Nigeria is to improve and expand the supply of gas used by its power sector, as part of a comprehensive overhaul of electricity generation.
Africa’s largest economy has long faced several challenges in domestic power production, with current levels of gas supplies and generational capacity insufficient to meet the nation’s needs. Day-to-day issues, such as disruptions to supplies, are adding to the problems, with the result that the country rarely reaches its 4GW optimum power capacity – a figure that even if achieved would equate to only 10 percent the output of South Africa, which has a population half the size of Nigeria’s 170m.
As a result, expanding generation capacity and strengthening the distribution grid are essential ingredients for Nigeria’s economic development.
Finance minister Ngozi Okonjo-Iweala believes that additional infrastructure, which requires higher electricity output, was pivotal to underpin growth. ‘Nigeria’s economy has been growing at an average rate of 7 percent annually over the past decade with limited power supply, she told UK research publishing firm, Oxford Business Group (OBG) . ‘If we can double existing capacity in terms of hours of availability or megawatts, we expect to sustain economic growth of 8 percent or more.’
A major privatisation process in 2013 saw the sell-off of generation and distribution assets – a long-awaited first step towards boosting capacity and reducing network leakage. However, ensuring sufficient supply for the power plants – both existing and planned – is equally important. Gas in Nigeria, which makes up just over 75 percent of the power capacity, is high grade (low sulphur content), sweet and rich in liquids, making it ideal for supplying power plants. Boosting its contribution forms a key component of the bid to ensure sufficient fuel is available to meet new generational capacity when it comes on line.
Nigeria has the ninth largest proven natural gas reserves in the world, with around180 trillion cubic feet (tcf), according to the BP Statistical Review of World Energy 2014. Despite its reserves, Nigeria produced just 1.2 tcf of dry natural gas in 2012, ranking it as the world’s 25th dry natural gas producer, noted the US Energy Information Administration, with production restricted by the lack of infrastructure to monetise natural gas that is currently being flared.
The government’s plans for increasing gas output include handing the private sector a bigger role in operations. Clement Adeyinka Oke, the acting chair of the presidential taskforce on power, noted that a rising demand for power will fuel gas supply and infrastructure requirements: ‘It is recognised that huge amount of funds which the government alone cannot afford is needed to grow the sector and hence privatisation and Private Public Participation (PPP) is being encouraged,’ he said.
Key steps have already been taken to attract industry players, including the decision to increase the domestic price of gas from around $1 per 1000 standard cubic feet (scf) to $2.50. The government hopes the move, which closes the gap on returns for the international and domestic markets by bringing local prices closer to the standard export rate, will encourage producers to increase gas output and invest in new exploration and extraction projects. The government aims to double Nigeria’s electricity generational capacity within a decade, while also improving distribution networks. On November 17, minister of power Chinedu Nebo said N1.6trn ($10bn) worth of investment would be required to add 5000MW-worth of new production capacity. The expansion would more than double current levels and upgrade both existing plants and transmission grids over the next ten years.
Private producers are looking to ramp up their operations in gas production. Heirs Holding Group, owned by businessman Tony Elumelu, plans to generate at least a quarter of Nigeria’s power consumption needs following its acquisition of the Transcorp Ughelli power station in Warri, a gas-fired, thermal power generation plant, last year. Elumelu said that he expects the plant capacity to increase to 1000MW by the second quarter of 2015. He noted that a greenfield project at the power plant will expand capacity by an additional 1000MW in the next three to five years.
In a separate move, the government is preparing to sell off the third and final segment of the power sector – the transmission services – having privatised the generation and distribution components in 2013. Minister of power Nebo announced in September that the state would be looking for starting offers of around $20bn.