background image

China’s potential methanol investment in Nigeria and why it is significant

author image

By Lolade Aluko

· 8 min read

The announced methanol opportunity

The 23rd of October 2023 marked the Third Belt and Road Initiative Conference, held in Beijing. At the conference, Chinese and Nigerian officials announced a methanol facility within the Brass Region of Bayelsa State in East Nigeria. China Road and Bridge Corporation signed an EPC agreement with Nigeria’s BRASS Petrochemical to construct a port, with an expected capacity of 2 million MT of methanol to be exported to China. 

Methanol is one of the world’s most important chemical commodities and is gaining attention as a potential low-emission fuel among its already long list of industrial uses. 

China has made a wave of strategic investments within the energy space in Nigeria, including China National Offshore Oil Company (CNOOC) investing ~2.3bn into the OML deep water licence in 2006. China has remained a key investment player within Nigeria’s upstream industry, as well as in infrastructure development, but this venture into other petrochemicals is novel in its historic strategic investments. This article aims to explore whether this could signal a diversification trend within China’s African petrochemical footprint.

Petrochemical import trends in China

Nigeria, one of Africa’s largest oil players, remains a strong trade partner with China. Nigeria currently pumps ~ 2 million barrels of oil a day and has a goal of producing 3 million barrels per day by 2023. 

A significant amount of this production goes to China. The Observatory of Economic Complexity observed that in 2021, over 46% of Nigeria’s exports to China consisted of Petroleum Gas, with an additional 33.6% of exports consisting of crude petroleum. The year 2021 represents a decline in petroleum exports due to decreased demand in China during the COVID-19 crisis. Needless to say, China is a key customer for Nigeria’s oil economy.

Methanol exports to China are much more limited, with a very small volume of methanol exports from Africa compared to regions like North America, Europe, and Asia.

As China’s domestic oil production continues to decline, experts predict that in the next 15 years up to 80% of China’s crude oil supply will be imported, incentivising entities like CNOOC to prioritise overseas investment.

However, as mentioned, the methanol angle is new. Methanol, beyond expectations that it will be used as a low-emitting fuel option in a number of markets, is a key chemical used in oil and gas production anyway, to prevent hydrate formation and de-icing. It also remains the backbone of thousands of consumer and industrial products, including paints, adhesives, solvents and pharmaceutical products.

Surging domestic energy demand has led China to diversify its natural resources imports and the upstream footprint of China’s NOCs has increased substantially to nearly 20 African countries. Methanol investments within this region are limited, perhaps due to China’s increased policy support for methanol within new uses.

China is both one of the largest producers and consumers of methanol, with demand set to rise as methanol enters new end-use markets, such as low-carbon fuel. In 2019, the Chinese government issued guidelines on methanol as a vehicle fuel, encouraging its use for official cars, taxis, and short-distance buses. This prompted a rollout of methanol vehicles and infrastructure across the country. For example, Shanxi Province is building more than 200 methanol refuelling stations by the end of the year. China now uses methanol as a vehicle fuel in blends ranging from five percent to 100 percent (‘M5' to ‘M100'), with a view to encouraging the take-up of entirely methanol-powered vehicles. As such, methanol is entering the Chinese consumer energy demand markets, prompting the view to diversify supply opportunities beyond China’s own refineries.

East Nigeria and the petrochemical industry

The petrochemicals market in South East Nigeria is closely tied to the region's abundant oil resources, mainly in the Niger Delta. This market is essential for the country's economic development and plays a significant role in the global petrochemical industry. This overview delves into the key aspects of the petrochemicals market in this region, including the oil resources in the Delta region, the importance of Port Harcourt, ongoing projects, and the state of Niger. The Delta is home to numerous oil fields, which are the primary source of crude oil for the Nigerian petrochemical industry. Companies like Shell, Chevron and ExxonMobil have a strong presence in this region.

While South East Nigeria's petrochemical industry holds immense potential, decades of oil exploration and production have had environmental and socio-economic impacts. This would likely be particularly relevant to the announced Brass Petrochemical Project, as the Brass Local Government and Bayelsa State are responsible for the Edumanom National Forest, a significant forest reserve, freshwater region, and one of the last habitats for chimpanzees in Nigeria. 

Moreover, security issues, including oil theft and pipeline vandalism, pose ongoing challenges. These activities disrupt the petrochemical supply chain and affect the industry's stability.

On the positive side, South East Nigeria's petrochemical industry has the potential for growth and diversification, and the announced methanol facility in Brass is among these opportunities for strategic growth. The government and industry players are increasingly focused on local content development and sustainable practices to address environmental and socio-economic concerns. This includes supporting research and innovation in the sector, which can lead to cleaner and more sustainable petrochemical processes.

Geographical diversification of methanol supply projects

Methanol's adaptability as both a feedstock and a fuel places it at the intersection of industrial and energy applications. Its importance continues to grow as industries and researchers seek cleaner and more sustainable solutions in response to environmental and energy challenges. As a result, China has become one of the world's largest consumers of methanol.

China's global investments in the methanol supply chain have been substantial, driven by the country's growing demand for methanol as an industrial feedstock and energy source. The Belt and Road Initiative (BRI), the multinational infrastructure and economic development project that aims to connect China with other regions, plays a pivotal role in facilitating these investments, expanding China's influence and securing its methanol supply chain.

China has established methanol production facilities in BRI countries to secure a stable supply. These facilities often use natural gas or coal as feedstock, and the methanol produced is used for a range of applications, including chemicals and fuel. For example, within the Belt and Road Initiative, there have already been plans to build a methanol plant, along with methanol-to-olefins facilities within Oman. Additionally, China has partnered with research institutions and local governments in BRI countries to develop advanced methanol production and utilisation technologies. This supports the sustainable use of methanol and bolsters China's position as a leader in methanol-related innovation.

There are a number of key reasons why these project announcements continue to enhance the success of the Belt and Road Initiative. By diversifying its sources of methanol production and transportation routes, China enhances its energy security, reducing reliance on any single supplier or transport corridor. In a similar vein, The BRI may provide an opportunity for China to promote cleaner and more sustainable methanol production and utilisation technologies, addressing environmental concerns.

Nevertheless, the economic viability of these investments does depend on the fluctuations in the global methanol market, with methanol price and demand being key factors of consideration. However, this particular project in Brass, and the announcement of the export/offtake strategy to China, indicates a potential prosumer model where China will be a strategic partner within the methanol production plant in the Bayelsa State region, with industrial or energy consumption of this methanol in China. This could offer the project access to long-term offtake agreements with Chinese counterparties driving methanol demand, which would also potentially de-risk the project.

Nigeria’s strategic positioning in petrochemical trade

Overall, China's investments in Nigeria's oil and gas sector are of particular significance, with methanol opportunities a new angle in the South-East Nigeria region. Chinese energy companies have acquired interests in oilfields, entered into exploration and production agreements, and supported Nigeria in modernising its oil and gas infrastructure. These investments not only secure China's energy security but also contribute to the development of the country's energy sector.

It is important to highlight that while China's investments in Nigeria's energy sector offer opportunities for development and modernization, such developing region investments inevitably come with challenges. Environmental concerns, governance issues, and debt sustainability have been raised as potential downsides to the extensive infrastructure investments. In the context of the methanol plant in Brass, this will likely include a range of supporting infrastructure to support the methanol port to ensure the ongoing ability to export, such as roads and channel harbours. 

In conclusion, China's investments in Nigeria's energy infrastructure through the Belt and Road Initiative have significantly contributed to the development of the country's power generation and oil and gas sectors. These investments have the potential to enhance Nigeria's energy security, stimulate economic growth, and promote sustainable energy sources. Such investments in developing nations for the production of chemical commodities beyond petroleum is a sign of much-needed diversification within the Niger Delta region, which can facilitate the movement of energy resources within Nigeria and for increased export to the Chinese economy.

Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

Did you enjoy this illuminem voice? Support us by sharing this article!
author photo

About the author

Lolade Aluko is a Marine Fuels Trader at Peninsula, a global leader in marine energy solutions. She has previous experience in the financial services industry, with a focus on mining, metals and industrial decarbonisation. Lolade has a range of expertise in industries spanning renewable energy and global commodity supply chains.

Other illuminem Voices

Related Posts

You cannot miss it!

Weekly. Free. Your Top 10 Sustainability & Energy Posts.

You can unsubscribe at any time (read our privacy policy)