5 December 2017

Nigeria: Okoroafor - Govt Should Develop Niger Delta As Nigeria's Energy Corridor

interview

Chairman of the Petroleum Technology Association of Nigeria, Mr. Bank Anthony Okoroafor spoke with Chika Amanze-Nwachuku and Ugo Aliogo on a wide range of issues in the oil and sector, among others. Excerpts:

Two years down the line, could you assess government's activities in the oil and gas industry, bearing in mind that activities necessarily do not translate to progress?

First of all, the last two years have been challenging for the Oil and Gas industry. We have seen the price of crude oil crash. Within the two year, we have seen projects deferred and cancelled. We have witnessed slow oil and gas activities. We have also seen banks afraid of lending money to sector players. But the government still was bullish in many ways; first, getting a new gas policy signed by the federal Executive Council (FEC). They were also bullish in getting a new oil policy signed by FEC.

These gas policies will boost a lot of activities in the industry; if strictly followed, will help develop the gas resources. It will encourage exploration for gas. Presently; nobody is exploring for gas. It will help clarify all the gas terms. It will also help us achieve the gas flare out. It will further help identify the critical infrastructures we need for gas in the country, while liberating access to both onshore and offshore gas infrastructure and gas processing.

Furthermore, it will help us build a big gas market and improve the domestic gas market. The same applies to the oil policies. Those are the first two phases. Then also, we have also seen the international oil companies (IOCs) exit the Joint venture cash call and the Nigerian National Petroleum Corporation (NNPC) finally signed off the existing cash call arrangements with Shell, Eni, Total, Chevron, and ExxonMobil. We have also seen the first part of the Petroleum Industry Governance (PIG) Bill 2016 passed.

Much as it sounds goods that FEC has approved the National Gas Policy, there are still fears that the objective might not achieve. How do you allay these fears?

The last time we had something like this was in 2007. For the first time since 10 years, we are having a structured policy in the sector. This is in the right direction. This is the time for us to follow the road map, no matter who is on that seat.

There are still huge infrastructural challenges in the sector. Do you think that these problems can be easily be addressed?

The infrastructural deficit is an opportunity. It shows there are a lot of opportunities for investments because we have not even started on the infrastructure. It is for us as stakeholders to create an infrastructural deficit map of the oil and gas sector and then market it to investors.

Earlier in the year, the government made a lot of noise with its Seven Big Wins, Petroleum Policy and other policy documents, was PETAN part of the making of these documents, and how have these policies helped the industry so far?

The seven big wins are kind of short term and medium term priorities at the oil and gas industry for 2015-2019. The Minister of State for Petroleum, Dr. Ibe Kachikwu, came up with this policy because of its importance. During the militancy era, we were losing more than a million barrel daily. We have a lot of old and moribund policies, our refineries were not working, there are leakages in the system, inefficiency, unaccountability of the oil produced etc. Therefore, the Minister and his group came up with the seven big wins.

The reasons for the seven big wins were to improve security in order for the country to produce to potential; because without improving security, we cannot be talking of our budget. If you look at the seven plans of the big wins, they include improving security, shifting our focus from oil to gas. We don't put in enough emphasizes on gas.

People have concessions, they go for oil, it is easier to bring out and sell. If we had put in the same amount of energy we put in oil into gas, we will have 24 hours electricity; we will have cleaner energy; we will have LPG in every home. Therefore the second plan was to refocus on gas instead of oil.

The third was to review old and moribund policies and our laws which a lot has been happening with the National Assembly having passed the PIG bill. The next one was the revamping of the existing refineries which they are working on. For the first time, government is doing a holistic work on the refineries. All the turn-around maintenance in the past only provided people the opportunity to collect money. But this is a structured approach. There is a team that is committed in revamping the refineries. They also talked about co-locating the small refineries within the refineries, but those ones have not been done. Moreover, it is to drive efficiency and transparency in the whole process. The seven big wins are doable, a lot of work has been done, but a lot is still ongoing. But it gives a kind of direction.

The NNPC has also restarted processes of a fresh TAM on its four refineries in Port Harcourt, Warri and Kaduna, you'll agree with me that past TAM have been a sham, yet the corporation is optimistic it will get it this time around, do you share in this optimism?

The present leadership of NNPC led by the GMD, Dr. Maikanti Baru, is sincere. Remember, he formed a group to look into the refineries, we saw the capacity of the refineries move up to 39 percent. If you want the refineries to work, you will require financial independence; people who will be able to take decisions, carry out their maintenance without seeking higher layers of approval. This is the only way to be bullish. There is need to have KPIs for the Managing Directors of the refineries and let it be self-funding. It should be financially independent; in that way our refineries will be working.

We've seen Nigeria take maximum benefits from the relative peace in the Niger Delta region owing to the ceasefire declared by militants there, this has also coincided with improvements in oil prices, but it would appear the government is taking for granted its negotiations for peace in the Delta, what do you think about this?

First, government should execute all promises made to Niger- Delta now and even do more. Like I mentioned in the past, we must create an energy corridor in the Niger-Delta with five modular refineries and power plant. We must create many suitable employment opportunities and ensure 24 hour power supply in the region tied to our production system. Basically, there should be a focus on increasing the level of participation of the Niger Deltans in the sector, creating employment and developing the region. Furthermore, government should have an economic blueprint for the region.

Do you think this is possible under the current administration?

It makes economic sense to develop Niger Delta as the energy corridor for the federation. In the midst of the Niger- Delta crisis, we are losing as much as $65million daily. Therefore, there is no amount that will be spent in the region that will be a waste of resources.

The government has also signed off a $200 million local content development fund which the NCDMB and Bank of Industry would manage, what does PETAN expect of this funding pool?

I expect NCDMB to use this fund to create champions in the oil and gas service industry. If you take all the value creating services in the sector, for instance if somebody has only one equipment set, we want a situation where yearly, the NCDMB will take 10 persons in their selection. Move the individual from only working with one unit to working with three or four units in order to make the best in that services that they are delivering. This way, we will build champions, create employment, and the impact will be visibly seen by all. If we aspire to scale up and have the desired change in service delivery, and the quantity of service that can be delivered, you required critical mass of equipment and getting it from the banks is expensive. This fund is excellent; therefore we should use it to create champions. Let NCDMB ensure that at least yearly, 10 companies benefit from it.

So who will appoint those to benefit first?

I think there is a criteria setup by NCDMB and managed by the Bank of Industry (BOI). They should ensure that the process is credible.

Earlier in the year, PETAN called for collaboration and assets sharing by upstream operators to create synergy and ensure reduction in the cost of logistics, how well has this call been heeded?

What started that was the fall of the oil price and operators were demanding for massive cuts in prices of services. Therefore as part of our contribution, PETAN suggested that we can reduce the technical cost per barrel of crude by the following ways: First, creating a type of a rig club, this rig club will get all the operators to submit their drilling plans for the year. Then fix all drilling plans for the clients together and now, instead of having 10 rigs, where one rig will work for two months and go. You can select four rigs that will work for five years, but they are working continuously. This will help to slash cost, there will not be mob, and de-mob. As a result of the fact that they have guaranteed four years work, the day rate is very low and they will drill the entire well for the clients and the same should apply to support and security vessels.

If two locations are close by, one security vessel can service the two clients. Cost will be drastically reduced. The third is the standardisation of equipment, if we standardise equipment in the industry, we will knock down more than 30 percent of cost. But there is a lot of excess because this one is using different sets of standards. Basically, those were our suggestions to bring down cost per barrel of crude oil. I believe that these companies will buy into this.

I'll bring your attention to the recent rev up of oil search in the Chad basin and other troughs, which has led to deaths especially in the Bornu axis of the Chad basin. How economical are these oil searches, do they honestly make sense to Nigeria now?

We don't have much data in the inland basins, but with improvement in technology seismic, it will be a great disservice for Nigeria not to acquire reliable data in our inland basins. On the onshore, we have not even started. We have not seen what is deeper. We have only seen up to 8,000 feet. Therefore, there are huge potential. Our inland basins cannot attract investors unless there is a discovery. If government discovers, then investors can come in. These deep offshore we are celebrating was not discovered by investors, it was government.

Once you make a big discovery, investors will come. It makes sense to acquire data throughout our inland basins. The inland basins of Nigeria include the Anambra basin, the Lower, Middle and Upper Benue, South- eastern centre of Chad, the Middle Niger Bida Basin and the Sokoto Basin. The Upper Basin was done 20 years ago, but very intense.

They drilled one or two wells. NNPC carried out exploration seismic work more than 20 years ago. Therefore, it is only Chad basin that serious seismic work and studies have been done. Therefore, in order to make these basins attractive for investors, government needs to explore these basins and once they explore these basins, and there is confirmation, investors will come. Once there is confirmation we can have bid rounds.

Why has the country not embarked on new oil licensing round and why has it taken so long?

The licensing round is something that needs to be done. Government should do it to create more opportunities for sector entrepreneurs and also the people who own exploration and production companies presently to increase the capacity of their reserves.

We learnt the Dangote's huge refining complex would come on stream soon. What do you think would be the fate of NNPC's refineries when this happens, putting into consideration the reluctance of the government to spin them off to people that could manage them profitably?

First, the country's refining capacity per capita is 0.002 (barrel per day). This is very low. Libya is 0.06 (barrel per day per capita). As a country, yearly, we consume about 17 billion liters of PMS, we consume about 3 billion liters of Automotive Gas Oil (AGO), we consume about 400 million liters of aviation fuel. In Africa, Nigeria is highest consumer of refined petroleum. With Dangote coming in, we cannot even meet up the Nigerian supply. It is important to state here that the refineries in West Africa cannot support the entire West Africa region. There is a huge market in West Africa because what the region needs is about 39billion liters and we cannot in a year produce that amount.

There is no way Dangote can be operating at 100 percent capacity. The reason is because if you want to operate at 100percent capacity, in every month, you need about 19 cargoes and one million barrel of crude. One million barrels of crude is half of production Nigeria's production. With Dangote coming and all our refineries working well, and modular refineries coming in, we can move from a net importer to a net exporter. It can happen but not immediately.

Looking ahead, what are your thoughts and forecasts for Nigeria's oil industry in 2018, what would define the fate of the sector in terms of project deliveries and new investments, and what roles do you expect of PETAN in this regards?

As long as the government respects all agreement it has with the Niger Delta region and executes all its plan for the region, stability in the price of crude, gets the PIB completely passed, and the NNPC abides by the cash call exit agreement signed with the IOCs, we will have a robust industry in 2018. It is our duty as a country to execute all the agreements we have with the region and make it happen in the petroleum industry. Let them have a stake in the petroleum industry.

We should make sure that we maintain the sanity of the agreement we have with the IOCs. We should pass the PIB so that investors will be clear on the physical terms of the sector. Also, you cannot control the price of crude and shale production from the US. We don't know what will happen in geo-politics which can change the dynamics of the sector. On this note, we have to be bullish and positive that industry will be robust in 2018.

Early this year, you had your maiden West African International Petroleum Exhibition and Conference (WAIPEC). What are the expectations for the upcoming one?

WAIPEC is different from all the conferences because it is a conference for the industry by the industry. The key industry stakeholders will all be there. There will be a lot of discussions on the way forward for the industry and a lot of technologies will be on display. The critical issues happening in the sector will be addressed during the conference. The GMD of NNPC will be there to give keynote address.

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