Upon assuming power, Nigerian president Umaru Yar'Adua announced that domestic gas needs would take priority over the growth of the gas export sector. The lack of power generating capacity and the potential use of natural gas fields to provide feedstock for a string of thermal power plants certainly made this a pressing argument.

Yet the money to be made from gas exports and the sheer size of the country's gas reserves mean that interest in Nigerian liquefied natural gas (LNG) projects has never been greater.

At present, the Nigeria Liquefied Natural Gas (NLNG) plant on Bonny Island is currently the only operational LNG facility in Nigeria. Its five production trains are supplied by 2.8 billion cubic feet of gas a day (cf/d) and produce 18 million tonnes of LNG a year, plus 3.4 million tonnes of liquefied petroleum gas. A sixth train is approaching completion, while the final investment decision (FID) is expected on yet another production train, which would be the biggest in the world and which would boost total capacity to 30 million tonnes a year by 2011. As a result, NLNG, which is owned by state-owned Nigeria National Petroleum Corporation (NNPC) (49%), Shell (25.6%), Total (15%) and Eni (10.4%), is fast becoming one of the world's biggest LNG producers. The success of NLNG, allied to the ban on routine gas flaring and rising demand for LNG in the North Atlantic Basin, encouraged all of the oil majors that operate in Nigeria to plan their own LNG schemes.

Chevron Nigeria and BG, plus Shell Gas & Power, both planned separate trains at Olokola but the two projects have now been combined into a single venture. The other much discussed project is the Brass River LNG scheme, on which the FID has been delayed. However, Royal Boskalis Westminster NV has revealed that it has been awarded a euro60 million ($88.5 million) contract to prepare the Brass LNG site for development, so the scheme seems more than likely to proceed.

Other potential investors have emerged in recent months to underline the attractiveness of Nigerian LNG. While the oil majors have been more or less forced to find a commercial outlet for the associated gas on their oilfields that was previously flared, other interested parties are not so heavily involved in the sector and view Nigeria purely as a sound investment bet.

A consortium of Centrica (37.5%), StatoilHydro ASA (37.5%) and Consolidated Contractors Company (CCC) (25%) revealed in early November that it had signed an 18-month memorandum of understanding with the Nigerian federal government on the development of LNG liquefaction capacity in the country.

The first step in the investment program is a $10 million feasibility study to locate the best sources of gas feedstock, a favorable site for a production train and also suitable markets.

British firm Centrica hopes to ship processed gas to the UK, Europe and North America, although it is not yet known if it will be able to supply its own gas to the proposed plant. It plans to carry out exploration work on Nigerian Block 276 tins year and already operates two other blocks in the country. Its partner StatoilHydro - the newly merged Norwegian firm - operates two of its own licenses, one of which contains the Nnwa gas field, and holds equity in a variety of other blocks.

StatoilHydro Nigeria country manager, Helge Haland, commented: "The consortium members bring a range of complementary areas of expertise and resources to this project at a pivotal stage in the development of Nigeria's gas strategy. We look forward to working with key stakeholders and are committed to contributing to the government's ambitions to develop Nigeria into a major gas producer."

The chief executive of Centrica, Sam Laidlaw, added: "As part of our broader search for new sources of gas to supply our customers, this agreement provides us with an option to assess the viability of developing LNG projects in Nigeria, working alongside experienced partners."

Indians look to domestic markets

Indian firm Gail is also interested in increasing its investment in Nigeria. The chairman and managing director of Gail, U D Choubey says that his firm will bid for Nigerian upstream blocks and is interested in setting up a gas distribution subsidiary in Nigeria to supply both industrial and residential customers. Most interest in the Nigerian gas industry to date has focused on upstream projects but it is vital that foreign investment is attracted to the distribution sector if the Nigerian economy and consumers are to benefit from the country's huge natural resources. Gail hopes to discuss a potential petrochemical plant with Abuja that would be supplied by Nigerian gas, although it will not necessarily be located in Nigeria but could be constructed in a neighboring state. However, it is the Indian company's plan for an LNG plant that has grabbed most of the headlines.

Choubey held talks with Nigeria's vice-president, Jonathan Goodluck, on the project in New Delhi, where he revealed: "We are interested in sourcing LNG from Nigeria and will be interested in taking a stake in future LNG manufacturing plants in that country. We expressed an interest in importing LNG from Nigeria. These are preliminary discussions and nothing has been finalized as yet. The Nigerian vice-president has invited us to visit Lagos for further discussions." Indian sources suggest that Nigerian LNG could be used to supply the Dhabol thermal power plant in Maharashtra.

The various consortia planning to develop LNG production trains in Nigeria will have to commit tens of billions of dollars in investment in order to realize their ambitions. Yet if even half of the proposed ventures come to fruition then Nigeria will become one of the top five LNG exporters within a decade.

The creation of a number of separate LNG producers within the West African state should stimulate further development of the domestic gas transmission grid to enable supplies to be piped from a range of associated and non-associated gas fields to the liquefaction trains.

This more comprehensive gas network could therefore also be used to pipe gas to new Nigerian thermal power plants and other domestic users. Many observers have depicted the ambitions of the Nigerian gas industry as a conflict between domestic and export requirements but with 184 trillion cubic feet of proven reserves there is surely plenty to go around.

(C) 2008 African Business. via ProQuest Information and Learning Company; All Rights Reserved

Related Project
Olokola LNG
Facility Type: LNG Owner: NNPC, 49.5%; Chevron, 18.5%; Shell, 18.5%; BG Group, 13.5%
Scope: New Construction Location: Lagos Nigeria