Olufola Wusu

Fola Wusu

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“With the advent of commercial application of electric cars, oil and gas majors may just be considering diversifying into power generation”

Shell CEO says his next car will be electric
“The next buy I do is my next car, which will be an electric vehicle,” Van Beurden noted in an interview with Bloomberg. This sounded a bit interesting for the CEO of a major Oil and Gas company…

Shell plans to sell Electricity

Financial Times has reported that Royal Dutch Shell (“Shell”) has decided to sell electricity directly to industrial customers a remarkable departure from its core business, producing oil and gas and selling refined products. Shell plans to supply electricity using a business that will start trading in the United Kingdom in 2018, supplying power to 600 Shell sites & industrial customers. Shell also plans to supply electricity in the United States of America.

Shell by selling electricity may eventually disrupt the electric power generation industry and possibly the focal point in the electric car value chain!

Oil and Gas Industry is Adaptable

Shell’s move is showcasing how adaptable the oil and gas industry is, in the past electricity generation was not on the table, with the advent of commercial application of electric cars, oil and gas majors have seen a good reason to play in the electric power generation space.

Oil and Gas Companies have always supplied electric power

In times past, oil and gas companies have been reticent about playing in the electric power sector. These companies out of necessity owned and operated power-generation plants principally to supply energy to their own refineries, production facilities and at times the communities they operate in.

Oil and Gas Companies in Electric Power Generation again?

In the later part of the 1990s, a number of oil and gas companies Shell, BP, Eni, and ExxonMobil took an interest in electric power generation through joint ventures.
Sometime after the year 2000, Shell and BP sold most of their investments in power; keeping only selected power-generation assets, while ExxonMobil maintained most of its positions. Eni is reported to have kept some of its gas-fired assets.

There are six major International Oil Companies active in Nigeria:

1. Shell (SPDC)
2. ExxonMobil
3. Chevron
4. Total
5. ENI
6. Addax

All six IOC’s may very well be considering the strategic benefit of investing in Gas fired electric power generation.

Other oil and gas companies with remarkable gas assets will also do well in Gas fired electric power generation…

NLNG as an Electric Power Generation Company

The National Gas Policy provides for Domestic uses of LNG including LNG to Power…

An in-depth review of the NGP reveals the NGP provides a bit of balance and makes provision for LNG for domestic downstream applications:

LNG as a fuel for heavy duty vehicles, Buses and Taxis;
LNG for Shipping and 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 to store Gas about to be flared, which will be used to fuel power plants serving host communities.

Possible Domestic uses of LNG to Power

The NGP provides for LNG to power and for LNG to store Gas about to be flared, which will be used to fuel power plants serving host communities.

FSRU as a service Vs Dangote Subsea Pipelines

NLNG already has a shipping company which it uses to transport LNG to its customers. NLNG can consider providing a “Floating Storage Regasification Unit”, as a service to make gas widely available to power generation companies in Lagos and other water ways. NLNG can also consider the provision of floating power ship to meet temporary power needs of prospective consumers.

Governor Ambode of Lagos is targeting 3000MW and 24 hour power supply for Lagos. NLNG can key into this vision via ship based power barges before Dangote’s Subsea pipeline comes.

Seplat as an Electric Power Generation Company

Seplat Petroleum Development Company Plc has a Robust & Growing Gas Business. Seplat recorded $54 million revenue from gas in the first half of 2017, actively engaged with counterparties to finalise new GSA’s – plan to take gross production towards 400 MMscfd. Proceeding towards FID at the large scale ANOH gas and condensate development at OML 53 according to the company’s half yearly result available on the Nigerian Stock Exchange Website.

Sale of Gas vs. Capturing value by Gas fired electric power generation
When Oil and Gas companies sell gas, they are marketing a commodity affected by routine price swings, right now there seems to be an oversupply of gas with more gas plants coming online.

However, Gas fired electric power is about to experience a boom in demand if the forecasts about the commercial viability of electric cars is anything to go by.

Here are four reasons why oil and gas companies should consider playing in the Gas fired electric power generation space:

1. Integration should provide a ready market for gas sales and increase the volume of gas sold or utilized in power generation
2. The value lost to electricity generation companies due to commercial use of electric vehicles will be gained by generating electricity to power those electric cars.
3. Oil and Gas companies will make more from selling a finished product; electricity rather than just selling a commodity; gas.
4. By playing in both the commodity trade; gas and finished products market; electricity sales. Oil and Gas Companies may be able to insulate themselves from the price fluctuations that commodity markets are famous for.

Conclusion

The global energy scene is rapidly evolving with the advent of the commercial use of electric cars, the push for more environmentally friendly oil and gas operations and constant innovation by the industry which is pushing the boundaries of a hitherto conservative oil and gas industry. Looking to engage with oil and gas companies willing to reinvent themselves in order to thrive and to be able to create value in a fast changing world