The concern of stakeholders mainly independent operators in Nigeria is where the oil industry will be in ten years. The oil industry has provided some positive strides for Nigeria in terms of foreign exchange to government and huge contribution to the country’s Gross Domestic Product (GDP). One major factor is that GDP is the monetary value of finished products and services, and the impact of oil and gas in terms of indigenous operators’ contribution in the country, is only 10% which set the tone of the failure of what the independents have not been able to achieve.
Speaking recently in a forum organized by the Petroleum Club (PC), one of Nigeria’s foremost oil professional association, Ademola Adeyemi Bero, Chief Executive Officer (CEO) of First Exploration & Production Company Limited (First E&P), and Chairman Independent Petroleum Producers Group (IPPG), observed that the country still sells oil and gas manually for foreign exchange. In his words “We need oil to get out of oil and to get out oil, we need oil for sustainability, not just to earn but to diversify the economy.” He gave example of Qatar, primarily, the country has gas and it uses its resources for revenue to fund government and to fuel other sectors of the economy. Qatar is the largest LNG trader today in the world. Infrastructural investment has improved mainly because of gas and its capital investment has led to economy growth which outpaces most countries. The contribution of gas to GDP is high and it is extending its infrastructure to other countries, not just selling the gas, but also being able to do distribution of gas channel to other South East Asian countries as well.
Surprisingly, Bero noted that what makes it different in Nigeria is because of lack of domestic participation. The contribution of indigenous companies to Nigeria’s production is between 15% to 20% range. The emergence of indigenous companies, ordinary or major operators have managed to increase capacity but there is a question about the Nigerian National Petroleum Corporation (NNPC) growth as a national oil company. Growing capacity and operating a significant portion of Nigeria’s production. Bero asked, is it that the indigenous players do not have a sustainable business model? They have managed to prove that wrong in the last ten years of operation in the country’s oil industry. He disclosed that indigenous companies over the last seven years, have brought almost $11 billion to invest and acquiring assets.
The IPPG Chairman revealed that the challenge for the indigenous operators is, how far can they go? Local operators are exporting most of their gas. If refinery infrastructures work well, things would not have gone awry for indigenous operators and GDP from the oil and gas sector would have been within 40% to 50%. Utilization from the refineries is a key factor. The infrastructures that were built in the 70s and 80s are no longer in vogue and therefore, they cannot deliver leading to systemic issues.
Bero made it known that on the aspect of power, Nigeria has spent close to $20 billion for its power sector in past ten to fifteen years, yet it is still struggling with 4 to 5 Gigawatts. The country needs indigenous oil companies to thrive so as to grow its economy. There are emergence of independent companies in Nigeria and the country needs to build on them to change the narrative in the next ten years.
The First E&P boss gave example of the 2010 asset divestment which produces some indigenous companies like Seplat that got an asset with four blocs from Shell with 60000 barrels per day which has been increased between 70000 to 80000 in the same asset. For Nigeria to get to 3million barrels per day which is being projected in the next five years, independents must work hard for it because it is a huge challenge. He urged the indigenous oil companies to attract investments in order to grow production. In 2027, the picture in the oil industry will be clear as Nigeria’s oil production prediction might be 3million barrels per day and add in excess of a reserve base about 40 billion while gas in excess of about 2 tcf reserve. He added that the indigenous companies should up their production with a minimum of 600000 barrels per day, “it is possible and we have to do that and we are going to change the narrative of the industry.” He revealed that where the indigenous players will make a difference is in gas. Seplat, Frontier, NDPR and some indigenous companies have made significant impact in gas.
In terms of refinery, Bero stated clearly that if Dangote puts in place a 650000 barrels per day refinery, in one fell swoop, it will meet the demands of the country and if the country is able to get a 435000 barrels per day refinery as a backup, it will serve regional market. Just as NDPR has a mini refinery which some skeptics have undermined, if 100000 barrels per day of small refineries are spread over the Niger Delta, obviously, they will add value. It will create avenue for fuels that can be easily conveyed, create employment and change the mindsets of the Niger Delta people. The ‘so called’ illegal refineries that refined crude oil by the locals can be converted to small refineries. According to him “The oil product challenge of this country will materially change when Dangote refinery comes to stream.” Bero advised the NNPC to move at faster pace because if the Dangote refinery begins operations, its four moribund refineries may be abandoned, “if NNPC wants to make value out of them, they need to move fast.”
The exploration expert made a stunning remark concerning petroleum products importation, that of countries with major petroleum resources, none imports petroleum products like Nigeria, “they do it, they do it on a strategic basis and we have not even done that.” Notwithstanding, it is a narrative that will change the advent of the Nigerian independents including the Dangote refinery. The production of gas in Nigeria is about 20 bcf per day, 4 to 5 bcf goes to energy, 1 bcf for facilities, while about 2 bcf is used for domestic purpose. To attain 10 Gigawatts, the country needs in excess of about 10 bcf per day. How will this happen? It has to do with infrastructural development in the country. Independents should focus on offshore gas pipeline that will essentially provide gas evacuation system for offshore gas, “if you take all the offshore gas that are being gathered, plus the few bcf target in the offshore, the country will get to that 10 bcf target per day, again driven by indigenous Nigerian independents.”
The oil industry is passing through change but opportunities for the younger generation has been an unanswered question. Independents should focus on the younger generation because they hold the future of the industry. Although divestment from the IOCs transferred some workers to the independents, but the local operators still need well-informed vibrant minds for its operations. They have to play vital roles in terms of employment going forward.
Bero tasked independents on social investment which will enhance relationship between operators and local community. He stated further that NDPR operated for ten years without any shut down of its operations as a result of effective community relations with its host. Seplat has almost the same record with NDPR in terms of social investment. The independents should focus on development and integrate the communities as they operate. To get to 2027, the narratives must change because 10% GDP contribution is abysmal and poor owing to the huge resources of the country. Bero opined, “If we extend ourselves to be an export oriented country to value added country for our oil and gas industry, we essentially will change our narrative, the International Oil Companies will not do it, why? Their business model are different”. The IOCs have global focus. If there will be significant change, it will come from the independents who will take the bull by the horn.
In terms of gas, if indigenous players can meet infrastructure appropriately, it will change the narrative of the oil and gas industry. What indigenous operators need is the right price for gas which will increase participation and the oil and gas industry finally becomes an enabler for economic growth and not just a revenue earner. The concern should be what the country will use its gas for? There is a gas progress because it was found before oil and what it can do for the economy is huge. Should gas be used as a revenue earner or as a multiplier effect of the economy? It should rather be used as an enabler for effective service. There must be a will to make the change.