Nigerian Gas to Support Domestic Agriculture
In response to the onset of COVID-19 in Nigeria in late February, the Federal Government rolled out an emergency response plan that implemented a national lockdown and various health and socioeconomic welfare policies, including food assistance, cash transfers and economic stimulus packages to vulnerable populations. Specifically, Government-led initiatives have sought to target rising threats to food security, which represents a significant concern in a region that imports the majority of its seeds and agricultural inputs, compounded by labor shortages and border closures. According to the Economic Community of West African States, COVID-19 has led to food insecurity and malnutrition for approximately 50 million people between June and August 2020.
To aid producers across the food production value chain, the Federal Government deployed joint technical task teams at both national and state levels to develop strategies to facilitate the free movement of food and agricultural inputs exempted from lockdown. Seed palliatives were also distributed to minimize the impact of COVID-19 on small-scale farmers and households across the country. Agriculture remains a key economic sector in Nigeria, and a substantial source of rural employment and non-oil foreign exchange revenue.
The ability to reduce costs of food production and establish large-scale, industrial agriculture – Nigeria spends more than $6 billion a year on food imports – largely depends on the availability of locally manufactured chemical fertilizers. Eighty percent of fertilizer consumed in Nigeria is imported, and on the continent, average fertilizer use is approximately 10 – 15% of global levels. Natural gas – of which Nigeria holds over 186 trillion cubic feet of recoverable reserves – plays an integral role in fertilizer production. Gas is used as a primary raw material for the production of liquid ammonia and resulting carbon dioxide gas, which is then combined to create urea fertilizer.
To date, Nigeria has invested in several downstream initiatives that source gas as fertilizer feedstock, the most recent of which is Dangote Fertilizer Limited’s 3 million ton per year urea plant, which is projected to begin exporting in the first half of 2021. Located at Ibeju Lekki in Lagos, the fertilizer plant contains two trains, with a respective daily production capacity of 3,850 tons. In December 2019, the company signed a long-term agreement with Chevron Nigeria Limited (CNL) to source natural gas from Chevron’s supply portfolio to the plant, and in February 2020, Dangote began receiving gas supply from CNL and the Nigerian Gas Company. The company plans to sell 25% of its urea production to the Nigerian market and export the remaining to West Africa and Latin America.
In addition to the Dangote development, Nigeria has two existing urea plants: the 1.4 million ton per year Indorama facility and the 500,000 ton per year Notore facility. Co-financed by the African Development Bank, the Indorama Eleme Fertilizer project serves as a success story in public-private partnerships, having created more than 50,000 jobs across the agricultural value chain. Furthermore, the completion of the plant in 2016 transformed Nigeria from a net fertilizer importer to a net exporter: Indorama produces 4,000 tons of urea fertilizers per day, of which 40% is sold to the local farming sector and 60% is exported, primarily to Latin America. Meanwhile, nearly all of the Notore plant’s production is consumed domestically.
Brass Fertilizer and Petrochemical Company Limited is also in the process of setting up a urea and methanol plant in the state of Bayelsa, which would have the capacity to produce 1.3 million tons per year and 1.7 million tons per year, respectively. Construction has the potential to generate up to 15,000 jobs and up to 5,000 permanent positions upon completion. Producing methanol and urea ammonia, the fertilizer plant would comprise a gas-processing plant and 35-km pipeline.
In addition to spurring job creation, achieving food security, fostering industrial growth and diversifying the national economy, fertilizer production is an attractive vehicle for reducing Nigeria’s practice of gas flaring, of which the country flares over 313 million standard cubic feet per year. As outlined by the Federal Government’s Nigeria Gas Flare Commercialization Program, the country is aiming to achieve zero flaring by 2030 through the development of commercially sustainable gas utilization projects.
With food demand value on the continent at $313 billion and rising, large-scale production of chemical fertilizers represents a valuable opportunity for farmers and gas producers alike. Inhibitors to commercial fertilizer production have largely been limited infrastructure for refining and transport, as well as initial capital investment. In an effort to provide fertilizer suppliers in Nigeria with financial support, the African Development Bank launched the Africa Fertilizer Financing Mechanism in March 2020 in Nigeria, a $2.2 million trade credit guarantee project that involves 10 fertilizer suppliers, 12 hub agro-dealers and 120 retail agro-dealers. With rising concern over food security, investment from development finance institutions, NGOs, farmer cooperatives and the private sector, the fertilizer value chain is set to accelerate to support a more robust domestic agricultural sector.