Can gas save Nigeria’s manufacturing sector?

Manufacturing

 

For industrial production, AGO and LPFO were the fuels of choice. These fuels however are plagued by issues such as scarcity, labour strikes, pilferage, port delays, refinery shutdowns and unpredictable product pricing”

 

THERE is an estimated 7,923 trillion cubic feet (tcf) of total world proven reserves of natural gas according to the US Energy Information Administration, 2017.

Nearly 80 per cent of this amount is located in 10 countries of which Russia tops the list with an estimated 1,680 tcf, about one-fourth of the total. Global gas demand has risen significantly over the past decade led by Asia which contributes about one-third of global demand.

China’s gas demand makes up the largest within Asia and is driven by the country’s coal-to-gas substitution policy targeted at addressing environmental concerns arising from carbon emissions. According to the International Energy Agency (IEA), natural gas is expected to overtake coal as the world’s second-largest energy source by 2030.

Nigeria holds the ninth-largest proven gas reserves in the world with reserves estimated at 190 tcf as at December 2018. As at October 2018 C, the Ministry of Petroleum Resources estimated the country’s reserves to production ratio, which measures the remaining amount of a non-renewable resource expressed in time, for oil at 46 years and 102 years for gas.

Nigeria is mostly regarded as “a gas province with some oil”. Gas produced in the country has primarily been for LNG export, re-injection for oil recovery and domestic utilization by power and gas-based industries, with the balance flared.

Gas is the fuel of the future as it is abundant, more cost-effective than liquid fuels, safer and environmentally friendly (that is, lighter than air, odourless, colourless and contains the least carbon among fossil fuels). This methane-rich fuel has proven to be one of the fastest paths to industrialization and there is evidence of a correlation between GDP growth and gas consumption by productive sectors of the economy.

Before the widespread utilization of gas, the only source of energy were liquid fuels (mostly by-products of crude oil), and in Nigeria, predominantly Automotive Gas Oil (AGO), Low Pour Fuel Oil (LPFO) and Premium Motor Spirit (PMS).

For industrial production, AGO and LPFO were the fuels of choice. These fuels however are plagued by issues such as scarcity, labour strikes, pilferage, port delays, refinery shutdowns and unpredictable product pricing, especially for deregulated fuels.

Many of these issues are exacerbated by the linkage to crude oil and, very recently, at the height of the all-time high crude oil prices at over $100 per barrel, prices of liquid fuels were unsustainable and partly responsible for the shutdown of some manufacturing concerns.

Then come gas, the cheaper and much cleaner alternative with an entirely domestic value chain. The advent of gas solved the issues associated with liquid fuels including reliability, price predictability and local abundance, and as the manufacturing industry gradually embraced the methane-rich fuel, manufacturers have become more profitable and productive overall.

The status of gas as the energy of the future brings massive economic benefits to the manufacturing sector which has been short-changed by liquid fuels. These benefits are that gas is a solution to fuel pilferage, gas is a reliable energy source, gas is a cleaner alternative and gas is the enabler for increased profit.

Solution to Fuel Pilferage

Compared to liquid fuels, the incidence of fuel theft is relatively non-existent with natural gas.  Liquid fuels are mostly transported via trucks and so usually untraceable and difficult to track in the event of theft. With these incidences of theft come spillages that result in the pollution of farmlands and water bodies, and overall environmental degradation as well as the associated costs of cleanups.

A second consequence of pilferage is the problem of product adulteration where stolen fuel is mixed with other substances and resold to unsuspecting users. This results in equipment breakdown, threat to human lives and catastrophic failures etc. that more often lead to litigations.

The application of natural gas completely solves all of this. Gas is mostly transported via underground pipelines, and so is not easily prone to being stolen.

Gas usually must meet a specific quality threshold to be transported via pipeline and thus only pipeline-quality gas is transported to last mile users. While pilferage is unlikely, incidental leaks on gas pipelines are relatively easier to detect and can be easily managed by proper ventilation of the facilities since gas is lighter than air after leak is arrested.

A Reliable Energy Source

As stated earlier, liquid fuels are susceptible to a myriad of issues that make them unreliable. Port delays, labour strikes, the underperformance of refineries etc. make it difficult to predict when products will be available.

Also, because these fuels are mostly imported, the lack of foreign exchange currencies impacts availability, and a lack of predictability will usually make it difficult for manufacturers to plan operations and be efficient.

With liquid fuels, the issue of end product stock-outs is prevalent because manufacturers are not able to effectively manage inventory. This ultimately results in loss of sales, customers and market share.

The fact that gas is locally sourced solves these issues. The entire gas value chain – from upstream production to transportation and final delivery to last-mile users – is domestic. Save for the few militancy attacks, for many years, there were no gas supply interruptions. Natural gas, therefore, comes to the rescue, making it easier for companies to effectively manage production schedules with minimal interruptions and ultimately run very efficient and predictable operations.

Culled from BusinessDay

Read more: https://businessday.ng/energy/oilandgas/article/can-gas-save-nigerias-manufacturing-sector-2/

 

A Cleaner Alternative

The combustion of liquid fuels typically produces 2-3 times more carbon dioxide, thus polluting the atmosphere and accelerating global warming. In addition, liquid fuels also produce other harmful substances such as soot, SOx and NOx and sometimes deadly carbon-monoxide due to incomplete combustion. All these affect the health and productivity of staff of manufacturing organizations as well as present them in a bad light as contributors to environmental pollution. Consequently, organizations with such record may find it difficult to attract financing from global financiers and staff attrition and absenteeism may also be high leading to unstable operations.

The introduction of natural gas as the “saviour” solves most of these issues because it is environmentally friendly, odourless, colourless and produces only water vapour and small amounts of carbon dioxide during combustion. Natural gas equipment also tends to require much less maintenance and last longer thereby reducing overall total cost of ownership.

Enabler for Increased Profit

The combined effect of pilferage, higher cost of maintenance of liquid fuels equipment, and unreliability is a higher than normal operating expense for the manufacturing industry. However, with natural gas which is generally about 30 to 40 per cent cheaper than diesel and also a panacea to the above short-comings of liquid fuels, the industry has immediately seen an enhanced bottom line from the switch to natural gas.

Also, while the initial capex requirements for gas equipment may be higher, they generally have lower maintenance costs and therefore lower total cost of ownership compared to liquid fuels. Such low costs also stem from the fact that there are no spills, effluents or soot with gas equipment and by implication no costly requirements for cleanup, lower staff medical bills given that employees are not exposed to inhaling dangerous gases and so on.

Against this backdrop, analysts say the government must focus its efforts at creating an enabling environment for the development of the gas industry.

Natural gas provides a strong base for industrial development and thus developing the sector will position the country for unprecedented growth while creating an alternative source of public revenues.

A key enabling factor for the development of the sector is “pricing” and the current pricing template impedes development. For example, the end user gas price of US$3.85/Mscf directive by the minister, Federal Ministry of Petroleum Resources for textile manufacturers based on a distribution tariff of $US1.15 and marketing margin of $US0.50 fails to cover the scope and cost of last-mile distribution companies and does not take into account the capital that has been invested to develop the distribution network according to industry experts.

They argue that the extension of a special pricing arrangement to any arm of the industry should be preceded by extensive consultation, in-depth research and a holistic assessment of the consequences of such arrangements for the manufacturing industry to ensure that no element of the value chain is broken in the process.

The National Gas Policy 2017 also recognises the importance of relevant stakeholders being carried along in regulatory decision making.  For example, the regulated tariff for monopoly infrastructure is to be based on a tariff methodology and model developed by the petroleum regulatory authority with input from industry

Therefore, analysts say significant efforts must be directed at promoting a framework that attracts quality private capital. The framework must be such that balances the need to guarantee investors a reasonable return on investment alongside the need to deepen domestic gas utilization.

Culled from BusinessDay

Read more: https://businessday.ng/energy/oilandgas/article/can-gas-save-nigerias-manufacturing-sector-2/

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