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Nigeria’s Oil And Gas Industry Restreaming?

From John Meze, Lagos:

Dr. Ibe Kachikwu

Nigeria’s oil and gas industry, especially the upstream sub-sector, which seemed to have been in a quandary following the cascading of the crude oil and gas prices in the international market may have been experiencing a respite due to the ongoing  price spike in the market.

The country witnessed a downturn in its proceeds from the industry which had been its mainstay over the years and this to a larger extent gave rise to the recession in the economy which sent a shock through out the country.

All works of life, for over three years, including the real sector which had been in the comatose state were not spared the wave that left over 75 percent of the working populace jobless and the nation hungry.

Crude oil and gas prices averages, as from 2014 started experiencing a slump in December of the year  when it cascaded to $55 per barrel from $72 per barrel, $48.67 per barrel in 2015,$43.33 in 2016 and $50.56 in 2016 whereas natural gas which was trading at $20.0 per thousand  standard cubic feet cascaded to $10.36 , $10.04,11.13 in 2015, 2016 and 201, respectively.

However, according to experts, they are expected experience a marginal upward movement to $52.77 and $10.92 in 2018.

The country, seemingly, had no answer for the sudden collapse of the prices but rather preferred a call for diversification of its economy which, though, would have needed the propelling of the proceeds from the oil and gas industry.

Sunny Oputa, CEO of Energy  and  Corporate Africa, observed that, “over the years, many operators have pulled out of the country with no hint of returning until meaningful changes are made,” he added that,” Local companies have been stifled as well. “

All upstream exercises, commencing from exploration through production in the country had been stalled  for two years before the sudden drop in prices following the glut in the market occasioned by the  discovery and production of Shale oil and gas in the United States of America.

According to a report by Africa Oil and Gas, the top 20 of Nigeria’s roughly 75 indigenous oil companies have a combined production capacity of 865,229 barrels per day in the year, whereas the total output of the nation is about 2.6 million barrel per day. This current national out is an increase from about 900,000 barrels to about 1.8 million barrels in 2012, 2013, 2014 2015 and 2016 militancy in the Niger Delta region of the country.

It is due to these stoppages by the militants, that warranted the waivers given to the country by the Organisation of Petroleum Exporting Countries(OPEC), when output cuts were agreed upon by member nations in order to shore up prices of crude products in the international market.

Nigeria and Libya were granted waivers due to disturbances  affecting oil and gas production in their countries while other countries and non-OPEC members agreed on 180,000 barrels per day output cut.

Aside from the paucity of funds experienced by the major oil and gas companies operating joint venture exercises with the federal  government through the national oil company, the Nigerian National Petroleum Corporation (NNPC), due to cash calls defaults by the corporation,  militancy in the Niger Delta region, home of the product, which reduced national out drastically, jus at the industry was faced with the issue of the Petroleum Industry Bill(PIB), later transformed to the Petroleum Industry Governance Bill(PIGB) after over 150 amendments that lasted for over 17 years.

The industry, until recently, waited with a lot of trepidations evoked by the possible changes in the laws governing the operations of the industry in the nation, though, those international oil and gas companies(IOCs), operation in the country, like Chevron, Shell and Total, among others, who had a peak into the bill, fingered the  would be fiscal policies of the bill  as well as the restiveness in the Niger Delta region of the country as a possible cogs in the wheels of the operations of the industry of the nation.

The bill is expected to be passed by the National Assembly by the passage of the year 2017, earliest January 2018.

According to, David Blanchard, immediate past president of the Africa Region for the American Association of Petroleum Geologists “Nigeria ranks very high on the corruption list, and it is trying to get rid of that situation. This bill sends a strong message that this era of corruption is over, and the government can no longer hamper the way industry does business.”   “The bill is a step in the right direction, but naysayers are saying, ‘Show me it’s going to work’. I think that’s a valid comment.”

The Petroleum Industry Governance Bill proposes to change the way the nation’s energy sector is regulated and funded to help the nation prosper. The ultimate goal is to entice indigenous companies and international operators to invest in its bountiful resources without trepidation.

It proposes to break up the state oil company into commercial entities, which would be governed by an independent regulatory body, and to create a fund that would ensure the distribution of petroleum products throughout the federation and provide funding for new infrastructure. The newly created entities would include the Nigeria Petroleum Assets Management Company, the National Petroleum Company and the Nigeria Petroleum Liability Management Company.

The idea behind the bill is to remove the concentration of power that has long been in the hands of the National Nigerian Petroleum Company and the country’s petroleum minister and to implement a checks and balances system.

Experts of the industry have jointly agreed that at the turn of the year the industry would experience a spike in prices, which, though, may not rise to boom of the 2009-2014.

They projected that the  price of Brent Crude oil has now jumped from $57 per barrel to $63 per barrel for 2018, and WTI has increased from $54 per barrel to $59 per barrel.

Analysts  have  expressed the confidence that the oil market would remain undersupplied throughout 2018 and that inventories would fall to five-year average levels in the third quarter of next year.

They said that accelerating Chinese demand growth and OPEC’s extension of its production cuts to the end of 2018 would be the key drivers for the undersupply.

On November 30, OPEC and participating NOPEC countries agreed to extend production cuts to December 2018. A further meeting to evaluate this plan is expected to take place in June next year.

They, also, expressed the expectation that the OPEC and NOPEC agreement to keep current production restraints in place through 2018 would contribute to an oil price increase in the second half of next year.

Local Content

The Nigerian Content Development and Monitoring Board (NCDMB) has climaxed that it has accomplished all the targets set for 2017.

Engineer Simbi Wabote the Executive Secretary of NCDMB confirmed that both the objectives set by the industry stakeholders at 2016 Practical Nigerian Content (PNC) and the ones set internally at the beginning of the year were met. “We have gone through all of them and we ticked the boxes,” he said.

The Executive Secretary who recently clocked one year in office a few weeks ago, recalled that one of his first directives in November 2016 was that operating companies can assume they have received approval for any project if they did not get feedback from the Board within 15 working days.

He asserted that this target was met. “We have streamlined our internal processes such that NCDMB is now positioned to review contracts within 100 days, provided submitted documents are in line with the NOGICD Act. We have demonstrated this in the last one year as evidenced in the unprecedented completion time of tendering process for the Zabazaba project.”

Further evidence is that the Board jointly developed and signed a Service Level Agreement with the NLNG – a first by any government agency. “We have written to the OPTS to jointly draw up similar agreements to ensure NCDMB’s role in contracting process is clear and transparent in line with the Executive Order on Ease of Doing Business,” he added.

Continuing, Wabote said the Board had expanded its operations to the midstream and downstream sectors of the oil and gas industry. “We are now part of NLNG business activities. We visited Dangote refineries where we agreed on steps to involve more Nigerian companies with capacities in the development of the project to meet cost and schedule timelines.

“A compendium of ancillary businesses required to sustain operation of the refinery is under development to support the operational phase of the huge 650,000 barrels/day refinery,” he stated.

He reiterated that the $200m Nigerian Content Intervention Fund had been launched for oil and gas service providers that are contributors to the Nigerian Content Development Fund. “The intervention fund has all-in single digit interest rate of eight percent for loans extended to Nigerian Oil and Gas Service providers and all-in single digit interest rate of five percent for loans extended to community contractors.

The Executive Secretary also reported that the Board signed the Research and Development Guidelines with key industry stakeholders earlier in the year. “We also held the highly successful R&D Fair and Conference two months ago and we are building on that momentum to set up a R&D Steering Committee to guide our R&D Implementation plan. Other initiatives such as R&D Centers of Excellence, ‘Adopt a Faculty’ Program, and others are also being progressed.”

On Sectorial Linkages, he said the Board is at the forefront of advocacy for the utilization of in-country capacities beyond the oil and gas industry. “We have local capacities in manufacturing of pipelines, cables, paints, etc that can be utilized in the construction and power sectors of the economy.

“Our service providers are also being encouraged to venture into the construction sector to utilize their equipment and project delivery expertise.”

Other achievements according to the Executive Secretary include the launch of the upgraded NOGICJQS platform so that transactions such as applications for expatriate quota, Nigerian Content equipment certificates, Marine vessel categorization and several other requests could be carried out online.

Giving further details of the Board’s performance in the last one year, Wabote said the Nigerian Oil and Gas Parks Scheme was being progressed in five oil producing states. He indicated that “one key progress we have made in the last one year is to put in place a firm arrangement for provision of 24/7 power supply to the industrial parks as they materialize. This is a core enabler for domiciliation of manufacturing in-country.”

He also harped on the Board’s efforts to aggregate industry business plans, which culminated in the Nigerian Oil and Gas Opportunity Fair (NOGOF) held in March. As part of the outcome, we compiled a compendium of industry opportunities.”

Mid Stream

Nigeria in the year 2000 licensed about 21 companies to commence the refining of crude oil and gas in-country but most of these companies existed on papers while others went into limbo when the crude which the government promised them as the seed product was not forthcoming.

The reality was that the target of almost all the companies was the crude oil and gas which they expected to export to the international market without turning the spades.

The government in its wisdom then withdrew most of these licenses  except the Dangote group’s.

  The Federal Government, after having taken stock of the billions of Naira it had for over the years expended on the turn-around maintenance (TAM), of the four refineries located in Warri, Port-Harcourt and Kaduna, seem to have seen the wisdom in deregulating the midstream  subsector of the oil and gas industry, hence the refining lincensing rounds.

However, the ongoing energy crisis in the country which has continued to ensure the demise of the real sector of the economy and the eloping of many foreign investments in the nation.

The Federal Government in an effort to nip in the bud the burgeoning situation, according to the Minister of State for Petroleum, Dr. Emmanuel Ibe Kachikwu, has conceptualised the optimisation of the local refineries by initiating steps towards  revamping them, again, rather than concession or sell them in their current states which is about 40 percent below installed capacity.

To achieve this, he said that, the government has sought external resources to finance the rehabilitation of the refineries  by the original builders(ORB), with about $1 billion.

The second phase of ensuring the reawakening of the sub-sector, he further informed would entail, the ascertaining of what holders of existing licenses of establishment of  refineries have done since they were issued with their licenses.

Of all these, only Dangote group and the Lagos Refining Company have done recognisable jobs.

The government has, also, upscaled the colocation of brown field refineries with existing refineries to co-locating greenfield refineries.

Alhaji Aliko Dangote while speaking of the efforts his group of companies have made towards establishing a first rate refinery in the country informed that the investment which will gulp $18billion, when completed in 2019, would be the current world’s largest single line Refinery, Petrochemical Complex and the world’s second largest Urea Fertiliser plant.

He said that, the refinery will have the capacity to refine 650,000 barrels of crude oil per day while the Petrochemical Plant will produce 780 KTPA Polypropylene, 500 KTPA of Polyethylene and the Fertiliser project will produce 3.0 million metric tonnes per annum (mmtpa) of Urea.

In addition,  the company is building the largest sub-sea pipeline infrastructure in any country in the world, with a length of 1,100km, to handle three billion standard cubic feet (SCF)of gas per day.

It, also, plans to construct a 570 Mega Watt (MW) power plant in this complex which gas from the gas pipeline will augment the natural domestic gas supply with estimate an additional 12,000MW of power generation which can be added to the national  grid with the additional gas from its systems. 

Dangote, stressed  that his group is committed to playing  their parts in the efforts of the Federal Government of Nigeria to comprehensively address the energy crisis in the country informed that the complex would among other things be adding value to  the nation’s economy as all these projects will be creating about 4,000 direct and 145,000 indirect jobs.

“We will also save over $7.5billion for Nigeria annually, through import substitution and generate an additional $5.5billion per annum through exports of the refined petroleum products, fertilizer and petro chemicals,” he added.

It was gathered that the complex which has the flexibilty of further expansion  would, also, address the petrol needs of the nation by meeting the demand requirements and have excess for export to neighbouring countries, meet and surpass the house hold kerosene (HHK) of the nation, meet and surpass the fertilizer demands of the nation and meet the and surpass the aviation fuel demand of the aviation industry of the nation, among a host of others.

Aside from all these the company which, presently, has thousands of Nigerians both at the sights of construction and the group in it employ is currently carrying out its corporate social responsibility in the areas of education, health, micro credit scheme, provision of power supply for the community, enhancement of small scale employment and development of agricultural schemes, among a host of others.

The company aims to produce the best quality products in the world and would be ready to export to any part of the world, according to the group President.

The Honourable, Minister of State for Petroleum, Dr.  Emmanuel Ibe Kachikwu during his visit, while restating the fact that the complex remains the most sophisticated infrastructure  in the world which share size raises hope for the country, pledged to promote the company at every international gathering which he finds himself.

He posited that the construction of the complex which has practicalised hope in the nation has not only motivated the Nigerian National Petroleum Corporation(NNPC) to carryout turn around maintenance(TAM) of its refineries, but also, has made the country the citadel of  petroleum exporting in Africa and the World at Large.

He called on local institutions of higher learning to avail themselves with the technology being exhibited and employed in the complex in order to impart them on the scholars of their institutions for further development of the industry and the nation.

Observing that the complex is coming at the right time  and promising the the raw materials which is crude oil and gas will be sold to the company at price parity noted that the project would ensure that every barrel of crude oil delivered to it would be adequately utilised.

Nigeria, is known to have been spending over $4-$8 billion annually on the importation of refine products, however, with the current move of the company it is envisaged that this will bring the import spree down through import substitution as well as provide the needed jobs for the teeming population which has saturated the labour market.

Downstream

The downstream subsector of the oil and gas industry of the nation, though, deregulated has seen myriads of problems ranging from dearth of refined products to high incidents of fraud.

The national oil company is known to have lost billions of Naira to false accounting and accounts engineering, activities of pipelines vandals, adulterators of products  as well as hoarders of products.

Presently, due to the dearth of refined products in country, industry watchers have posited that the country’s current rush to keep the citizens supplied with refined products is expected to boost purchases of European gasoline in December, offering a potential respite to European refineries and storage terminals threatened by an oversupply that has battered margins.

Nigeria, though, a major crude oil producer in the world, has been known as a refined products buyer, even with the buying spree after fuel queues built up at filling stations this month, even as the NNPC has sought to reassure drivers that there was no shortage.

Shipping and trade sources informed that imports of  fuel  to West Africa, including Nigeria, from Europe were expected to top one million tonnes in December, compared with 700,000 tonnes in October and roughly 800,000 tonnes in November.

Queues of motorists filling up are not uncommon before the Christmas holiday in the country, a member of OPEC which exports crude but imports fuel because of a lack of refining capacity.

The NNPC has scrambled to buy cargoes held in floating storage, and has promised that its fuel depot would be open 24 hours to meet demand.

More needs to be done in this subsector to engender support and confidence of the people in the government’s pursuit in this sub-sector which to a larger extent counts for the growth and development of the nation’s economy.

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