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1Oando PLC
Developing Domestic Gas Infrastructure...a private sector approach
The Nigerian Infrastructure Summit
Transcorp Hilton, Abuja
6th -8th August 2008
Wale Tinubu
2
Outline
1.0 Background
• Nigerian Gas Industry
2.0 Current Realities / Challenges
• Funding and Infrastructural Issues
• Government Intervention
3.0 Practical Way Forward
• A suggested revised path
4.0 Role of private enterprise such as Oando
3
Background
• Nigeria, has the world’s 7th largest proven reserves of gas with 182 TCF already discovered
– The gas is rich in natural gas liquids and have little or no sulphur
• Over the years, there has been a steady growth in reserves with recent discoveries coming from the deepwater basin
• To date, all gas discoveries in Nigeria have been incidental; resulting from the search for oil
– There is a significant potential for reserves growth with focused gas exploration
– The reserve potential has been put at up to 600TCF which will make Nigeria the 4th largest gas reservoir after Russia, Iran and Qatar
• Nigeria currently flares 35 - 39% of total gas exports
– Put another way, the gas flared in Nigeria is sufficient to generate 15GW of electricity; this in a country with 6GW of installed and only 3GW of available power generation.
4
Nigeria’s Gas Sector is predominantly government-controlled
• Government is the dominant gas resource owner but has limited operatorship
– Most of the production is by Major Oil Companies which although are about 60 % owned by NNPC are commercially driven
• The export market is growing
– With train 6 now operational, NLNG’s capacity has reached 22MTPA
– Other LNG plants (Olokola and Brass) are under evaluation
– The West African Gas Pipeline Project is continuing apace and there is evidence of increasing demand
• The domestic demand is also growing
– The power sector reform and the attendant government funded Gas Power Plant developments of over 10GW is driving domestic demand
– Oil prices are driving up the cost of alternative fuels and industries are turning to gas where available
5
The government-led investment in domestic gas
infrastructure is no longer adequate
• The Escravos to Lagos Pipeline System (ELPS),
completed in the nineties is the main transmission
pipeline system dedicated to domestic consumption in
the country
– This pipeline system is the only source of supply to the
industrial and utility sectors of the domestic market
– ELPS also serves as the source of gas supply for the West
African Gas Pipeline System
– As with many other oil and gas facilities, repeated sabotage
of this and feeder systems has led to frequent supply
disruptions of recent
• The other major downstream pipeline systems are
dedicated to single projects leading to sub optimal
pipeline configurations
– These pipelines are mainly to export oriented projects and
cover areas already served by other single project
pipelines.
6
The private sector will feel the brunt of any long term gas
unavailability
• The dearth of investment in major domestic pipeline
infrastructure has lead to a short fall in the pipeline
capacities required to sustain the growing economy
• In addition, there is no pipeline connection between the
gas supply fields of the East and the growing markets of
the West and North.
– This has led to led to a shortage of gas availability for the
newly commissioned power plants in the Western parts of
the country
• Significant and Urgent pipeline Infrastructure has now
become imperative if the country is to benefit from the
gas resource
7
Power heavy (cheap) mix in domestic gas market limits the ability to recover capital leading to limited private investment
Power &
other Markets
Government Grants
Transmission
& Distribution
Gathering &
Processing
Consumer
NIGERIAN GAS SECTOR FLOW OF FUNDS
This might explain the current inadequacy in gas infrastructure
Sources: Nexant, Oando
TYPICAL GAS SECTOR FLOW OF FUNDS
Transmission
& Distribution
Gathering &
Processing
Power &
other
Markets
Return on Investment
Consumer
8
LNG VALUE CHAIN – ‘Maximising Gas Net Benefit’
PipelinesGas
Processing
Shipping
Power
Liquefaction
Plant
Receiving
Terminal
Gas
Production
LNG
Transmission
Maximum Benefit via this
Route to Domestic Power
Source: Nexant
…facilitating gas export rather than local consumption which has the maximum net benefit
9
…and also sub-optimizing potential for local job creation
EMPLOYMENT CREATION vs. CAPITAL COST
(Bubble size indicates volume of gas consumed)• LNG is a growing and
robust international
market
– BUT it costs ~$20million / job
created (compared with. $10-
20,000 / job in plastics
processing or construction)
Employment Created
Investm
en
t R
eq
uir
ed
LNG
Petrochemicals
Plastics
Processing
Power
Sources: Nexant, Oando
HiLo
Hi
10
The government policy has now approved policy instruments that
seeks to …
• Exploit the Nigerian gas reserve potential for accelerated economic development
– In support of the 10% GDP growth aspiration
– Concurrent focus on domestic and export market
• Develop an integrated infrastructure strategy that will support domestic, regional and export (LNG) markets
– The adoption of an infrastructure investment blue print
• Implement a gas pricing regime that favors local value added projects (Methanol, Urea and Gas to Liquids)
• Ensure commerciality for all investments
• Set aggressive goals with buffers to offset potential delays and possible problems
• Encourage the private sector to drive the developments
… and recognises the need to incentivise viable domestic gas companies
to execute the infrastructure investment required
12
The Gas Infrastructure Blueprint identifies the critical infrastructure
required to develop the domestic market
2
ID Pipeline Project Length (km)/Diameter(in)
Capacity Description
2 OB-OB to Oben 100 / 42 1700 Provides security of Supply to the West
3 Calabar to Ajaokuta 365 / (48,48,56)
3000 Provides Security of Supply to North. Serves as pre-investment for TSGP( Abia, Anambra en route)
4E East Loop Onshore East 188 /56 3500 Main Supply to Calabar CPF and the North
4W East Loop Onshore West 56 3000 Supply to Bonny from the East Onshore
5E East Loop Offshore East 32 1150 Supply to Calabar from offshore
5W East Loop Offshore West 209 /42 1700 Supply to Bonny from East offshore
11 Shagamu to Jebba 265 / (24,22) 390 Secure supply to Ogun, Osun, Oyo and Kwara
ELOPS Escravos to Lagos
Offshore
200 / 42 1250 Supply to Lagos via secure offshore route
ID CPF Location Capacity COD Year Description
A Escravos 2395 2010 Serves North and West. Several phases of expansion, 2bcfd by 2012
B Ob-Ob 1700 2010 Servers North and West. Several Phases of expansion.
C Calabar 4500 2010 Main supply to Calabar and North
F Forcados 3250 2020 1bcf required by 2012, successive expansion phases
G Brass 1700 2011 Brass LNG Only
H Olokola 2000 2012 No incremental capacity – LNG only foreseen
These gas pipeline and Gas Central Processing Facilities (CPF)
represent investment opportunities for the private sector
Source: IHS Gas Master Plan
14
Oando intends to play in four specific opportunities
2
32
C
B
2 – ob/ob to Oben interconnector pipeline
3 – Calabar to Ajaokuta pipeline
B – OB/OB CPF
C – Calabar CPF
15
Specific Opportunities
2
Pipeline Project Length(km)
Diameter(in.)
Capacity(mmscf/d)
CODYear
OB-OB to Oben 100 42 1700 2012
Calabar to Ajaokuta
Phase 1 (Okopedi Ito) 55 56 3000 2009
Phase 2 (Umuahia) 65 48 2200 2010
Phase 3 (Ajaokuta) 245 48 2200 2011
Total 365
CPF Capacity COD Year
Calabar CPF
Phase 1 500 2008
Phase 2 900 2011
Phase 3 500 2012
Phase 4 600 2013
Phase 5 1,500 2015
Phase 6 500 2018
Total 4,500
Source: IHS Gas Master Plan
CPF Capacity COD Year
OB/OB CPF
Phase 1 700 2011
Phase 2 1,000 2012
Total 1,700
16
Oando Gas and Power – a local gas company
Oando has had an 8 year history of supplying gas to industries
in the Greater Lagos Area, the success of which is
demonstrated by the following achievements:
– Phased completion of a 99 km distribution network in Lagos
– The development of a 124km gas supply pipeline to the
Cement Plant in Calabar
– Plans include a city gate to supply gas to the Calabar
Industrial Area
– $156m (NGN18.7bn) of investment mobilized by Oando to
construct pipeline infrastructure
– The connection of over 90 industrial customers to the gas
network
Oando is gearing up to play a major role in the
development of the national gas grid
17
Oando an Integrated Energy Company
Oando Plc
Marketing
No. 1
marketer of
Petroleum
Products
Power
A Significant
option play
for Oando
Energy
Services
Offering
Product
service lines
through
strategic
alliances
(e.g. Baroid,
Halliburton)
Exploration and
Production
Assets
Acquisition
and
Monetization
Refining
New Build
Supply and
Trading
Dominant
local player
Expansion
into other
West African
Markets
Gas (Pipeline
Transmission of
Natural Gas)
20-year BOT
Franchise
Agreement
with NGC
New Industrial
customer
connects
Further
pipeline
expansion into
un-served
markets
6
18
Oando is positioned to capture maximum value along the entire energy
chain and harvest synergies between subsidiaries
MarketingRefinery
Division
Production
& Dev. Co.
Energy
Services
Power
Supply &
Trading
Synergies
RefiningOil and Gas
E&PPrimary
DistributionConsumerStorage
Secondary
DistributionChannelsTrading
Gaslink /
East Horizon