The Future of Gas is Already Here

OUTSIDE THE BOX BY ALEX OTTI

“The future is faster than you think”

– Peter Diamandis

Barely four weeks ago, we began discussing the growing impact of renewable energy and how it could affect the future of gas utilisation. This topic generated so much interest that our last column was yielded to no less a person than the man who should know more than any Nigerian alive in the area of gas, Dr. Godswill Ihetu. As former CEO of Nigerian Liquified Natural Gas Company Ltd and Nigerian Gas Company, and as veteran of the oil and gas sector, his knowledge and perspective are unparalleled. Expectedly, his authoritative contribution to the discourse helped throw much brighter light on the matter. We must thank him once more for his time and insight.

Inevitably, we are staying on the subject of energy this week, especially gas, as new issues keep coming up every day. It is no longer news that Europe, China, the United States and many other industrialised countries, are facing an imminent and severe energy crisis. Meanwhile, gas which many parts of the advanced world had hitherto been coy about, has continued to demonstrate that it is the fuel of today and the immediate future. According to current statistics, in the last one year, price of gas has gone up 8 times. Benchmark futures trade at the oil equivalent price of $230 per barrel. All these are happening when winter has not even set in. This indicates that the likelihood of gas prices going up further is not farfetched. Crude oil prices have, for the first time since 2015, gone above $80 per barrel.

Given these realities, crude oil alternatives for powering homes and offices, seem to command stronger demand. From informed research reports, the demand for crude will rise by close to 1m barrels daily by the end of the year. Analysts believe that crude oil prices could hit the $100 per barrel mark by December this year. In tandem, natural gas prices are expected to double from its present high price within the same period. All these are on the back of post-covid economic recovery and increased productivity in China, Europe and the USA.

Nevertheless, there are deserving grave concerns about global warming, reducing carbon footprints and achieving a net zero emission as quickly as possible. Most of the developed economies have set an aggressive deadline for compliance with this objective. Like Dr. Ihetu espoused in his piece, the melting of the arctic ice leading to massive flooding and the general depletion of the ozone layer, cannot be wished away. To get the world to reduce carbon emissions, the international community has taken a principled stand to stop the funding of fossil fuel projects as quickly as possible. This has posed a great threat to countries in Africa which are hydrocarbon-rich and rely on foreign capital and technology to exploit these resources to the benefit of their economies and societies. As I was putting this piece together, my attention was drawn to a paper presented recently by the Vice President of Nigeria, Prof. Yemi Osinbajo, SAN, at the Africa Regional Heads of Government Commonwealth Roundtable. In his presentation, the Vice president decried the defunding of gas projects policy of the global community, calling it an unfair and unjust energy transitional policy which violates the principles of equity and justice enshrined in global agreements.

In the very well-made argument, Prof. Osinbajo had this to say “Although all countries must play their part in the fight against climate change, a global transition away from carbon-based fuels must account for the economic differences between countries and allow for multiple pathways to net-zero emissions. For countries such as my own, Nigeria, which is rich in natural resources but still energy poor, the transition must not come at the expense of affordable and reliable energy for people, cities, and industry. To the contrary, it must be inclusive, equitable, and just-which means preserving the right to sustainable development and poverty eradication, as enshrined in global treaties such as the 2015 Paris climate accord.”

Prof. Osinbajo went further to make a case based on comparative contribution to emissions viz “Curbing natural gas investments in Africa will do little to limit carbon emissions globally but much to hurt the continent’s economic prospects. Right now, Africa is starved for energy: excluding South Africa, sub-Saharan Africa’s one billion people have the power generation capacity of just 81 gigawatts—far less than the 108-gigawatt capacity of the United Kingdom. Moreover, those one billion people have contributed less than one percent to global cumulative carbon emissions. In Nigeria, for instance, the average person emits just 0.6 metric tons of carbon per year, a fraction of the 4.6 tons per capita global average and even less than Europe’s 6.5 tons per capita and the United States’ 15.5 tons per capita. Put another way, energy use and emissions are so low in sub-Saharan Africa that even tripling electricity consumption through natural gas—which no one is proposing— would add just 0.6 percent to global emissions.

“But limiting the development of fossil fuel projects and, in particular, natural gas projects would have a profoundly negative impact on Africa. Natural gas doesn’t make sense in every African market. But in many, it is a crucial tool for lifting people out of poverty. It is used not only for power but for industry and fertilizer and for cleaner cooking. Liquified petroleum gas is already replacing huge amounts of hazardous charcoal and kerosene that were most widely used for cooking, saving millions of lives that were previously lost to indoor air pollution. The role of gas as a transition fuel for developing countries, especially in Africa, cannot be overemphasized”

We salute the Vice President for forthrightly making the above statements. All African countries must adopt this position, not because it will make the Western world change its stance, but to help African countries begin to think about alternative funding strategies to Gas. In fact, a few days ago, the U.S. Deputy Special Presidential Envoy for Climate, Jonathan Pershing, speaking in South Africa was quoted as saying that fossil fuel firms investing in Africa face the risk of regulatory and financial action. Again, a United nation’s Net Zero Banking Alliance, a group of global banks that have committed to reducing their carbon financing and investment, was formed early this year. The largest banks in the US including Citibank, Bank of America, Morgan Stanley and J.P. Morgan Chase have joined and an interim target of 2030 has been set for compliance.

It is instructive that while Nigeria and many other African countries were literally bullied away from coal as a source of energy some decades ago, statistics has it that as recently as 2017, coal contributed 50% of electricity generated in the Unites States of America. This number has just gone down to 20% as at 2020 while Natural gas stood at over 40% within the same period. As at the end of last year, about 10.6% or 22.6GW of the total power generated in Germany was accounted for by coal while Natural gas accounted for about 14% or 30GW. Germany’s coal- phase-out plan stretches to 2038. Meanwhile, we are now being told, after we have completely shut down our coal mines in Enugu and other places that clean coal technologies that help to reduce emissions are possible. It is also noteworthy that in spite of the campaign to defund fossil fuel, only 19.8% of energy generated in the US comes from renewable sources, even though the Department of Energy (DOE) is providing special funding for investment in renewables.

While the campaign was on and plans were being put in place for net zero emissions by 2030, nature seems to have struck with the impending energy shortage in many parts of the developed world as noted earlier, leading to increase in prices of fossil fuel. Russia seems to be smiling to the bank as it supplies about 40% of the gas demands of Europe and has indicated it will increase supply above its traditional numbers. In exchange, it is exerting its influence in the region and ramming through the approval process for Nord Stream 2, the 1,200Km long subsea pipeline that will transport about 110billion cubic meters of gas to Germany and other parts of Europe. This ambitious $11b project, undertaken by Russia’s Gazprom received condemnation and sanctions from the US in 2019. In spite of the opposition to the project, Russia continued and has now completed the pipeline as at early this year. Certification by Germany which has been delayed seems to be receiving serious attention now as Russia argues that it is a panacea to the energy crisis. The Nord stream 2 Project is a larger version of the 678Km long West African Gas Pipeline project which started operation in March 2011. The $900m project supports the export of gas from Nigeria to Ghana via Benin Republic and Togo. It has a capacity of 200 million standard cubic feet a day (mscfd) and can be expanded to 600 mscfd. The pipeline is owned by a consortium of private and public sector investors led by Chevron. If this project which was promoted by the World Bank was conceived today, your guess would be as good as mine as to its funding. So, what do all these mean?

In the first place, the end of natural gas is not in sight yet. In fact, with the unfolding scenario, the future of gas is even much stronger than it was a short while back. While the legitimate campaign for green energy continues and should receive the support of all, it is important to re-emphasise that the ambitious deadlines set mostly by developed countries is everything but realistic. As a country, we are virtually blameless in the emissions that are forcing everyone to think renewable energy sources as aptly demonstrated by the Vice President. We therefore must take decisions that best serve our interest and will lift our people from poverty. We had stated earlier that we are not likely to see any shift in policy in terms of funding fossil fuel projects. Since we have seen that fossil fuels would be with us for the next two to three decades, we should take our destiny in our hands and come up with alternative funding strategies for these resources that we are blessed with. In like manner, we should also fund extensive research and development initiatives as foreign technology would likely disappear with foreign funding. Our position is that the developed world pushing to starve hydrocarbon projects of funding still relies on the same hydrocarbon for most of its energy needs. We should, therefore, pay attention to actions rather than words.

We should draw some lessons from Russia who pushed ahead with its ambitious plans for gas despite what the rest of the world seemed to want it to do. Russia’s decision was anchored solely on the massive gas reserves that it has and the fact that it is the biggest supplier of gas to Europe. Europe needs Russian gas despite the geopolitics; a purely commercial transaction based on supply and demand. Clearly, Russia was convinced that the future of gas was secure and is already benefitting from that decision. We have seen how developed countries drove us out of coal while they still use that ostensibly very dangerous resource to power their plants. Given our very poor energy supply records and the fact that majority of our population has no access to electricity, we shouldn’t have phased out coal at the time we did. Currently, coal contributes 80% of South Africa’s energy needs.

Finally, it is heart-warming that Nigeria has defined its pathway towards zero emission which does not necessarily align with what the developed world is saying. It is the position of this column that we should stick to it. As we do this, there may not be any need to continue to plead with the developed world to soften its stance on defunding fossil fuel projects. This is because, they are unlikely to change their position. We have seen International Oil Companies divest and pull out from different otherwise profitable projects in the country. All these actions are in furtherance of the global stance on funding of hydrocarbon projects. What we should continue to do is to encourage and support local investors to take up these initiatives and replace any player that pulls out. We may not have the required capacity in terms of skills and financing, but with time, we should be in a position to do so.

We started this discourse with an enquiry into whether renewables would alter the future of gas. An authoritative answer came insisting that the position of gas was secured at least in the nearest future. Just as we were on it, gas prices began to go up aggressively in the face of an imminent energy crisis. Meanwhile, controllers of Capital had taken a position to starve the sector of the much-needed development finance. We therefore conclude by encouraging concerned countries in Africa to put on their thinking caps and pursue their interests in gas while the party lasts.

PS: Shell has just been refused permission by UK regulators to re-activate a previously shutdown gas field in the North Sea.