Nigeria’s Oil Sector: Bumpy Ride No Doubt, But Many Cause For Cheer

Despite the many challenges, there are a few reassuring glimpses that presage a better future for Nigeria’s oil sector. This, writes Shaka Momodu, owes much to the gritty resolve of petroleum minister, Mrs. Diezani Allison-Madueke

There’s no question about that; the petroleum sector is the primary driver of Nigeria’s socio-economic development - being the chief foreign exchange earner. Perhaps, its then not surprising that over 50 years’ experience in the oil and gas industry continues to reveal the complex dynamics of balancing global energy security, domestic economic growth, climate, and environmental considerations. Currently, all alternative revenue generation efforts and options for the country pale when compared to the sheer size of petroleum revenue in Nigeria.

The sector has drawn and continues to attract intense focus, wrangling and debate. In effect, being the key driver and supervisor of this all-important ministry then poses the most policy-making, operational and structural challenges - more than that experienced by any other Nigerian minister. This has been the lot of Mrs. Diezani Allison-Madueke, the nation’s first lady petroleum minister. But significantly the Bayelsa-born technocrat has shown surprising strength, focus and vision.

On top of her game, the minister herself succinctly captures key grounds her ministry had covered in the preceding two years, a detail presented during the recent mid-term report. Her words: “The Ministry of Petroleum Resources has in the last two years vigorously pursued the Transformation Agenda of President Jonathan’s administration. Oil and gas which is the mainstay of government revenues and expenditure in Nigeria is critical to supporting various policies and programs of government.

“The Ministry of Petroleum Resources through its parastatals gives effect to government’s aspirations in the oil and gas industry and has a direct link with the ability of the government to deliver on transformation agenda through - building sustainable industries with indigenous participation; delivering quality products to the Nigerian people and creating oil and gas institutions of the future.”

More specifically, she stated that the key accomplishments in the period 2010-2013 cover the entire oil and gas value chain namely; Upstream - “where we have increased exploration in frontier areas and sustained production in spite of incessant crude theft and pipeline vandalism; Midstream (Gas) - where we have increased gas supply to power, enhanced gas commercialisation, implemented the gas infrastructure plan and gas for industrialisation.”

In the midstream (Oil) and downstream arenas, Mrs. Allison-Madueke identified the ongoing repairs and upgrading of facilities in the refineries and pipelines distribution network in order to sustain in-country product supply. In the downstream, Nigerians are of course witnesses to the product supply stability that is often taken for granted now. “We have ensured stable supply of petroleum products in spite of pipeline vandals and product theft, effective and efficient administration of the subsidy programme which remains unsustainably expensive and increased domestic refining,” she had further explained.

Perhaps of more than passing significance are specific improvements in local capacity and indigenous participation in infrastructure investments which have been vigorously pursued. The observable outcome has been in upgraded training facilities and increased regulatory compliance with local content requirements.

Going forward, some of the key positives of the petroleum ministry within this period cover the following arena:

PIB
One of her most important achievements is putting together the Petroleum Industry Bill (PIB), now before the National Assembly and generating all sorts of controversy. The Bill essentially targets a fundamental restructuring of the petroleum industry to maximize returns on the country’s investment in the oil and gas sector. Stemming from the Oil and Gas Reform Implementation Committee (OGIC) empanelled to review the subsisting 16 laws that governed the nation’s hydro-carbon resources arena, the PIB represents a one-stop-shop legislation that would guide the sector and effect a pro-Nigeria restructuring of the country’s lop-sided relationship with international oil companies (IOCs).

The initial efforts to push the PIB were scuttled in the Sixth National Assembly. no thanks to intense intrigues that stoked a few business divestment from Nigeria as well as prospective investors heading to nearby countries such as Angola, Ghana and Burkina Faso which boasted more stable policies. Today, for Nigeria, the story appears different.

The PIB cobbled under the watch of Diezani essentially incorporates the legal outline that will delineate and shape the oil sector. The creation of a conducive business environment for petroleum operations; optimization of domestic gas supplies, especially for power generation and industrial development; establishment of a progressive fiscal framework that encourages further investment in the petroleum industry while optimising revenues accruing to the government; the establishment of commercially oriented and profit-driven oil and gas entities; as well as the deregulation and liberalization of the downstream petroleum sector form central pegs of the PIB.

Midstream Oil (PPMC)
Of great importance is the rehabilitation and upgrade of PPMC major petroleum pipelines and strategic product depot 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 (7) 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. Other lines recovered so far include: Kaduna – Suleja, Kaduna – Gusau, Suleja – Minna, Kaduna – Jos and Jos – Gombe all of which are now fully operational.

According to the Minister, her ministry is aggressively working on the recovery of the remaining product pipelines and depots namely; Enugu – Markurdi; Gombe – Maidugri and Markurdi – Yola. “Restoration work in the refineries and pipeline distribution network / storage systems have contributed to stable supply of petroleum products across the country despite the challenges of vandals and the criminal activities along these vital and critical infrastructure.”

It is to the credit of the Minister and PPMC that despite stoppage of importation by the oil marketing companies during subsidy saga, the nation did not witness any significant disruption in product supply across the country.

Growing reserves and production
The ministry in line with government’s drive to achieve 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.

From THISDAY checks, in order to meet the above national target, a total of 19 exploration wells were drilled comprising eight exploration wells in the JV and 11 wells (3 Exploration and 8 Appraisal wells) under the PSC in 2012.
A further 93 development wells were drilled comprising 55 development wells under JV while the PSC delivered 38 development wells and within the same year, 33 Workover wells were also drilled consisting of 32 work-over wells under JV and 1 workover well in PSC.

The petroleum ministry has significantly maintained crude oil production (including condensate) above an average of 2.30 Million Barrels per Day (MBOPD) 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. But happily, the government is tackling this problem through enforcement and the Crude Oil Fingerprinting Initiative.

The local content challenge
The Nigerian Oil & Gas Industry Content Development Act 2010 (the “Local Content Act” or “NCA”) received presidential assent on Thursday, April 22, 2010. Now in operation, the Act seeks to increase indigenous participation in the Nigerian oil and gas industry (the “Industry”) by prescribing, inter alia, minimum thresholds in relation to the utilization of local services and goods.

The Local Content Act which derives from the Nigerian Content Policy focuses on the promotion of value addition to the Nigeria economy through the utilization of local raw materials, products, and services in order to stimulate growth of indigenous capacity.

The NCA accords certain privileges and preferential treatment to companies that qualify as “Nigerian Companies” pursuant to the Act, including preferential treatment in the award of contracts for projects in the Industry. To qualify as a Nigerian Company under the NCA, a minimum of fifty one per cent (51%) of the issued shares must be held by Nigerian shareholder(s); whilst the remaining forty nine per cent (49%) of its issued shares can be held by foreigners.

Nigeria’s product supply and distribution system consists of about 5,000km of pipeline network interconnected to the four refineries with a total capacity of 445kbd at three locations namely Warri, Port-Harcourt and Kaduna. The reliability of this network holds the key to sustainable supply of petroleum products across the country.

Nigeria’s petroleum product consumption for white products is estimated at about 38 Million Liters PMS , 12 Million Liters AGO and eight million litres DPK, whose production is inadequate for meeting domestic consumption even if they operate at design level. This scenario has led to importation of products from proceeds of crude exports to supplement supply from domestic refineries.
The plan going forward is to rehabilitate the refineries so as to obtain maximum production from them. This will meet about 70 percent of the country’s needs. The deficit will be met by on-going plans to construct Greenfield Refineries. The ministry is also cooperating with private initiatives for construction of new refineries and have progressed with plans for rehabilitation of the refineries commencing with the Port Harcourt refinery.

Clearly, these challenges will continue to drive innovation and change in the petroleum ministry’s 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.