Olufola Wusu

Fola Wusu

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The Ministry of Mines and Steel Development has reported that Nigeria’s First Mechanized Gold Mine is scheduled to take off in about two weeks time in Abuja. Nigeria’s first mechanized mine is a $200 million project, located in Baba-Tsauni near Gwagwalada in the Federal Capital Territory (FCT) Abuja. This is great news as Small Scale LNG has coincidentally started in Nigeria too.

NEPC Executive Director/CEO, Mr. Segun Awolowo Jnr., who met Wiesbaden, Germany-based JBI officials led by Mr. Achim Becker and Mr. Jide Olukeye, the CEO of Iron Ore Mining Limited in Abuja last Friday, emphasized government’s commitment to actualising its zero oil plan whereby non-oil exports can fund the national budget.

While Becker emphasised JBI’s confidence in Nigeria, Mr. Olukeye expressed the need for government to encourage investors by ensuring sanctity of titles, adding that the Baba Tsauni mining project will generate 2,000 direct jobs, 8,000 indirect jobs, huge taxes for government and more developmental projects for its host community in Gwagwalada area.

“The Baba-Tsauni lead, zinc, silver and gold mine is ready to take off by next month with one of Africa’s leading construction giants, Julius Berger Plc as the technical operator.”

“No bank in Nigeria gives out loan for mining because the huge capital outlay can either go down the drain through illegal miners’ sabotage or even by international market vagaries which has seen iron ore fluctuate from one hundred and seven dollars six years ago to sixty-one dollars today,” a mining expert who requested anonymity was reported to have stated.

A key part of the huge capital outlay required for mining is power generation to power the mines and the various energy intensive vehicles used in a mine.

Please remember, these gold mining companies consume diesel in the transportation of their waste rock and ore, mine construction and to a lessor extent… electric generation when connecting to the grid is not possible or economical.

In this piece, I explain why running Nigeria’s first mechanized Gold Mine on LNG will help boost its profitability.

Mining Consumes Tremendous Quantities of Fuel
Mining operations often consume tremendous quantities of fuel to power shovels, haul fleets, boilers, roasters, heaters, kilns and other processing equipment.

In addition to the absence of steady power supply, mining operations are typical in remote locations, with limited fuel options beyond crude derived products like diesel which has a nasty environmental footprint.

Switching to LNG has helped various mining companies save up to 30% of the amount spent on fuel with LNG fuel solutions.
What Is LNG About?
LNG makes make “liquefied natural gas” available to the international market and when our local markets begin to consume LNG they probably will be willing to meet that need too.
Transportation of gas has always been an issue; the cost of laying the pipelines alone was a major issue then came in LNG which reduces the size of the gas volume by a factor of 600. LNG can be transported by Ship, Rail, Truck and all the other ways a liquid can be transported.

Case Study for use of LNG in Mines; Pilbara
GE reports that over three billion litres of diesel fuel is imported into the Pilbara each year, primarily to power the mining industry; 5 billion litres of heavy fuel oil annually consumed by ships carrying iron ore from the Pilbara to North Asia. Match these figures with a technological leap in dual-fuel engines, and pressure on carbon and pollutant emissions, and the climate looks right for a revolution in powering Western Australia’s resourceful north.

The increase in mining activity and the scale of energy use clearly points at Mining as a suitable market to make clears gains of up to 30% cost savings from the use of liquefied natural gas (LNG) the cleanest fossil fuel.

Transportation in a Mine
Jason Waller says large iron-ore miners run a total of about 250 locomotives 24/7 in the Pilbara. On an 80:20 fuel mix, those haul heroes could run more efficiently—achieving faster average speeds because the locomotives would carry their own LNG and therefore need to stop less frequently for refuelling; run more cost effectively in terms of fuel and maintenance; and their emissions would be greatly reduced. Each locomotive currently uses 1.8 million litres of diesel a year.

“The mines in the Pilbara are very long-life mines. There are decades of iron-ore reserves. You have the biggest mining companies in the world and they’re in a great position to lead the world in using cleaner fuels.” Craig Jennings, Woodside

Mining Industry as a Major Oil Guzzler
srsroccoreport.com reports that the gold mining industry literally devours energy to produce an ounce of gold. In the past decade, fuel consumption at the top gold miners more than doubled, but the actual energy cost grew at a much higher rate.
The huge increase of diesel consumption at the top 5 gold miners is due to several factors. As ore grades continue to decline, the gold mining companies need to extract more ore to produce the same amount of gold. Thus, the massive haul trucks that transport this ore burn more diesel in the process.
Furthermore, as open-pit mines age, they deepen which forces the haul trucks to travel longer distances at a higher grade. One of the largest haul trucks in the world is the Caterpiller 797F. These haul trucks are massive and can transport 400 metric tons of ore in a single trip. The CAT 797F has a standard 3785.41 liter tank!
To put the level of fuel consumption in perspective, imagine if the Baba-Tsauni lead, zinc, silver and gold mine has 4 CAT 797F haul trucks, after filling their tanks 11 times, these 4 trucks would have used up the content of 4 tankers of diesel each having a capacity of 33,000 liters!

LNG offers an alternative power source for a mine with strict parameters
Nigeria is beginning to pay firm and strict attention to environmental issues. A typical gold mine that lacked access to the grid may end up powering their operations for years with at least two generators. Most times mines are right next to vibrant communities with an army of youths on their native lands, meaning their footprint has to be small and their expansion plans modest; but such a mine may end up struggling to keep up with the output of other mines and may not benefit from the economies of scale that come with large scale production.
As is the case with the extractive industries, mines have to bother about emission compliance issues; this means mines need to find an alternative power source quickly. Their choices can be limited, they could spend a lot of money to upgrade, wait for the national grid to reach them, or shut down altogether. Or simply make the prudent and cost effective switch to LNG.

Interestingly, the National Gas Policy has made provision for domestic use of LNG
The Federal Executive Council on the 28th of June 2017 approved the new National Gas Policy (“NGP”). The NGP is designed to catalyze growth of the gas industry in Nigeria.
Prior to the NGP, Nigeria’s focus has been on oil, the NGP is designed to monetize the abundant gas assets Nigeria has and help accelerate Nigeria’s industrialization as gas has many by products.
Possible Domestic uses of LNG
LNG for Mining
LNG for Transport
LNG as a fuel for heavy duty vehicles
LNG for Buses and Taxis
LNG as fuel for Ferries and Ships
LNG for Shipping
LNG for Rail
LNG for Agriculture
LNG for Power
LNG as a gas source where no pipeline gas is available
LNG as a backup supply for natural gas pipeline network
LNG as a fuel for heavy duty vehicles like Trains, Tractors, Trucks and Buses is innovative and practical; this may be made possible by small scale LNG plants and LNG engines.

Changing LNG market
New volumes of LNG are entering the global LNG market from the United States(Which used to be a major importer) and Australia, with a slowdown in expected economic growth in Europe and Asia. The LNG spot market is making a strong showing as more buyers shun long term contracts in favor of spot contracts.
NLNG which was created to monetize Nigeria’s natural gas resources and produce LNG and the NGLs for export was reported to have had its revenues plunge to $4.723bn last year, the lowest in 7 years. The LNG export market is experiencing an oversupply which is dampening the price of LNG. However, the domestic market is experiencing severe energy shortage.
Possible LNG market forecast
However, 7 (Seven) factors may drive the LNG market in the next 10 (ten) years:
• Accessing new users (Like the Mining Industry)
• Reaching new markets
• Lowering shipping costs
• Slow or Quick economic growth
• Increasing energy efficiency
• Excess LNG supply
• Development of indigenous LNG liquefaction technology

The advent of Small Scale LNG…
The term Small Scale LNG refers LNG operations on a smaller scale, as opposed to the traditional model of regasification and subsequent introduction into the gas transmission grid. Small Scale LNG provides cheaper, better and faster access to LNG.
Uses of Small Scale LNG
Small Scale LNG plants supply LNG to end-users in places where traditional infrastructure like pipelines do not reach, or to consumers requiring LNG.
The major end uses for Small Scale LNG include but are not limited to: marine fuel (bunkering), fuel for heavy road transport, power generation in off-grid locations, and mining.

Iron Ore Mining Limited should consider switching to LNG…
LNG fuel solutions allow mining operators to displace high-cost diesel consumption with lower-cost LNG and further enjoy the environmental benefits of a lower emissions profile.
Iron Ore Mining Limited and Julius Berger should consider acquiring LNG compatible equipment or convert to use LNG mine-haul vehicles, boilers and dryers in their mine in Abuja. LNG as an energy source of the mining industry provides energy in an efficient, cost-effective way, while also significantly minimizing the impact on the environment.
As the mine is based in Abuja, it will need to transport the ore to the nearest port in Port Harcourt or Lagos for shipment to its various clients. It will be prudent to use LNG powered trucks and locomotives to transport the ore to the ports, LNG powered ships would also help with the cost savings.
The mining industry is experiencing a renaissance; this industry has intense energy needs and a significant environmental footprint. Small Scale LNG can help power the mining industry cheaply and help significantly reduce its environmental footprint. Mining has huge power and transportation needs.
Small Scale LNG offers investors quicker returns in the medium term. Small Scale LNG involves lower investment requirements and accelerated commissioning schedules.
Small Scale LNG is scalable; it is a great way to meet short term fluctuations in demand.
Small Scale LNG will help jump start the market for domestic use of LNG which NLNG was not formed to serve. It remains to be seen if NLNG will consider the domestic supply of LNG too.

Conclusion
Small Scale LNG Business has begun in Nigeria, with the advent of LNG delivery by truck. However, demand for Small Scale LNG is sure to rise rapidly, catalyzed by the increasingly stringent energy deficit in Nigeria, evolving environmental regulations and the oil and gas industry’s ability to reinvent itself. The rebirth of the mining industry is poised to further increase the energy deficit being experienced in Nigeria, with a strong reliance on imported refined products, the switch from diesel to Liquefied Natural Gas (LNG) is a smart choice for the mining companies as they will save money and help preserve Nigeria’s environment, while the Nigeria will benefit in the savings on foreign exchange that would have been used to import diesel and heavy pourr fuel. Regardless of the uncertainty in the global LNG market, Small Scale LNG may very well be the game changer in Nigeria’s quest to monetize its abundant gas resources.

Olufola Wusu Esq. © 2017

Olufola Wusu is a Commercial/Oil and Gas and I.P. Lawyer with Megathos Law Practice based in Lagos.