Stranded Gas Field Development Economics – Justifying Incentives to Boost Investment

Why does the USA make money from gas but Nigeria flares most of its gas as waste? Why does Qatar make money from gas but the United Arab Emirates struggles to do so? This paper evaluates the profitability of developing a stranded gas field. It was initially developed for the 2017 Nigerian Gas Policy consultation roadshow, and recommends actions to monetise gas resources in countries struggling to develop their gas fields. Field D is a stranded gas field offshore Nigeria and has remained undeveloped as at 2024. An initial economics evaluation suggested that its development would be uneconomic. A sensitivity analysis of gas prices indicated that the field’s breakeven gas price (19 USD/KSCF) was too high and it was deemed too small. The team re-evaluated seismic data and nearby gas prospects, and increased the gas initially in place (GIIP) volume from 800 BSCF to 4800 BSCF. This expanded the field development plan from 5 to 20 production wells, but did not deliver profit to the investors. Sensitivities to fiscal terms and gas price were evaluated, and a combination of profit tax reduction, royalty reduction, and a fixed gas price made the project economic. The economic impact of Nigerian government approval delays, asset sabotage, and national oil company (NNPC) cash call shortfalls was also evaluated. Most Nigeria gas field developments are uneconomic due to low domestic gas price, tough fiscal terms, government approval delays, high risk of asset sabotage, and NNPC cash call shortfalls. The evaluation suggests that Field D can be monetised with a reduced petroleum profit tax (30%), reduced royalty (10%), and a fixed gas sales contract (gas price = 5 USD/KSCF). This paper presents the viewpoints of the government and investors, outlines the reasons for the current low investment in stranded gas field developments, and recommends steps to monetise their development.