Highlights of Emerald Energy Institute’s Two Day Forum on Oil, Gas & Power Economics: Policy Issues, Prospects & Strategic Options

University of Port Harcourt

The Emerald Energy Institute (EEI) University of Port Harcourt, in collaboration with the Nigerian Association for Energy Economics (NAEE), the Centre for Petroleum, Energy Economics and Law, University of Ibadan (CPEEL), and the International Institute for Petroleum, Energy Law and Policy (IIPELP), Abuja, organized a two- day Petroleum and Power Policy Forum, which held at the Emmanuel Egbogah Auditorium, University of Port Harcourt between June 29th to June 30th, 2015. The Theme of the forum was Oil, Gas & Power Economics: Policy Issues and Strategic Options for Nigeria in the New Petroleum Era.

The forum which created a platform for energy professionals and experts from academia, government and the industry to network and discuss policy issues and problems affecting the petroleum and power sectors in Nigeria, had in attendance, Prof. Joseph AJienka (Vice Chancellor, University of Port Harcourt); Dr. Osten O. Olorunsola (Former DPR Director), Dr. Jude Amaefule (Vice Chairman/CEO, Emerald Energy Resources Ltd); Dr Joseph Ella (Former GGM, Planning & Strategy NNPC); Prof. Yinka Omorogbe, Prof. Wumi Iledare (Director, EEI), Prof. Adeola Adenikinju (Director, CPEEL), Prof. Chijioke Nwaozuzu (Deputy Director, EEI), Prof. Adewale Dosunmu (Dean, Graduate School of Advanced Engineering Technology, University of Port Harcourt) and other panel discussants. Also in attendance were media personnel and other participants drawn from both industry and academia.

The programme featured presentations and interactive sessions on key energy and petroleum industry issues. Among several problems and constraints identified at the forum are the following:

  • The obstacles to improving energy access includes:
    • Inadequate renewable energy research centre in Africa for development of renewable energy technologies.
    • Poor coordination of government agencies which creates distortions and complicates implementation of policies.
    • Absence of clear political vision and leadership.
    • Inadequate human and technical capabilities in the energy sector.
    • Sub-optimal policy and regulatory framework which have undermined energy market functionality.
    • No legal backing to energy policies, thus, few options for sanctions for non-compliance.
    • Inadequate will to challenge vested interests or corruption.
    • Lack of information on renewable energy potential for decision- making on improving energy access.
  • Challenges Confronting Power Generation in Nigeria:
  • Poor planning and maintenance culture.
  • Lack of capital, and hence funding for power generation.
  • Inadequate gas supply as well as poor gas pricing. This has further deterred investment in gas infrastructure for the power sector.
  • Lack of development capital for Associated Gas (AG) and Non-Associated Gas (NAG).
  • Inadequate infrastructure, example, pipelines.
  • Lack of diversified energy mix.
  • Poor electricity pricing.
  • Vandalization of pipelines and power generation facilities.
  • Poor inventory management and indiscipline.
  • Skilled manpower deficit.
  • Transfer of current liabilities and refinancing of accumulated cost.
  • Poor transmission and distribution infrastructure.
  • Issues on Independent Power Producers (IPP) framework and licensing.
  • Issues of Value- Added Tax (VAT).

 

Strategic Options Recommended for the Petroleum & Energy Industries

With observable growing regional competition, coupled with declining reserves, stranded frontier offshore blocks, declining petroleum contribution to GDP and the prevailing economic and policy outlook, the forum examined the following strategic options:

 

  • There is an urgent need for:
  1. Assessment of Nigeria’s shale oil and gas potentials in shale and coal deposits within the Anambra basin and other basins;
  2. Assessment of Nigeria’s’ hydrocarbon potential from bitumen deposits; and
  3. Assessment of hydrocarbon potential of parallic shale sequences within the Agbada and Akata shale formations.
  • Government should as a matter of priority:
  • Incentivize oil and gas exploration and production to encourage companies, and to invest in power generation, as this will aid gas production for power generation, and consequently, transmission to the national grid.
  • Decentralize off-grid electrification based on standardization system, in other to provide electricity for remote rural households not covered by the national grid.
  • Incentivize the mix of renewable energy sources with fossil fuel back up, in other to provide affordable power capacity to homes and industries on demand.
  • Involve or encourage private sector participation in provision of investment capital needed for electricity infrastructure development.
  • Develop market for electricity infrastructure and adequate policy framework to encourage private investment in the power sector.
  • Institute market-based energy sector reforms including pricing policies to provide the necessary incentives for consumers and producers to use and produce energy efficiently.
  • Enable institutional support that will encourage the culture of sound energy management in the industrial sector.
  • Well-focused government intervention to support efficient utilization of abundant domestic renewable energy sources by the private sector.
  • Review and implement the Petroleum Industry Bill (PIB).
  • NNPC should, as stipulated in the PIB, operate as an incorporated joint venture, thus, they should source for capital from the financial markets.
  • Should begin to explore her non-conventional hydrocarbon sources, as there is currently no commercial production of unconventional gas; as evidences abounds which confirms the presence of unconventional hydrocarbon resources within the Agbada formation.
  • More so, there are existing geological, geo-chemical, petro-physical and basin modeling data that can be systematically integrated to identify and interpret locations of these resources in Nigeria.
  • Emphasize greater prudence in management of our petroleum and energy resources to guarantee sustainability. This can be achieved through instituting :
  • Appropriate policy, legal and contractual framework;
  • Building the sector around strong institutions and good governance;
  • Adequate fiscal and administration framework;
  • Appropriate revenue management and distribution.

 

Highlights of the Recommendations for the Petroleum Industry

  • High GDP growth should reflect in key human development indicators, e.g. health-care, education, housing, transport, etc.
  • The role of rule of law, effective systems, processes and compliance with these elements.
  • Strong linkage between effective reforms and legal frameworks.
  • Strong legal frameworks should also translate into the development of strong institutions, which in turn paves the way for effective reforms.
  • There should be clear policies on oil blocks and to tie these to other development goals. Therefore, oil industry developments should be tied to a diversification of the larger economy.
  • There should also be clear policies on petroleum fiscal terms.
  • In a climate of low oil prices, it is imperative for government to add value to crude oil production through refining. To achieve this, we need a crude oil supply policy in place (for indigenous refiners).
  • Subsidy on petroleum products should be discouraged. However, if there must be subsidy, let it be production subsidies instead of consumption subsidies.
  • Reserves and oil revenues are both in decline, and so it was suggested that Nigeria invests in moderate reserves growth. This can be achieved conveniently under a climate of low crude oil price.
  • Reserves could be boosted in the following ways: increasing reserves from existing fields; increasing reserves by using enhanced oil recovery techniques; by applying 3D Seismic on oil wells that were previously explored using 2D technology; and by boosting abandoned wells through horizontal drilling.
  • Government has to provide incentives for ensuring growth in reserves, otherwise the reserve replacement ratio and the production replacement ratio will be significantly low which can endanger the future of generations of Nigerians.
  • The over-dependence on fossil fuels for transportation and the nature of the captivity of this market has necessitated a call for some role for the use of natural gas for transportation (compressed natural gas vehicles, CNG). Therefore, government should come up with policy, legal and commercial perspectives to add CNG vehicles to our vehicular fuel options.
  • The forum emphasized the importance of security of supplies for both crude oil and petroleum products. Issues related to metering and fiscalization needs to be addressed to curb the menace posed by crude oil theft, pipelines vandalism, etc. In some cases, it may be necessary to incentivize the local populace in oil E & P environments to participate in securing oil production, supply & distribution infrastructure.

 

Highlights of the Strategic Options Recommended for the Power Industry

  • A five-year periodic review of the Acts establishing all regulatory agencies is recommended. It should include elimination of overlap and duplication of roles, including benchmarking of specific mandates with international standards.
  • Also, Regulatory agencies’ operations should be transparent and accountable, in addition to proper communication of consequences of non-compliance and compliance.
  • A more robust grid network is needed to accommodate different sources of electricity with the installation of ‘early warning’ and fault detection and location systems to increase efficiency of interventions and reduce downtime. More so, captive and embedded generations should be encouraged for industrial and big residential estates. Real-time use and pricing of electricity should be considered to reflect time of day in order to reallocate demand.
  • Reforming of the transmission segment will require a combination of altering the policy and market structures. Ownership and management structure is also critical to securing more investment to expand transmission infrastructure. Privatization, regional decentralization, and the rural, geographically and economically unprofitable areas are possible options for investment and growth.
  • Distribution currently requires privatization, and reduction of aggregate transmission, commercial and collection (ATCC) losses. There is also embedded generation to supplement supply and credit advance payment for metering implementation (CAPMI).
  • The way forward includes promoting more competition, encouraging investment, promoting embedded generation and third- party access to distribution facilities.
  • Feasible options entail more consumer options/choices, encouraging investment, energy efficiency, more efficient billing system, and a well-defined and sustained programme of consumer education and enlightenment.
  • Possible options to overcome the issues and challenges include: sector reforms (policy and market structures); appropriate pricing, designing incentives for more market participants, encouraging free negotiated bilateral contracts; investment in infrastructure and coordination in the use of existing infrastructure; addressing security of supply; optimization of power plant location; alternative ways for delivering gas to power plants; and regular monitoring of gas supply and domestic gas supply obligations.
  • Sustainability requires appropriate mix of public and non-public institutions in the time-path of the development, with increased role for universities, research institutions and standard agencies. Local content development should be supported, provision of venture capital or access to long- term capital at concessionary rates, and monitoring and evaluation of all agents in the value chain are also key elements in the reform process.
  • Other key recommendations include strong and credible support mechanisms; incentives for non-state actors; emphasis on effective regulation rather than number of regulators; education, awareness and enlightenment programs on energy conservation and use of alternative energy; prioritize areas of involvement in the value chain; and human capital development.

 

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