Optimization of Strategies for Natural Gas Utilization: Case Study of the Niger Delta
Chapter One
OBJECTIVES OF THE STUDY
The objectives of this study are primarily to;
- Review the available options.
- Identify sources and volumes of Natural Gas to be produced.
- Develop a mathematical optimization model for natural gas utilization in the Niger Delta fields (case study) subject to constraints such as economics, environmental factors, etc.
- Solve the optimization problem to identify the natural gas reserve required to meet market demand
- Identify the optimum decision or utilization path that would generate the maximum profits in terms of gas utilization and consumption.
CHAPTER TWO
OVERVIEW OF LITERATURE
A review of literature is presented to provide the background information for the work. The scope of the review includes the following;
NIGERIA’S NATURAL GAS
In addition to oil, Nigeria holds the largest natural gas reserves in Africa but has limited infrastructure in place to develop the sector. The Natural gas in Nigeria is found in relatively simple geological structures along the country‟s coastal Niger River Delta and the offshore blocks. Other prospective hydrocarbon bearing basins include the Benin basin, Anambra basin, Benue trough, etc but these are yet to be fully explored (World Energy, 2004). Figure 2.1 shows the location of the Niger Delta. Associated natural gas production is mostly flared but the development of regional pipelines, the expansion of liquefied natural gas (LNG) infrastructure and policies to ban gas flaring are expected to accelerate growth in the sector, both for export and domestic use in electricity generation. Table 2.1 is a summary of the Nigerian energy profile (Energy Information and Administration (EIA), 2005).
Proven Reserves and Exports
Oil and Gas Journal estimates that Nigeria had 184 trillion cubic feet (Tscf) of proven natural gas reserves as of January 2009, which makes Nigeria the seventh largest natural gas reserve holder in the world and the largest in Africa (Figure 2.2). The majority of the natural gas reserves are located in the Niger Delta (OGJ, 2009).
Approximately 749 Bscf were exported, mostly as liquefied natural gas (LNG). Most of the gas reserve is located offshore. Fifty seven percent of Nigeria‟s gas production or 2.6 Bscf/d is from offshore fields. In 2007, Nigerian exports of LNG to the US were 95 Bscf, making it the third largest source of LNG imports after Trinidad (447 Bscf) and Egypt (115 Bscf). Nigeria exported close to 500 Bscf of LNG in 2009. Of this total, 2% went to the United State, 66% went to Europe mainly Spain (31%), France (19%) and Portugal (16%). Other export destinations include Asia (15%) and Mexico (16%). (EIA, 2010).
Flaring of Natural Gas
Nigeria flares its natural gas chiefly because its oil fields lack the infrastructure to produce and market associated natural gas. According to the National Oceanic and Atmospheric Administration (NOAA), Nigeria flared 593 Bscf of natural gas in 2007, which, according to NNPC, cost the country US$ 1.46 billion in lost revenue. Figure 2.3 show the volume of gas flared in 2007 by the top 9 countries in the world. The government of Nigeria has been working to end natural gas flaring for several years but the deadline to implement the policies and fine oil companies has been repeatedly postponed with some analysts pushing the date as far forward as 2012. In 2009, the Nigerian government developed a Gas Master Plan that would promote new gas- fired power plants to help reduce gas flaring and provide much-needed electricity generation. (EIA, 2010).
Gas flaring is generally discouraged as it releases toxic components into the atmosphere and contributes to climate change. The World Bank reported in 2004 that, “Nigeria currently flares 75% of the associated gas it produces. Gas flaring releases large amounts of methane, which has a high global warming potential. Gas flares have potentially harmful effects on the health and livelihood of the communities in their vicinity, as they release a variety of poisonous chemicals. Humans exposed to such substances can suffer from a variety of respiratory problems. The international community, the Nigerian government, and the oil corporations seem in agreement that gas flaring needs to be curtailed but efforts have been limited over the years (Wikipedia, 2010).
Security in the Niger Delta
The Nigerian natural gas sector is also affected by the security issues in the Niger Delta. Projects are often delayed or shut-in as a result of sabotage, bunkering, and general insecurity. Most recently, the Escravos Gas to Liquids (GTL) project was delayed until 2012 (from 2010 earlier scheduled).
CHAPTER THREE
METHOLOGY
The optimization model for gas utilization in the Niger Delta region of Nigeria is developed in this section. Methodology used in this study is shown in Figure 3.1. A linear transshipment modelling approach similar to Lannom et al (1996) was adopted. An optimization scheme was constructed with centres of activities represented by nodes. These nodes include source, process and destination (market) nodes. The gas composition data, cost data (fixed and variable costs), gas price, and deliverability requirement are the necessary parameters used to implement the model. The cost data and other relevant data mentioned earlier in Chapter One is input in the model and the model is run to obtain the best solution to the optimization problem. The best solution to the model provides a way of determining the optimal decision strategy. A sensitivity analysis is then carried out on the cost data and market price to ascertain the effect of varying the cost on the optimum decision. Additionally, the effect of considering the gas price for the Nigerian Gas Master Plan was investigated. The different components for the study methodology are presented below;
MODEL FORMULATION SCHEME
The modeling of natural gas resources in the Niger delta from source to destination is based on the current and future gas utilization projects embarked by the Nigerian Government and International Oil Companies. These projects which were discussed in Chapter Two include options like LNG, GTL, Pipeline transport, Power generation, Enhanced oil Recovery, etc. The modeling scheme follows the approach presented in Figure 3.2. It consists of a source of Natural gas or source node (Niger Delta fields in this case), intermediate processing facilities or intermediate nodes and a final destination or terminal node. A summary of the model formulation is presented on Table 3.1.
CHAPTER FOUR
RESULTS AND DISCUSSION
The results for the optimization model for the Niger Delta are presented in this chapter. From the results, the optimal decision, in terms of the viable projects, is obtained. The results also present the gas volume necessary to satisfy market demand for the gas utilization projects. Profitable projects are those projects where the profit is greater than zero. A base case study is presented by incorporating all the available data (gas composition data, fixed and variable data, gas price, and deliverability data) into the natural gas utilization model. The model is subsequently run using LINDO optimization software and results obtained are analyzed. A sensitivity analysis is performed to determine how parameters like the variable/operating costs, fixed cost and market/spot price of natural gas and by-product affect the optimal decision.
CHAPTER FIVE
CONCLUSIONS ANDRECOMMENDATIONS
SUMMARY AND CONCLUSIONS
Nigeria has huge reserves of both associated and non-associated natural gas available. Increasing production of associated gas may lead to an increase in oil production, a situation that is constrained by the OPEC quota for Nigeria since Nigeria is a member country. In summary, the following are the thought from the study:
An optimization model for utilization of natural gas was developed for the Niger Delta region of Nigeria consisting of an objective function and several constraints.
The model was solved using LINDO software for the optimum value of the objective function and the quantity of gas at the several nodes.
The optimum decision for gas utilization, obtained from the solution of the model, consist of projects (both ongoing and planned) such as liquefaction of Natural gas at Bonny, supply of gas for power generation at Afam, Transport of gas to West African countries, Transport of gas to Algeria through the TSGP, Domestic utilization of natural gas, and sales of EOR product.
The change in the value of economic parameters such as the fixed costs, variable costs and price of natural gas were found to significantly affect the optimum net income from the gas utilization.
The following conclusions can be drawn based on this study.
A natural gas optimization model was derived for the Niger Delta and several constraints such as deliverability and source availability imposed on the model. The profitable projects from the base case involve continuing of projects in the Niger Delta which consist of liquefaction of Natural gas at Bonny for transport to Europe and America, supply of gas for power generation at Afam, transport of gas to West African countries, Transport of gas to Algeria through the TSGP, Domestic utilization of natural gas, and the sales and EOR product.
Planned Projects such as the Olokola LNG have been found to be non viable based on its high costs and current gas prices. However, high gas prices were found to ultimately favour the take-off of this project.
Interest and attraction shared by investors for the Olokola LNG project may be based upon the investors‟ optimism that higher market prices are in the horizon, and these can lift the project into profitability.
Net income derived from the model for the base case study (BS) with the above utilization options was $ 28.96 billion and the gas required to meet the market demand is 41.29 Tscf (an average of 5.6 Bscf/d) over a period of 20 years.
As the gas supply goes below 8.89 Tscf, liquefaction of natural gas and the TSGP are no longer profitable options for consideration. The low gas supply scenario implies that some of the producing wells have to be shut in to prevent excess supply of gas. More so, all the projects become non profitable at very low market prices (i.e. prices decrease by 50% of the base case) as indicated previously.
Additionally, as the gas volumes reaches 57.24 Tscf (the ultimate gas volume scenario), all the utilization options considered now become profitable. Also, the maximum net income derived from the utilization is $141.23 billion.
Upon considering the Nigerian Gas Master plan in the utilization (using domestic price of gas), it can be concluded from this study that as the price of gas for domestic utilization remain at
$1/Mscf, the domestic utilization options (both Power and local industries) becomes non profitable.
Analysis of the imOptimization of Strategies for Natural Gas Utilization: Case Study of the Niger Deltapact of domestic price specified in the Nigerian Gas Master Plan, shows that
at gas price of $1/Mscf, the domestic utilization option becomes economically non profitable. An increase of 100% from the base domestic price, i.e. $2.0/Mscf renders the Power option profitable. The domestic companies‟ options only become profitable for a gas price of $3.15/Mscf.
RECOMMENDATION
The following recommendations can be considered for future study;
The input to the optimization model should be refined as more information becomes available. Data required include fixed costs and variable costs for all the nodes, demand parameters at each destination nodes since these parameters strongly affect the optimal decision from the gas utilization.
More realistic stochastic variations should be carried out on the fixed, variable and market price of natural gas at each node. This would call for stochastic programming to solve the equations from the optimization model.
Other gas utilization projects (both current and planned) like the Escravos Gas and GTL projects, Delta State gas utilization project, etc should be investigated by carrying out judicious modifications to this model.
Model can be employed to evaluate options for gas utilization in a single field whereby a decision can be taken on how to optimize the profit from that field.
Further studies should incorporate several source nodes to emphasize the presence of several producing wells.
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