From Africa Recovery, Vol.13#1 (June 1999), page 16 ( part of article "Nigeria: Country in Focus"

Harnessing abundant gas reserves

Nigeria alone could provide the power needs of all West Africa

By Tunde Obadina

Every day in southern Nigeria, almost 2 mn cubic feet of natural gas is burnt during crude oil production, more than is flared anywhere else in the world. In fact, Nigeria is endowed with the tenth largest proven natural gas reserves, and according to the World Bank, gas flared in Nigeria is equivalent to total annual power generation in sub-Saharan Africa.

Gas flaring not only wastes a valuable resource, but is also a major cause of environmental pollution in the Niger River Delta, where most of Nigeria's oil output is produced. There is growing anger among local inhabitants at the damage caused to their health and ecosystem by oil production activities, especially gas flaring and crude oil spillage (see "Delta communities protest neglect".

"Currently, there are about 100 gas flaring sites," wrote Mr. G.G. Darah, a Nigerian commentator, in the Lagos-based Guardian newspaper in early November 1998. "Some of them have been burning ceaselessly for 40 years. Each one of these bonfires has been killing human beings and the natural environment since it was lit."


Nigeria is endowed with the tenth largest proven natural gas reserves, and according to the World Bank, gas flared in Nigeria is equivalent to total annual power generation in sub-Saharan Africa.
The extent of human damage attributable to gas flaring is unclear but doctors have found an unusually high incidence of asthma, bronchitis, and skin and breathing problems in communities in oil-producing areas. Moreover, flaring is a global source of greenhouse gas emissions, contributing to global warming. The World Bank estimates that gas flaring in the Niger Delta releases some 35 mn tonnes of carbon dioxide annually into the air.

Oil spills and local poverty

Oil companies contend that oil community activists and environmentalists grossly exaggerate the negative impact of oil production in Nigeria, and reject the charge that gas flaring is a major contributor to acid rain in the Niger Delta. They also point out that although the figure for carbon dioxide emission by Nigeria's oil industry seems high, it is minuscule on a global scale. Increased frequency of hazardous crude oil spills in the Delta in recent years, oil operators explain, is mainly caused by sabotage carried out mostly by aggrieved communities hoping to extract compensation payments. According to Shell, which accounts for about half of Nigeria's 2.2 mn barrels per day oil output, almost 80 per cent of all oil spilled from the company's facilities in 1997 was due to sabotage, adding up to more than 60,000 barrels. Other causes of oil spills include equipment failure, accidents and corrosion of ageing pipes.

Oil companies believe that the root cause of the growing unrest and discontent in the Niger Delta is the poverty of inhabitants who feel cheated out of what they consider their rightful share of the wealth extracted from their land. Beleaguered oil multinationals have in the 1990s increased their spending on community development, but argue that they cannot assume the state's role as the prime provider of social amenities.

The government and its joint-venture oil partners acknowledge the need to clean up oil-production activities, including substantially reducing the proportion of associated gas that is flared. Most of Nigeria's oil comes from reservoirs containing gas, so associated gas is produced with the oil. Though current levels of gas flaring remain unhealthily high, Nigeria has made some progress in reducing flaring since the early 1970s, when less than 2 per cent of the country's gas production was utilized.

The government now aims to eliminate unnecessary gas flaring in Nigeria by 2010. Using a carrot-and-stick strategy with the oil companies, the government's 1998 annual budget expanded fiscal incentives for investment in gas production, and at the same time raised the penalty paid by oil companies for gas flaring from N0.50 to N10 (12 cents) per 1,000 cu ft.

All the major oil companies operating in Nigeria have resolved to reduce gas flaring. Their programmes include increasing the volume of associated gas re-injected into oil reservoirs, reducing oil production from wells with high ratios of gas to oil, and fitting more efficient flare tips to flares.

Lack of facilities, markets

Nigeria faces a number of difficulties in harnessing its abundant gas reserves, which are estimated at 120 trillion cubic feet, but could total 300 trillion cubic feet. It lacks gas utilization infrastructure. When most of its oil facilities were built in the 1960s and 1970s, at a time when gas was not a popular energy source in the world, little thought was given to gas collection facilities.

Associated gas, which is produced at low pressure and must be compressed and treated in facilities specifically built for the purpose, is one of the most difficult and expensive gas sources to harness. In Nigeria, it requires an expensive network of compression facilities and pipelines to link scattered fields that do not produce sufficient quantities of gas to be commercially viable on their own.

Probably the biggest constraint to gas development in Nigeria is the lack of ready markets for the commodity. Domestic gas demand is a meagre 300 mn cubic feet per day, in a country where few households have modern cooking appliances and most still use traditional, cheaper forms of energy. Exports of Nigerian gas involve high transport costs because of the distance to the major international gas markets of Europe and Asia.

Liquefied gas project

Despite the difficulties, there are several projects, started in recent years, to boost the commercial use of Nigeria's natural gas. Most are being undertaken by multinational oil firms, operating as minority equity partners in joint ventures with the state-owned Nigerian National Petroleum Corporation (NNPC).

The most ambitious project is the $3.8 bn liquefied natural gas (LNG) facility under construction on Bonny Island. The 7.15 bn cubic metre per year plant is owned by Nigeria Liquefied Natural Gas Company, with the NNPC holding 49 per cent of the equity, Shell 25.6 per cent, Elf 15 per cent and Agip 10.4 per cent. Work on the plant is more than 80 per cent complete and the project is on schedule to begin producing and exporting in October 1999. Orders have already been placed by buyers in Italy, Spain, Turkey, France and Portugal, with the biggest being the Italian electric power utility ENEL, which has agreed to buy 3.5 bn cubic metres per year of LNG for just over 22 years. Work on the plant, probably the biggest single industrial project in Africa, started in 1996, after more than a decade spent raising the funding and lining up firm buyers. The consortium decided in March 1999 to invest a further $1.8 bn to expand annual production capacity from 5.9 mn tonnes to 8.7 mn tonnes by 2002.

LNG production will diversify Nigeria's exports, currently based almost totally on oil. It will also boost the utilization of a hitherto wasted resource. Though initially the LNG plant will process mostly non-associated gas, the proportion of associated gas used is expected to increase and eventually account for the entire supply, resulting in a 25 per cent reduction in gas flaring.

West African pipeline

Nigeria also is trying to develop a regional market for its gas. The government is working on a plan for the construction of about 600 kilometres of new pipeline to carry gas to Benin, Togo and Ghana by the year 2001. The governments of the four West African nations agreed in 1995 to build the pipeline, which, with existing pipeline, would stretch about 960 km.

After doubts were raised about Ghana's commitment to the project, the proposal got a boost in October 1998 when Chevron and NNPC signed an agreement with a consortium led by KMR Power to supply Nigerian gas for its power plant under development in Tema in Ghana. Chevron/NNPC agreed to provide 40 mn cubic feet of natural gas per day from its Escravos Gas Plant in western Nigeria, to be carried through the proposed West African pipeline. Shell is also involved in the pipeline project which, according to World Bank studies, could save West African countries importing the gas about $500 mn in primary energy costs over 20 years.

Nigeria is potentially capable of fuelling the power needs of the whole of West Africa. The pipeline will not only provide markets for Nigeria's natural gas, thus earning hard currency for the country's economic and social development. It will also make possible a reduction in has flaring, leading to a safer environment in Nigeria, and will contribute to the long-desired economic integration of the region.