19 September 2018

Nigeria: 'It's a Disgrace We've Delayed Oil Blocks, Marginal Fields Rounds'

interview

Bank-Anthony Okoroafor is the Chairman of the Petroleum Technology Association of Nigeria (PETAN), and Chief Executive Officer of CB Geophysical Solutions Limited. In this interview with STANLEY OPARA, he assessed the country's oil and gas sector and stressed a working regulatory framework, among other issues.

How do you explain the recent drop in the country's Gross Domestic Product (GDP) owing to poor performance of the oil sector amid rising crude prices?

The oil sector dropped by 3.9 per cent in the second quarter because oil production dropped to 1.8 million barrels per day from two million barrels per day in the first quarter -down from 1.87 million barrels per day in the same period a year ago. As a result, the oil sector accounted for 8.6 percent of the GDP compared to nine percent a year earlier. The drop in oil production was caused by production issues like oil pipeline disruptions throughout the quarter. Examples include Shell declaration of force majeure on bonny light exports in mid-May. Shell Petroleum Development Company of Nigeria (SPDC) declared force majeure on Bonny light export on May following the shutdown of the Nembe Creek Trunk Line (NCTL) by the operator Aiteo Eastern Exploration and Production Company Limited. Exports from this Bonny Light are about 190,000 barrels per day. We also had a leak on the 220,000bpd Trans Forcados Pipeline, which was shut down in May, and repairs are presently on-going. The country has lost over N170 billion to shut-in of the pipelines since March 2016.

President Muhammadu Buhari recently said he will not give assent to the Petroleum Industry Governance Bill (PIGB). Do you think this is healthy for the petroleum industry?

The Petroleum Industry Bill (PIB) is presently holding back lots of great investments in the oil and gas sector. It creates unnecessary delays because investors are not sure of the future fiscal terms that will come to play in the industry. So, this creates uncertainty in taking final investment decisions (FIDs) on most critical big projects. We still believe that our President will have a rethink and sign the PIGB to set the tone to eventually signing the fiscal, host community and administration bills which have been progressed very well in this present National Assembly.

The PIB will usher in the needed regulatory and institutional framework needed to position our petroleum industry well. I will advice the National Assembly to review the issues raised by the Presidency such as the Nigeria Petroleum Regulatory Commission (NPRC) funding, Petroleum Equalisation Fund (PEF) issues and drafting considerations and then re-submit to the Presidency for assent. I belief this time our President will sign the PIGB. This will remove all the uncertainty in the industry that is preventing investors in committing to FIDs and also send a strong signal to the market that Nigeria is serious with its oil and gas reform agenda. We have a lot of issues in our industry and the earlier we get this petroleum industry bill signed the better for our industry and our country. The PIB will enhance transparency, which will attract more investments into the sector. We should nudge the President to sign the PIGB now. We should not delay it any longer. The more we delay, the more our country is losing as a destination of choice for investments in the oil and gas industry. The PIB establishes the legal and regulatory framework, institutions and regulatory authorities for the Nigerian petroleum industry. It also stipulates guidelines for operations in the upstream and downstream sectors. The PIB is important as it will enhance exploration and exploitation of petroleum resources, increase domestic gas supplies, especially for power and industry, increate competitive business environment for the exploitation of oil and gas, establish fiscal framework that is flexible, stable and competitively attractive, create commercially viable national oil company, create strong and effective regulatory institutions and promote Nigerian content as well as promote and protect health, safety and environmental issues. The main thrust of the new petroleum policy is to use hydrocarbon as a driver for economic growth and not as a source of income only. The idea is to use appropriate institutional, legal, regulatory and commercial framework to resolve the barriers currently affecting investment in the oil and gas sector. The new policy wants to move Nigeria away from a crude exporting country to a value added activities like refining and petrochemicals. Also expanding from oil into gas-based industrialisation.

The delay in the award of oil blocks and the bid rounds for marginal oil fields are currently of concern to industry stakeholders. Do these in any way endanger the petroleum sector?

Our dream of achieving four million barrels of oil per day by 2020 will not be realised if we do not award oil blocks, conduct bid rounds, carry out more exploration activities, or drill more wells in the country. It is a shame that we have allowed this marginal fields to lie fallow for more than ten years. That we've not done any exploration and production activities from these marginal fields for the past 10 years is a disgrace on our nations oil sector. This could have unleashed a lot of economic activities from well construction, well intervention to production-related upstream activities, which the country needs at this point in time. 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 presently own exploration and production companies to increase the capacity of their reserves.

With the plans to build more refineries in the country, aside the Dangote Refinery, do you sense any challenge given our oil production level?

Africa has low refining capacity and utilisation rate. Most refineries in sub-Saharan Africa are old and in relatively poor condition. Nigeria's refining capacity is about 445,000bopd with a poor run rate of less than 15 per cent. Ghana imports most of its oil products as its refinery operates at extremely low rate. Africa relies on fuel imports despite the fact that it produces 3.5 times the amount of oil it consumes, exports 45 per cent of its oil production.

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 litres of Premium Motor Spirit, we consume about three billion litres of Automotive Gas Oil (AGO), we consume about 400 million litres of aviation fuel. In Africa, Nigeria is the highest consumer of refined petroleum. With the Dangote Refinery 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 39 billion 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 100 percent capacity, in every month, you need about 19 cargoes and one million barrel of crude per day. One million barrels of crude per day is half of Nigeria's daily 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.

In terms of crude refining, what is the country's level of technology dearth, given global standards?

Crude refining is not rocket science. The technology and processes have been around for several years now. We have our old refinery in Alesa Eleme that was commissioned in 1965 and new plants commissioned in 1989. So, we have Nigerians that have been trained to satisfactory levels with the capabilities and capacities to run refineries. Most of the refinery proprietary OEM parts can be imported but most of the fabrications; welding can all be handled 100 per cent by Nigerians in Nigeria.

What is PETAN doing to bridge the technological gap in the petroleum industry space, given the need for the Nigerian system to be competitive?

The PETAN seal of quality was developed with Bureau de Veritas International. The idea of PETAN/NNPC/NCDMB Seal of Quality (PSQ) is to ensure we consistently deliver highest level of service quality consistent with global standards. Once you receive the seal of competence, you can do that job anywhere. That is a real way we can assure a measure of competence and capability within the country.

Let's talk about logging. There is a competency matrix for delivering logging services. It has the beginner, middle and advanced levels. You must pass through that process to receive the seal of competence. In that way, we've institutionalised this capability and confidence matrix. It is not based on intuition or subjectivity. It is clear and everyone knows what is required.

We are doing this to basically remove the briefcase-carrying companies. Once we remove them, we can say that this guy is delivering logging services, this guy is doing well head maintenance, this guy is in fabrication, and everybody will understand their competency levels.

We are already in the third quarter of 2018. Do you see the petroleum industry ending the year on a positive and commendable note?     

We should pass the PIB so that investors will be clear on the fiscal terms of the sector. Also, you cannot control the price of crude and shale production from the United States. We don't know what will happen geo-politically, which can change the dynamics of the sector.

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