20 October 2009
Sopuruchi Onwuka — Federal government is tolerating the spirals in the project o\cost of the Escravos gas-to-liquid just to test the technology in the country and possibly provide the needed lesson for future projects.
Director of Department of Petroleum Resources (DPR) said in Lagos that government was closing its eyes to the escalating cost of the project in order to import the technology which is advertised as one of the future sources of transportation fuel.
The project driven by Chevron as part of its gas valorization initiative in the country is conceived to convert huge volumes of natural gas to light diesel for automotive application.
However, the project, which has seen several shifts in streaming date and is currently scheduled to start production in 2011, is fast guzzling funds, a situating that is raising concerns among partners.
The rising project cost is also blamed for the slow pace of the project and loose commitment of partners to funding as the Nigerian National Petroleum Corporation (NNPC) tries to exit government cash call and transferring all financial obligations to its deep pocket partners under modified carry agreements.
Business Champion sources hinted that the project cost may have shifted from the $2.7 billion estimated last year even though project is said to be on track to meet its start up date and economic viability projections.
However, a company source said the 2011 start update for the two train plant was still tentative as, according to him, the recent security tension in the Niger Delta and inflation may have affected delivery of goods and services at the site.
The cost of the EGTL which was initially scheduled to come on stream at the end of 2010 was reviewed from $1.7 billion to $2.7 billion. The upward review of the original cost of the project after the signing of the contract agreement generated controversy which analysts say contributed to the delay.
The project, when completed will have the capacity to process about 300,000 cubic feet a day of gas into 34,000 barrels a day of GTL diesel.
The EGTL plant, when completed, would have the double strategic effect of reducing gas flare and producing low-sulfur diesel fuels for international markets.
The company said it has already sponsoring 200 Nigerians who will run the plant on a 26-month education and training course at Sasol plants in Sasolburg and Secunda, South Africa.
Gas-to-liquid plants convert natural gas, which otherwise would be flared, from its gaseous condition to liquid. The liquid is broken down to carbon monoxide and oxygen and re-combined to form low-sulphur diesel, or even crude oil.
This process, according to experts, managing director of Gas Distribution Services Limited, provided the energy needs of apartheid South Africa, when the country was cut off from energy supply from the rest of the world.
The country extracted gas from coal and broke it down into other components, which were re-combined to produce crude oil for the country's refineries.
Chevron had embarked on the GTL project in the country with the collaboration of Sasol of South Africa.
The project will have the double effect of reducing gas flare and producing low-sulfur diesel fuels for international markets.
Chevron boasts that the GTL project would provide high-calibre employment to Nigerians who will operate the plants.
Managing director of Platform Petroleum Limited, Mr. Austin Avuru, said the establishment of GTL industry in the country has a high propensity of multiplier effects which will impact on a good number of people.
He said contractors and suppliers would have jobs to do, adding that they would also employ different skills which could create jobs.
The GTL industry offers an attractive choice to nations with economically stranded natural gas reserves because it allows them to diversify in the use of their resources. Diversification would allow the country to gain higher rates of return than through a singular investment strategy.
The proposed GTL plant will be capable of converting natural gas into premium environmentally friendly fuel, diesel and GTL naphtha products. Europe will be the primary market for all fuel products from the Nigerian plant, although some products may be sold in the US.
Sasol Chevron will provide the project with the world-leading technologies of the two companies, Sasol's proprietary Fischer-Tropsch Technology and Chevron's proprietary ISOCRACKING technology.
Sasol is a recognised leader in state-of-the-art Fischer-Tropsch technology and has been actively involved in developing the technology for over 50 years. The ISOCRACKING process is used to upgrade waxy syncrude to yield a lighter premium grade fuel that contains no sulphur or aromatics.
A pre-feasibility study in April 1998 started the ball rolling for the EGTL project; this was followed by a more in-depth engineering feasibility study to confirm the design configuration and economics.
After the successful completion of the feasibility study, EGTL entered with Front-End Engineering and Design (FEED) in July 2001. This was completed in 2002. The project will be executed under a lump-sum engineering, procurement and construction contracting strategy.
In April 2005 the NNPC awarded the Engineering, Procurement and Construction (EPC) contract for the EGTL project to a consortium consisting of JGC of Japan; Kellogg, Brown and Root (KBR) of the US and Snampogetti of Italy.
Another key area of the contract involves the construction of a mini refinery to be used for fuelling boats, helicopters, fixed-wing aircraft, drilling rigs and onshore / offshore facilities.
The mini refinery will also service floating petroleum filling stations introduced in the Niger Delta region. Julius Berger Nigeria Plc delivered on the contract to build the first six floating stations.
The economic and environmental benefits of the project, according to Director of DPR., are strategic to the nation's overall economic development objectives that government was threading softly to ensure that the technology is domiciled in Nigeria.
Former Management of NNPC had given the National Assembly reasons why the project cost was higher than the similar one also driven by Chevron in Qatar. Former Group Managing Director, Mr. Funsho Kupolokun, had told the House Committee on Petroleum led by Hon. Mercy Almona-Isei at a public hearing on EGTL controversy that the cost of the Nigerian project was higher than that of Qatar because of the differences in technology and the availability of facilities present in the two countries. The EGTL project being undertaken by Chevron in Qatar cost $ 800 million. He told the committee that the cost of EGTL project in Nigeria was higher because of the "risk associated with Niger Delta region, site preparation and the devaluation of the Naira against other international currencies." Recently in Lagos, DPR Director said that apart from the cost premium on infrastructure and security, government was playing down the issue of cost in the project as part of its overall incentives to attract new technology into the nation's petroleum industry.
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