Financial meltdown threatens Nigeria gas development

News reports from Nigeria indicate that the current global financial meltdown is threatening Nigeria's December deadline for developing its natural gas antiflaring program.

Oct 29th, 2008

Judy R. Clark
Senior Associate Editor

Uchenna Izundu
International Editor

LONDON, Oct. 29 -- News reports from Nigeria indicate that the current global financial meltdown, with its lower oil and gas prices and financial lending uncertainty, is threatening Nigeria's December deadline for developing its natural gas antiflaring program. Delays would cause the country to continue losing money in lost gas sales.

Meanwhile, Total Exploration & Production Nigeria Ltd. (TEPN), on behalf of senior joint venture partner Nigerian National Petroleum Corp. (NNPC), this month awarded contracts totaling $3 billion to implement Phase I of the OML 58 lease upgrade project in Rivers State, Nigeria, to help implement the gas development program.

A Saipem SPA-led consortium, which includes Ponticelli Nigeria Ltd. and Desicon, was awarded the main engineering, procurement, supply, construction, and commissioning of the new facilities. Holding a 60% share in the Phase I consortium, Saipem said its share of the contract is valued at $700 million.

The upgrade project has multiple goals: It is expected to implement the government's anti-flaring policy by utilizing gas that previously was flared; to increase gas supply to the Nigeria LNG project in Bonny; to boost domestic gas supply for industry and cooking; to enhance the safety of workers and area citizens; and to create jobs for local Rivers State companies and personnel.

The upgrades
The Block 58 facility is in the Egi community in Rivers State, 85 km northwest of Port Harcourt. It comprises a 35,000 boe/d oil and condensate flow station, which will be upgraded, and a 10.65 million standard cu m/day (MMscmd) gas treatment facility that will be expanded to 15.65 MMscmd with the addition of a new train and interconnecting pipelines and utilities. The upgrade project also includes implementing condensate stabilization and upgrading the water injection process.

The first phase of the upgrade focuses on engineering, procurement, construction, and commissioning services for the flow station and for improving overall safety of plant operations. Phase I of the 3-4 year project is scheduled to be completed by early 2011, and the entire project, by mid-2012.

As part of the upgrade project, "an additional 2.50 MMscmd of gas capacity will be constructed to supply gas to the domestic market," Saipem said.

Nigeria's gas goals
Nigeria is intent on developing the nation as a modern economy and an industrialized nation, balancing domestic gas use with exports, which, when combined, are expected to increase gas demand to a peak of more than 16 bcfd by 2013 (OGJ, Dec. 10, 2007, p. 30).

Gas demand for domestic power generation and industrial use will grow to more than 12 bcfd by 2013 from less than 2 bcfd in 2007, says NNPC. Gas-fired electric power generation will be expanded to nearly 15 Gw by 2012, requiring more than 6 bcfd by 2011.

Nigeria has estimated gas reserves of 184 tcf of proved natural gas reserves, seventh in the world (OGJ, May 26, 2008, p. 20). However, Nigeria still flares about 40% of the natural gas it produces and re-injects 12% to enhance oil recovery. Official Nigerian policy is to end gas flaring completely by yearend.

Shell, one of Nigeria's contracted upstream gas producers, estimates that about half of the 2 bcfd/year of associated gas produced in Nigeria is flared. The new industry strategy is to collect the associated gas and process it into LNG for export and domestic industrial use and natural gas liquids (NGL) for cooking, greatly enhancing Nigerian natural gas revenues while simultaneously reducing carbon dioxide emissions.

To meet its goal of exporting more than 11 bcfd of gas by 2014, Nigeria Liquefied Natural Gas Ltd.'s (NLNG's) Train 7 is scheduled to come on line in 2013. NNPC said NLNG-T7 capacity is planned to be 8.5 million tonnes/year of LNG and 2.1 million tonnes/year of NGL, adding some $1 billion/year to government revenues "at modest LNG prices," according to Chris Haynes, NLNG chief executive and managing director. Eni has signed an agreement to purchase, for 20 years, 1.375 million tonnes/year (equivalent to 2 billion cu m/year) of LNG from the Train 7 volumes.

NLNG submitted in January an environmental impact assessment (EIA) for construction of NLNG-7Plus, which included the seventh and a potential eighth train, which also would have an 8.5 million tonnes/year capacity, and 12 new LNG carriers to export the LNG to the US and, to a lesser extent, Europe. The decision to construct Train 8 will come later, Haynes said in the assessment, and the eighth train would be another 2-5 years in development. The EIA process was started in parallel with the front-end engineering.

NNPC holds 49% interest in NLNG, with Shell Gas holding 25.6%, Total 15%, and Eni International 10.4%.

In addition to NLNG, Brass LNG Train 1 and OKLNG Trains 1-4 are both scheduled to start up in 2013. All are expected to reach peak production of 11 bcfd in 2014, according to NNPC.

Nigeria also is in talks with Algeria's Sonatrach to provide gas for the jointly proposed 1,300-km Trans Saharan Gas Pipeline from Warri, in Delta State, to Algeria for distribution into Europe's gas grid. "Adequate (gas) reserves have been set aside for the TSGP for the first 25 years of operation," said Emmanuel Olatunde Odusina Nigeria's Minister of State for Energy (Gas) earlier this year.

Nigeria's other major goal is to increase "local content"—the training and contracting of local workers, consultancies, suppliers, contractors, shippers, insurers, and financial institutions to boost the country's gross national product. NLNG-T7 alone reportedly would provide 10,000 local content jobs.

The government's goal is 70% local content by 2010.

Contact Judy Clark at judyrc@ogjonline.com and Uchenna Izundu at uchennai@pennwell.com.

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