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Developing Domestic Gas

Infrastructure
...a private sector approach

The Nigerian Infrastructure Summit


Transcorp Hilton, Abuja
6th -8th August 2008

Wale Tinubu

Oando PLC
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Outline

1.0 Background
Nigerian Gas Industry

2.0 Current Realities / Challenges


Funding and Infrastructural Issues
Government Intervention

3.0 Practical Way Forward


A suggested revised path

4.0 Role of private enterprise such as Oando

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Background

Nigeria, has the worlds 7th largest proven reserves of gas with 182
TCF already discovered
The gas is rich in natural gas liquids and have little or no sulphur
Over the years, there has been a steady growth in reserves with
recent discoveries coming from the deepwater basin
To date, all gas discoveries in Nigeria have been incidental;
resulting from the search for oil
There is a significant potential for reserves growth with focused gas
exploration
The reserve potential has been put at up to 600TCF which will make
Nigeria the 4th largest gas reservoir after Russia, Iran and Qatar
Nigeria currently flares 35 - 39% of total gas exports
Put another way, the gas flared in Nigeria is sufficient to generate 15GW
of electricity; this in a country with 6GW of installed and only 3GW of
available power generation.

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Nigerias Gas Sector is predominantly government-controlled

Government is the dominant gas resource owner but has


limited operatorship
Most of the production is by Major Oil Companies which although
are about 60 % owned by NNPC are commercially driven
The export market is growing
With train 6 now operational, NLNGs capacity has reached
22MTPA
Other LNG plants (Olokola and Brass) are under evaluation
The West African Gas Pipeline Project is continuing apace and
there is evidence of increasing demand
The domestic demand is also growing
The power sector reform and the attendant government funded
Gas Power Plant developments of over 10GW is driving domestic
demand
Oil prices are driving up the cost of alternative fuels and
industries are turning to gas where available

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The government-led investment in domestic gas
infrastructure is no longer adequate

The Escravos to Lagos Pipeline System (ELPS),


completed in the nineties is the main transmission
pipeline system dedicated to domestic consumption in
the country
This pipeline system is the only source of supply to the
industrial and utility sectors of the domestic market
ELPS also serves as the source of gas supply for the West
African Gas Pipeline System
As with many other oil and gas facilities, repeated sabotage
of this and feeder systems has led to frequent supply
disruptions of recent
The other major downstream pipeline systems are
dedicated to single projects leading to sub optimal
pipeline configurations
These pipelines are mainly to export oriented projects and
cover areas already served by other single project
pipelines.
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The private sector will feel the brunt of any long term gas
unavailability

The dearth of investment in major domestic pipeline


infrastructure has lead to a short fall in the pipeline
capacities required to sustain the growing economy
In addition, there is no pipeline connection between the
gas supply fields of the East and the growing markets of
the West and North.
This has led to led to a shortage of gas availability for the
newly commissioned power plants in the Western parts of
the country
Significant and Urgent pipeline Infrastructure has now
become imperative if the country is to benefit from the
gas resource

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Power heavy (cheap) mix in domestic gas market limits the ability to
recover capital leading to limited private investment

TYPICAL GAS SECTOR FLOW OF FUNDS NIGERIAN GAS SECTOR FLOW OF FUNDS

Consumer
Consumer
Government Grants
Return on Investment

Power & Power &


other other Markets
Markets
Transmission
Transmission
& Distribution
& Distribution

Gathering & Gathering &


Processing Processing

Sources: Nexant, Oando

This might explain the current inadequacy in gas infrastructure


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facilitating gas export rather than local consumption which has
the maximum net benefit
LNG VALUE CHAIN Maximising Gas Net Benefit

Gas Liquefaction
Production Plant Shipping

Gas Pipelines
Processing Receiving
LNG Terminal

Power
Transmission

Maximum Benefit via this


Route to Domestic Power

Source: Nexant

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and also sub-optimizing potential for local job creation

LNG is a growing and EMPLOYMENT CREATION vs. CAPITAL COST


(Bubble size indicates volume of gas consumed)

robust international Hi LNG


market
BUT it costs ~$20million / job
created (compared with. $10- Petrochemicals
20,000 / job in plastics

Investment Required
processing or construction)

Plastics
Processing

Power

Lo Hi
Employment Created
Sources: Nexant, Oando

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The government policy has now approved policy instruments that
seeks to
Exploit the Nigerian gas reserve potential for accelerated
economic development
In support of the 10% GDP growth aspiration
Concurrent focus on domestic and export market
Develop an integrated infrastructure strategy that will support
domestic, regional and export (LNG) markets
The adoption of an infrastructure investment blue print
Implement a gas pricing regime that favors local value added
projects (Methanol, Urea and Gas to Liquids)
Ensure commerciality for all investments
Set aggressive goals with buffers to offset potential delays and
possible problems
Encourage the private sector to drive the developments

and recognises the need to incentivise viable domestic gas companies


to execute the infrastructure investment required
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The Gas Infrastructure Blueprint identifies the critical infrastructure
required to develop the domestic market
ID Pipeline Project Length (km)/ Capacity Description
Diameter(in)

2 OB-OB to Oben 100 / 42 1700 Provides security of Supply to the West

3 Calabar to Ajaokuta 365 / 3000 Provides Security of Supply to North. Serves as


(48,48,56) pre-investment for TSGP( Abia, Anambra en route)

4E East Loop Onshore East 188 /56 3500 Main Supply to Calabar CPF and the North

4W East Loop Onshore West 56 3000 Supply to Bonny from the East Onshore

5E East Loop Offshore East 32 1150 Supply to Calabar from offshore

5W East Loop Offshore West 209 /42 1700 Supply to Bonny from East offshore

11 Shagamu to Jebba 265 / (24,22) 390 Secure supply to Ogun, Osun, Oyo and Kwara

ELOPS Escravos to Lagos 200 / 42 1250 Supply to Lagos via secure offshore route
Offshore

ID CPF Location Capacity COD Year Description

A Escravos 2395 2010 Serves North and West. Several phases of expansion, 2bcfd by 2012

B Ob-Ob 1700 2010 Servers North and West. Several Phases of expansion.

C Calabar 4500 2010 Main supply to Calabar and North

F Forcados 3250 2020 1bcf required by 2012, successive expansion phases

G Brass 1700 2011 Brass LNG Only

H Olokola 2000 2012 No incremental capacity LNG only foreseen

Source: IHS Gas Master Plan

These gas pipeline and Gas Central Processing Facilities (CPF)


represent investment opportunities for the private sector
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Gas Infrastructure Blueprint

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Oando intends to play in four specific opportunities

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2 ob/ob to Oben interconnector pipeline


3 Calabar to Ajaokuta pipeline
B OB/OB CPF
C Calabar CPF
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Specific Opportunities
Pipeline Project Length Diameter Capacity COD
(km) (in.) (mmscf/d) Year

OB-OB to Oben 100 42 1700 2012

Calabar to Ajaokuta

Phase 1 (Okopedi Ito) 55 56 3000 2009

Phase 2 (Umuahia) 65 48 2200 2010

Phase 3 (Ajaokuta) 245 48 2200 2011

Total 365

CPF Capacity COD Year CPF Capacity COD Year


Calabar CPF OB/OB CPF

Phase 1 500 2008 Phase 1 700 2011

Phase 2 900 2011 Phase 2 1,000 2012

Phase 3 500 2012 Total 1,700


Phase 4 600 2013

Phase 5 1,500 2015

Phase 6 500 2018

Total 4,500
Source: IHS Gas Master Plan

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Oando Gas and Power a local gas company

Oando has had an 8 year history of supplying gas to industries


in the Greater Lagos Area, the success of which is
demonstrated by the following achievements:
Phased completion of a 99 km distribution network in Lagos
The development of a 124km gas supply pipeline to the
Cement Plant in Calabar
Plans include a city gate to supply gas to the Calabar
Industrial Area
$156m (NGN18.7bn) of investment mobilized by Oando to
construct pipeline infrastructure
The connection of over 90 industrial customers to the gas
network

Oando is gearing up to play a major role in the


development of the national gas grid
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Oando an Integrated Energy Company

Oando Plc

Marketing Supply and Gas (Pipeline Energy Exploration and Refining Power
No. 1
Trading Transmission of Services Production New Build A Significant
marketer of Dominant
Natural Gas) Offering Assets option play
Petroleum local player 20-year BOT Product Acquisition for Oando
Products Franchise service lines and
Expansion
Agreement through Monetization
into other
with NGC strategic
West African
alliances
Markets New Industrial (e.g. Baroid,
customer Halliburton)
connects
Further
pipeline
expansion into
un-served
markets

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Oando is positioned to capture maximum value along the entire energy
chain and harvest synergies between subsidiaries

Oil and Gas Primary Secondary


Refining Trading Storage Channels Consumer
E&P Distribution Distribution

Production Refinery Supply & Marketing


& Dev. Co. Division Trading

Energy
Services
Gaslink / Power
East Horizon

Synergies 18
Thank you
http://www.oandoplc.com

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