Worker on routine inspection at Afam VI Power Plant, Rivers State

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 five GW actually in operation. The 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 US 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 five GW to 40 GW and this represents a huge development opportunity for Nigeria’s domestic gas industry.

Shell’s Role in Supplying Gas to Markets

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.

Shell Petroleum Development Company Joint Venture (SPDC JV)

Since 2010 the SPDC JV has also been producing gas at the Gbaran Ubie integrated oil and gas plant in Bayelsa State for the domestic and export markets. Gas is supplied to the domestic market via a dedicated 80 million standard cubic feet of gas per day (MMscf/d) processing facility, the Early Production Facility (EPF). Current domestic gas off takers are Gbarain Power Plant, owned by the Federal Government of Nigeria and the Bayelsa State Electricity Company for their power station at Imiringi.

In 2017, the SPDC JV commenced production at Gbaran-Ubie Phase 2, that will help sustain gas supply through the EPF to the domestic market and maintain supply to the export market. Peak production for Phase 2 is expected in 2019 with approximately 175,000 barrels of oil equivalent (boe) per day. A breakdown of this peak period production is approximately 864 MMscf/d and 26,000 barrels of condensate per day. Gbaran-Ubie Phase 2 will also help to process gas from Kolo Creek, Gbaran, Koroama and Epu fields, which will assist in further reducing the volume of flaring from SPDC operations.

Construction of a new pipeline between Kolo Creek and Soku was completed in July 2017 that connects the existing Gbaran-Ubie Central Processing Facility (CPF) to the Soku Non-Associated Gas (NAG) Plant in Bayelsa State. 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 Nigeria Liquefied Natural Gas Company (NLNG) plant at Bonny in Rivers State and continue to fuel a 225 MW capacity power plant built in Bayelsa State by the Federal Government of Nigeria under the Nigeria Integrated Power Project.

The SPDC JV also produced more gas in 2017 from the Agbada Early Gas Production Facility in Rivers State, which is expected to further boost gas availability on the eastern Niger Delta domestic gas network and enhance power generation with over 150 MW of electricity. In addition, the SPDC JV-operated Okoloma gas plant supplies gas to the Afam VI power plant (both in Rivers State), which alone contributed approximately 15% of Nigeria’s grid-connected electricity in 2017. 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.

The SPDC JV remains committed to working with the Federal Government of Nigeria and other Nigerian energy companies 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, Total, Agip and SEPLAT, a leading indigenous producer, has the potential to be one of the largest domestic gas projects in the country. SPDC is expected to supply 600 MMscf/d to two plants – a new SPDC JV processing plant and a new proposed SEPLAT processing plant. The combined volume translates to almost 2,400 MW of potential electricity generation when it comes to fruition.

Shell Nigeria Exploration And Production Company Limited (SNEPCO)

Other Shell Companies in Nigeria continue to play a crucial role in the national gas energy mix. The Bonga deep-water field operated by SNEPCo produces gas that is piped from the Bonga floating production, storage and offloading facility to the NLNG joint venture plant on Bonny Island where it is cooled to produce 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)

SNG currently supplies natural gas to 90 industrial and commercial customers in the states where it operates, driving industrialisation and its positive chain effects in addition to direct internal generated revenues in these states. These benefits have led Bayelsa, Lagos and Ondo States to express interest for SNG to expand its distribution network into their states.

In 2017, SNG distributed an average of 41 MMscf/d of natural gas compared to 33 MMscf/d in 2016 to industries and factories in Ogun, Abia, and Rivers States of Nigeria. The higher supply volume in 2017 representing a 32% increase over gas sales in 2016 was due to an increase in new customers and less gas supply disruptions. Among its customers are four compressed natural gas companies that make the gas available to other companies outside the SNG pipeline network. SNG staff is 100% Nigerian and the company is the only gas distribution company in Nigeria whose facility is ISO 14001 Certified.

In 2017, SNG signed an agreement with an indigenous company, Shoreline Energy, to explore opportunities to market and distribute natural gas to wholesale and retail customers in Victoria Island, Ikoyi, Lekki and Epe areas of Lagos. SNG will help finance and develop a transmission and distribution network from a 20-year gas concession, originally owned by Gasland Company, in which Shoreline took a 75% interest in 2005. The gas will be transmitted through the Escravos Lagos Pipeline System from various producers in the western Niger Delta.

At the end of 2017, SNG executed a Memorandum of Understanding with the Rivers State Government for the distribution of gas to industries in the Greater Port Harcourt area and its environs. The agreement is an opportunity to further promote gas as a more reliable, cleaner and cost-effective alternative to liquid fuels in the Niger Delta. It also demonstrates the leadership role played by Shell Companies in Nigeria to grow the domestic gas market in Rivers State.

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. Associated gas refers to natural gas found in association with oil within a reservoir.

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 90% between 2002 and 2017 and flaring intensity (flare divided by total hydrocarbon produced - tCO2e/t) decreased by 78% over the same period. Divestments also resulted in a further reduction. However, flaring from SPDC JV’s operations in 2017 increased by 61% compared to 2016 and flaring intensity also increased by 28% from the previous year. The increase in 2017 is partly attributed to the restart of certain SPDC JV facilities, e.g. Forcados export terminal, that were offline for most of 2016.

There are several SPDC JV facilities where flaring still takes place. Some only have non-routine operational flaring e.g. Soku, Bonny, Gbaran and Agbada because they have fully functional solutions to address routine flaring. Others have routine flaring and the SPDC JV has identified solutions by capturing the associated gas and commercialising it for the domestic market. For example, the Bonny Associated Gas Solutions (AGS) facility was commissioned in 2016, while Adibawa and Otumara/ Saghara AGS projects came on stream in November and December of 2017 respectively. However, the planned start up dates for two gas gathering projects have historically been delayed due to lack of adequate joint venture funding. Nevertheless, with funding now restored, the projects are planned for completion in 2018-19. The remaining sites are located in remote areas with low volume flares. Since late 2016, SPDC has been working with third parties to develop small-scale projects to capture the associated gas from these remaining sites for domestic utilisation. The SPDC JV is currently in discussions with the Federal Government of Nigeria to launch the Nigeria Flared Gas Commercialisation Program, which is expected to address these remaining sites.

Growth Ambitions and Gas Supply Challenges

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

The SPDC JV’s aspiration 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.

A new funding regime for joint venture oil and gas operations in Nigeria has been operationalised, which is expected to resolve Nigeria National Petroleum Corporation’s funding constraints in the SPDC JV. This would increase gas production by optimising existing operations as well as accelerating the completion of new gas development projects.  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 securitization 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 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 attracting investments and running reliable operations. This includes a respect for the sanctity of existing contracts, 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 includes expansion of natural gas production. NLNG remains a strategic asset in a growing and increasingly competitive global LNG marketplace, in which the Shell Group has a worldclass portfolio.

More In Briefing Notes

Portfolio

Shell Companies in Nigeria continue to strengthen their position in the country for the long term by optimising their onshore oil footprint while making investments in other areas, particularly deep water and the gas value chain, including domestic gas.

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.