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The Government

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This level of secrecy has created a high level of expectation in the Nigerian Government about reducing flaring that is largely a delusion. This delusion is twofold. First there is a belief that the flaring can be stopped by governmental decree, or legal means. Second, there is a belief that large LNG, power station, or pipeline projects will make a big difference.

In relation to the former issue, gas flaring has been illegal in Nigeria since 1984. It has been punishable by fines on the companies, these being mitigated in recognition of reality by being tax deductible. If this seems faintly ridiculous, it is joined by Presidential pronouncements that gas flaring will cease on such and such a date. The latest is December 31st 2008, which embarrassingly followed on from the previous one of January 1st 2008 and no doubt will be followed by yet another.

In practice, the level of investment required, plus the length of time needed to put in place the kind of projects thought by the Government to solve the problem, make nonsense of any strict timetable or legal fiat. This relates to the second delusion.

Nigeria currently has very substantial plans for the expansion of its gas export industry. There are now six completed LNG trains producing 22 million tons (mt) of LNG at Bonny Island, needing 3.5 bscfd of gas. A seventh train is planned, needing a further 1.2 bscfd. Two other projects, Brass LNG and Olokola LNG are planned to produce a further 22 mt. In total, existing and planned LNG capacity will need 8.3 bscfd.

Furthermore, a gas to liquids project from Chevron already underway needs 300 mscfd. The existing, but not fully loaded, World Bank funded West African Gas Pipeline (WAGP) will require 400 mscfd. Finally, there is a plan to pipe gas to Algeria and thence to southern Europe over 4,300 km, scheduled for 2015. This in term will need 2.9 bscfd. In short, export plans require a grand total of 10.9 bscfd.

At home, the National Gas Infrastructure Development plan calls for a massive increase in centralised electricity production of say 10,000 MW and a high voltage transmission system by 2014. This will be in addition to the supposed 6,000 MW that currently exists of which only 2,000-3,000 MW is actually functioning. Putting it simply, a 1,000 MW state of the art CCGT power station needs very approximately 200 mscfd to function probably more, so this ambition will need at least around 2 bscfd of reliable gas supply.

While a sceptical eye might be raised at the sheer level of investment required for these projects and the timetable, there can be little doubt that with 184 trillion cubic feet of gas reserves, Nigeria has the resources to meet these ambitions. The problem is that such projects have little to do with solving the issue of flaring gas in the delta. If anything, the idea that these projects will reduce flaring is a major distraction from the real challenge of finding and producing enough non-associated gas to make them work.

LNG projects, major pipelines, gas-to-liquid plant and power stations are expensive investments and require above all a stream of gas that is likely to be reliable for the 20-30 year lifetime of the project, or at least a promise of it. This overwhelmingly favours non-associated gas.

By comparison associated gas, particularly such as is produced in the delta, is ultimately reliant on the continuing production of crude from the associated wells. If the crude output falls below economic levels this gas is liable to be shut in. And as noted, the volume of gas-per-well, is relatively small in the context of the requirements of such large projects. Indeed the force majeure closure by SPDC of the Soku plant reveals precisely this. The vast majority of the gas going into the existing LNG trains appears to be non-associated.

The Government is thus wrong to expect that its current big projects are likely to substantially reduce flaring. Equally, given its past record in relation to equity investment in such projects, in the power industry as well as oil and gas, it might be as well to concentrate on maximising non-associated gas in its investment plans, rather than pretend that they will utilise the gas currently being flared. Such a pretence may well simply get in the way of planning the bigger projects

There is certainly nothing wrong with the potential expansion of Nigeria's gas export capabilities. They will be highly valuable for the country, West Africa and indeed the world's gas markets. They just need non-associated gas. Such an expansion will indeed reduce the percentage of Nigeria's gas which is flared, but it will not make any difference to the health of the delta.

Yet there is a way out of the flaring problem. The point is that it is local, small and at the heart of Nigeria's problems in the delta. The flared gas should be used for local power generation.

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