroro) is less than 2,000MW (with far less available capacity) while the biggest dam in the world, the Three Gorges dam located in China is 22,500 MW. Its high time Nigeria re-energized its hydro power strategy to deliver on the much needed megawatts and also diversify the electricity mix. The Zungeru & Mambilla hydro power stations are huge projects that have been in the pipeline for almost three (3) decades. Infact, both projects were an integral part of the 1982-2002 national plan. The world has changed a lot since then but these projects have now become more critical than ever.

Funding models and environmental expectations could have changed over the years but China with over 2,000 dams is still very much in the business.To ramp up hydro capacity, urgent and decisive measures must be taken to remove the usual policy, commercial and technical encumbrances that frustrate projects in Nigeria. It won’t be out of place if we generate about 25 – 30% of our electricity from hydro in the near future.

COAL

  • There are 2300 coal fired power plants worldwide. About 600 are in the US, 620 in China. – World Coal Association.
  • China & India builds four coal fired power plant every week.9
  • In 1973, about 38% of worldwide electricity was generated from coal but it has increased to 41% in 2011 – International Energy Agency.
  • South Africa, the biggest economy in Africa generates about 95% of its power from coal.

It’s inconceivable that Nigeria would ever fulfill its economic potentials without adopting coal as part of its electricity generation mix. The only coal fired power plant in Nigeria today is a derelict 10MW power plant in Oji River, Enugu State. Coal has a ‘brand deficit’ and is usually discouraged by the many supranationals and aid agencies that swarm the developing world but it is still one of the most important energy resources in the world. It is cheap, abundant and very reliable for base load electricity. Without much delay, Nigeria urgently needs to establish a sound commercial and environmental framework to support the growth of coal energy.I am aware that NERC has licensed some coal power plants but the body language of the commission’s CEO in recent times does not imply that coal will be taken seriously.

To address the environmental issues, it’s important to note that we have a ‘late mover’ advantage because building our coal plants in this generation gives us the opportunity to accept only cleaner and more environmentally friendly coal plants. Its also noteworthy that at the peak of indiscriminate gas flaring in year early 2000s, we were not even among the top 40 countries emitting CO2 in the world. Nigeria emits less carbon per capita than countries like Germany, Pakistan, Venezuela, Canada, France, even the United States. Infact, the UK (Population –63 Million) emits CO2 six (6) times ofNigeria. If Nigeria targets a 10 – 15% range for coal power, it definitely would hardly increase our carbon footprints.

The inclusion in the 2014 budget proposal of a proposed feasibility studies in various parts of Nigeria is thus a welcome development.Coal resources are abundant in Nigeria, construction of a typical plant can be done in reasonable time and the operating costs are relatively cheap. What are waiting for?

SEQUITUR

There is no universal standard for a country’s electricity mix but diversification and balance considering the availability and cost of energy resources is key.Proper planning and the awareness that achieving the most appropriate electricity mix takes time is key for Nigeria’s energy policy makers. Furthermore, the commercial, legal and technical framework must be continually attuned to stimulate and sustain investment in diverse energy resources. Without such, our hopes of becoming a great and prosperous nation might never be realized.

1This article will focus on installed capacity because of data reliability. Data for available capacity is too dynamic and unreliable.

2 Source: Presidential Task Force Presentation at Investors Forum, Wikipedia.

3http://africaoilgasreport.com/2014/01/in-the-news/egypt-diverts-1bcfd-of-gas-from-lng-to-domestic-market/

4 http://www.reuters.com/article/2013/08/20/qatar-egypt-energy-idUSL6N0GL0N820130820

5 http://www.ft.com/intl/cms/s/0/5aabd292-52c1-11e3-8586-00144feabdc0.html

6http://www.upi.com/Business_News/Energy-Resources/2014/02/03/French-minister-supports-allowing-clean-shale-gas-fracking/UPI-25851391403720/

7 Forbes AfricaMagazine – November 2013 Edition

http://www.iea.org/publications/freepublications/publication/name,31287,en.html

http://www.thegwpf.org/china-india-building-4-coal-power-plants-week/


NDDC: The Necessity of a Rebirth

By Adedayo Ojo

Adedayo Ojo“Akwa Ibom state has some of the best and brightest Nigerian professionals in the oil & gas industry today. Why can’t one of them be seconded to run NDDC? The upstream sector of the Nigerian oil industry is arguably the most efficiently run business sub sector in Nigeria, yet a significant percentage of the management cadre is made up of  Nigerians. Can’t we get one of them to run NDDC? Governor Akpabio pleasantly surprised many when he recently named a technocrat from the banking sector as Secretary to the state government. Why can’t we get him to do the same thing with NDDC?”

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Nigeria’s unending Gas Dilemma, By Adedayo Ojo

Nigeria has enormous gas resources. The official estimates of the country’sojo natural gas reserves is in the region of 187 trillion cubic feet (TCF). Despite a history of more than 50 years of oil production, Nigeria is predominantly a gas province.
Almost every successive Nigerian government aspired at one time or the other to legislate a regulation that will optimize the use of the country’s vast gas resources. Quite a good number gas projects have been conceptualized but unfortunately few have been actualized. The bottom line is that decades after the discovery of gas in commercial quantity, Nigeria’s gas sector and gas system remains underdeveloped.
Today’s reality in the international oil and gas market requires Nigeria to wake up and make something of the gas resources or be left behind countries that are more committed to utilizing their gas resources. Ghana’s gas company is expected to begin production this year. If the tension in the Middle East abates (as it may), oil & gas prices will drop!
Gas Aspiration
Several Nigerian government policies have highlighted plans to monetise gas resources. In 2008, the Federal Government developed the Gas Master Plan (GMP) in order to lay a framework for gas infrastructure development and expansion within the domestic market. According to the Nigerian National Petroleum Corporation (NNPC), the GMP is a guide for the commercial exploitation and management of Nigeria’s gas sector which seeks to grow the Nigerian economy with gas. The GMP has three key strategies, namely to stimulate the multiplier effect of gas in the domestic economy, position Nigeria competitively in high value export markets and guarantee the long term energy security of Nigeria.
In response to government policy, a number of ambitious gas projects were initiated by both government and the private sector. Some of the most popular gas projects and initiatives include;
a) Liquefied Natural Gas (LNG) Projects

b) Trans –Sahara Gas Pipeline Project

c) The West Africa Gas Pipeline Project (WAGP)

d) Gas To Power Projects Around The Country

Liquefied Natural Gas
Despite initial momentum on LNG projects, Nigeria remains far behind. Production started from trains 1 and 2 at the Nigerian Liquefied Natural Gas Limited in 1999. By 2007, NLNG added four more trains. Although the seventh train has been planned, six years later, it hasn’t been sanctioned.
Apart from NLNG, other planned LNG projects include Brass LNG and Olokola LNG (OKLNG). Final investment Decision (FID) on Brass LNG was planned for 2006; it was later rescheduled for 2008; then 2010. The FID was never realised on any of those dates; nor has it been now. The same applies to OKLNG. The shareholders of OKLNG signed a memorandum of understanding (MoU) in 2006; FID was billed for 2007 while production was scheduled to begin in 2009.
The originally proposed dates for streaming these projects have long expired; yet final investment decision (FID) has not been taken on any of the projects. In all these years, not much has been accomplished on Brass LNG and OKLNG.

Other countries have shown more commitment with LNG projects. Consider Australia. In 2011 alone, four LNG projects in Australia reach FID. These projects include: Australian Pacific LNG T1, GLNG T1-2, Wheatstone LNG T1-2 and Prelude LNG. Another Australian project, the two train, Ichthys LNG T1reached FID in January 2012.

According to the international Gas Union, Qatar, the world’s largest LNG exporter produced 77 metric tonnes per annum in 2011, about 31 per cent of global supply. Meanwhile new LNG frontiers have emerged in Eastern Africa such the Anadarko’s LNG project in Mozambique and the onshore LNG project by BG in Tanzania.

The United States, a former net importer of LNG is now turning away cargoes while increasingly relying on unconventional domestic gas, such as shale gas, to meet its energy need. In addition, the United States plans to become a net exporter of gas in less than a decade, effectively shrinking the global gas market.

The chokehold in the world LNG market and the emergence of new supplier nations will ultimately make Nigeria’s position increasingly vulnerable if the country’s LNG projects are allowed to continue to suffer. If FIDs on existing LNG projects in Nigeria are not taken now, the global LNG market will become increasing tougher for the country and more so in the coming years.

Trans-Saharan Gas Pipeline

In January 2002, the Nigerian and Algerian governments, through their respective national oil companies signed a memorandum of understanding (MoU) to build a Trans-Saharan gas pipeline running from Nigeria to Algeria to make Nigerian gas available to European market.

Since the signing of the MoU eleven years ago, not much has happened on the project except the feasibility study and intergovernmental agreement between the governments. As a result of the decade-long inactivity, it does appear that the project may have been abandoned.

Dr Ghaji Bello, Acting Director of Nigeria’s Infrastructure Concession Regulatory Commission (ICRC) said in Abuja in January that the Federal Government of Nigeria has earmarked $400 million for the project in the 2013 budget. Industry analysts received the news with scepticism in view of apparent non-commitment to the project.

West African Pipeline Project
The West African Gas Pipeline is a 680-kilometre gas transport project jointly-owned by Shell, Chevron and the Nigerian National Petroleum Corporation (NNPC) forming the African Gas Pipeline Company (WAGPCo). The project takes Nigerian gas from Itoki in Ogun State through Agido near Badagry in Lagos, passing through 33 Nigerian communities to Togo, Benin Republic and Ghana. West African Gas Pipeline Company (WAGPCo) and the participating countries signed an International Project Agreement (IPA) in May 2003 to pipe 200million standard cubic per day of gas (200mmscf).

Over the years, this project has failed to deliver the anticipated volume of gas due to a plethora of reasons – policy, politics, infrastructure, funding, security, etc.

Central to the operation of WAGPCo is the availability of gas. With vandalism and associated shut-ins, gas supply is never guaranteed.
As a result unavailability of gas, an average of 134mmscf is often piped in the 475mmscf capacity pipeline, thus making the $1billion facility to be sub-optimally utilised.

Other Gas Projects

Ironically, it is in the smaller gas projects operated by small Nigeria independents that real success has been observed. Consider the Ovade-Ogharefe gas processing facility, the largest carbon emission reduction project in sub Saharan Africa. The first phase of Pan Ocean’s gas utilization project which was streamed in 2010 has capacity to process 130 million standard cubic feet of gas per day. Pan Ocean is expected to stream the second phase of its Ovade-Ogharefe gas project before the end of 2013.

Uquo gas project: Seven Energy and Frontier Oil have made commendable progress on Uquo gas project. The gas central processing facility (CPF) of the Uquo gas project is owned by Frontier and Seven Energy while Seven Energy through its subsidiary, Accugas, runs the pipeline. The gas is delivered to Ibom Power plant owned exclusively by Akwa Ibom State Government. Power generation at the Ibom Power Plant is tied to gas generated at Uquo. The project has the capacity to boost power generation in Nigeria by 1000 megawatts of electricity.

East Horizon Gas Company (EHGC), a subsidiary of Oando Plc, is a special purpose vehicle set up to Develop, Finance, Construct and Operate a gas transmission pipeline linking the Calabar Cluster of Industries to the Nigerian Gas Company (NGC) grid in Akwa Ibom state. The company is embarking on a $125m project which involves the construction of an 18inch by128 kilometre (km) gas pipeline through forest, swamps and built up areas. The project has a total capacity of 100million standard cubic feet of gas per day (mmscfd).
Oando Gas and Power Limited has developed a robust natural gas distribution network. The company has built extensive pipeline network to distribute natural gas to industrial and commercial consumers and has successfully revived private sector participation in the gas distribution business in Nigeria. Oando has over 100km of pipes already laid in Lagos State and another 128 km in progress in Akwa Ibom and Cross River States.

If more players will be as committed as these not-so-big players, the collective contribution will add to big gains in the drive to grow the gas sector and optimize Nigeria’s gas resources.

Wake up call

The time left for Nigeria to make something tangible from her gas resources is running out. As we end the first quarter of 2013, policy makers and oil and gas industry operators have another opportunity to think long and hard and make the committed decision of making the Nigerian gas a key contributor to national economic life.

The largest obligation rests with the government. A robust and thriving gas sector would require good legal framework that will clearly specify the rules of engagement. The law will necessarily provide good fiscal terms that will encourage investment in the gas sector. The gas sector will only thrive under an effective regulatory structure. These are the necessary conditions that can ensure private sector commitment in the gas sector. It is the government that can provide them.

Adedayo Ojo is Lead Consultant/CEO of Caritas Communications Limited, a specialist reputation strategy and corporate communication consultancy in Lagos/Accra.
Caritas is the West Africa affiliate of Regester Larkin, the pioneer reputation strategy and management consultancy with offices in London, Washington, Houston, Singapore and United Arab Emirates.


The Return of Oil Industry Kidnappers

By Adedayo Ojo

The dark days of kidnapping in Nigeria’s oil and gas industry have returned. Seven expatriates working for a contractor to Chevron Nigeria Limited at the Pennington oil platform offshore Nigeria were recently abducted. Six of the men are Russians and the seventh is believed to be an Estonian.

A criminal gang attacked a barge offshore Niger Delta in the last quarter of last year, killing two Nigerian sailors, injuring two other Nigerians onboard and abducting one Indonesian, one Iranian, one Malaysian and one  Thai national. The foreigners were eventually freed a few weeks later. Around the same time, Augustine Wokocha, Rivers State commissioner for Power was kidnapped.

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Deregulation, Trade Unionism and Opportunism

By Adedayo Ojo

Is Julius Malema an enigma? Just maybe. Today, the 31 year old is a thorn in the flesh of the African National Congress (ANC)-led government of Jacob Zuma in South Africa. A former Zuma ally and former President of the ANC Youth League, Malema was expelled from the ruling party in February 2012 for anti-party activities. Since then, the man who was once described by Zuma as “future leader” of South Africa has become one of the harshest critics of the President and his government.

Malema featured prominently during and after the recent industrial action by workers of the Lonmin-owned platinum mine in Marikana. The protest erupted into a police action in which 34 of the demonstrating workers were shot. Malema heaped scorn on the poor handling of the crisis by Zuma and has since called for a national miners’ strike in South Africa.

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From Venezuela with Regrets

By Adedayo Ojo

The explosion that occurred at the Amuay refinery in Venezuela recently is unarguably the most fatal disaster in the history of the oil and gas industry in the South American nation. A gas leak at the refinery, located near Punto Fijo in western Venezuela, caused an explosion that ignited and damaged nine storage tanks, killing at least 39 people, including a ten year old boy and injuring more than 80 people. Many of the victims were members of the National Guard stationed at the refinery.

Amuay refinery processes 645,000 barrels of oil per day (BOPD) and it is part of the Paraguana Refinery Complex, and one of the biggest refineries in the world. The Paraguana Refinery Complex, which also includes the Bajo Grande and Cardon Refineries, processes a total of about 955,000BOPD.

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Great Expectations

By Adedayo Ojo

The Nigerian oil and gas industry is undergoing what will arguably be its most transformative season. The revised and harmonised version of the Petroleum Industry Bill (PIB) has been forwarded to the national assembly; there has been a change in the leadership of the Nigerian National Petroleum (NNPC); the Special Committee on Subsidy Payment Verification and Reconciliation has submitted an interim report and EFCC has arraigned a few individuals and corporates. These are significant issues for the oil sector, nay the economy.

The world waits with great expectations, hope and anxiety that these events will play out positively and provide the much needed drive for economic and social transformation.

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The Limits of Technology

By Adedayo Ojo

A major pivot on which the petroleum industry rotates is technology. Only very few business sectors require the use of technology at the same scale as the oil and gas industry. New technologies emerge daily and the latest and most efficient equipment today may be overtaken by improved versions tomorrow.

The heavy dependence on technology has always been with the industry.  The mastery and acquisition of high technology is a key success factor in oil and gas business. As the industry evolves and the dynamics of society changes, the requirements of success have grown beyond what technology alone can provide.

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Bonga, Endeavour & Macondo

By Adedayo Ojo

Explosions, leaks and spills that occur in the course of oil and gas operations are very ugly incidents. As philosophical musician, Fela Anikulapo-Kuti was wont to say:  “they leave sorrow, tears and blood”. In the aftermath of disasters, companies’ reputations take a knock, revenue takes a dip, the ecosystem is damaged – sometimes permanently; people die, sometimes within seconds.

While there are no fool proof templates to manage disasters, the deft handling could offer positive lessons. Certain elements of disaster management stand out as key in the response strategy – swiftness of response, collaborative effort, commitment and involvement of senior management as well expression of genuine care and concern.

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Tullow’s Reputation and Other Dreams

By Adedayo Ojo

Tullow Oil has just emerged from perhaps its toughest challenge with a regulatory authority in Africa, a continent it likes to call its home.

With two Production Sharing agreements, signed by the Ugandan Government, in hand, the company can beat its chest about having shown remarkable dexterity in managing issues and has proven its ability to overcome the type of challenges that readily overwhelms less determined and less focused players.
It has taken 18 months to come this far.

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