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”.