Oiling Wheel of Progress

 

Faced with a grim picture painted by fluctuations in the international oil market, the new government is moving swiftly to reposition Nigeria as an emerging world energy market, writes John Meze

The oil, gas and power sectors of Nigeria have gone through stages that have seen the country emerge as the new African energy hub, ready to compete favourably with the developed and other developing countries.

Given the prominence of the industry that sustains all other aspects of the world economy and given its vantage position in Nigeria's growth and development, the country is faced with no other choice than to develop and expand it, in order to ensure sustainable growth.

The oil and gas industry provides more than 85 per cent of the country’s national income. However, current developments in the industry and the power sector have not only elevated the economy that was dependent on the sector, but also the real sector, which is recognized all over the world as the backbone of every economy.

The current development has seen a careful delineation of oil from the gas sector and deregulation of the power sector, which now has 11 sub-sectors that include power generation, transmission and distribution.

Nigeria's economy, more of cash driven and mono-economic, and dependent on the export of crude oil, now attracts foreign direct investments following the further expansion of the energy industry.

Though more investments are expected to flow in from more foreign investors, the target is to create an energy hub for both the West African sub-region and the African continent, and therefore provide an investment.

Crude oil subsector

The government's shift in modes of operation in the crude oil exploration and production subsector that was carved out from the oil and gas industry has created a model that bespeaks of continuous development and expansion targeted at creating a value chain that is beneficial to operators and the people at-large.

An endorsement of this development recently came from Mr. James Entwistle, United States ambassador to Nigeria, who pledged his government’s readiness to work with the new management of the Nigerian National Petroleum Corporation (NNPC) in achieving the federal government’s reform agenda in the oil and gas industry.

Entwistle said the United States was willing to provide the necessary support to NNPC to realize its set goals and objectives, adding that his country was convinced that the corporation has the skills, training and requisite experience to lead the oil and gas industry in Nigeria towards the path of growth and sustainable development.

This new paradigm has seen the country up scaling its production from 1.5 million barrels per day in 2000 to about 2.6 million barrels per day today.

Following this development, Nigeria established a total of 315 oil fields, out of which only 218 are fields not operational, while 85 are in the upstream, out of which 33 are operational. The country has 2,800 oil producing fields with 130 flow stations.

The Department of Petroleum Resources (DPR) awarded 170 oil blocks out of which 68 have oil prospecting licences (OPL) and 102 oil mining leases (OML).

According to indigenous experts, the big changes in reserves addition expected from the Niger Delta Basin will not come until new play concepts, focused on deeper pools than currently penetrated, are implemented.

Drilling results in the onshore and shallow water terrains show that "all the plays have not been optimally penetrated, indicating a potential for increased reserves growth in deeper play opportunities".

Aside from increasing the output of the nation, it has also created attractive chain of industries that provide gainful employment and investment opportunities. For instance, the oil services subsector has witnessed an unrivalled growth within a few years, a situation that never existed.

"In five years time, I think we are going to be better than this”, Mike Muagba, general business services manager of PFL Engineering, said in assessment  of the performance of the industry so far. “Honestly, I think we are going to do better than this. The local operators are going to grow higher than what it is today. I can assure you that we already are getting there. The local companies are getting to a stage where they are competing tooth and nail with the multinationals. Companies like Oando are there. There are so many companies like that in Nigeria. I know that in the next five years we will be talking about our own fully, not banking on the multinational".

The Petroleum Industry Bill (PIB)

The country has set-up a new legal document that is currently before the National Assembly for passage into law. The document, known as the Petroleum Industry Bill (PIB), which has inputs of indigenous and foreign experts in oil and gas companies, would give fillip to the agenda for profitable operations in the industry.

Dr. Emmanueal Ibe Kachikwu, group managing director of NNPC, says the bill will require further extensive perusal by all stakeholders in order to iron out all the grey areas in the bill.

Kachikwu, who chaired a special session on the proposed law at the 55th Annual General Conference of the Nigerian Bar Association in Abuja, titled: Legal and Regulatory Framework of the Petroleum Industry in Nigeria: Review of Existing Laws and the Petroleum Industry Bill (PIB)”, described the bill as an essential legislation that must be approached with all the seriousness and thoroughness it deserves.

"PIB is a serious affair”, he said. “It is an essential piece of legislation, but as we all know, a lot of engagement is required to address all the issues because the oil and gas environment has changed. There are issues of cost; with oil going down to $40 per barrel, the PIB cannot be the same".

He explained that because of the need for extensive consultation and time required to make the bill a workable document, it was only natural to kick start the reforms in the industry with existing laws, while waiting for the eventual passage of the proposed law.

Kachikwu said the corporation had mapped out measures to execute the 2015/2016 award of contracts to companies for the evacuation of Nigeria’s crude oil equity from the various crude and condensate production arrangements in an unprecedented move to instill transparency and probity in the award of the annual crude oil term contract.

He said as part of measures to optimize marketing of Nigeria’s crude oil and secure new market potential, the number of off-takers for the proposed 2015/2016 term contract that would emerge after a planned rigorous competitive bid exercise had been pruned from 43 to 16.

"In the days ahead, we shall place advertisement for the 2015/2016 term contracts and the publication will run for one month in major national and international print media to ensure effective message penetration”, Kachikwu said. “Later, the guidelines for the selection of new off-takers would be published and subsequently a special bid evaluation committee would be constituted to conduct due diligence on successful applicants".

An aspect of the bill that was extracted for immediate use is the local content policy, which has transformed into an enacted operational act. This act has attracted so much patronage that today, the set goal has almost been achieved.

Local content act

This act led to the development of an oil and gas park where construction of oil and gas equipment is done locally; employment of over 500,000 Nigerians from the Niger Delta and other parts of the country, through local inclusion policy that includes supplies, front-end engineering and designs(FEED), as well as procurement contracts.

Others benefits include springing up of new as well as expansion of existing services industry for the sector, such that over 200,000 Nigerians are currently engaged as professionals and artisans in the industry; foreign direct investments from international oil services companies and telecommunications companies, and establishment of training programmes for the youth of the region and Nigeria in general.

Mr. Victor Eyororokum, chairman of the Movement for the Survival of Ijaw Ethic Nationality in the Niger Delta (MOSIEND), who spoke during a courtesy visit by the group to Mr. Denzil Kentebe, executive secretary, Nigerian Content Development and Monitoring Board, (NCDMB) in Yenagoa, Bayelsa State, said the group collaborated effectively with the board during the tenure of Dr. Ernest Nwapa, pioneer executive secretary, and was keen to continue the relationship with the new helmsman.

He said the group was particularly interested in capacity building and employment generation for its members, and was keen to participate in the Nigerian Oil and Gas Parks Scheme (NOGaPS) and the Polaku Pipe mill project promoted by NCDMB.

Nwapa, erstwhile executive secretary of the NCDMB, had before his exit from the board said one billion dollars had been invested in the Nigerian oil and gas industry to create capacity and execute Nigerian content scopes.

He said, for instance, that the Egina-Total Exploration and Production’s $15 billion deep water project was the first major oil and gas project to be started under the Nigerian Content Act, which includes an FPSO unit; an oil offloading terminal, and subsea production systems such as risers; 52 kilometers of oil and water injection flow lines; 12 flexible jumpers; 20 kilometers of gas export pipelines; 80 kilometers of umbilicals and subsea manifolds.

Midstream

At the Midstream, about 130 companies have been issued with licenses, apart from the four fully turned around refineries producing at full installed capacity, to commence the refining of crude oil and associated fossil products in the country. Many more are expected to be issued with their operational licences in the nearest future.

Also, speaking about the midstream sub-sector of the oil and gas industry, Kachikwu said the corporation had resolved to implement a new strategy to transform the Nigerian crude oil refining subsector, otherwise known as the midstream, of the oil and gas industry.

Kachikwu, who spoke recently at the National Association of Energy Correspondents (NAEC) conference in Lagos, said the corporation had resolved to transform the midstream into a transparent, efficient and fair market by ensuring rehabilitation of Brownfield refineries, using a new business model.

“While Africa produces about 10 per cent of the world’s oil, only 3.6 per cent is refined on the continent and its refining capacity has remained unchanged for the past 20 years”, he said. “Cameroon and Cote D’Ivoire together export about 34 thousand barrels per day, meeting only 10.2 per cent of the West and Central African demand shortfall."

He regretted that Nigeria, one of the world’s leading oil producers, found itself in a situation in which it has to import petroleum products. “We are, however, strategically going to ensure this is no longer the case in the next few years", Kachikwu assured.

He said the corporation was fully committed to reforming existing refineries to boost domestic petroleum product supply, with refineries that have been streamlined.

“Removal of price control mechanism is deemed imperative to ensure full growth of the sub-sector by allowing private stakeholders to complement the government efforts in developing the industry”, Kachikwu said. “In the last decade, Nigeria has taken some important steps towards a more deregulated downstream fuel sector.  Deregulation will ensure fair market value and product availability as enshrined in the Petroleum Industry Bill".

Downstream

This subsector has been fully deregulated with the private sector having much of the say, with little control from the government.

The new government has indicated willingness to fully deregulate this subsector, to enable private operators to have a healthy competition with NNPC, which will soon be unbundled. Already, the Pipelines and Products Marketing Company (PPMC), a subsidiary of NNPC, has been split into three separate companies to focus separately on maintenance of the over 5000 kilometers oil pipeline; a storage company to maintain the 23 depots and a products marketing company to market and sell petroleum products.

The government says other subsidiaries of NNPC will also be split into several stand-alone companies to compete with other oil and gas companies operating in any one of the sub-sectors of the oil and gas industry, without support or intervention from the government. This is expected to take place before the year runs out.

Gas

Nigeria has gas reserve life index standing at 79 years as of January 1, 2015, according to the latest data from the DPR. Out of this figure, some volumes are stranded or not developed. With about 188 trillion cubic feet (TCF) in gas reserves, the country ranks seventh in the world and first in Africa.  

Mr. Antigha Ekaluo, deputy director, gas monitoring and regulation, DPR, says Nigeria’s  gas reserves endowment might be up to 600TCF, quoting the United States Geological Survey. He said natural gas potential exists in inland basins, like the Benue Trough, Borno and Anambra basins, but with the natural gas accumulation mainly concentrated in the Niger Delta Basin.

He said substantial discoveries had been made in the deep offshore area, and that all natural gas discoveries were incidental to exploration for crude oil.

"The gas sector policies will provide Nigeria with the opportunity to harness and get maximum value from its stranded gas resources, as effective gas sector development remains a catalyst for growth and will have a multiplier effect on the Nigerian economy", Ekaluo said.

Mr. Emeka Ene, council chairman, Society of Petroleum Engineers, Nigeria, who spoke on the level of gas found in the country and strategy for monetising stranded gas, said there was need for the country to identify and secure its closest markets, develop an integrated flare-out model, recognise that associated gas was not non-associated gas, determine the size of the process based on average throughput and modularise the solution.

On accelerated stranded gas monetisation, he called for the fast-tracking of captive power, adoption of gas-powered public transportation, liquefied petroleum gas substitution programme and implementation of pipeline network code.

Power road map

The country evolved a power road map in 2010, and this has ensured supply of gas to the power sector and a policy of domesticated gas, ensuring supply of gas to other production outfits.

Besides this, private organisations have been given the needed encouragement to invest in the gas sub-sector, such that an amount in the excess of $500 million has been spent on pipelines, and another $140 million budgeted by them for the immediate term. So, together without building the IEG, they have spent $640 million.

Mr. Bolaji Osunsanya, chairman of Nigeria Gas Association and managing director of Oando Gas, says private investors in the industry are building infrastructure that will create market, knowing full well that if the market is created, they will be able to find more gas and will build infrastructure.

“When we cannot build the infrastructure, we will look for the technology that will take the gas to the market”, Osunsanya said. “That is why we can say today we can give gas to Sokoto Cement; we will give gas to Kaduna NIPP. We will give gas to anybody in the North, even without building the pipelines. We can leap frog, then when the market is established, we can then build the pipelines. It is a fine balance; we are expanding the market because we have to go and we know by creating that market we are creating impetus for gas to be further developed."

The government's drive to ensure utilisation of the abundant gas in the country, aside from the world shift from fossil fuel usage in production and production exercises, is targeted at reducing the quantity of gas being flared at the oil fields.

Gas flare down

Initially, Nigeria set 2010 for ending gas flares. However, some companies like Total and Shell Petroleum Development Company have achieved some measure of flare down, such that in their areas of operations in the Niger Delta where most of the gas is flared, gas is converted into liquefied natural gas, which is now exported or domesticated.

Oil spill and remediation

Oil spill, one of the causes of unrests often experienced in the Niger Delta, attracts a fine of about one million naira for late reporting. Besides, the offending oil and gas company is expected to carry out remediation exercise to the area so affected. The remediation exercise is also expected by the host community company, which may have won the bid. This is part of local inclusion in the operations of the oil and gas companies operating in the area.