market research into the nigerian gas

LNG Market Outlook: Investment-‐worthy opportunities

By Muhammad A. Yar’Adua

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NG & LNG OUTLOOK: THE NIGERIAN GAS MARKET

Report by

Muhammad Abubakar Yar’Adua

To Osprey Investments Group.



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Diagram depicting the value chain of LNG



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Abstract Key Words: Nigerian National Petroleum Corporation (NNPC), Nigeria Liquefied

Natural Gas Ltd (NLNG), International Oil Companies (IOCs), Natural Gas (NG),

Natural gas Liquids (NGL), Gas to Liquids (GTL), Liquefied Petroleum Gas (LPG),

West Africa (W/A)

This report’s main aim is to determine sectors in the Nigerian gas market worth

investing in. In order to identify such opportunities, we will look at the role of

gas and Liquefied Natural Gas (LNG) in the Nigerian market and economy, and

the global outlook on LNG in terms of demand and supply.

First of all the Nigerian National Gas Master-‐plan developed by the Nigerian

National Petroleum Corporation (NNPC) must be understood as it describes

Nigeria’s key interests with its gas resource. First conceived in 2008 and now

being implemented, Nigeria has three key value drivers for its gas all with the

aim of developing the Nigerian economy. These are; to maximise the multiplier

effect of gas in the domestic economy, optimize Nigeria’s share and

competitiveness in high value export markets and lastly to secure Niger’s long

term energy (gas) security.

The above-‐mentioned master plan shows that other investments are possible

within the gas sector apart from LNG. This report will strive to explore these

opportunities. The value chain of LNG will be demonstrated alongside a more

comprehensive look at global market factors, to enhance understanding of the

worth of gas and LNG.



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TABLE OF CONTENTS

Abstract ................................................................................................................................. 3 Introduction ........................................................................................................................ 5

Nigeria’s National Gas Master-‐plan ............................................................................. 6 Stakeholders ................................................................................................................................ 6 SWOT Analysis of The Nigerian Gas Sector ....................................................................... 8 Nigeria’s Gas Reserve .............................................................................................................. 10

Global Outlook on LNG .................................................................................................. 11 LNG Supply and Demand Global Overview ...................................................................... 11 LNG Supply Facilities: Existing & Under Construction ................................................. 11 Nigeria’s position in the LNG world ................................................................................... 12 LNG demand by Countries ..................................................................................................... 13 LNG Value Chain ........................................................................................................................ 14 Global Corporate Players in The LNG Value Chain ........................................................ 15 LNG Shipping Supply vs. Demand vs. Fleet Size ............................................................. 15 LNG Shipping: Charter and Ownership Profile ............................................................... 16

Investment Opportunities ........................................................................................... 17 Gas Opportunities: Pipeline Infrastructure & Processing Plants ............................ 18 Gas Revolution Industrial Park @Ogidigben .................................................................. 19 Compressed Natural Gas (CNG) ........................................................................................... 20 Service Sector Opportunities: Engineering, Procurement, Fabrication & Construction .............................................................................................................................. 20 Export Projects .......................................................................................................................... 21 The Trans-‐Sahara gas Pipeline (TSGP) ........................................................................................ 21

Comparison of Export Projects ............................................................................................ 22 Conclusions ................................................................................................................................ 22



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Introduction

Liquefied natural gas (LNG) is natural gas that is converted to liquid form for

ease of storage or transport. The primary natural gas storage is methane (or

CH4). The liquefaction process involves the removal of water, hydrocarbons and

other impurities to facilitate transportation of gas. To transport natural gas

across water, the fossil fuel must be filtered and liquefied by cooling the gas

down to -‐260o Fahrenheit. This will shrink the natural gas by 600 times, allowing

for economical transportation.

Global energy demand will continue to rise, driven by population growth and

improved standards of living. At he same time, emphasis on sustainability

becomes more critical. As an abundant resource and cleanest-‐burning fossil fuel,

natural gas will be a key energy source over the coming few years. LNG trade is

expected to grow at a faster rate than natural gas consumption due to disparities

between natural gas consuming and supplying regions.

Fig 1



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Nigeria’s National Gas Master-‐plan The main objectives of the Gas Master-‐plan are:

1. Enable successful and sustained delivery of the 3 key value levers

2. Ensure ongoing, dynamic balance between the 3 key drivers

3. Provide framework for NNPC to optimise Nigeria’s resourced and

allocation in pursuit of the key value drivers e.g. harmonization of NNPC

investment plans

4. Provide guideline for relevant institutional/structural changes to support

the delivery of the key value drivers

NB The Master Plan will have a 20-‐year long term planning horizon.

Stakeholders

The table above shows a stakeholder map whereby various stakeholders are

classified according to their power/influence and interest from an Osprey’s

perspective.

Keep Satisfied Manage Closely • Other Financiers • Consumers • Osprey Shareholders • Suppliers

• Nigerian Government • NNPC

Monitor Keep Informed • Competitors (Other

Institutional Financiers) • International Oil

Companies (IOCs) • Government

• Investors • Shareholders • Other players e.g. DPR

Power

Interest



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An assessment of the stakeholders would highlight the potential issues an

investor may encounter. For example;

• NNPC is the dominant gas resource owner but has limited operatorship

• They strive for more balanced focus on domestic vs. export

• Strategic Interest in international operations imply gas assets could be

leveraged

• The key issue here is the intent on driving domestic usage of own gas

The fully integrated suppliers though such as Shell, ExxonMobil, and Agip hold

the dominant resources and infrastructure both in the upstream and

downstream.

• They have highly diversified downstream interest but trend is towards

LNG as core downstream.

• Strategic focus on growing global LNG market share

o Secure and guarantee supplies

o Secure value at the end of the downstream value chain

• The Key issue here is balancing the gas supply to own export with

competing domestic supply

Already a conflict of interest is noticed between National need for domestic use

of resource as priority above exports and IOCs priority interest in export via

LNG.

Another key stakeholder, although emerging in evolving gas sector is the

institutional financier. The significant funding requirement by NNPC for its

domestic gas projects means more 3rd party financers. These could be FDI’s or

investment companies such as Osprey.



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SWOT Analysis of The Nigerian Gas Sector

Strengths Opportunities

• Significant gas resource base in available

reserves and unappraised discoveries

• Strategically located to serve export and

regional pipeline supply opportunities

• Reserves required to serve all potential

growth are concentrated in finite clusters

which can be harnessed rapidly and flexibly

• Network of core infrastructure and facilities

which can be leveraged rapidly to meet

growth

• Diverse export market potential

o LNG, GTL, NGL, LPG

o Regional pipeline supplies

– W/A, EG, Trans Sahara

• Significant evolving domestic

market geographically spread

across nation

o Power, Industries

• Estimated gross upstream revenue

over 20 years estimated at about

$70bn (at $0.5/mscf upstream gas

price)

Weaknesses Threats

• Significant portion of booked reserves are

long term reserves (gas cap gas) reducing

short term availability by 50%

• Market power concentration in a few players

with cross-‐value chain interests – may impact

liquidity of supplies

• Disconnected infrastructure reducing optimal

deployment of available reserves

• Fragmented facilities development – under-‐

exploitation of synergies resulting in

avoidable costs and sub-‐optimal

• Some uncertainty in market

development (timing and pace

implication for sector activity)

o Export LNG capacity

growth dependent on

actual US LNG growth

o Possible domestic growth

critically dependent on

infrastructure, but broadly

some uncertainty exists re

size and pace growth



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infrastructure configuration

• Artificial boundaries across JVs sub-‐optimises

resource availability -‐ limited inter-‐IOC

collaboration

• Infrastructure coverage of North in-‐existent,

limiting ability to exploit northern domestic

growth market

• Limited infrastructure capacity and integrity

relative to market potential

• Sub-‐commercial gas price for supplies to

domestic power

• Market dominance of integrated

players and implication for access

to facilities and infrastructure by

smaller players as well as overall

liquidity

Above is a detailed SWOT analysis of the Gas Sector in Nigeria and highlights

some of the Key factors to consider in terms of investment risk assessment.

Some key positive points are highlighted e.g. estimated gross revenue over 2

decades at about $70bn.

Fig 2



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Nigeria’s Gas Reserve

Fig 3: Source: BP Statistical Review of World Energy 2014

Fig 4: Overview of key NG Reserves



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Fig 5

Fig 6

Global Outlook on LNG

LNG Supply and Demand Global Overview

LNG Supply Facilities: Existing & Under Construction



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Nigeria’s position in the LNG world

Fig 7 Source: Gas Strategies (GS)



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Fig 8: Source: Corporate Planning & Strategy Division (NNPC)

Fig 9: Source: Corporate Planning & Strategy Division (NNPC)

LNG demand by Countries

The above picture shows demand growth projected to 2020 with Japan being the

main demand hub. Nigeria’s best market for export is Japan. Further evidence to

prove Japan’s favourable market is given below, where Japan’s price is

favourable at $16/mmbtu.



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LNG Value Chain

The value chain of LNG is shown above where all the stages involved in LNG

production and usage is depicted and their global status as of 2013. The market

is ever growing due to global fluxes such as unconventional shale production by

the US (Fig 2) and Australia investing into increasing output starting this 2015.

Fig 10



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Global Corporate Players in The LNG Value Chain

LNG Shipping Supply vs. Demand vs. Fleet Size

Fig 11. Source: Corporate Planning & Strategy Division (NNPC)



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LNG Shipping: Charter and Ownership Profile

Fig 12



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Investment Opportunities After having observed the gas market in Nigeria and a global outlook into LNG,

including its value change, we now will look at the investment opportunities

pertaining to the Nigerian NG & LNG industry. First of all, understanding the

structure of the Oil & Gas industry in Nigeria is necessary. Understanding this

structure will enable for easier linkages for investor such as Osprey in the future.

Fig 13. Showing the structure of Nigeria’s Oil & Gas Industry. From the Federal Government and Ministry of Petroleum Resources (left) to the IOCs with Joint ventures and Public Sharing Contracts in he upstream, and the subsidiaries of NNPC (right)



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For the purpose of this report, Osprey’s attention will be focused on the Gas

midstream and downstream sectors, and also possible service sector

opportunities that are available.

Gas Opportunities: Pipeline Infrastructure & Processing Plants

Fig 14; Showing some investment opportunities in the upstream, midstream and downstream sectors of the industry

Fig 15



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Fig 17

Gas Revolution Industrial Park @Ogidigben

Fig 16



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Fig 19

Compressed Natural Gas (CNG)

Service Sector Opportunities: Engineering, Procurement, Fabrication & Construction

Fig 18



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Export Projects

The Trans-‐Sahara gas Pipeline (TSGP)

Fig 20: The TSGP will provide access to export gas to a new European market, expanding export portfolio. NNPC and Algeria’s Sonatrach would build and operate the pipeline together with the Republic of Niger. However terrorists incidents and lack of general security have delayed any further progressive actions on the plan.



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Comparison of Export Projects

Conclusions Key Trends in he coming decade, especially in Africa

Key Investment Drivers & Opportunities within Nigeria’s Oil & gas industry

Fig 21



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