Dr. Maikanti Baru, GMD, NNPC
In his keynote address at the Nigeria Oil and Gas Conference (NOG) held in Abuja titled “Driving Nigeria’s Oil & Gas Industry towards Sustained Economic Development and Growth”, the Group Managing Director (GMD), of the Nigerian National Petroleum Corporation (NNPC) made it known that the corporation is re-calibrating. Its focus is to become imperative following the turbulence experienced in the crude oil price cycle, supply driven glut in the oil market, world economic growth, the uncertainties regarding the future of oil, the fiscal imbalance experienced by OPEC member nations and particularly domestic economic experiences in Nigeria.
Baru commended the innovative and bold strides of NOG organisers in providing a platform for the iteration and cross fertilization of oil and gas industry subjects in Nigeria, “The NOG event has become a household name and we expect the gains to be sustained.”
The GMD made it known that the clear focus of NNPC deliverables in form of actionable and implementable plans is to strategise as quick-wins, short-term, medium-term and long-term plans as priorities across the value chain from upstream, midstream to downstream including non-core business areas. NNPC recognised challenges, as well as opportunities oil demand growth presented particularly as a major exporter experiencing a surge in local demand for petroleum products. The balance of these objectives required that it undertook a paradigm shift in its business model to ensure the corporation attract capital and sustain flow of investment outside traditional government funding.
He noted that NNPC has adopted a synergetic and collaborative approach to doing business going forward such as emplacing cost reduction and cost saving measures to ensure that its stays profitable in business, reduction of contracting cycle-times, resource pooling, facility-sharing for clustered assets as well as standardisation of operating framework.
Baru emphasised that in 2016, Nigeria experienced persistent low crude oil prices and also low crude oil production due to several attacks on the country’s major oil and gas facilities. This precipitated the recession of 2016 as government’s oil revenues dropped leading to consecutive negative growth in all quarters of 2016.
However, these challenges were tackled by developing home-grown solutions to stay afloat and be on course to achieve the vision set before NNPC.
During this period, Baru noted that the corporation needed to sustain confidence of its partners to stay with it at the difficult times. “We undertook to settle all outstanding cash call arrears which was successfully negotiated to $5.1Billion from $6.8Billion. This has restored confidence in the Nigerian Oil and Gas Industry and also encouraged the existing players in the industry particularly the traditional JV partners.” The state owned company also signed third party financing deals with international banks on new oil and gas development projects. In 2017, NNPC signed about $2.5Billion alternative funding arrangements and Joint Ventures with indigenous and international oil companies.
The GMD stated that the corporation has been able to increase gas supply to power plants and industries in the country, through repairs of critical infrastructures and reactivation of shut down gas plants. These have resulted in doubling domestic gas supply from an average of 700mmscfd in June 2016 to 1,500mmscfd currently. These projects have been completed and commissioned almost 600km of new gas pipelines thereby connecting all existing power plants to permanent gas supply pipelines.
On the aspect of security, Baru noted that relative peace has returned to the Niger Delta, critical export facilities have been repaired and the country’s daily crude oil production has increased significantly even though there are still minor pockets of sabotage incidences being experienced. But it cannot be compared to the huge success currently experienced.
The NNPC boss explained that since October, 2017, NNPC had become the sole importer of petroleum motor spirit (PMS) into Nigeria as the Oil Marketing Companies (OMCs) could not import due to open market price being much higher than the N145/litre official selling price. This was as a result of naira depreciation to the US dollars including increase in crude oil prices with corresponding exponential rise in products’ prices combined to escalate the open market price of PMS which makes it unprofitable for OMCs to import petrol and sell at N145 per litre.
According to the GMD, the strength of NNPC performance and its immediate priority is to sustain and consolidate on what the corporation has achieved across the value chain.
Part of NNPC priorities with outlook for 2018 and beyond is to increase crude oil reserves by 1billion barrels Year-on-Year from the current 37billion barrels to 40billion barrels by 2020. Also to increase national oil daily production to 3million barrels per day.
Since capital and investment thrives when there are clear policies, strong regulatory framework with institutions, fiscal stability and adherence to high governance codes, plans are in the works to get it right. To spur much needed investment, government has issued an updated oil and gas policy, initiated the process for enacting a new Petroleum Industry Governance Bill that provides clarity on government institutions and their roles in the industry.
Baru noted that in terms of gas production, domestic demand for gas in Nigeria is unprecedented, with a current daily realistic gas demand of 4,000mmscfd “Which is expected to grow exponentially to about 7,500mmscfd in the next 5 years.” Notwithstanding, within the next three years, through Joint Venture partners, NNPC is committed to increasing natural gas availability from the current 1.5bscf/d to about five billion standard cubic feet per day in 2020.
Consequently, the government will supply enough gas to generate up to 15GW of electricity to the power sector by 2020 and stimulate gas-based industrialization.
Aside infrastructure, the GMD said continued implementation of gas master plan remains a core focus of NNPC. Gas pricing has been adjusted to export parity, legacy debt owed by various sectors to gas suppliers are being paid through an intervention fund arranged by Central Bank of Nigeria (CBN).
On gas export market, part of NNPC strategic aspiration for gas is to strengthen its footprint in high value gas export through LNG and aim to secure about 10% of global market share of traded LNG.
Concerning the Midstream, the GMD stated that “There are ongoing discussions to revamp all the four existing local refineries utilising private capital in form of Contractor-Financing model. This represents a shift in NNPC investment model and serves as a springboard for redefining the commercial framework for midstream investment in Nigeria.” The investment model is basically that strategic investors who can bring refining expertise and funding will partner with local partners who have downstream experience because the downstream sector holds the future. The plan to become a net exporter of refined products by year-end 2019 is on course. Based on this timeline, the revamping of the country’s four refineries are topmost priority in NNPC for the midstream segment. Also in progress, is the revamping and rehabilitation of all Nigeria pumping stations, pipelines and depots across the country.
Dr. Baru stated that economic recession generally has adverse effects in major sectors including the petroleum industry. However, with the global turnaround of crude oil prices, NNPC has not allowed the opportunity presented to filter away. It has taken initiatives that would spur growth in the oil and gas industry, attract investment and provide returns to investors, ensure sustainable development and stability in the national economy.
The GMD was of the view that it is the dawn of phenomenal growth for NNPC, many of its veterans are at the twilight of their careers, “Therefore investing aggressively in capacity development, talent identification and mentoring is part of the state owned company priority. “The industry needs new leaders to carry the vision forward.”
He maintained that to remain globally competitive, NNPC has put efforts in place to achieve set objectives. Part of the objectives is to improve collaboration with local communities, states, local governments and relevant Agencies. Improved security and safety of personnel and infrastructure.
The corporation has in its mandate to improve transparency, accountability and human capital development. It will optimize of its non-core oil businesses, gradual transition from an integrated oil and gas company to an energy company. Overall reduction in unit cost of production and improved efficiency of its operations across the country.