NIGERIA - Gas As An Energy Source.

Natural gas is becoming an important energy source for Nigeria. The country is rich in natural gas, and its potential remains largely untapped. Proven reserves of associated and non-associated gas stood at 3.51 TCM (124 TCF) by end-1998.

Gross production of natural gas in 1998 amounted to about 36.5 BCM. But only about 9.5 BCM were utilised, with almost 4 BCM reinjected into the oilfields and 5.5 BCM consumed by the domestic market. The rest was flared by the oil companies.

Presenting his government's budget to parliament on July 27, President Obasanjo said: "Our administration will encourage maximum investment in the gas industry so that this country can fully attain the status of being primarily the gas producing nation, that we really are. Our target is that within four years, revenue from gas will not only be substantial but will nearly equal to that from oil". (Nigeria's oil income in 1998 amounted to about $5 billion, but it would be much higher in 1999 due to a doubling of crude oil prices since February this year).

The president was obviously referring to the huge LNG export venture which is to be on stream in October 1999 and a pipeline to supply gas to four neighbouring countries (see Gas Market Trends No. 7).

Obasanjo said fines currently being imposed on the flaring of associated gas "will be doubled...to put an end to this criminal waste of our resources as soon as possible".

Shell provides most of the gas for the domestic market and is committed to end flaring by 2008. Mobil is intending to build a 360 MW gas-based power station at Bonny Island, which would be the first IPP in Nigeria. It would be using gas from an NGLs plant which the US company is building together with NNPC. This is based on gas from Oso field which is operated by Mobil.

Shell's industrial gas end-users, through the state-owned Nigerian Gas Co. (NGC) which buys all the gas supplies from the foreign operators and sells them to the users, include the Aluminium Smelter Co. (Alscon), which has a 193,000 t/y smelter at Ikot Abasi. Alscon - owned 70% by the government, 20% by Ferrostahl of Germany and 10% by Reynolds of the US - suspended operations in June 1999 because it was unable to raise $100m working capital. In fact, it has never run at more than 30% since starting in 1997. Alscon aims to restart production in October. But it prefers to buy the gas from Mobil whose supply facility is just 40 km from the smelter. Mobil is able to deliver gas cheaper than Shell, whose supply pipeline is 110 km long. Alscon has been negotiating with Mobil through NGC.

Shell Petroleum Development Co. (SPDC) has contracted Bouygues Offshore to build a pipeline from the Ekulama gas field in the Niger Delta to a gas treatment plant at Soku, near Port Harcourt. The contract is worth about $40m and the pipeline should be ready in 2000.

In September 1998, SPDC and NGC signed two 10-year agreements whereby Shell will supply 69 MCF/day of gas to power plants and industrial consumers in the Niger Delta. Pipelines to the power plants and the Aba region will be built.

The Nigerian Gas Company (NGC), the state gas utility which is a unit of NNPC, is to be privatised. It gathers, treats and markets gas locally and in nearby West African countries. It buys gas supplies from the foreign operators and sells them to end-users as well as sets the prices. Shell has offered to buy

NGC and has appointed FSB International Bank to handle the proposed acquisition.

In March 1999, NGC and Nigerian oil products marketer Unipetrol signed a 20- year contract for the latter to supply 10 NCF/d of gas to 20 industries in the Lagos area. NGC is having a spur pipeline built to these industries. The spur, being laid by Saipem Nigeria, will also link up with a pipeline connecting the Egbin power station to the Escravos oilfield.

In late 1998, the military government of Abubakar introduced the country's first masterplan for natural gas. Calling for increased gas use throughout Nigeria, the plan provides fiscal incentives for oil producing operators to maximise gas output and stop the flaring of associated gas. It sets guidelines for the pricing of gas to be purchased by NGC, and the pricing of gas to end- users. (In the past Western companies did not actively explore for gas. Oil finds led to the discovery of large gas caps and, in the course of exploration for oil, huge non-associated gas fields were found. Gas production was totally flared in the 1960s). Under the Masterplan, the flaring of associated gas should be totally eliminated by 2010. The masterplan is to develop a national gas grid. It details what role the private and public sectors should play in the gas industry. It provides incentive packages in production, transmission and distribution to attract investors. The private sector is encouraged to extract NGL, LPG and solvents for the local market and for exports.

Shell, Mobil and Chevron are the main foreign operators involved in the gas sector. Shell has a 20-year agreement to supply 250m cubic feet/day of gas to the National Fertiliser Co. of Nigeria (NAFCON) and to Egbin power station. Shell aims to raise total supplies to more than 400 MCF/day by providing gas to local industries. In addition, Shell leads Nigerian LNG (NLNG) export venture in which its partners are Elf, Agip and NNPC. Chevron has been working on the $500m Escravos project, which is expected to generate new hard currency revenues through the export of gas liquids.

A 600 km pipeline is to be built by 2002 to supply associated gas to neighbouring Benin, Togo and Ghana. Partners in this project include Shell and Chevron and investors from Nigeria and the three importing countries.

Other sources of energy in the country include coal, lignite, hydro-power and tar sands. Lignite was first investigated as a commercial fuel by German authorities around 1900, with the Nigerian Bitumen Corp. of Germany exploring for oil in 1908. Bituminous coal deposits were found soon thereafter. There are large coal reserves in the country, estimated at 2.75 bn tons in 13 states. Of these, 639m tons are proven. Development, by the parastatal Nigeria Coal Corp. has been limited for lack of capital.

In July 1996, Nigeria's first coal export in 20 years - 3,000 tons - was shipped to Italy. At the time it was said potential international demand for Nigerian coal was 15m tons, worth more than $675m/year. But foreign companies have declined to invest in this sector.