MARKET RESEARCH INTO THE NIGERIAN GAS

LNG
Market
Outlook:
Investment-‐worthy
opportunities

By
Muhammad
A.
Yar’Adua

1

NG
&
LNG
OUTLOOK:
THE

NIGERIAN
GAS
MARKET

Report
by

Muhammad
Abubakar
Yar’Adua

To
Osprey
Investments
Group.

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

2

Diagram
depicting
the
value
chain
of
LNG

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

3

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.

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

4

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

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

5

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

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

6

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

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

7

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.

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

8

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

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

9

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

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

10

Nigeria’s
Gas
Reserve

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

Fig
4:
Overview
of
key
NG
Reserves

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

11

Fig
5

Fig
6

Global
Outlook
on
LNG

LNG
Supply
and
Demand
Global
Overview

LNG
Supply
Facilities:
Existing
&
Under
Construction

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

12

Nigeria’s
position
in
the
LNG
world

Fig
7
Source:
Gas
Strategies
(GS)

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

13

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.

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

14

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

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

15

Global
Corporate
Players
in
The
LNG
Value
Chain

LNG
Shipping
Supply
vs.
Demand
vs.
Fleet
Size

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

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

16

LNG
Shipping:
Charter
and
Ownership
Profile

Fig
12

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

17

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)

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

18

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

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

19

Fig
17

Gas
Revolution
Industrial
Park
@Ogidigben

Fig
16

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

20

Fig
19

Compressed
Natural
Gas
(CNG)

Service
Sector
Opportunities:
Engineering,
Procurement,
Fabrication
&

Construction

Fig
18

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

21

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.

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

22

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

LNG
Market
Outlook:
opportunities

By
Muhammad
A.
Yar’Adua

23

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