Monetizing Stranded Gas: Economic Analysis of Gas to Liquid Technologies in Nigeria

Nigeria, as a nation endowed with vast reserves of stranded hydrocarbon resources and she is faced with the challenge of monetizing these resources, which are often flared due to lack of appropriate infrastructures for utilization. This has led the country into exploring different innovative approaches to unlock the economic potential of these resources. Gas-to-Liquid (GTL) technology has been seen as one of the major technologies that provide answers that can assist the country to grow in its economy. This study delves into the economic analysis of Gas-to-Liquids (GTL) technologies to monetize stranded hydrocarbon reserves in Nigeria. The economic analysis of the GTL technologies in Nigeria was done taking the Fischer-Tropsch GTL (FT-GTL) plant in Niger Delta as a case study. It was economically evaluated for a plant capacity of 1,000 MMSCF/D of natural gas. This plant is primarily affected by the crude oil price. The major aspect of this economic analysis was done by using a Microsoft Excel template developed for this study. The template considered the various variables that affect the variability of the projects such as plant life, construction period, capital expenditure, tax, operating expenditure, depreciation schedules, etc. The economic model used four economic indicators namely net present value (NPV), internal rate of return (IRR), profitability index (PI) and payback period (PP) to analyze both projects in this study. The financial and economic analysis of each indicator was carried out using the technique of discounted cash flow (DCF) analysis. DCF analysis yielded project performance criteria such as net present value (NPV) and internal rate of return (IRR), which were obtained from the projects' cash flow under consideration. Sensitivity analyses were then carried out with different tornado plots by varying the values of some of the economic parameters and determining their impacts on the project performance criteria within predetermined ranges. The results revealed that the higher the CAPEX for each of the cases, the lower the NPV and hence the profitability of the project is seen. For GTL technology to be viable as a project and profitable, the CAPEX is a factor to be extensively considered and reviewed periodically to ensure that it is not unreasonably high. Furthermore, the results of the economic analysis obtained at the different case scenarios using the most likely values of the economic input parameters indicate that FT-GTL profitability is highly dependent on the crude oil price, capital expenditure (CAPEX), operating expenditure (OPEX) and discounting factors should each be given proper considerations and review before embarking on future GTL projects. Increased operating expenditures from the FT-GTL technology reduced the NPV and IRR thereby affecting project profitability and extending the payback period, increasing the time to recoup initial investments of the FT-GTL technology plant.