Nigeria: Seplat and Ardova herald the new gas era

By Nicholas Norbrook
Posted on Thursday, 6 January 2022 12:51

President Buhari signs into law the Petroleum Industry Bill in August 2021
President Buhari signs into law the Petroleum Industry Bill in August 2021/REUTERS

A new policy landscape in Nigeria is being seized on by home-grown companies to supply gas to the growing local market, on a retail and industrial scale. Companies like the London-listed Seplat and the inheritor of BP's assets in Nigeria, Ardova, are well placed to benefit.

There is an old saw about Nigeria’s energy sector: while it has been pumping oil for decades, it is really a gas giant, with a relatively small amount of oil in tow.

Certainly, with gas assets of more than 200 trillion cubic feet (tcf), Nigeria is the eighth-­largest natural-gas reserve on the planet, coming just after the United Arab Emirates’ 215tcf.

“That is the paradox this administration decided to confront when we declared the Decade of Gas in Nigeria,” announced President Muhammadu Buhari in March. He said that gas development and utilisation “should be a national priority to stimulate economic growth, further improve Nigeria’s energy mix, drive investment and provide the much-needed jobs for our citizens.”

That gas will come in useful to fix Nigeria’s Achilles’ heel: the country has the highest energy costs in the world, at $0.52/kWh, according to consultancy Wood McKenzie, since much of it comes from small diesel generator sets.

The changes in policy are now starting to be felt, especially the passing of the much-delayed Petroleum Industry Bill – now known as the Petroleum Industry Act since its 16 August signature. This legislation ‘will provide much-needed clarity for the sector and could unlock new gas supply to the domestic market, as will the construction of major gas pipelines,’ notes consultants African Energy. ‘Combined, these may break down some of the major barriers for new independent power plants.’ Nigeria is projected to generate 13.6GW of power from gas by 2040, up from 5.1GW today.

Seplat on the starting block

This new policy landscape has encouraged local companies to seize the opportunity. The most aggressive of them is Seplat, which raised $535m in equity financing at its 2014 initial public offering and has invested $1.9bn in capital expenditure since then.

Seplat is positioning itself as the frontrunner in any race to purchase assets divested by exiting international oil companies. And it is also taking a more long-term view of the changing financing available globally for oil production.

The July 2021 rebranding from Seplat to Seplat Energy echoes this greater ambition around gas. Seplat has multiplied its gas production by four since launching in 2012, and produced 20,758 barrels of oil equivalent per day of gas in the first six months of 2021. Seplat Energy’s flagship project for 2022 is the Assa North-Ohaji South (ANOH) gas-processing plant. It reached financial close in February 2021, leaning on a consortium of Nigerian banks, and should produce first gas by mid-2022.

Part of the government’s gas master­plan is the goal of supporting Nigerian industrialisation.

ANOH is linked to oil block OML 53 and will process 300 million cubic feet of gas per day for the domestic market in the first phase, according to Seplat CEO Roger Brown. Shell is the upstream operator, with Seplat owning 40% of OML 53.

Selling direct to industry

Seplat will be spending around $1bn to produce 1.5tcf of gas over the next five years, with 19 wells to be drilled. At a London Stock Exchange presentation in July, the director of Seplat’s New Energy portfolio, Yetunde Taiwo, said the company is targeting new gas markets, such as industrial parks. A 2017 policy change by the government allows gas companies to supply directly to industrial customers with a generating demand of at least 2MW. The current roll-out of parks such as the Lekki Free Zone may prove an ideal match.

Seplat Energy is also looking to displace charcoal or wood as a cooking-energy source. Demand for liquefied petroleum gas (LPG) for cooking is fast expanding, estimated at 1.3bn cubic metres in 2020. Wood Mackenzie says demand should grow at more than 7% per year up to 2040.

This segment of the market is also driving Nigerian energy company Ardova’s ambitions. “Ground cover is disappearing at an alarming rate,” says Ardova CEO Olumide Adeosun. “Gas is the answer.” Much as those who got rich during the American gold booms were those who sold the shovels, Adeosun is betting that those who can “crack the last mile of retail” in gas will be the ones who do well in the years ahead.

Ardova hopes to work the full value chain of gas distribution. At the top end, it intends to do bulk-breaking – buying in large quantities and selling small ones –, as “storage is a limiting factor for LPG”, says Adeosun. Further down the chain, Ardova will invest in gas wholesaling to large industrial customers like power stations, right down to the retail tanks.

It cannot come soon enough. “The demand has outstripped supply” says CEO of the Nigerian Association of LPG Marketers Bassey Essien. “Out of the over 1.2m metric tonnes consumed in the country, 40% is sourced locally, while the balance is imported.” With the naira weakening, that has become a problem.

Train 7 about to depart

Nigeria LNG’s Train 7 expansion project will “bring many of Nigeria’s fabrication yards roaring back into life, with over 70,000tn of in-country fabrication,” according to Simbi Wabote, head of the Nigerian Content Development and Monitory Board. Nigeria LNG will add another 8m tonnes per annum to its annual production, which is currently 22m tonnes.

While gas may be in vogue, oil is far from finished. Oil majors are exiting onshore fields and going deep offshore. A bellwether for the industry will be the final investment decision for Shell’s Bonga South West offshore project, expected in 2022

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