Nigeria's gas flaring reduction : economic viability of power generation using flared gas
Uvwie, Patrick Awaciere
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Nageria’s oil wealth has been exploited since 1956 when it was first discovered in commercial quantities, with government and the oil companies profiting from the resource. However, gas associate with oil extraction is currently burnt off into the atmosphere (flared) causing daily pollution of the local communities in the rich areas. Although, there are many associate gas utilization options, emphasis in on power generation because of the persistent shortages of generation capacity and frequent power outages in Nigeria. The growing demand for power, caused by deteriorating infrastructure is a major problem facing the country. The recovering and utilizing of associate flared gas for power generation may contribute to solving this problem in the power sector. It will also help to reduce the pollution of the environment. However, there is still much work to be done in determining the economic viability of the proposed concept. This is because the economics of gas-fired generation has to be evaluated on a case-by-case basis, bearing in mind the country to which the power generated is expected to be sold. A mathematical model which could help simplify decision making during economic viability analysis of associate gas-fired power generation plants in Nigeria has been developed in this research work. With this model, results for criteria often used for effective viability decision making could be generated by a single input of variables based on any scenario. These criteria are internal rate of return (IRR), net present value (NPV), benefit-cost ratio (BCR) and discounted payback period (DPBP). Using the model, the viability of an associate gas-fired power generation plant was determined and evaluated based on certain assumed case scenarios vis-à-vis the single-cycle and combined-cycle technologies. Typical results of profitability analyses for both base case scenarios considered returned positive NPVs based on the base economic assumptions used for this analysis for plant capacities ranging from 50-megawatt (MW) to 300MW, but returned negative NPVs for plant capacities 1, 5 and 10MW. In general, the impact of electricity price was the most sensitive compared to other parameters. However, plant capital expenditure (CAPEX) and plant capacity also had significant impact. Furthermore, the model was validated against a real life scenario, using the data of two existing oil production fields that currently flare their associated gas. Typical results of profitability analyses returned positive NPVs for gas-fired power plant of both single-cycle and combined-cycle technologies. The result showed seeming evidence that the establishment of associate gas-fired power plants is indeed viable and it fits into a general trend in favor of developing the power sector in Nigeria. The result also showed the use of four economic appraisal criteria in a single model, as against the traditional use of “maximum of two” economic appraisal criteria. With this model the complex nature of decision making is simplified. This is due to the flexibility it exhibits. The results for internal rate of return (IRR), net present value (NPV), benefit-cost ratio (BCR) and discounted payback period (DPBP) can be generate by a single input of variables based on any scenario, taking account of the economies of scale relationship of gas-fired power plant.
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