Friday, March 05, 2021 /05:00 AM / By Proshare Research/ Header Image Credit: EcoGraphics
Introduction - The New Gas Reality
With COVID-19 presenting a great cover story to avoid
facing the pre-existing issue of cleaner global energy production and greener
use of the environment with lower levels of industrial waste and higher rates
of recycling, the journey of gas as an energy source has moved from backroom
gossip to boardroom slide decks. The new pivot towards cleaner energy opens
unexpected opportunities for Nigeria's fledgling gas market.
Nigeria
produces both associated and non-associated gas with a reserve estimated at
202trn standard cubic feet (Tcf) of gas in the ground. Oil and gas analysts
project that the country has an extra 650Tcf to 700Tcf of unaccounted gas
reserves because of the low base of gas exploration activities in the country,
with most associated gas (AG) produced by the oil majors being flared off.
However, gas flaring has been reduced from over 65% of production in the late
1990s to less than 20% in more recent sector audits.
Nigeria
is ranked ninth in the size of proven global gas reserves. The current size of
the nation's gas reserves is expected to last the country at present rates of
production and consumption for another 60 years.
Between
1999 and 2019 the Nigerian Liquified Natural Gas (NLNG) Company converted
193.6Bcm (billion standard cubic metres) or 6.84Tcf (trillion cubic feet) of AG
to export products showing the rising importance of gas as an export earner and
an export earnings risk diversification strategy. As the world goes green with
the environment becoming more of a business concern to C-suite executives
across the globe, Nigerian boardrooms will also have to address the matter of increasing
the proportion of gas use relative to coal and sundry 'white' oils. The rise of
the environmental, social, and governance (ESG) framework as part of the
boardroom planning process indicates a post-COVID-19 reality that centres on
more balanced approaches to business expansion. While profitability will remain
an important part of the enterprise puzzle it will not be the only piece that
will create the corporate picture of the future.
The
world of gas will grow exponentially as commercial and private vehicles shift
from premium motor spirit (PMS) or automotive gas oil (AGO) to compressed
natural gas (CNG) to power their engines as families move from dual-purpose
kerosene (DPK) to liquified petroleum gas (LPG) to cook daily meals. The new
world of gas would be cleaner, cheaper, and more sustainable as fossil fuel
gradually but predictably loses energy market share.
In its report on the oil
and gas sector in 2020, Proshare's Confidential Report on the sector noted on page 76 that "The notion that
the oil industry will suddenly disappear is wrong, but so also is the belief
that oil-producing countries have time to scrape by as the world pivots to new
energy sources. The reality would seem to lie somewhere between both outcomes.
Oil and gas companies will
need to change their business models with less dependence on revenues from oil
over the next decade while they also would need to ramp up their development of
gas and its various uses in both industrial and domestic settings. With
companies increasingly concerned about environmental, social, and governance
(ESG) matters, the business environment will sashay towards friendlier
environmental and social practices with higher emphasis placed on corporate
governance and its consistent attention to best corporate practices" (see Illustration 1 below).
Illustration 1: A Time of Transition
The Proshare Report
further observed on page 77 that "Forward-facing technology will require
forward-facing management, the key managerial imperatives in 2021 in the
O&G sector will be imagination, strategy, and rethinking. The O&G
models of the past will have to be unlearned; the present realities will
require new approaches to be learned while the future would need managerial
relearning. The big industry agendas of 2021 will gravitate around the energy
needs of a climate-sensitive ecosystem that disavow the clunky smokestack
factories of the past.
The
new business mindset would need to address the cost efficiencies that would
make cleaner manufacturing and power generation practical and affordable.
Therefore, O&G firms will have to drive operational models that cut costs,
reduce time to market, and integrate horizontal and vertical value chains to
deliver goods in a cheaper, cleaner, and safer manner. This is not impossible, but it is a massive
request to ask from companies that are not familiar with such levels of
technological innovativeness, operational efficiency, and cost-effectiveness" (see
Illustration 2 below).
Illustration 2: Reimaging Oil, Gas, and Technology
Deriving from emerging
issues with the industry's major oversight bodies such as the department of
petroleum resources (DPR), the Petroleum Product Pricing and Regulatory Agency
(PPPRA), and National Petroleum Investment Management Services (NAPIMS), the
managers of these agencies must buy into a new forward-thinking mindset devoid
of old biases and ancient loyalties. The template for this new thinking might
be seen in the local cooking gas (LPG) market.
Downloadable Version of Memo to the Market: PPPRA and the Nigerian Gas Market, Avoiding a Robinhood
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