Industrial area

The Federal Government of Nigeria has made it a priority to unlock and harness the potential of this resource to increase domestic and industrial power supply, raise living standards and support sustainable economic growth and diversification. According to the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry, Nigeria has around 181 trillion cubic feet (TCF) of proven gas reserves plus much more in undiscovered gas resources. However, despite having the largest gas reserves in Africa, only about 25% of those reserves are being produced or are under development today.

Nigeria currently has around seven gigawatts (GW) of installed electricity capacity but often less than four GW actually in operation. OPTS states that Nigeria generates the equivalent power of just one 40-watt light bulb per person – one of the lowest power generation levels per person in the world, e.g. in South Africa, the UK and the USA it is 20, 33 and 80 light bulbs per person respectively. The Federal Government of Nigeria has an aspiration to increase electricity generation from the current four GW to 40 GW and this represents a huge development opportunity for Nigeria’s gas industry.

Shell’s Role in Supplying Gas to Markets

Shell wants to “power progress together by providing more and cleaner energy solutions”. Natural gas is the cleanest of fossil fuels and Shell Companies in Nigeria have played a pioneering role in onshore, shallow and deep-water gas exploration and production and its delivery to domestic consumers and later, export markets since the early 1960s.

Since 2010, the SPDC JV has also been producing at the Gbaran Ubie integrated oil and gas plant in Bayelsa State, which has the capacity to process one billion standard cubic feet of gas per day for the domestic and export markets. Several projects are currently underway at Gbaran Ubie and nearby Kolo Creek and at Soku to develop around 2.8 trillion standard cubic feet of non-associated gas. Natural gas in a reservoir which contains no crude oil is called non-associated gas.

This additional gas infrastructure will be used to sustain gas supply to the NLNG plant at Bonny and continue to fuel a 225 MW capacity power plant built in Gbaran by the federal government under the Nigeria Integrated Power Project.

The SPDC JV also produced more gas in 2016 from the Agbada Early Gas Production Facility, which is expected to further boost gas availability on the eastern Niger Delta domestic gas network and enhance power generation by over 150 MW of electricity. In addition, the SPDC JV operated Okoloma gas plant supplies gas to the Afam VI power plant, which alone contributed approximately 12% of Nigeria’s grid-connected electricity in 2016.

Afam VI uses combined cycle gas turbine technology that burns 40% less gas than plants using older open cycle technologies. This also contributes significantly to the reduction of greenhouse gas emissions.

Shell Companies in Nigeria remain committed to working with the Federal Government of Nigeria to increase gas supply to the domestic market. For example, the Assa North / Ohaji South project in Imo State, which is a joint development involving SPDC, NNPC and SEPLAT, a leading indigenous producer, has the potential to be one of the largest domestic gas projects in the country, supplying 600 million standard cubic feet per day. This translates into almost 2,400 MW of potential electricity generation when it comes to fruition.

Other Shell Companies in Nigeria continue to play a crucial role in the national gas energy mix. The Bonga deep-water field operated by Shell Nigeria Exploration and Production Company Limited (SNEPCo) produces gas that is piped from the Bonga floating production, storage and offloading facility to the Nigeria Liquefied Natural Gas Company (NLNG) joint venture plant on Bonny Island where it is cooled to make LNG for export to consumers around the world. Through its 25.6% interest in the NLNG joint venture, Shell has since the early 1990s played a key role in Nigeria’s emergence as a global player in LNG.

Shell Nigeria Gas Limited (SNG) supplies natural gas used as fuel for various industrial processes and power generation in Nigeria. In 2016, SNG distributed an average of 33 million standard cubic feet a day (MMSCFD) of natural gas against 42 MMSCFD in 2015 to industries and factories in its areas of operation in Ogun, Abia, and Rivers States of Nigeria. The lower supply volume in 2016 was due to damage to equipment from attacks on oil and gas facilities in the Niger Delta.

SNG also supplies natural gas to private companies that specialise in the delivery of compressed natural gas to industries located far from existing pipelines. SNG carries out its operations with an all-Nigerian staff and engages the services of a range of Nigerian companies as contractors.

Harnessing ‘Associated’ Natural Gas

SPDC continues to make progress in close collaboration with its joint venture partners and the Federal Government of Nigeria towards the objective of ending the continuous flaring of associated gas.

Since 2000, all new SPDC JV facilities have been designed to eliminate continuous flaring of associated gas. In parallel, a multi-year programme has been successfully implemented to install equipment for capturing associated gas from older facilities. As a result, flaring volume from SPDC JV facilities was reduced by 93% between 2002 and 2016 and flaring intensity (flare divided by total hydrocarbon produced) by around 81% over the same period.

A reduction of gas flared from SPDC JV’s operations continued in 2016 with a 53% decrease compared to 2015 and a flaring intensity reduction of about 35% from the previous year.

The decline of flared gas in 2016 is also attributed to the interruption of operations and associated production shut-in at certain SPDC JV facilities (e.g. Forcados export terminal and Trans Niger Pipeline) due to acts of vandalism and sabotage.

The SPDC JV is committed to reducing the volume and intensity of flaring even further through a number of associated gas gathering projects and progress continues to be made on these projects. A summary of 2016 performance shows that Bonny Associated Gas Solutions (AGS) commissioned as per plan, Escravos Beach, Adibawa and Otumara/ Saghara AGS projects have been mechanically completed. The expected on stream date for the Forcados Yokri project is in 2017.

There is reasonable expectation that the above-mentioned projects will be brought online subject to adequate funding and improved security in the Niger Delta.

Growth Ambitions and Gas Supply Challenges

Unlocking Nigeria’s potential in natural gas will require partnerships between the Nigerian government and oil companies, with the ability to innovate, capacity to deliver major projects and willingness to take on long term commitments.

The aspiration of the SPDC JV is to transform into a gas-oriented business designed to secure value across the entire gas value chain that creates a sustained positive socio-economic impact for Nigeria. It aims to grow its gas production capacity to meet domestic gas supply obligations as well as commitments to supply gas to the NLNG plant for export.

The SPDC JV therefore views natural gas as an opportunity with growth potential, given the right investment conditions. However, there are several challenges that need to be overcome in order to successfully develop growth projects for the domestic gas market.

  • Resolving our biggest challenge – sufficient funding from our JV partners – would increase gas production by optimising existing operations as well as accelerate the completion of new gas development projects. Operationalizing the new funding regime for joint venture oil and gas operations in Nigeria, which is expected to resolve Nigeria National Petroleum Corporation’s funding constraints in the SPDC JV, will aid in the delivery of key projects aimed at boosting gas production.
  • A second challenge is to clear the backlog of unpaid deliveries of both power and gas to customers. Without the repayment of outstanding gas and power invoice arrears, and securitisation of current and future revenues, operators are reluctant to commit additional investments to grow domestic gas supply.
  • Another challenge deals with the need to attract investment to further develop infrastructure along the gas value chain, for example, to create a more robust pipeline network to improve reliability of and security of supply. The reliability of the existing power transmission also needs improvement. For example, SPDC JV’s Afam VI power plant, which has the capacity to generate up to 650 MW, only generates between 350 –450 MW most of the time because the power transmission system is unable to evacuate the full output.
  • Finally, ensuring a conducive business environment is essential to attract investments and have reliable operations. This includes a predictable regulatory, commercial and legal framework across the country and overcoming security challenges, particularly in the Niger Delta that has experienced an increased risk to personnel and property as well as the disruption to operations.

The SPDC JV continues to boost the production of natural gas for domestic power generation and export while SNEPCo’s growth ambitions in deep water also includes expansion of natural gas production. NLNG will remain a strategic asset in a growing and increasingly competitive global LNG marketplace, in which the Shell Group has a world-class portfolio.

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More In Briefing Notes

Portfolio

Shell has a history of nearly 60 years in Nigeria and the largest footprint of all the international oil and gas companies operating in the country.

Economic contribution

Shell Companies in Nigeria are major contributors to the Nigerian economy, not only through the energy they produce and the revenues they generate for the country, but also via their extensive supply chain, local content and social investment.