GAS Government Should Embark On Policy That Will Build Gas Infrastructure
-Engr. Chike Nwosu
Engineer Chike Nwosu is the Chairman, Nigeria Council of the Society of Petroleum Engineers (SPE). He spoke at the Nigeria Gas Association (NGA) Business Forum that gas projects are lagging behind due to concentration on oil. Nwosu posited that gas should be enhanced for industrial revolution in Nigeria and investment in gas will thrive the economy. The SPE chair said it is an embarrassment for the country not to have used its huge gas resources for power but it can still be corrected going forward.
So much has been said about investing in the future of the gas, its future has been highlighted and the discussion delving into the needs for policies that would encourage the use of technology and transportation. What is your take away from the conversion about investing in the gas sector?
The first thing that I need to make clear is that take a look at the world energy mix for this country possibly for Africa as well, it will be less reliant on oil or more reliant on gas as cleaner fossil fuel and also renewables. Taking a look at the investment environment, a lot of investments are going on towards oil project and that means the gas projects are lagging behind. Look at the volume of gas we have had which is estimated between 190 and 200 trillion cubic feet (tcf) of gas with prospective resources of gas that go up to about 600 tcf, this is a huge amount of
gas, yet the country is just scrapping at the top. There has to be policy that actually helps us to build infrastructure whether traditional with pipeline infrastructure that is needed, virtual network of pipeline like CNG or LNG. That amount of investments must go towards transporting this gas in whatever form it is, it has to get to the end users. The proportion of gas that goes to end users for the domestic market should be much more than what goes to the export market. There must be a balance but the driver of the domestic market has to be gas to power because gas to power opens up a vista of so many other opportunities. Once there is power, an industrial revolution may happen in Nigeria, if there is sufficient power, ship enough reliable power, it will lead to an industrial revolution in the country. Manufacturing will be enhanced, the medical industry will grow. It is not only around oil and gas or the gas industry, it is about the attendant effect of investing in these gas infrastructure. It has to be focused within government policy.
What government is working on with respect to the National Gas Policy is good, but it has to marry the gas policy to actualize its aspirations. The different sector of the gas industry are going to be managed separately, upstream different from midstream and downstream. It must dovetail into enabling environment for investment in gas infrastructure to happen. The banks have made it clear that what they are looking for structured and bankable policy. If this can be demonstrated to the banks that the country has the resources, structured and bankable project and long term investments. Gas is like oil in terms of ten years as a minimum and fifteen to twenty years. The country should be able to demonstrate that there is stability within policy, there is stability within infrastructure and what needs to be done to maintain that infrastructure because it is not about delivering the infrastructure now, it is about how it can be maintained for the period that it should be maintained. Long term for the gas to be delivered for domestic use.
It is quite unfortunate that Nigeria has huge gas reserve, 9th in the world. How come with such huge reserve, the government finds it very difficult to either buy or pay for gas and the country is in darkness in terms of power generation. Is this not an embarrassment for a country that is 9th in reserve in terms of gas?
You can continue to talk about this as an embarrassment, I tend to look more on how we can resolve it, that problem exists, we have a huge and growing population with substantial gas resources, it is a clean form of energy. It is a form of energy that if you invest in it, it will open up the rest of the economy. What we need to do is to marry the industry that is the E&P industry, the government regulators and the government parties should put policies together. The service industry, the academia including every trade zones should also be part of the think tank. There has to be think-tank that actually develop a proper energy policy for Nigeria driving going forward. The policy must leverage on our greatest resource to deliver energy and that is gas. Oil is a commodity the way we treat it but gas is what is what going to revolutionize the industry in Nigeria. The question is, is it an embarrassment? Yes, it is an embarrassment but can we do something to correct it, absolutely, we can and the NGA has to drive coming out from this conference, all the required policies and engagements to make this happen.
Nigeria Petroleum Industry: Dawn of a New Era
Group pictures of delegates at EEI
It was a beehive of activities recently as juggernauts and leading lights in the oil industry including the academia convened at the Emerald Energy Institute (EEI), University of Port Harcourt for the 7th Dr. Emmanuel Egbogah Legacy Lecture Series. Egbogah, a quintessential professional of long standing in the oil industry, was extolled for his enormous works that cut across Nigeria, Libya, Canada, Malaysia and the US. He has served as Technical Adviser in several countries and was also a former Presidential Adviser on Petroleum Matters to the federal government.
In his key note address, Austin Avuru, Managing Director of Seplat remarked that the concept of value addition is what Dr. Egbogah has always epitomized. Avuru emphasized on value addition owing to its wider implications of domestic energy security and a new era in the country. In his words, “What I see today as the new era, is a new paradigm from oil and gas being a rental source of revenue to oil and gas creating wider economy value and its larger implication for Nigeria’s economy”. Nigeria is largest oil producer in Africa and 3rd largest gas producer in Africa. There is resource challenge looking at the contributions of oil to the country’s Gross Domestic Product (GDP), Nigeria ranks as the lowest contributing paltry 15% and declining to 8% in GDP between 2011 and 2016. The country’s GDP per capital is just about $2500 and the country ranked 152 out of 188 in terms of Human Development Index. Unfortunately, other countries’ contribution to GDP from oil and gas, it will be discovered that in spite oil and gas accounting for about 70% of national budget and 95% of foreign exchange earnings, the country’s contributions to GDP is abysmal. Avuru added that “Nigeria’s per capita electricity consumption is 145 kilowatt hours in a year which means each Nigerian only consumes less than 140 wax bulb of electricity as a share per day”. The country spent about $5.5 billion annually for procurement and services and less than 20% of it is domiciled. A five year average refining of Nigeria’s refineries between 2010 and 2015 is about 52% refining capacity.
The erudite speaker gave a stunning remark that gas utilization in 2015 stood at 12% which is a bit high because five years earlier it was just 1%, the measure of development and the size of GDP would be about how resource rich the country is. There is a dire correlation between energy consumption and prosperity. Nigeria’s focus in the last fifty years emphasized on energy production for export and rental revenue whereas the real issue should be domestic energy consumption and its bigger implications. The exchange rate is worsening and inflation has doubled in the country in the past two years. Foreign Direct Investment (FDI) has come down from $9 billion in 2011 to $3.1 billion in 2015, these summary is because the country has always depended on oil which crashed both in price and production volume. On the aspect of gas utilization, 75% of gas produced in Nigeria goes to field usage and export, combination of industrial use and gas to power is 12%. Gas to power commenced about five to six years ago and total consumption stood about 300million scf per day and presently the country hovers about 1.1 billion cubic feet (bcf) and heading towards about 3 bcf per day in the next two to three years. Looking at gas supply in the country compared to electricity generation, almost about 5000 Megawatts (MW) of electricity is constrained because gas to generate it is not available. Avuru made it known that Seplat, as an indigenous company out of the 4000 MW generated in the country at present, it contributes 1100 MW in terms of power supply.
THE POWER SECTOR CORRELATION TO GAS
The power sector is bogged down with infrastructure deficit and distribution network is only 20% while there is a 10% loss on transmission. The country has huge gas resources that is stranded in the Niger Delta. It is astounding that the Generation Companies (GenCos) are indebted to banks to the tune of N356 billion while half a trillion naira in revenue was lost in the power sector in 2016 and consumers owe almost half a trillion naira. Between 2016 and 2017 there is liquidity gap of almost $3 billion coming largely from inadequate tariff losses arising from generation and distribution of power.
Concerning Nigeria’s refineries in terms of domestic consumption and production, they are below 10% in capacity utilization. Taking a look at the performance of the oil and power sectors including the resource base of 37 billion barrels of oil, 200 trillion cubic feet (tcf) of gas, the country being the largest oil producer in Africa and 3rd in terms of gas, performance put together is abysmal. The Seplat boss advocated for domestic energy security as the way out and what the oil industry will contribute so that there will be a wider achievement to the economy. Domestic energy security entails that the country solves security issues in Niger Delta, which will take it to production level that will guarantee 3 billion barrels of oil. Production will be injected into the domestic market and consumes 10 to 12 bcf gas per day, if achieved with 1.2 million barrels of domestic refining capacity and full deregulation of the downstream sector so that it will be market driven, profitable and efficiently run. There should also be efficient pipeline distribution for petroleum products. Subsequently, the country will map out how it can attain electricity generation of 15 gigawatts as against 1/2 gigawatts per year. Government should ensure that the country’s agriculture sector flourishes “because we will have enough fertilizer for our domestic agriculture and enough for export”. Avuru revealed that in the past the government was distributing fertilizer almost free to farmers for agriculture with reasonable subsidy. Producing and distributing enough fertilizer will boost domestic agriculture and production. There are dire implications for an economy that is consuming 12% of gas per day domestically and refining half oil production. Avuru explained that oil and gas has “grown from being a revenue earner to an economic enabler”. The country will save about $5 billion a year through an effective gas development including virile transformation in the downstream if the potentials are well harnessed.
Notwithstanding the issues in the oil industry, indigenous operators are chatting the way forward through transmission. He disclosed that Seplat is a successful indigenous operator with 50% and heading towards 70% of domestic gas production. By 2019 to 2021 when the 650,000 barrels refinery of Dangote is commissioned with 1.1 million barrels refining capacity, domestic production in the country will attain substantial level. This credit goes to indigenous operators. For domestic gas processing and distribution, the entire in-house refining and most of the downstream will be the forte of indigenous players. To buttress his point, Avuru stressed further that at present, in Nigeria’s downstream, the only existing multinational is Total. The likes of Agip, Shell, AP and recently Mobil have been sold and taken over by indigenous operators. Any sector of the economy whose currency is domestic will not be attractive to the multinationals since the exchange rate is fluctuating, the only way forward for them is to quit. If “we are moving in the direction of domestic energy security, the driver naturally will be domestic companies”. Some indigenous players are investing in domestic gas production without exporting to boost energy security at home.
Although indigenous operators seek to enhance domestic production for energy security, there are issues to contend with it. According to Avuru, in the past seven years, there is a major transition that has brought the independents which seems to be the future hope of the country. The independents who possess assets in the power sector bought them at high prices in millions of dollars had no option than to put efforts and commitment to keep them. They were consigned to the domestic market since there was no in-road elsewhere except the existing market. The indigenous operators are willing to expand the oil, gas and power sector for the larger benefit of the economy. Independents in the upstream and service providers have benefited from the policy and involvement of local participation which has thrived contractor capacity and production. Avuru decried the demographic struggle in the oil industry among local operators owing to the fact that pioneers who strived to grow the industry are aged while bleak future awaits younger generations who have not been able to fit into their shoes. He stated clearly, “Dr. Egbogah that we honour today and the likes of Dr. Egbogah who are seventy and above, all of the several works they have done in this industry and are all retiring, you will see a thirty-year age gap between them and the next generation”. He added, “It is even worse, you will see a thirty year age gap even between us and the next generation, the training that was available for all of us when we were growing up because the multinationals had the resources and the reach to give us all of that training and from that pool of the people who were trained forty years ago, we are retiring to set up our indigenous companies today, is that training available and do we have the reach today such that thirty years later, the next generation will do what we did?”
Besides, in terms of Research and Development (R&D), the multinationals have the capacity for internal R&D and some indigenous players learnt under a conducive atmosphere. Independent operators should be acquainted with tertiary institutions where they will be trained through research while NNPC R&D department needs to invent meaningful research mechanism for the industry but where this is lacking, it becomes a problem for the oil industry. Avuru disclosed that talent shortage is an issue in the industry and 50% of the workforce in the oil industry are retiring in the next five years. The Seplat helmsman opined that if any industry is transitioned from public sector dominance into private sector participation without effective regulation, the consequence is death. The industry that is in transition and dominated by several multinationals had internal discipline and regulatory mechanism, “there were things Shell, Total or ExxonMobil will not do”.
Still on regulatory system, the power sector had a regulatory agency, National Electricity Regulatory Commission (NERC), the board was dissolve when there was change of administration, under the power sector reform programme, the Distribution Companies (DisCos) will remit 80% of what they collect from electricity users to the Nigeria Bulk Electricity Trade (NBET), NBET will remit to GenCos, GenCos will in turn pay gas producers. Surprisingly, in the first six months when there was no virile regulatory body to check activities in the power sector, the DisCos gave excuses of consumers default to pay for electricity with other issues and remission dropped from 80% to 30% before the government replaced the board, get a new commissioner and constituted NERC, the average that the DisCos were remitting dropped to 40%. Eventually, it led to huge debt in the sector. Eight months lacuna brought the power sector reform into jeopardy. Avuru explained further that the same is applicable to the oil industry where regulation is weak with various levies being paid by operators. This will collapse indigenous operators if a viable regulatory body is not well constituted. The country has gone through a sixty year mystery of high revenue generation from oil and gas which has led the industry to a sorry state. The emphasis on the oil industry should not only be on revenue earning but economy enabler, “a new era has been poised on indigenous operators and only strong regulation will make it survive otherwise there will be ten years of prosperity, then it collapses”.
NGA Inaugurates Advisory Board
NGA Adversory Board Member
The Nigerian Gas Association (NGA) has continued to be the most influential organization in the gas space effectively advancing the role of gas in the Nigerian oil and gas sector. Giving all the dynamics in the world energy platform due to rapid changes, the association needs an advisory council that will project its cause globally and locally. The job of the Advisory Council and Board is to play advisory role which will put a position paper that will be tabled to policy makers, legislators and the wider industry. The gas association inaugurated its advisory board members, the composition of the board is made up of perfect and seasoned professionals who have contributed significantly to gas sector in Nigeria. The Forum was attended by Chief Executives of International Oil Companies (IOCs), Independent and downstream companies including chairmen of associations in the oil industry.
In his welcome address, the NGA president who doubles as the Managing Director of Frontier Oil Limited, Engineer Dada Thomas, made it known that gas is the future for Nigeria and will be one of the keys for unlocking a better future for the country. According to Dada, “In the NGA, we believe that gas equals power, equals economic diversification”. It is a simple equation, “conversely, no gas equals to no power, equals to no economic diversification.” Nigeria with the population of 186 million people growing at 2.7% per anum projected to reach and be the third largest population by 2035. Dada asked how will these population be fed, clothed, housed, energized, if the country does not diversify its economy? Gas is the basis for diversification of the country’s economy. He stated clearly that the NGA is an organization that was formed in 1999 by the Nigerian National Petroleum Corporation (NNPC) by its pioneer chairman Dr. Gaius Obaseki, Chevron and NLNG which is one of the strongest supporter of the association. Others include Shell and ExxonMobil that were part of the founding fathers of the association.
The NGA president revealed that the association has grown with more than a 100 corporate members from the IOCs to LPG retailers. The gas value chain is vast and grows from the upstream, the midstream to the downstream. It is not a political association but a profit organization, it represents systemic issues because it projects the good and development of gas. The Frontier boss stated further that the association has four core values that it tries to progress and the two most important ones have to do with advocacy and promoting investment in gas through best practices in health safety and environment by providing a window of being a resource centre. Advocacy makes the gas association to engage with policy and law makers so that whatever is being codified into policy and law is good for the gas industry. The association is promoting investments in the gas sector. The NGA helmsman posited that the association has numerous achievements to its credit, it has engaged the authorities on inimical monetary policies which are not palatable for the gas sector. Gas investment is made in the US dollars but from 2015 gas operators get paid dominated in naira at the Central Bank rate causing a lot of issues for operators. Dada explained that operators are losing N60 for every dollar gas sales made, “which is not a sustainable business model.” The association has been engaging with the Ministry of Petroleum Resources and it made substantial input into the approved oil and gas policy, with petroleum fiscal policy which will be approved by the Federal Executive Council (FEC). This helps to narrow the gap between operators and policy makers. He assured members that NGA will continue to engage with the National Assembly to ensure that the PIB will be a good document “that will grow the Nigerian pipe, not shrink the Nigerian pipe”. Dada spoke about the international gas conference which is being hosted by the International Gas Union (IGU) in Washington and the NGA will show case Nigerian gas story in that forum. The participation is necessary because there are good stories to tell about the Nigerian gas space for the world to know that the country is an investment destination for gas.
Former president of NGA, Bolaji Osunsanya, noted that “If gas is going to play the role that we aspire it plays in Nigeria, then whatever we are trying to do is beyond the capacity of the council alone”. He emphasized further that “If the aspiration for the industry is what we see then we need sensibly more horse power in the thinking and programming for this association”. Even though the council may be competent with seasoned professionals, they need other powers to join hands with them to develop the gas industry. He opined that the Advisory Board members are eminent people who understand the dynamics of the industry and will advance the course of the gas association. He made it known that every aspect of the industry is represented in the composition of the council and board which will guide it going forward.
As part of his commitment to gas development, Dr. Maikanti Baru, Group Managing Director (GMD) of NNPC is the Chairman of the Advisory Board of NGA. In his key note address, Baru appreciated the Executive Committee and the entire members of NGA for the honour bestowed upon him and the other members as pioneers of the association’s Advisory Board. The NNPC boss described the inauguration as an “auspicious event which will prove to be a milestone in the history of the association, it is a visionary step, steady and consistent effort in gas development for economic growth”. He pointed out that the NGA has in deed contributed immensely in the Nigerian gas sector through series of events by providing a forum where members and active players of public and private organizations within and outside Nigeria, government agencies discuss matters relating to the development of Nigerian gas sector.
Baru stated that the establishment of an Advisory Board, for the association will provide further indept, expert guidance to the NGA Executive Council, regarding various opportunities and challenges that will provide key observations to significantly grow Nigerian gas industry. The federal government through NNPC has mandated gas development to stimulate unprecedented economic growth. Gas infrastructural development to enhance gas supply is a critical focus area for the government from 2016 to 2019 mid ways for the oil and gas industry as well as key business focus areas to grow the industry. The GMD added that with vast oil and gas experience entrenched in the gas Advisory Board, “I as the pioneer chairman of NGA advisory board, will focus development, I hereby dedicate myself, to the aggressive development of the Nigerian gas sector and commit myself and all the members of Advisory Board to do everything possible to achieve the objectives of the board which aligns perfectly with NNPC’s key business focus areas”.
Besides, there are opportunities in various sectors of the industry. For instance, in the upstream gas development, acquisition and operatorship of oil blocs, drilling rig leasing and drilling related services, engineering services, heavy equipment leasing, seismic, EPC contracting, steel rolls, banking and financial services among others. Similarly, in the midstream of the industry, there are investments such as: gas processing facilities, NLNG gas storage, EPC of over 2000 kilometres of gas pipelines, fabrication of pipes, NLG fabrication, provision of pipe transportation and laying equipment, selection of gas network through scanner system including numerous opportunities for operators. In the downstream sector, there are opportunities for investment for LPG marketing, investment in gas based industries through fertilizer and methanol, petrochemicals and CNG stations. Baru asserted that there are more opportunities in manufacturing of LPG gas cylinders and accessories, financial services among others. Therefore, the potentials for gas are enormous.
However, there are key challenges in the sector which include incessant gas and crude oil pipeline vandalism, poor payment performance of gas by the power sector, these continue to challenge the growth of sector. The NGA Advisory Board chairman, noted that funding of the gas sector is also a challenge to meet up with capacity for financial institution in-country. There were interventions despite the challenges, good progress is being made in realizing strategic aspirations for gas and efforts have been put in place to address pipeline vandalism with series of engagement and re-orientation of the host communities to employ new technologies. These technologies include horizontal directional drilling services, pipeline surveillance technology and upgrading critical existing infrastructures. In addition, the government has deployed scanner systems to assist in monitoring and control accomplished works with greater feasibility of disbursed network of pipelines. The government has been engaging with the power sector regularly on the need for payment of the mounting gas debts so as to give suppliers confidence in the sector.
On funding of oil and gas development projects, the government has raised about $4 billion to finance cash call. In these efforts, operators might come across various projects, joint ventures and gas pipelines. Baru pointed out that the Nigerian gas sector remains the largest and most vibrant in Sub-Saharan Africa with lots of potentials especially in the deep water and untapped gas resources. The sector offers unique opportunities for investments in upstream, gas development, midstream, distribution and marketing of gas. The gas reform is anchored on a robust strategic framework that is focused on maximum economic impact through gas. It aims to strengthens linkages with agriculture, manufacturing and disperse through small enterprises enhanced with power.