Diezani-Alison-MaduApart from the massive disruptions to the nation’s economy caused by the problem of huge crude oil theft and a few other politically coloured challenges, Nosa Alekhuogie reports that there may be a few results worthy of commendation that have trailed the activities of the ministry of petroleum resources

The most notable story in the oil and gas sector of the Nigerian economy today is the frittering of resources occasioned by incredible banditry said to be costing the fragile economy about 400,000 barrels of crude oil daily. Coupled with terrorism and other major political, social and economic challenges, which Nigeria faces, the nation’s survival, its ability to still manage to meet its basic obligation is a testimony of the resilience of Nigerian state, which many say may be unable to withstand further stretch.

With such challenges facing the nation in general and the oil and gas sector in particular, a lot of efforts to rejuvenate the petroleum industry and the dividend these efforts have yielded appear to be escaping prominence. A recent report reeled out by the Federal Ministry of Petroleum Resources on steps currently being taken to promote the development of the sector and the results they have yielded revealed that if the polity was a little less tumultuous, some credit would have appropriate for the managers of the sensitive sector.

Upstream Sector

Details of the highlights across primary accomplishments in the sector presented in the 2013 ministerial mid-term report tagged: ‘Moving the Oil and Gas Sector to the Next Level’ stressed that in the upstream, the Ministry of Petroleum Resources in line with the government’s drive in achieving the national aspiration of 40 billion barrels of oil reserves and 4 million barrels of oil per day production, including condensate, as captured in vision 20:20:20, has increased exploration activities in the Offshore, Onshore and Inland Basins. In order to meet the above national aspiration, a total of 19 exploration wells were drilled in 2012.

These include eight exploration wells in the Joint Venture (JV) and 11 wells, comprising three Exploration and eight Appraisal wells under the Production Sharing Contract (PSC). Also, 93 development wells were drilled comprising of 55 development wells under JV while the PSC delivered 38 development wells. During the period under review, 33 workover wells were drilled, consisting of 32 workover wells under JV and one workover well in PSC. With Nigeria possessing nine basins of which the most prospective is the Niger Delta, others such as Anambra and Chad basins are also known to be rich in hydrocarbon.

The ministerial report noted that at the moment, exploration has been stepped-up in the entire Inland Basins of Chad, Anambra, Benue, as well as Bida/Sokoto/Dahomey. Reserves Addition According to the ministry of petroleum, in 2012, a total of 600million barrels of reserves were added, representing 70 per cent reserves replacement. As at end of year 2012, the crude oil reserve base stood at 36.8billion barrels; representing 0.06 per cent decrease as compared to year end 2011 figures. Gas reserves at end of year 2012 was 182trillion cubic feet (tcf) representing a 0.01 per cent drop as compared to year end 2011 figures.

In line with government’s strategy of growing the National Petroleum Development Company (NPDC’s) production capacity, its reserve base has grown to 1.7 billion barrels through strategic divestment initiatives. Similarly, crude oil production (including condensate) has been consistently maintained above an average of 2.30 million barrels per day (mbpod) despite illegal oil bunkering, crude oil theft and pipeline vandalism. Following the federal government’s amnesty programme, Nigeria’s production rose from an average of 1.9 mmbopd in 2009 to a peak of 2.62 mmbopd in October 2010. Sustaining production at these levels continues to be challenged by increasing pipeline vandalism and crude theft, which intermittently results in production falling below the programmed 2.46 mmbopd and rebounding following government intervention to stem this menace.

However, the government is tackling this problem through enforcement and the Crude Oil Fingerprinting Initiative.

Domestic Market

The government has also targeted increased domestic supply of gas to all sectors of the economy. Historically, about 25 per cent of gas was flared, 27 per cent used in the upstream for pressure maintenance, 40 per cent exported and less than 10 per cent was utilised for power and other industry users. The nation’s total average gas production increased from 7.7 billion standard cubic feet per day (bscfd) to 8.24bscfd representing 7 per cent increase compared with 2011 levels.

Upstream gas supply for power generation, industrial and household use has increased significantly during the period under review following government’s prioritisation of gas supply to the domestic market. Specifically there was an increase in domestic gas supply to support the power sector with over 250mmscfd of gas as part of the emergency gas supply programme.

In addition, gas supply development is being advanced with domestic supply at an all-time peak of 1500million cubic feet per day currently, most of which is dedicated to the power sector. There is sufficient gas currently and projected by year end to support over 5 Giga Watts (GW) of generating capacity, with a view to increasing to almost 10GW by 2015/ 2016. Similarly, gas to non-power sector almost doubled from 185mmcf/d to 357mmcf/d, providing feedstock that has supported the recent aggressive growth in the nation’s cement sector as well as other manufacturing companies. To date over 200 manufacturing industries now run on natural gas and the number continues to grow daily as NGC builds more pipeline infrastructure. In addition, the contract for the vital 120km East-West gas pipeline crossing the River Niger was awarded and is progressing with a target completion time of 2015. Engineering work is almost complete and the contractors have mobilised significant construction equipment to site ahead of commencement of construction works by October. This pipeline creates a major linkage between the huge gas reserves in the Eastern Niger Delta and other parts of the country. When completed, evolving shortfalls in gas supply to power in the western area will be adequately and permanently mitigated with excess flows from the East via this critical pipeline.

A final element of the infrastructure expansion is the Calabar-Ajaokuta-Abuja-Kano pipeline. This is now the focus of attention. Major engineering review of the 1000km pipeline has now been concluded and plans under way to jumpstart this pipeline by the end of the year/early 2014, opening up gas access to the East and Northern part of Nigeria. Over $600m is expected to be deployed from Eurobonds being issued by the ministry of finance to jumpstart this pipeline by year end. By end 2015, gas access to Abuja should have been established and Kaduna/Kano thereafter, opening up the Northern half of the nation for industrial revitalisation.

Midstream sector

Interventions in the refineries have been accompanied by upgrade in the Pipeline and Product Marketing Company (PPMC) facilities across the nation. After many years of being inoperable due to pipeline vandals, the Port Harcourt – Aba product line has been rehabilitated and the Aba product Depot was re-commissioned after seven years of inactivity. This has enabled products to be sent directly from the Port Harcourt refinery to Aba for onward distribution in the Eastern parts of the country. Aba – Enugu product pipeline is expected to be recovered by third quarter, 2013. Similarly, Warri – Benin product line has been recovered and the Benin depot has been re-commissioned among others.

Downstream

The period under review witnessed stable supply of petroleum products through strategic and proactive government support of the downstream sector.

The government, effective January 1 2012, increased pump prices for PMS in order to reduce the unsustainable subsidy bill. As a result, there has been marked reduction in consumption from over 60 million litres per day in 2011 to about 40 million litres per day in 2012. This reduction in the daily consumption and increased in PMS prices reduced the payment of fuel subsidy from over N2 trillion in 2011 to a little above 1trillion in 2012. The reduction can also be attributable to better monitoring of vessel arrivals, discharges and truck-out of PMS from the depots by the nominated surveyors as an added check on marketers PSF operations, in line with global best practices. Restricted participation of marketers under the PSF scheme to owners of coastal discharge/depot facilities reduced from 128 to 38 presently.

Other notable achievements in the downstream petroleum industry include: The introduction and enforcement of the submission of the following additional documents as a pre-condition for processing of subsidy claims under the PSF Scheme: certificate of origin, affirmation letter from supplier, and complete “family tree” of transaction; restrictions on third party discharges to ensure even and fair distribution of products across the country, while also ensuring that products are effectively monitored and sharp practices associated with discharges are curbed; implementation of Trucking Policy for remote sensing technology for tracking road trucks hauling petroleum products to their various destinations.

This has prevented product hoarding, product diversion and product adulteration in the country. Also, integrity of nationwide product distribution gradually is being restored. There has been

minimal or no disruption in fuel availability in the country in the last six months due partly to the impact of Project Aquila. Project Aquila electronic monitoring of petroleum products distribution has resulted in an increase in product availability in depots and outlets from 40per cent in 2010 to almost 95per cent in 2013 thus eliminating diversion with the concomitant effect on the economy of such locations. Project Aquila payment has also efficiency encouraged increased investments in the downstream sector resulting in new depots from 44 locations in 2010 to 71 depots in 2013, a 62 per cent increase and N53 billion investments from 27 new depots, 1,000 new retail outlets and 800 new trucks. Pressure on the money markets has also eased since marketers now receive their claims timely and no longer take loans to run their business thus contributing to the money market stability.

Revamping of Atlas Cove depot facility incorporating the reconstruction of PMS Tank 11 and 12 and some critical pipelines in the products distribution network was also carried out during the period under review. President Goodluck Jonathan recently bore witness to the improvements that have been seen in the downstream petroleum industry in the country when he stated at the People’s Democratic Party PDP Special Convention in Abuja: “We have ensured that our downstream subsector has witnessed a continued, stable supply of petroleum products as well as efficient administration of the subsidy programme at reduced cost. There are no longer unending queues and jerry can seen at petrol stations.”

Petroleum Industry Bill

The Petroleum Industry Bill (PIB), which is believed to hold the key to a transparent regulatory framework and competitive fiscal rules of general application is being pushed vigorously by the ministry. The ministry of petroleum resources has focused on building consensus around the key features of the bill and encouraging the National Assembly to speedily consider and pass this landmark legislation. However, passage of the bill is only the beginning.

A transitional process will have to be stewarded especially with the anticipated creation of new institutions to ensure proper governance. It is in the light of this that special task forces were set up, which have been the catalysts driving the ability to deliver transformative change namely: Petroleum Industry Bill technical committee, which was set up to review all sections of the PIB and harmonise existing different versions to produce a draft copy to the National Assembly. As you are aware, the PIB is awaiting passage in the National Assembly.

There is also the Governance and Controls task-force, which was set up to review management controls within parastatals under the Ministry of Petroleum with a view to designing a new corporate governance code for transparency, good governance and best practices. The Petroleum Revenue task force which was set up to verify all petroleum upstream and downstream revenues payable to government and integrate system and technology across the petroleum value chain and the National Refineries task-force, which was set up to assess the performance of the domestic refineries and make recommendations for improving efficiency and commercial viability of the refineries.

The task-force was also to create several tools for tracking performance and evaluating the business case for new refineries. For the petroleum ministry, these challenges will continue to drive innovation and change in the approach to delivering an oil and gas industry that is internationally competitive and is governed by open and transparent processes to ensure security of investment for both domestic and international investors.

 

Information from This Day was used in this report.

Share