Gas Tolling – Low Cost Development Options for Small and Stranded Gas Fields in Nigeria

Abstract

Abstract Over 70% of Nigeria's onshore gas resources are dispersed in small and stranded fields across the Niger Delta, making their development uneconomical and exacerbating the gas flaring challenge. It's estimated that about 30 tcf of gas reserves, qualified as ‘low hanging fruits’ were undeveloped over the years due to low domestic gas prices and the huge capital outlay for gas processing and transportation facilities. In recent years, reforms in domestic gas prices have improved the economics and attractiveness of gas monetization projects but the challenge of high CAPEX particularly with the recent industry downturn remains a constraint. Gas tolling, which involves the provision of gas gathering and processing services by tolling companies to gas producers is a unique solution that has the potentials to transform the domestic gas industry. The extant Nigerian Gas Master Plan (2008) and the draft National Gas policy (2016) recognises the important role of gas tolling and seeks to expand its adoption across the country. Still at its nascence in Nigeria, tolling companies (gas facility developers) and gas resource owners must understand the key value drivers and seek to ensure mutually beneficial and sustainable gas tolling models. This paper therefore seeks to explore the models available to tolling companies and resource owners, highlight the underlying technical and economic considerations by the parties and also provide options that help parties minimize exposure to fiscal obligations. An economic model useful for evaluating the appropriate compensation options for the tolling company and returns for the gas resource owners is also presented. Understanding the dynamics of third party gas tolling will significantly drive the growth of gas development and address the specter of stranded fields’ routine gas flaring in Nigeria.