Shell Nigeria Corporate Strategy

for Ending Gas Flaring

A Paper Presented by

BASIL OMIYI
External Relations Director,
Shell Petroleum Development Company of Nigeria Limited

AT A SEMINAR ON GAS FLARING AND POVERTY

ALLEVIATION IN OSLO, NORWAY, JUNE 18-19, 2001.

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Mr. Chairman,
Co-presenters,
Distinguished Ladies and Gentlemen.

It is my great pleasure to share with you the experience of the Shell

Petroleum Development Company of Nigeria Limited (SPDC) on gas
flaring, an issue of primary importance to Nigeria and the rest of the
world.

I will in the short time allocated to me, share with you SPDC’s long-
standing concerns about gas flaring in Nigeria and all efforts since the
early days of oil production in the country to turn this waste to value.
I will also share our strategy, for the country to derive economic value
from flared gas through promotion and participation in gas utilization
programmes like:

• gas to power plants,

• gas as feedstock to petro-chemical plants,
• gas re-injection for oil reservoir management,
• gas conversion to LNG after some 30 years of trying, and
• most recently use of gas as fuel for local industries

I will describe our commitment to stopping routine gas flaring by 2008,

an undertaking that requires some US$4.85 billion of Joint Venture
investment over eight years.

With some 120 trillion cubic feet (about 20 billion barrels oil equivalent,
boe) of gas, Nigeria has the 10th largest reserves in the world and
second only to Algeria on the African continent. In energy terms, the
reserves of natural gas in Nigeria is at least of the same order as the
reserves of crude oil. Economic exploitation of the gas reserves,
particularly putting the gas currently being flared to economic use, has
become of great concern to Nigeria. SPDC is the oldest and the largest
oil and gas producer in Nigeria and also the pioneer in gas utilisation
efforts of the country.

On the average, about 1000 standard cubic feet (scf) of gas is produced
in Nigeria with every barrel of oil. Therefore, with oil production of some
2.2 million barrels per day, about 2.2 billion scf of associated gas is
produced everyday.

However out of the total associated gas produced about 17 per cent is
re-injected, 33 per cent is used commercially and the remaining 50 per
cent flared.

SPDC Corporate Strategy for Ending Gas Flaring in Nigeria Oslo June 2001 -2-
Why Gas Is Flared In Nigeria
Nigeria has been compelled by a combination of historical, economic,
and geographical factors to flare gas. They include the following:
• Limited numbers of appropriate reservoirs conducive for gas re-
injection/storage and the economies of doing so.

• The huge cost of developing major and inter-connecting network of

gas pipelines.

• Low technological and industrial base for energy consumption in the

country.

• Limited regional and international gas market

• Inadequate fiscal and gas pricing policies to encourage investment

• The difficult terrain of the Niger Delta which hindered the gas
gathering process.

History of SPDC Gas Utilisation

SPDC has been concerned about gas flaring since the start of oil
production in Nigeria. In SPDC, the volume of solution gas (gas
produced along with oil) is between 6 and 8 per cent of the company’s
total hydrocarbon reserves in energy terms. Crude oil is about 44 per
cent of the hydrocarbon reserves, condensate 23 per cent; and non-
associated gas, some 27 per cent. The remaining 20 per cent is the gas
cap in the same reservoir as oil but not dissolved in it. It is from the
associated gas in solution, which is some 6-8% of SPDC’s hydrocarbon
reserves that flaring is done and this issue has been the subject of socio-
economic and environmental debate.
The company believes that the associated gas being flared could be
used to economic advantage for the country. SPDC has demonstrated
this belief, not only in pioneering gas utilisation, but it has pursued a
growing gas utilisation programme since 1960s. This gas utilisation
programme has grown progressively as follows, and this is illustrated in
figs 1 & 2:

SPDC Corporate Strategy for Ending Gas Flaring in Nigeria Oslo June 2001 -3-
Figure 1 - History of SPDC Gas Utilisation

Figure 2 - Domestic Gas Sales

• 1962: commenced the supply of piped gas to industries at Aba and

Port–Harcourt

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• I963-65: Gas for electricity generation to the National Electric Power
Authority (NEPA) plants in Afam and Delta Power Station.
• 1976: The establishment of the Port-Harcourt Refinery gave a big
boost to the gas utilisation programme.
• 1976 : Supply of gas to NEPA power stations at Sapele

• 1986: Gas supply to Delta Steel Company, Aladja.

• 1987: Supply to National Fertiliser Company of Nigeria (NAFCON).

• 1988: Gas supply to Ajaokuta Steel Plant.

• 1989: Another NEPA station, Egbin Station, started to receive

supplies.

• 1998: Piped gas supply to Aluminium Smelter Company (ALSCON)

commenced.

• 1998: The Shell Group incorporated Shell Nigeria Gas (SNG) to boost
gas utilisation by promoting it as fuel of first choice in industry.

• 1999: The Nigerian LNG project began operation and to export LNG.
Shell has been involved in the various attempts to promote the project
since the early 1960s.
Under the company’s gas flares-out policy, no new field is
developed without a comprehensive plan for the immediate
utilization of the associated gas produced from it.

Major On-going Gas Gathering Projects

In order to actualise the company’s gas utilisation programme, some 7
major gas gathering projects have been initiated to gather associated
gas from over 52 of the company’s 87 flowstations. They are listed and
geographically presented in fig. 3 below.

SPDC Corporate Strategy for Ending Gas Flaring in Nigeria Oslo June 2001 -5-
Figure 3 - Gas Gathering and Utilization Projects

• Soku Gas Project: Completed and already delivering some 60 million

scf/d to NLNG as from the first half of 2000. Additional supplies to
NLNG later, will raise total supply to some 200 million scf/d by the end
of 2001.
• Obigbo North AGG: It will take some 100 million scf/d of AG from
number of fields to the north and east of Port-Harcourt. AG will be
supplied to the NEPA power plant at Afam, the NAFCON fertiliser
plant and ALSCON.
• The Odidi Project-This project will take gas from the flares of Egwa,
Batan and Odidi fields; and would supply about 80 million standards
cubic of associated gas initially to the Nigeria Gas Company (NGC)
and later to the NLNG Train 3.

• Cawthorne Channel Project- This is SPDC’s largest gas gathering

project, which will supply 200 million scf/d of associated gas from four
oil fields to local markets and the NLNG Plant, Bonny.
• The Forcados Yokri Project: It will collect some 80 million standard
cubic of associated gas from four flow stations. The gas will be
combined with associated gas from Odidi and taken by Offshore Gas
Gathering System (OGGS) to the NLNG Plant at Bonny.
SPDC Corporate Strategy for Ending Gas Flaring in Nigeria Oslo June 2001 -6-
• South Forcados Project-The project will gather 160 million standard
cubic feet of associated gas from Tunu area.
• The Belema Project is also moving into the construction phase.
Already some 50 million scf/d of AG from Belema and Odeama fields
is being sent to Soku for supply to NLNG Trains 1 and 2.

Major Future Gas Gathering Project

For the country to actualise its dream of growing its oil production to
some 4 million barrels per day in 2010, SPDC has to increase its output
of oil proportionately. This will mean an increase in the production of
associated gas, that must be put to economic use. SPDC plans to
achieve this by gathering and supplying the gas to planned future Trains
4 and 5 of the NLNG plant as well as supply to power generation plants.
Currently envisaged gas gathering projects are as follows:
• Greater Ughelli Project: This involves gathering AG from the
surrounding oil fields. More than 60 million scf/d will be gathered
between 2001-2002 for supply to the Delta power station and other
industries in Delta State. Later additional production will be sent to
NGC’s Escarvos Lagos Pipeline System to supply industries in Lagos
and the planned West African Gas Pipeline.

• The Otumara Gas Gathering Project: This involves gathering 80

million scf/d from oil fields to the north of the Forcados Estuary.

• The Oguta Gas Gathering Project: Here, associated gas will be

injected into the oil field to maintain pressure in the reservoir, and
Gbaran/Ubie will supply gas to the NLNG Train 4.

Details of On-going Gas Utilization Programme:

Fig. 4 below shows the build of gas utilisation projects and how they
contribute to achieving SPDC’s flares-out programme by 2008.

SPDC Corporate Strategy for Ending Gas Flaring in Nigeria Oslo June 2001 -7-
Figure 4 - Gas Utilisation Programme

Gas to Domestic Industries:

(Yellow Colour on Fig. 4)

Shell Nigeria Gas, a gas transmission and distribution company, was

incorporated in 1998 as a major step towards effective gas distribution to
industries in the country. Unlike the NLNG, which aims at the
international market, the company aims at gas penetration into industries
in the domestic economy.
The company will take gas to the fences of about 50 to 60 industrial
customers in the first phase, to which over US$38.8 million has been
committed. Among the company's customers are factories and
commercial centres which use significant quantities of energy for their
businesses; industries which use natural gas as feedstock for their
products; and businesses which require permanent change to the
reliable supply of fuel and feedstock.
Gas supply to industry is a win/win for the community, the industry, the
government, the gas supplier and gas distributor. The gas supplier and
distributor benefit because hopefully it will be a reasonably profitable
business. Industry benefits by having a more reliable and cheaper fuel,
leading to cheaper products. The government benefits by having oil

SPDC Corporate Strategy for Ending Gas Flaring in Nigeria Oslo June 2001 -8-
substitution, thereby making more oil available for export. The
community benefits by having a more vibrant economy, more
opportunities for employment and cheaper products. And lest we forget
the environment benefits by having a cleaner burning fuel.

Gas as Feedstock for Industry:

(Brown Colour on Fig. 4)

This is principally a product for larger companies, such as fertilizer

companies or for the manufacture of urea and ammonia. Basically an
agricultural country, the importance of fertilizer to Nigeria and
government’s food security programme cannot be underestimated. Our
current major customer is the National Fertilizer Company of Nigeria
(NAFCON).
Gas for Power Generation:
(Pink and Orange colours for ALSCON on Fig. 4)

Gas supply for power generation has been a long –running strategy for
gas utilization in Nigeria. Power generation clearly offers a large market
for gas in Nigeria. Nigeria’s generating capacity is approximately
6000MW, of which 4000MW is thermal.
It is estimated that as much as 3500 MW of auto-generation capacity
has been installed by industry, commerce and residential customers due
to the poor reliability of the public electricity supply system.

In the short to medium term, gas could displace diesel in auto-

generation, as a fuel for gas engines, for industrial consumers whose
generating sets are capable of conversion or due for replacement. And
in larger installations where gas turbines offer improved economics,
perhaps in co-generation facilities, which produce both power and
steam, gas would definitely be the fuel of choice.
The government has announced emergency plans to encourage the
installation of a number of medium scale gas fired thermal power plants
by private investors (Independent Power Producers or IPPs). The
abundance of gas, the comparatively lower cost and short construction
time make gas-fired generators attractive in comparison with
hydroelectric schemes.
The Federal Government has charged NEPA with ensuring availability of
10GW (10,000MW) by 2005 and 25GW by 2010. SPDC has been invited
to support the Government’s plans to develop up to 2000 MW of

SPDC Corporate Strategy for Ending Gas Flaring in Nigeria Oslo June 2001 -9-
additional thermal power capacity for the nation. Additionally SPDC is
actively engaged in the development of power generation projects and
has commenced talks for a memorandum of Understanding with NNPC,
NEPA, and the Federal Government for this purpose.

Compressed Natural Gas (CNG) for Vehicles:

The use of compressed natural gas (CNG) as a relatively cheap and
clean transport fuel could make good economic sense for Nigeria.
However, with a conversion cost of typically around US$1000 for a car,
generally old vehicle stocks and limited facilities for filling fuel tanks,
private motorists and commercial vehicle operators in Nigeria are
unlikely to rush to convert. But with expanded gas infrastructure,
competitive fuel costs and a growing economy, CNG should gain
popularity with industrial fleet and major commercial vehicle operators.

In view of this, SPDC is pioneering demonstration and promotional

projects in this regard, which entails conversion of some 60 vehicles to
CNG use with the collaboration of Nigerian Gas Company.
Liquefied Natural Gas:
(Light Blue and Red stripes on Fig. 4)

The domestic market can only take a fraction of existing reserves. Shell
believes that securing reliable export markets is therefore key to major
gas utilisation. After 30 years of abortive attempts, 1995 saw the final
investment decision of the re-launched flagship NLNG project at Bonny
at a total cost of some US$3.8 billion.

Shell has a 25.6 per cent shareholding in the Nigeria Liquefied Natural
Gas Company (NLNG), and is also the technical adviser to NLNG. The
other partners are NNPC (49%), Totalfinaelf (15%), and Agip (10.4%).

In addition, SPDC supplies more than half of the gas requirements of the
project. During the year 2000, SPDC supplied an average of 374
mmsfc/d to NLNG, 53% of its total feedstock.
In early October 1999, Nigeria joined the world club of LNG exporting
countries when it shipped its first cargo. After more than 30 years of
effort, the dream was finally realised.

In spite of the major challenges which had to be overcome in the early

years of the project implementation, NLNG has maintained its original
construction schedule, and budget. The first cargo was delivered in

SPDC Corporate Strategy for Ending Gas Flaring in Nigeria Oslo June 2001 - 10 -
accordance with commitments, and the construction of the whole of the
two train Base Project was completed on time, in February 2000.

LNG Production will be some 6 million tones this year, and will generate
for the Government royalty payments, taxes and dividends of some
US$20 billion over a 20 - 25 year period.
The plant site was initially designed to accommodate 5 LNG trains. The
Base Project involved the construction of the first two trains and
associated facilities. The Third Train is being constructed alongside the
first two. It will include LPG facilities that will produce about 1.2 x 10 6
tonnes of LPG’s per annum from 2003 onwards, for which markets are
expected to be the Americas and Western Europe. Preliminary studies
for a further two train development are under way.
Further expansions of the NLNG project with two trains (trains 4 and 5)
will increase output by 7.6 million tonnes per annum and position Nigeria
as a key player in the international LNG market. LNG export also forms a
strategic economic solution to commercialising large volumes of
associated gas that will result from Nigeria’s Vision 2010 objectives of
growing its production to some 4 million barrels per day.
West African Gas Pipeline Project (WAGP)

Figure 5 - West African Gas Project

SPDC Corporate Strategy for Ending Gas Flaring in Nigeria Oslo June 2001 - 11 -
SPDC has also been actively involved in the exploration of the local
market in the West African sub-region. In partnership with Chevron, the
Nigerian National Petroleum Company (NNPC), Ghana National
Petroleum Company, Societe Binenois de Gaz, and Societe Togolais de
Gaz, SPDC has signed a Memorandum of Understanding with the
governments of Nigeria, Benin, Togo and Ghana to develop the West
African Gas Pipeline Company, (WAPCO), project. This involves the
supply of gas from Nigeria to the neighbouring countries.

Nigeria is in a unique position not only to fuel the economic development

of the West African sub-region but to also play a major role in regional
development. The WAGP is an extension to the western segment of the
domestic gas market and will be a catalyst to regional integration and
development. Export of gas to Ghana, Benin and Togo via the Pipeline is
expected to contribute some 250 MMscf/d to the domestic market
demand for Nigeria by 2010, almost all of which will be sold for use in
power plants in Ghana.

Conclusion
• SPDC’s confidence in eliminating gas flaring in its operations through
monetisation remains strong.

• The company has put together a series of strategic investment in gas

gathering/utilisation projects that will lead to the elimination of gas
flaring by 2008. This constitutes a significant part of the published
US$8.5 billion investment programme of the NNPC/Shell/Elf/Agip
Joint-Venture over the next few years.

• Fig. 6 below, demonstrates the challenge of the programmre and

shows that by 2004 a volume more than the equivalent of the current
flaring level would have been monetized. The significant growth
(±300%) in the NNPC/Shell/Elf/Agip joint venture oil production
programme is the reason it takes up to 2008 for the last flares to go
out.

SPDC Corporate Strategy for Ending Gas Flaring in Nigeria Oslo June 2001 - 12 -
Figure 6 - Gas Utilisation / Flares-out Plan

• The cornerstone of the strategy is LNG exports.

• Currently, 40% of electricity generation in Nigeria is based on gas

supplied by SPDC.
• With the on-going deregulation of the economy, industry has
commenced partnering with the National Electric Power Authority
(NEPA) to meet the rising demand for domestic power. Shell is
actively working towards full participation in this regard.

• Finally, via Shell Nigeria Gas Company, some level of success is

being achieved in promoting gas as industrial fuel of choice in the
local economy. Partners are required here to accelerate this process
and programme.

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