Nigeria’s petroleum industry have come a long way from its over 57 years of commercial oil production, but perhaps the most significant period, in terms of local input and benefits to Nigerians have been since the advent of President Jonathan’s administration.
Although not much credit has been given in this regard, but the turnaround in the industry began with the signing into law of the Nigeria Content Act in 2010, much to the chagrin of those that never gave it a chance. The Act sought to empower more Nigerians to make bold contributions to the sector that have long been dominated by multinationals and foreign operators.
With the advent of the Content Act, there was a re-definition of Nigeria’s petroleum resources, which contribution to the nation’s Gross Domestic Product, GDP, has been abysmally low. This is notwithstanding the fact that the industry is the country’s biggest revenue earner, accounting for more than 80 percent of its foreign exchange earnings.
Accordingly, the mandate of the Ministry of Petroleum Resources, under the leadership of Mrs Diezani Alison-Madueke became: “… to transform the oil and gas industry for the increased benefit of Nigeria and its people through effective implementation of policies on hydrocarbon exploration, exploitation, production, distribution and utilisation in accordance with international standards.”
Fulfilling such a lofty national objective is certainly no yeoman’s task, as it also demanded a new mission for the: “Effective implementation of national oil and gas policies on exploration, production, distribution and utilisation in accordance with international standards.” As well as a new vision to become: “An internationally competitive oil and gas sector that contributes maximally to the growth and development of the Nigerian economy.”
Besides charting a new direction and how to go about it, the transformation equally required the appointment of key personnel that will bring the mission and vision for the petroleum value chain to reality.
According to Alison-Madueke, “The Federal Ministry of Petroleum Resources has embarked on a very aggressive reform agenda to ensure that the Nigerian oil and gas industry continues to play a pivotal role in the nation’s economy.”
Even as controversial as some of the appointments have been, the minister has expressed confidence in her team of personnel that will execute the reform agenda. They include:
• The Nigerian National Petroleum Corporation, NNPC – Mr. Andrew Yakubu
• Petroleum Products Pricing Regulatory Agency, PPPRA – Mr. Reginald Stanley
• Department of Petroleum Resources, DPR – Mr. George Osahon
• Nigerian Contenet Development & Monitoring Board, NCDMB – Mr. Ernest Nwapa
• Petroleum Technology Development Fund, PTDF – Dr. Oluwole Oluleye
• Petroleum Equalisation Fund, PEF – Mrs. Sharon Kasali
• Petroleum Training Institute, PTI – Dr. Linda Dennar, and,
• Nigerian Nuclear Regulatory Agency – NNRA- Dr. Martin Ogharandukun.
These men and women are expected to bring to bear, their wealth of experience in the industry for the realisation of the transformation agenda in terms of operations and regulation in the various sub-sects of the industry.
Indeed, the Federal Government has expressed equal confidence in its ability to transform the nation’s petro-economy. According to Vice President Namadi Sambo, who also chairs the economic team: “Nigeria is making significant progress and we have huge international investment potential including the obvious economic advantage of a big market of over 150 million friendly people. We are blessed with abundant petroleum and solid mineral resources, and the country’s recent economic and political reforms have drastically improved corporate governance…”
As already noted, the greatest strength of the reform agenda in the dramatic increase in the participation of Nigeria’s in the sector. While in the past only a handful of wealthy and politically connected Nigerians were permitted to participate, the story has long changed to: “If you have the capacity, come prove yourself.”
The outcome is astronomical; many Nigerians, including those in the Diaspora, took up the challenge with most of them resigning from their plum oil jobs to prove themselves. Their activities are more evident in the services for the benefit of technology transfer; the upstream, which is the core of the industry, and the downstream, which is the interface with the Nigerian people, and more recently in domestic gas.
Just to underscore these exploits, all of the upstream assets being divested by the oil majors, including the SPDC/Total/Agip divested eight oil blocks were acquired by Nigerian companies in alliance with some foreign technical partners. The assets are:
• OMLs 4, 38 & 41 – Seplat Petroleum Development Company
• OML 26 – First Hydrocarbon Nigeria Limited
• OML 30 – Heritage Oil Plc
• OML 34 – Niger Delta Petroleum Resources Limited
• OML 40 – Elcrest Exploration and Production Nigeria Limited
•OML 42 – Neconde Energy Limited.
In April this year, Nigeria’s Oando Energy Resources Inc. sealed the deal for the acquisition of the Nigerian operations of ConocoPhillips for US$1.79 billion. Furthermore, Nigerian companies are top contenders for Chevron’s Oil Mining Leases, OMLs 52, 53 and 55.
Similarly, to position the NNPC as a fully commercial national oil company, its wholly owned subsidiary, Nigerian Petroleum Development Company, NPDC, was assigned all of NNPC’s equity in the Shell divested joint venture blocks.
The result of these exploits is such that in 2012 alone, a total of 600 million barrels of reserves were added representing 70 per cent replacement. The NPDC, headed by Mr. Victor Briggs, also got a lift, as its reserves through assets transfer rose to 1.7billion barrels, with daily production targeted at 250,000 barrels by 2015.
Services & downstream
Similarly, the services and downstream sectors are dominated by Nigerian companies. Alison-Madueke noted that in line with the local content policy, “Key infrastructure and investment is now locally owned e.g., Marine vessels, land swamp and offshore rigs.”
The Chairman, Petroleum Technology Association of Nigeria, PETAN, Mr. Emeka Ene, clarified that the over 60-member group “… provide over 250 discrete oilfield related services broadly classified in the following categories – Drilling and Completion services, Health, Safety, Security, Environment services, Management and Information services, Project Management, Facilities and Construction services, Flowlines and Facilities construction, Production and Operations, Reservoir Description, Training and Catering Services.”
For the downstream sector, apart from Mobil and Total, petroleum products distribution and storage activities are dominated by Nigerian companies.
The Independent Petroleum Marketers Association of Nigeria, IPMAN, has over 10,000 members with over 24,000 (86%) retail outlets across the country. While the Depot and Petroleum Products Marketers Association of. Nigeria, DAPPMA members have a combined storage capacity of two billion litres and the highest tankage volume in the country.
Furthermore, revenue generation from NNPC downstream retail activities is said to “… have grown significantly (by 39%) during the last three years, from N 151billion to N219billion. Also, its number of retail outlets has increased from 418 to 505 thereby, increasing NNPC’s domestic market share from 12% to 15%. NNPC targets more aggressive growth (42%) in the coming years.”
In the area of gas, President Jonathan asserted that “By 2014, we would have positioned Nigeria firmly as the undisputed regional hub for gas based industries such as fertiliser, petrochemicals, and methanol.” He added that “The gas initiative will generate over 100,000 engineering and design-related jobs, as well as about 500,000 direct and indirect jobs in construction, logistics, fabrication and agriculture.”
His assertion is based on the recognition of the potential for tremendous economic growth inherent in the nation’s vast natural gas resources, in which he outlined a three- point mandate for natural gas comprising:
•Boost in gas supply to the Power sector
• Stimulation of gas based industrialisation aroundFertilizer, Petrochemicals,Methanol etc., effectively leveraging gas as feedstock for key industries,thus creating jobs and
•Selective investment in high value regional pipeline and LNG export opportunities to boost revenues from gas sales.
According to Alison-Madueke, “Our total average gas production increased from 7.7Bscfd to 8.24Bscfd representing 7% increase compare to 2011 levels.”
Upstream gas supply
As a result, upstream gas supply for power generation, industrial and household use has increased significantly during the period in review following government’s prioritisation of gas supply to the domestic market.
Specifically, domestic gas supply to support power increased with over 250 million standard cubic feet per day, MMscfd, under the emergency gas supply programme, just as supply for other uses was at an all-time peak of 1500mmcf/d. Supply is projected by year end to support over 5 Gigga watt, GW of power, and expected to increase to about 10GW by 2015/2016.
Crowning reforms with PIB
All the afore-mentioned reform agenda are a prelude to the passage of the Petroleum Industry Bill, PIB, which has been held up at different fora as the crowning for Nigeria’s petroleum industry reforms.
Irrespective of its trajectory in the National Assembly and lack of support by the oil majors, the PIB has been internationally acclaimed by the International Monetary Fund, IMF, as “…one of Nigeria’s most important pieces of legislation, because it proposes massive industry reform.”
The IMF, a member of the World Bank Group, also, “Looked forward to an early passage of the Petroleum Industry Bill which would boost investment, government revenue, and fiscal transparency.”
The Lead Team for the PIB, Mr. Abiye Membere, who is also the Group Executive Director, Exploration and Production, NNPC, has gone all out to allay fears regarding some contentious fiscal propositions in the bill.
Apart from challenging the critics of the bill to come up with superior arguments and propositions during the public hearings, Membere also explained that the bill will break down all the transparency barriers and abolish all the perceived opaqueness that characterises the industry.
According to him: “The PIB offers a clear set of solutions: the dissolution of confidentiality clauses so that companies and the public are aware of the true market value of oil blocks under auction; a regulatory system that emphasises production volume instead of profit; smaller oil blocks with ‘drill or drop’ provisions to ensure that companies that are eager to extract won’t lose out to companies seeking to buy and hold their blocks idle.”
To underscore its importance, even the opposition parties in Nigeria have expressed support for the bill, while in a report produced by renowned consultants, Ernst and Young, Dr Pedro van Meurs (an industry expert) argued that the bill’s transparency provisions “are now among the most advanced in the world, and will make Nigeria a leader in Africa in this respect.”
But it is not all ups for the petroleum sector as the non-passage of the PIB is stalling huge investments in the sector. Also, coupled with the rising incidence of pipeline vandalism and crude oil theft, combine to impede progress and further development in the industry.
In this regard, the Ministry of Petroleum Resources has mobilised industry stakeholders for the formation of a Joint Task Force, made up of security and industry operatives to fight the menace. The country is estimated to be losing huge revenues of up to $6billion annually on account of crude theft.
Furthermore, about 25% of the Nigeria’s gas was flared, 27% used in upstream for pressure maintenance, 40% exported and less than 10% was utilized for power and other industry users. These call for greater control and stiffer penalties to stem the tide.
Information from Clara Nwachukwu, Vanguard was used in this report.