Economic Analysis of Gas Pipeline Projects in Nigeria

Abstract

Nigeria has the largest gas reserves in Africa and Gas pipeline industry has been in operation in the country since the gas discovery in the country in late 1960s. Lack of sufficient gas development infrastructure has caused energy imbalance in the country, and making the country rely heavily on the few existing pipelines, which makes the country’s energy sector vulnerable to any shock on these pipelines. Recently, the Nigerian government resolved to build new gas pipelines as part of its plan to maximise gas utilization. As such, this research analysed the economics of these possible gas pipelines options so as to assess if investment in new gas pipelines is viable in Nigeria and which of the pipeline route option is more viable. The research used gas pipeline models that already exist in literature to analyse the investment cost, gas deliveries as well as costs and benefits of six possible gas pipeline routes options in the country. The BSRO pipelines route option was found to be more viable and estimated to have an annual gas delivery of 37.25 bcm, investment cost of $1.15 billion, NPV of $2.43 billion, IRR of 50.38%, payback period of 2.60 years for forty years of operation. However, in terms of coverage and ability to supply more gas to more locations, the all gas pipeline route option is more recommendable. Other gas pipeline routes options are also viable except the NRO gas pipelines, and it is recommended not to consider this option alone, even in the future, the best recommendation is to combine it with the BRO pipelines option.

Keywords: Gas Pipeline Routes, BNRO, BSRO, BNRO, NRO, SRO, NRO, NPV, IRR, payback period