Nigeria is endowed with huge proven gas reserves estimated to be 184
trillion cubic feet (Tcf). It ranks as the 7th holder of natural gas
reserves in the world, and the largest in Africa. Nigeria also flares
more natural gas than any other country; it accounts for 12.5% of the
world‟s annual gas flared and it wastes $2.0 billion annually by flaring
gas associated with crude oil extraction. There is crucial need to
monetize the gas reserves, reduce gas flaring and its environmental
impacts, and to derive he maximum economic benefits from gas production.
The purpose of this research is to identify options for natural gas
utilization, evaluate the various strategies and thereupon develop a
model for optimizing the natural gas utilization strategies using the
Niger Delta as a case study. A Linear Programming model is formulated
based on the Transshipment model formulation concept. An objective
function is established based on profit derived from the various
utilization strategies (represented as nodes on the model) subject to
certain constraints. The optimal decision for the model is determined
from the solution of the optimization model. Results obtained from this
study indicate that the optimal utilization decision involved the
continuation of projects (including both current and planned) such as
the Liquefied Natural gas project at Bonny (including the sales of both
LNG and NGL), supply of gas for domestic use and power generation,
transport to West African countries, transport of natural gas to Algeria
through the TransSaharan Gas Pipeline (TSGP), and sales of EOR products
to market. Upcoming project such as the Olokola LNG was only viable as
the gas price increased. Optimal decision is affected by fixed or
variable costs and more significantly by changes in market price.
Sensitivity analysis is carried out to evaluate impact of changes in the
input parameters on the objective function. This research also
discusses the impact of gas pricing on the implementation of the
Nigerian gas master plan (NGMP).
The model can be used to make optimum decisions in terms of selecting
which set of projects would provide maximum benefits from several
competing natural gas projects.
1.1 PROBLEM DESCRIPTION
Natural gas is a subcategory of petroleum that is a naturally
occurring, complex mixture of hydrocarbons, with a minor amount of
inorganic compounds. It was once an almost embarrassing and unwanted
by-product-or more correctly a co-product- of crude oil production but
that notion has since been abandoned because of the huge potential for
gas commercialization and utilization (Wang and Economides, 2009). .
Nigeria has proven gas reserves estimated to be 184 Tscf, making it the seventh largest reserves in the world (Oil and Gas Journal (OGJ),
2009). A decree was issued by the Nigerian government to stop the
flaring of natural gas in hydrocarbon exploration and production
(E&P) activities by 2008 all in an effort to realise commercial
benefits from the nation‟s huge gas reserves. However due to several
factors mitigating against this investment ideas by the government, this
deadline date has far expired but huge volumes of gas are still been
flared (World Energy, 2004).
The Natural gas available in Nigeria could either be associated or
non-associated. Non-associated natural gas is found in reservoirs
containing no oil (dry wells). Associated gas, on the other hand, is
present in contact with and/or dissolved in crude oil and is coproduced
with it and consists primarily of methane. Higher molecular weight
paraffinic hydrocarbons (C2-C7) are usually present in smaller amounts
with the natural gas mixture, and their ratios vary considerably from
one gas field to another. Non-associated gas normally contains a higher
methane ratio than associated gas, while the latter contains a higher
ratio of heavier hydrocarbons (Matar and Hatch, 1994).
Nigeria flares more natural gas associated with oil extraction than
any other country in the world. Estimate suggests that out of the 3.5
billion cubic feet (Bscf) of associated gas (AG)
produced annually, 2.5 billion cubic feet (Bscf), or about 70% is
wasted via flaring. This statistical data shows that gas flaring is
notoriously unreliable, and Nigeria may waste US $ 2.0 billion per year
by flaring associated gas. Flaring is done as it is costly to separate
commercially viable associated gas from the oil (Adewale, 2010).
Companies operating in Nigeria also harvest natural gas for commercial
purposes, but prefer to extract it from deposits where it is found in
isolation as non-associated gas. Thus associated gas is burned off to
decrease costs (Wikipedia,2010). The
World Bank estimates Nigeria alone accounts for 12.5% of the world‟s
annual gas flared though the Nigerian government has enacted a policy of
“Zero-Gas Flare” by 2008 which has still not been met by the operators.
This translates to about 800 Bscf of natural gas flared annually.
Hence, energy companies have to develop strategies to utilize the
“stranded” gas produced. The Natural gas traded today is strongly driven
by long-term and high risk contractual agreements (Adegoke et al, 2005).
Major problems in utilizing natural gas worldwide have been
predominantly the high transportation costs compared to crude oil.
Transportation costs could be as much as four times that of crude.
However, the OPEC World Energy Models forecast that world oil demand
will rise from 76 MM bbl per day in 2000 to 103 MM bbl/day in 2020 seems
to create opportunity for utilization of associated gas (World Energy,
2004). The additional benefits of natural gas utilization such as the
reduced green house gas emissions (GHG) would further substantiate the
claim for utilization of gas in Nigeria.
Natural gas utilization entails devising a strategy for converting
natural gas from the production field to several options for economic
benefits in terms of money and the environment. The options for the
natural gas utilisation includes : enhanced oil recovery (EOR);
conversion of natural gas to gasoline, methanol, CNG, and liquefied
natural gas (LNG); transportation of natural gas or its by-products by
pipeline, rail and sea; and other in-state utilization options such as
use in utility or industry.