By Simon Ferrie
Nigeria’s government has declared a “decade of gas”, with ambitious plans to expand the country’s gas production, use and exports. And while progress is being made, Nigeria still faces significant hurdles, especially around legacy underinvestment, infrastructure and monetising its ample reserves.
In late June, a joint venture comprising TotalEnergies and former NOC NNPC took FID on the Ubeta project. The Ubeta gas and condensate field is about 80km northwest of Port Harcourt in OML58, and once onstream will produce 350mcf/d and 10,000b/d of associated liquids, “contributing towards securing gas supply to NLNG”, NNPC said.
Production is expected to start in 2027 and plateau at around 300mcf/d, or roughly 70,000boe/d, including condensate. TotalEnergies operates OML58 with a 40% stake, while NNPC holds the remaining 60%. The $550m Ubeta development will use existing infrastructure, including the Obite gas processing plant, since OML58 already includes the in-production fields of Obagi and Ibewa.
Supply issues hamstring NLNG plans
NNPC noted that NLNG is engaged in “an ongoing capacity expansion from 22mt/yr to 30mt/yr” with the addition of a seventh liquefaction train. But the current facility is already underutilised due to a persistent shortfall in feedgas supply. Indeed, consultancy Welligence noted that TotalEnergies is “the only IOC currently meeting its supply obligations to the plant’s six existing trains”. The French major has a 15% stake in NLNG.
“NLNG has been operating at around 65–75% of capacity,” said Ifeanyi Onyegiri, senior analyst for sub-Saharan Africa at consultancy Welligence, adding that NLNG “missed the boat” when the Ukraine war caused record LNG prices.
Nevertheless, Train 7 could come online in 2025 or early 2026, Onyegiri suggested, with Ubeta helping to alleviate some of the current supply shortfall. Nigerian government and NNPC officials have even talked about plans for Train 8 at the facility, but observers suggest that is unrealistic. “You have shortfalls in terms of feedstocks at all of the existing projects,” said Onyegiri, and there is “a minimal pipeline of supply projects” to bolster future output, he continued.
Floating LNG
Nevertheless, while an eighth train at NLNG may be unrealistic without a significant improvement in the number and scale of planned gas projects, Nigeria is making progress in other portions of the LNG sector.
350mcf/d and 10,000b/d of associated liquids – Ubeta’s capacity
Floating LNG (FLNG) is considered by many a potential way to monetise gas resources which might otherwise be stranded, a serious concern in Africa, with its patchy infrastructure. And NNPC recent signed a project development agreement (PDA) with Norway’s Golar LNG for an FLNG development in the Niger Delta.
The facility will produce 400–500mcf/d, as well as LPG and condensate. NNPC and Golar LNG stated a goal of reaching FID before December 2024 and first gas by 2027. The PDA “aims to monetise vast proven gas reserves from shallow water resources offshore Nigeria”, NNPC said, “in line with President Bola Ahmed Tinubu’s resolve to rapidly commercialise Nigeria’s gas assets for the economic prosperity of the nation.” NNPC already has other FLNG developments underway, in conjunction with China’s Wison Heavy Industry and Nigerian firm UTM Offshore.
Executive order bearing fruit
The Ubeta signing ceremony heard both NNPC and TotalEnergies credit recent government reforms for FID being reached. Ubeta “has been made possible by the government’s recent incentives for non-associated gas developments”, said Mike Sangster, senior vice-president for Africa exploration & production at TotalEnergies. Similarly, NNPC CEO Mele Kyari stated that “the presidential executive order is instrumental to us getting to this significant milestone and we are now seeing the impact of the policy”.
Specifically, this was the president’s “Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc.) Order”, issued at the end of February. This provides “tax credit incentives for non-associated gas greenfield developments in the onshore and shallow water areas, with first gas production on or before 1 January 2029”, an analysis from audit and advisory firm KPMG explained, noting that the cut-off date is intended to accelerate project timelines.
KPMG described the presidential order as “a welcome development” and in line with “prior calls” for reform, but also warned that “the issue of regulated prices is still a stay awake issue for gas producers.” Nigeria regulates gas pricing and increased wholesale domestic prices in April this year. And this appears to be acting as a break on both Nigeria’s upstream gas ambitions and export plans.
Regulated prices mean that third-party producers “without NLNG exposure have little financial incentive to feed gas” to the NLNG export facility, explained Onyegiri, contributing to the persistent feedgas shortfall. And market regulation is also likely a factor in the lack of a significant number of new projects in the development pipeline. “Until the gas sector is fully deregulated… the sector may remain unattractive to investors, which may depress the desired growth,” stated KPMG.
However, removing regulatory caps on gas prices would have other, knock-on effects on Nigeria’s economy and political landscape. The country is already facing surging inflation and hardship related to the reforms enacted around gasoline imports and naira exchange rates, so allowing higher gas prices would only compound the pressure on the public, even if IOCs might welcome such a development.
Nigeria is not heavily dependent on gas, but the clean fossil fuel already accounts for 10% of its energy mix and is used in power generation, so there would be an economic impact of higher prices for consumers. Abuja may therefore have to make a political judgement over whether the public can stomach potential further short-term economic pain in the hopes of making its “decade of gas” ambitions a reality.
Source: Petroleum Economist
