OUTSIDE THE BOX BY ALEX OTTI
In our last intervention on Monday, September 5, 2020, we argued that despite the aggressive push for green and clean energy, Nigeria should focus on utilising its enormous gas reserves for its economic benefit. Today, as it is our tradition, we yield the column to a subject matter expert to share his views on gas and renewables. Dr. Godswill Ihetu, an octogenarian, was a Managing Director of Nigerian Liquefied Natural Gas (NLNG). He was also a one-time Managing Director of Nigerian Gas Company (NGC) as well as GED, Engineering & Technology, NNPC. I guess we cannot get any better than this and we thank Dr. Ihetu immensely for adding value to this discourse. He would love to get feedback via firstname.lastname@example.org
No, Renewables Cannot Change the Future of Gas
I have read your brilliant, seminal and well researched article on this subject matter and I am provoked to reply. My contribution is not in disagreement. It is rather in not only agreeing but to amplify and emphasize the enormous importance of this subject matter, considering our country’s huge natural gas assets. Climate change issues have brought us to this point. Alarms being sounded about global warming and reducing carbon dioxide emissions have been identified as a major strategy in mitigating this phenomenon, and thereby reducing the so-called severe weather events such as hurricanes, fires and even droughts.
Global warming has also led to the melting of arctic ice over the years, resulting in the rise of sea levels which in turn cause severe floods. Climate change scientists have found that fuels, such as coal and hydrocarbons consisting of crude oil, natural gas and methane, emit excessive carbon dioxide into the atmosphere thereby depleting the ozone layer in the atmosphere. They have, therefore, advocated the reduction or elimination of fossil fuels which have been fuelling civilizations for decades, if not centuries. The 2015 Paris Climate Change Agreement had tried to obtain a global consensus regarding ways to reduce the use of fossil fuels and therefore emissions.
The industrial revolution would probably never have happened without coal. Before the advent of electric and diesel driven locomotives in railway, coal was used in steam engines. Coal was also burned for space heating in temperate climates, and in furnaces used in converting ore minerals into their useful states. Coal was versatile in application hence it earned the sobriquet ‘King Coal’. Unfortunately, burning coal is one of the biggest contributors to carbon emissions. Phasing out coal plants will be on the agenda in COP26 in Glasgow this November. Research reports indicate that globally, plans for new coal power plants were cancelled since 2015, following the Paris Climate Agreement. Consequently, about 40 countries no longer have any future coal power plants.
Renewables are now energy sources that are planned to replace fossil fuels. However, they have their limitations because of which I believe they pose no threat to the future of gas. Nuclear is the largest source of renewable energy. Other major sources are solar, wind, hydro, geothermal and hydrogen. Hydrogen is the new kid on the block. Although Shell sees hydrogen-based fuels as the long-term zero-emission fuels, Wood McKenzie is quoted as saying that hydrogen is so new that its future remains unclear.
Renewables produce energy for use in electricity for cars, trains, industry, and space heating and cooling. On the other hand, natural gas produces not only electricity, but also provides feedstock for manufacture of chemicals, petrochemicals and fertilizers. Renewable resources are localized, whereas natural gas can be transported across the world by pipelines or by LNG ships. Solar has its limitations in application in temperate areas of the northern hemisphere which does not have sufficient sunshine all year round. For wind turbines, wind speed is weather dependent and may also not produce energy all year round. They therefore generate electricity intermittently in some locations. Other limitations on wind are that turbine farms constitute an eyesore on the landscape and generate noise pollution for nearby communities.
Because Solar and wind sources can be intermittent, they often require natural gas as back up energy source for electric power to fill the gap because it is easy to switch on and off. Hydro and geothermal have always been available and occur naturally in some countries, but hydro also depends, to some extent, on rainfall and can also be affected by drought. In summary, these renewable sources can be volatile whereas gas is clean, available and reliable; and poses little threats to the environment. The CEO of Chevron, Mike Wirth is quoted as saying that the company will not be betting heavily on wind and solar power, unlike other oil majors because it believes it will not create enough value for shareholders. There appears to be no consensus in this debate, and the jury appears to be still out on renewables.
To reduce the dangers in burning coal and fossil fuels, the advanced economies embraced nuclear technology for power generation. Uranium is the fuel most widely used in nuclear power plants. Uranium is derived from mines around the world. These mines also emit carbon in mining operations. Nuclear power has since replaced much of coal and fossil fuels in electricity generation. Nuclear power is carbon free and is playing a key role in energy transition. However, nuclear power, despite being clean and efficient, has neither been entirely popular nor safe. The 1986 nuclear accident in Chernobyl in present day Ukraine was the worst nuclear disaster in history. As recently as 2011 we witnessed the Fukushima Daiichi nuclear power station disaster in Japan, resulting from a weather event of earthquake and accompanying tsunami. It was the most severe nuclear accident since Chernobyl. The cost of decommissioning the damaged nuclear plants was put at $73 billion. Consequently, nuclear reactors were shut, leaving Japan completely without nuclear-produced power for the first time since 1970.
This accident dealt a blow to the plans to scale up nuclear to address climate change issues. Consequently, several countries, including Germany, opted to phase out nuclear energy. Natural gas was called to step into the gap. Germany increased its gas import from Russia even against opposition from the United States. Obviously, the safety and reliability of nuclear energy cannot be guaranteed. Whereas the French had invested substantially and were perhaps comfortable with retaining their plants, the Italians were not. In 1989, Italy voted in a referendum and rejected further use of nuclear power plants. ENEL, the national electricity company of Italy, was in a panic and started looking for gas frantically. Probably, without the Chernobyl accident our LNG project would not have taken off when it did. Here is how.
Nigeria LNG was incorporated in 1989, and as with all gas sales projects, you must find a long-term customer before you commit to construction of your facilities. NLNG had offers to sell gas to France, USA, Italy and Spain. The prices being offered were not attractive enough to make the NLNG project economically viable. Then suddenly we were approached by ENEL. In their desperation they were willing to buy at prices which were double those already being offered by other buyers. We grabbed the opportunity and were willing to offer almost 50% of our capacity to ENEL. That singular transaction changed the economics of the NLNG project and made it viable. I should add that the agreement, signed in 1991 with ENEL, is still in place to this day.
The object lesson here is that often, forecasts and targets are frustrated by unforeseen circumstances. This was a world heading for nuclear as fuel of the future and suddenly it returned to gas. Even some coal mines that had been closed were re-opened after the Chernobyl nuclear disaster. Today, there are forecasts and projections regarding the demise of fossil fuels. We must be reminded that some developed countries are still using coal for power generation even though it has long been established that natural gas is a much cleaner fuel. The death of coal had been pronounced decades ago. Shell has a target to achieve net zero-emissions by 2050. Given the huge investment required to achieve this goal, Shell like most International Oil Companies (IOCs) is not confident that this target is realistic. As we have seen in Chernobyl and Fukushima, it takes a major accident or weather incident to change the forecasts and energy transition scenarios.
Oil and gas prices are currently rising, causing a gas supply and electric power supply crisis in Europe and the US. This is driving up demand and the prices of pipeline gas and LNG exports. To bridge the shortfall in electricity supply, Germany has made a dramatic return to coal. There are countries in Asia returning to coal and fuel oil for power generation as gas prices spike. The rise in gas prices is partly being blamed on hurricane Ida damage to oil facilities in the US Gulf of Mexico, which led to gas shut ins. In fact, prices have doubled this year which seems to confirm that companies worldwide accept natural gas as the clean fuel of choice. In my opinion, this situation clearly demonstrates the pivotal role of gas in global energy supply and industrial production. It is said that the rising demand and low inventories are attracting investors into natural gas production in the US. Some analysts are of the opinion that oil and gas prices will remain high for longer as companies resist the urge and are reluctant to increase production and development, due to investors being nervous about the long-term future of their investments. One analyst thinks that the gas supply crunch is “going to put the focus on this commodity that’s been overlooked for the past several years.”
My answer to the question posed by this article, if renewable will change the future of gas, is, No. What does the rise of renewable portend for the future of gas in Nigeria? Nigeria and the world at large, is endowed with enormous oil and gas resources, which are not likely to be abandoned. If we must produce natural gas, we must produce crude oil, because we cannot produce oil without the Associated Gas (AG). Nigeria needs to produce crude oil because we need the revenue badly. We also need crude oil for our domestic refineries with an installed refining capacity soon to be in excess of 1.1 million barrels per day, considering the potential production from the NNPC, Dangote Industries and privately-owned mini refineries. The challenge we have with AG is to fully utilise them. Because of our low industrial base, we flare some of the AG. Thankfully, Nigeria NLNG now processes much of this gas in its Trains 1 to 6 plants, with Train 7 on the way. Excess AG can find home in NLNG plants or new LNG projects. OKLNG which was hitherto abandoned can be re-launched.
Our huge reserves of Non-Associated Gas (NAG) were discovered in the search for oil. What should we do with these reserves? We can use them in power generation, manufacturing of chemicals, and urea for fertilizers. Natural gas is also used for processing of chemicals, fertilizers, paper and glass, among other products. The federal government has announced its National Gas Expansion Programme (NGEP) which plans to fuel vehicles with Compressed Natural Gas (CNG). The NGEP may well represent one of our own responses to energy transition without recognizing it. Nigeria LNG has declared a Decade of Gas and has therefore been optimistic enough to foresee expansion of its capacity to Trains 8, 9 and 10. Is there a market for this? Should we trust their optimism? They should know. NLNG was a joint winner of a World LNG award for most outstanding contribution in the industry for 2020. NLNG was “adjudged to be one of the two best organizations that have made outstanding contributions to the industry and has shown itself to be an industry leader.” This award was earned despite the covid-19 pandemic of 2020.
The recent gas supply crisis once again brings to the fore the debate about the end of oil, as is being touted by some sources. The answer is that probably we are not seeing the end of crude oil. We have seen how forecasts can be nullified by accidents or severe weather events. Natural gas is pivotal to energy and industry despite the increase of renewables in the global energy mix. OPEC’s World Oil Outlook for 2020 projects that in the long-term, global oil demand may reach 109 million barrels per day by 2045. It says further that “Global oil demand in road transportation will continue to dominate the sector, although rising penetration of alternative vehicles will limit oil demand growth. It predicts that “the largest growth will come from petrochemicals.” If we believe these OPEC projections, it shows that oil demand will grow and so will the production of Associated Gas which comes with it.
Crude oil will not go out of fashion any time soon, considering that crude oil finds application in many products such as gasoline, diesel, kerosene (domestic and aviation) fuel oil, propane and butane. Others are asphalt for road construction, carbon black for tyres, petrochemicals in plastics in everyday items. The International Energy Agency (IEA) has warned that in order to reach 2050 net zero emissions target, all new oil and gas development needs to cease immediately. Even despite this warning, the IOCs are not really slowing down. ENI has just reported crude oil discovery offshore Ivory Coast and so has Exxon, off the coat of Guyana. Energy transition will not mean that oil rich regions and OPEC will superintend a strategy that renders their resources obsolete.
•Dr. G. S. Ihetu was a Managing Director of Nigerian Liquefied Natural Gas (NLNG), Managing Director of Nigerian Gas Company (NGC) and GED, Engineering & Technology, NNPC