Nigerian Gas and Oil Policies: What they mean for LPG

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Nigerian Gas and Oil Policies: What they mean for LPG
Nigerian Gas and Oil Policies:
What they mean for LPG
Nigerian LPG Association
Lagos
1 December 2016
Peter Cameron
Founder and MD, Energy Markets Global
Oil and Gas Policies
•  The Ministry of Petroleum Resources has
drafted three new national petroleum policies
–  Gas policy
–  Oil policy
–  Petroleum fiscal policy
•  Consultation with government and industry
Vision
•  Gas Policy Vision
Ø “To be an attractive gas-based industrial nation,
with a significant presence in national and
international markets”
•  Oil Policy Vision
Ø “To become a nation where hydrocarbons are used
as a fuel for national economic growth and not
simply as a source of income”
Key Aspirations
•  The Vision contains key Aspirations:
Ø  Moving economy from crude oil exports to gas based industrialisation
Ø  Gas for power
Ø  Gas based industrialisation
Ø  Value added downstream petroleum, refining and petrochemicals
Ø  Clear division of roles between private and public sectors:
Ø  Public sector policy making and regulation
Ø  Private sector implementation, investment and operations
Ø  Enabling environment for private sector participation
Ø  Clear separation between upstream, midstream and downstream
Ø  Open access
Ø  Attracting new entrants to Nigerian gas markets
Ø  Diversifying the gas resource base within Nigeria
Ø  End gas flaring and address environmental issues
Ø  Growing domestic and international gas markets
Domestic Gas Market Structure
Ø  Strong independent
regulator
Ø  Supply
Ø  Open to as many
players as possible
Ø  Midstream segment
Ø  Attract investment
Ø  Tolling structure
Ø  Utility regulation
Ø 
Ø 
Ø 
Ø 
Competition regulation
Open access rules
Network code
Rate of return tariff
regulation
Ø  Downstream
Ø  Wholesale competition
National and International Background
National Background:
Results from the Previous Gas Policy
•  Aspirations of the Gas Master Plan
•  But achievements have fallen far short
–  Little has changed in 10 years
•  Gas consumption per head has remained constant
–  Gas market growth at 3.1% is only just keeping
up with national population growth at 2.8% a year
International Background: A
Mountain of new LNG Supplies
• 
• 
Source: Howard Rogers, 2015
Nigeria will struggle
in the future in Asia
Pacific basin
A mountain of new
supplies from
–  Qatar
–  Australia
International Background:
Period of High oil and Gas Prices now Over
Ø  The last 5-10 years saw Oil and
Gas prices hit all-time highs
Ø  This may never happen again
Ø  US shale oil and gas
supply
Ø  Significant declines in
demand growth
Ø  Forecasts suggest the era of
long-term high prices of oil may
be over
Ø  The Lesson:
Ø  Nigeria needs to move the
economy from oil
dependency
Source: BP Statistical Review of World Energy, 2016
International Background:
Extreme Gas Price Volatility since 2005
Ø  Gas prices extremely
volatile since 2005
Ø  Henry hub (HH) price drop
was as a result of the
advent of shale gas
Ø  Japan Korea Marker
(JKM) affected by two
factors:
Source: BP Statistical Review of World Energy, 2016
Ø  Linkage to oil prices
Ø  Closure of Japanese
Nuclear plants following
Fukushima
International Background:
Gas Price Volatility – Jan 2015 to April 2016
Ø  Due to the low price for
Oil, JKM is coming close
to European prices
Ø  UK National Balancing
Point (NBP)
Ø  German import prices
Sources: US EIA 2016; IMF 2016;
World Bank Commodity Markets Review Report 2016;
Ø  The future?
Ø  Price risk if China
develops shale gas
Oil Price Outlook to 2035
$35/bbl minimum;
$45/bbl most likely;
$55/bbl maximum price.
Source: MPR Petroleum Policy Team, NNPC CP&S
Note: Most likely price is $45/bbl real (2016) escalated each year in nominal terms
International Background:
Summary
•  Nigeria has a challenging future
–  Lower prices and a mountain of new supplies make Nigerian LNG
uncompetitive in Asia Pacific
–  North America is closed to LNG imports, and may become an exporter
–  South America is growing but competition from Trinidad & Tobago
–  Europe still a market for Nigerian LNG but a drive to renewable
energy
–  FDI opportunities from approximately 2003-2013 have now ended
•  FDI within Africa now towards Eastern and Southern Africa
Nigeria is a Gas and not an Oil Play
Nigeria is a Gas Play, Not an Oil Play
Ø  Nigeria should not be
considered as an oil play
but as a gas play
Ø  Historically, natural gas
has been discovered by
accident
Ø  Some 85% of current gas
production is associated
gas, produced as a byproduct of oil production
Source: BP Statistical Review of World Energy June 2016
Analysis: Energy Markets Global, MPR Gas Policy Team 2016
Ø  How much more gas would
be discovered and proved
up if Nigeria was
recognised as a gas
producing country and then
went out deliberately
searching for gas?
Nigeria 9th largest Gas Reserves in World
WorldProvedGasReservesRanking,(Trillioncubicfeet),2015
1400.0
NaturalGasReserves(Tcf)
1200.0
Indonesia,
Norway,1.0%
1.5%
Canada,1.1%
Australia,1.9%
1201.4
1139.6
China,2.1%
Egypt, Kuwait,1.0%
1.0%
Iran,18.2%
Nigeria,2.7%
866.2
Venezuela,3.0%
UnitedArab
Emirates,3.3%
800.0
Russian
Federation,
17.3%
SaudiArabia,
4.5%
617.3
600.0
400.0
India,0.8%
Iraq,2.0%
Algeria,2.4%
1000.0
Libya,0.8%
US,5.6%
Turkmenistan,
9.4%
368.7
Qatar,13.1%
294.0
215.1
200.0
198.4
180.5
159.1
135.7
130.5
122.6
100.3
70.2
65.6
65.2
63.0
53.1
52.6
-
Source: BP Statistical Review of World Energy, 2016
Countries
Ø  Gas the most dominant natural resource in Nigeria
Ø  Proved gas reserves: 180 tcf
Ø  9th largest gas reserves in the world
Ø  More gas reserves than oil
Gas Production 18% of Oil Production
Ø  Current reserves
production ratios are
at 102 years, against
a global average of
40 years
Ø  Oil reserves ratios in
a range of 20-50
years
Ø  No deliberate
exploration for gas
Ø  Gas production much
less than oil
production
Source: BP Statistical Review of World Energy June 2016
Ø  2015: Gas production
29% of total oil
production
Gas Production now largely exported
GasSales(Domestic/Export)
1,800
DomesticGasSales(Bscf)
SalestoNLNG(Bscf)
1,600
1,400
GasVolumes(Bscf)
1,200
1,000
800
600
400
200
0
2006
2007
2008
2009
2010
2011
Year
Source: DPR, Annual Oil & Gas Report 2015
2012
2013
2014
2015
Ø  Gas production
has been largely
diverted to NLNG
Ø  Previous attempts
by Government to
monetise Gas
have actually been
geared to reduce
Gas flaring
What does this mean for LPG in Nigeria?
LPG in Nigeria
•  Current LPG production around 4 mtpa
•  LPG production can increase dramatically as gas
production increases, perhaps to 10 mpta
–  Nigerian refining
–  Gas processing
–  1.5-2 LPG mpta released from gas flaring
•  LPG for Nigerian domestic market
–  Now around 400,000 tonnes pa
–  Potential demand of 1-3 mpta at least
–  Target of 5 mpta
•  Poor domestic LPG infrastructure
Government Policy for LPG - Markets
Ø  The government policy for LPG in Nigeria is to ensure
the development of a strong and rapidly growing LPG
market in Nigeria
Ø  The overall goal of the policy on LPG is to promote its
wider use in Domestic, Power generation, Autogas and
industrial applications towards the attainment of Five
Million (5,000,000) MT utilisation in 5 years
Ø  The government intends to kick-start the market for LPG
among the poorest who are currently using kerosene and
firewood, which are dangerous to health and destructive
on the environment, contributing to desertification
Gas Policy for LPG
•  Markets
–  Residential
–  Power generation, off grid and on grid
–  Autogas
–  Industrial – agriculture, industry, commercial
•  Converting from wood and kerosene
–  Pilot programmes for the poorest
•  Financing
–  Project financing
–  Government investment minimal
Governance
•  The government will ensure that the single
petroleum regulatory authority will be
strengthened so that LPG and other regulations
are enforced and complied with
•  National LPG Council
–  Key stakeholders from government and industry
–  Four task forces
• 
• 
• 
• 
Availability
Accessibility
Acceptability
affordability

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