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  Competition regulation Ø  Open access rules Ø  Network code Ø  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

Source: Howard Rogers, 2015

International Background: A Mountain of new LNG Supplies

•  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

Source: BP Statistical Review of World Energy, 2016

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

International Background: Extreme Gas Price Volatility since 2005

Source: BP Statistical Review of World Energy, 2016

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: Ø  Linkage to oil prices Ø  Closure of Japanese

Nuclear plants following Fukushima

International Background: Gas Price Volatility – Jan 2015 to April 2016

Sources: US EIA 2016; IMF 2016; World Bank Commodity Markets Review Report 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

Ø  The future? Ø  Price risk if China

develops shale gas

Oil Price Outlook to 2035

Source: MPR Petroleum Policy Team, NNPC CP&S Note: Most likely price is $45/bbl real (2016) escalated each year in nominal terms

$35/bbl minimum; $45/bbl most likely; $55/bbl maximum price.

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

Source: BP Statistical Review of World Energy June 2016 Analysis: Energy Markets Global, MPR Gas Policy Team 2016

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 by-product of oil production

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

1201.4

1139.6

866.2

617.3

368.7

294.0

215.1 198.4 180.5 159.1 135.7 130.5 122.6 100.370.2 65.6 65.2 63.0 53.1 52.6

-

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

NaturalG

asReserves(Tcf)

Countries

WorldProvedGasReservesRanking,(Trillioncubicfeet),2015

Iran,18.2%

RussianFederation,

17.3%

Qatar,13.1%Turkmenistan,

9.4%

US,5.6%

SaudiArabia,4.5%

UnitedArabEmirates,3.3%

Venezuela,3.0%

Nigeria,2.7%

Algeria,2.4%China,2.1% Iraq,2.0%

Australia,1.9%

Indonesia,1.5% Canada,1.1%

Norway,1.0% Egypt,1.0%

Kuwait,1.0% Libya,0.8% India,0.8%

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

Source: BP Statistical Review of World Energy, 2016

Gas Production 18% of Oil Production

Source: BP Statistical Review of World Energy June 2016

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 Ø  2015: Gas production

29% of total oil production

Source: DPR, Annual Oil & Gas Report 2015

Gas Production now largely exported

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GasV

olum

es(B

scf)

Year

GasSales(Domestic/Export)

DomesticGasSales(Bscf) SalestoNLNG(Bscf)

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