Monetizing Nigeria's Non-associated Gas Resources

Nigeria has very significant natural gas resources, estimated to be the ninth largest in the world at nearly 200 trillion cubic feet (TcF) and the largest in sub Saharan Africa. A substantial portion of this gas is non-associated, and much of it has been discovered offshore, in shallow water and near existing infrastructure over the past quarter century. Despite this abundant resource, and the potentially low technical cost of the gas, Nigeria has yet to fully benefit from its development.

These gas volumes have remained undeveloped for multiple reasons – not least of which has been the absence of a robust domestic market, the lack of regional gas export opportunities and the, historically very understandable, priority given to handling associated gas through the world-class Nigerian Liquefied Natural Gas (NLNG) facilities at Bonny Island.

Creating Development Solutions

Endeavor Management’s Expert Advisory Group (EAG) has been working with its clients to help find solutions, which will unlock these undeveloped gas volumes, with concomitant economic and environmental benefits and in doing so, has identified a number of fundamental insights, which are broadly applicable. These gas volumes can become economically robust (and their development will significantly improve Nigeria’s carbon footprint) because they have several competitive advantages, namely:

• Committed ownership (significant volumes are now operated by local companies who give priority to their development)
• Low cost of the Upstream developments (particularly wells and shallow water wellhead structures), and
• Close physical proximity to existing infrastructure (e.g. MOPUs), which can be cost effectively upgraded to handle the gas

EAG has advised clients on how to best leverage these competitive advantages to achieve best practical overall system cost and cycle time for LNG developments, particularly through the adoption of Floating LNG (FLNG) technology, which is now maturing rapidly. The first FLNG vessel, PETRONAS Satu, achieved first production in mid 2017. Production from the second, Golar Hilli Episeyo, is imminent, and Shell’s Prelude vessel will commence production before the end of 2018.

EAG’s advice has used widely available decision support tools guided by experienced industry professionals (a team of client staff and EAG). The main thrust of the advice has been to:

• Keep the FLNG facilities as simple as practical by using existing or converted Upstream infrastructure to undertake some of the key system functions. Typical functions include separation and stabilization for export of the heavier hydrocarbons from the gas. Where it makes sense, the Upstream facilities might also undertake some of the contaminant removal, such as acid gas (CO2) removal. There is no one right solution for all cases, but careful integration of the Upstream and FLNG system designs can achieve the objective of simplifying and standardizing the FLNG system as much as practical.
• Understand the relative efficiency and cost effectiveness of the different FLNG designs and replicate the existing best in class designs. Because the FLNG system is the most expensive and longest cycle time component of the overall system it is essential that it takes advantage of replication (minimizing redesign, and reuse of existing equipment and construction practices) as much as practical.
• Work with a Contractor-operated model for FLNG per best practices from other offshore floating production systems. As with other integration offshore production systems, FLNG operators have a steep learning curve to climb. Few clients, particularly independents, will operate multiple facilities, but the leading contractors will, and we advise our clients to use the experience of these contractors.
• Encourage the client to leverage its business strengths (for instance in operations, onshore operations support, relationships with local stakeholders, and security management).
• Understand, when undertaking Concept Selection, the relative strengths and weaknesses of competing development systems. As a particular example, NLNG is a world-class facility and is often considered the “base case” selection as the liquefaction facility for such developments, particularly when the gas fields are relatively nearby. But NLNG’s technical requirements are built around associated gas (with compositions having relatively higher fractions of heavier hydrocarbons that the sellers can
  offer) and NLNG’s business drivers favor its existing Joint Venture partners, which is understandable, but which also places the gas resource owner (the seller) at a considerable commercial disadvantage. Thus, while NLNG can be the liquefaction system of choice it should not be the only system available to the gas resource owner.
• Leverage the industry developments in the region (both in terms of FLNG, and in terms of increased capacity in existing LNG plants outside of NLNG).
• Consider upstream system capabilities, which can accommodate both LNG and other gas monetization solutions (such as the proposed East West Offshore Gas Gathering Pipeline System) to provide flexibility in the ultimate development of the gas resources.

Business Impact

Having used this advice, and their own insights, our clients have found that the most important factor in monetizing their gas resources, is to have real competition between development solutions. This has been made possible by the rapid maturation of the FLNG industry, wherein cycle times from investment decision to first production have already been reduced from 6 years (Prelude) to 4 years (Golar Hilli), and where, with replication and simplification, further reductions are in reach. Furthermore, large reductions in unit CAPEX, measured in $/million tonnes per annum (MTPa), from the first FLNG systems have also been achieved. The latest FLNG systems may achieve CAPEX as low as $600-700/MTPa. This, together with the cost-effective use of existing upstream assets (upgraded where necessary) means that FLNG is now a highly credible competitor for the monetization of Nigeria’s non-associated gas resources, and provides the competitive environment that gas resource holders have previously lacked.

In summary, EAG’s clients are now in position to be either among the first (if not the first) Nigerian operators to select FLNG for their offshore non-associated gas developments, and to do so ahead of competing onshore LNG expansion projects, or to be able to secure reasonable terms and access to existing assets, such as NLNG, because of the existence of FLNG as a credible competitor. It also means that Nigeria can soon expect to see significant growth in its natural gas production, starting in the early 2020s.