When President Muhammadu Buhari appointed Timipreye Marlin Sylva as Nigeria’s Minister of State for Petroleum Resources on August 21, 2019, the country’s petroleum industry had reached an all-time deplorable state.
Apart from the daily oil production capacity declining from about 2.3 million barrels in the year’s budget, to an average of 1.81 million barrels, high cost of oil production was a common headache. Also, growing uncertainties as a result of the global economic downturn made it difficult for investors to take final investment decisions on new projects.
The outbreak of the Coronavirus pandemic unsettled the global economy, resulting in prices in the international crude oil market crashing to unprecedented low levels, amid a devastating impact on most commodities exporting economies like Nigeria.
The country’s petroleum industry was at a near standstill.
Sylva and Next level agenda
During his swearing in on August 22, President Muhammadu Buhari, the substantive Minister of Petroleum Resources, reeled out the nine-point policy agenda he said his administration, through the Ministry of Petroleum Resources, would pursue, to attempt to reverse the deplorable conditions in the industry.
But, in his maiden Next Level Strategic Retreat with Heads of agencies and departments of the Ministry of Petroleum Resources in Lagos, Mr Sylva pledged to work closely with the President to reposition the ministry and chart a new course forward for the Nigerian petroleum sector.
Also, he promised to work with the experts and technocrats at the Nigerian National Petroleum Corporation (NNPC) and the other departments and agencies under the ministry to not only give the sector a new lease, but also move the industry to the next level.
At the meeting, he moved a nudge further than the nine-point mandate the President gave to him and unveiled 10 top priority areas he said would form the roadmap and deliverables for the oil and gas sector during his tenure.
They included:
• Reduction of Federal Government’s equity stake in the Joint Ventures (JVs) to 40 per cent;
• Curbing petroleum products cross border leakages;
• Completion of the Nigerian Gas Flare Commercialization Programme and improving the Liquefied Petroleum Gas penetration;
• Increasing Nigeria’s crude oil production capacity to three million barrels per day;
• Reducing the current cost of crude oil production by at least 5 per cent;
• Aggressive promotion of the passage of the Petroleum Industry Bill (PIB);
• Promotion of oil and gas exploration activities in the country’s inland basins;
• Promotion of deep offshore exploration activities;
• Collaboration with the private sector to aggressively increase domestic refining capacity, and
• Working assiduously to support President Muhammadu Buhari to implement strategies towards taking 100 million Nigerians out of poverty via job creation.
PERFORMANCE REPORT CARD
Nigerian economy and recession
President Buhari’s second term coincided with the period the country’s economy was struggling to maintain the momentum of the slow recovery from the impact of the 2016 economic recession.
At this period, the country’s daily oil production capacity averaged 1.75 and 1.81 million barrels, against 2.3 million barrels approved in the 2019 budget.
Average crude oil price was below the $60 per barrel benchmark price in the budget.
With crude oil remaining the mainstay of the country’s economy, the implication of the low output capacity and declining price at the international oil market was a negative impact on the volume of oil exports, and consequently, the revenue accruable to the government.
As Mr Sylva settled down as the “alternate Minister” after his swearing in, it was pretty obvious how enormous the task ahead of the Ministry of Petroleum Resources was.
Impact of COVID-19
Late in the year, the situation took a turn for the worse, with the outbreak of the Coronavirus pandemic reported in faraway China.
Though the impact of the pandemic sounded so far away then, later it began to slowly creep into sections of the global economy, particularly the international crude oil market, with prices crashing to unprecedented low levels.
By the first quarter of 2020, the reality of the devastation on most economies dawned, particularly on commodity exporting countries like Nigeria.
Crude oil prices nosedived. The panic button was set off by the government, as oil revenues in its coffers dropped below budgetary estimates.
The country’s gross domestic product (GDP) – aggregate value of goods and services for the first quarter resulted in the economy dropping from a positive 2.84 per cent growth figures to a negative of 6.1 per cent at the end of the first quarter.
The government mauled the urgency of reducing the Federal Government’s equity stakes in the Joint Venture (JV) operations with the multinational oil companies to about 40 per cent, at least to reduce the weight of meeting its cash call obligations to its partners in the oil industry.
Concerns were expressed about rising cost of producing a barrel of crude oil, pursuing other initiatives to lift millions of Nigerians out of poverty via job creation.
After his first 365 days in office, Mr Sylva says despite the challenges, particularly as a result of the negative impact of the coronavirus pandemic, which devastated the global economy, he and President Buhari can point at visible steady progress and achievements evidencing the silver lining in the petroleum industry.
Creating stability in Niger Delta
The urgent task before him was to create a stable environment in the Niger Delta region to encourage improved oil production and exports to generate the revenue required to support the country’s economy.
He assured the people of the region of his continued commitment to the service of the people as he did during his previous assignment in the ministry under his former boss, Edmund Daukoru.
During his time, Mr Daukoru initiated and implemented policies that charted the way for the establishment of the Amnesty Programme that helped bring peace in the country’s oil-producing areas and allow for sustainable business environment.
Prior to his inauguration, operations at oil mining lease (OML) 25, known as the Kula oil field, were shutdown since August 11, 2017.
A dispute between Shell Petroleum Development Company (SPDC) and a local oil company, Belema Oil Producing Limited (BPL) over interests in the operations of the oil field in the Belema Community area, had degenerated into a major community crisis.
Throughout the period of the dispute, the resolution of the dispute seemed intractable. The oil platform in Belema community in Akuku-Toru local council area of Rivers State was occupied by protesting community women and youth.
They accused Shell of neglecting the community and depriving them of development and amenities as well as the opportunity of participating in the operations of the oil field. None of the parties was ready to concede grounds for settlement.
But, shortly on assumption of office, Mr Sylva, with the support of the Group Managing Director of the NNPC, Mele Kyari, mobilized all the parties in the dispute to the table for dialogue.
Peace mission to Belema
On September 17, 2019, when they (Sylva and Kyari) went on a peace mission to the community, Mr Sylva told the people and traditional rulers how keen the Federal Government was to attract investments to the area, to create jobs for the teeming youths.
He told the people that for investments to thrive in the area, there was need for the communities in the Niger Delta region to live in peace and harmony with the oil companies as well as cooperate with one another.
“We need peace and unity in our land today. We have fought to this point and the Federal Government has started looking our way. It is time for us to change strategy and ensure that we bring the benefits of investments to our various communities.
“If we don’t make our communities peaceful, investments and development cannot come. The investors are ready to come here. Unfortunately, in some cases there is no peace in the area,” Mr Sylva said.
Urgency to produce hydrocarbon
To underline the critical importance and urgency of his message of peace, Mr Sylva said, with new technology and science in developing alternative sources of fuel and energy, industry estimates showed crude oil would progressively lose its relevance between 20 and 30 years from today.
As such, he stressed the need for the people in the Niger Delta region to avoid any act capable of delaying the quick exploration for, production and sale of whatever volume of crude oil was left under the ground, now that there is still the market, and use the revenue realized to build infrastructure to improve the quality of life of the people.
He cited the examples of the United Arab Emirate (UAE) and Saudi Arabia, where they have used oil money to develop their country by providing quality infrastructure for the people.
He challenged the people to understand that it was their responsibility to work with the Federal Government to bring peace to the oil communities, so that investors can come into the country and create jobs for the youth in the area.
Following their intervention, all the issues were amicably settled. The traditional injunctions that stopped oil production at the OML-25 oil flow station, were removed.
At the end, a proposal for a roadmap for the development of the community was presented to the federal government and the NNPC in a new global memorandum of understanding (GMoU).
The document granted the Belema community right to be involved in the maintenance and security of the oil facilities, while Shell remained the operator, along with its partner, the Nigerian Petroleum Development Company (NPDC), the NNPC subsidiary in charge of upstream oil exploration and production in the petroleum industry.
Today, operations at OML 25 have since been reopened in the area. During the crisis, production of about 35,000 barrels of crude oil per day from the field was shut-in.
After the resolution of the crisis, oil production by the NPDC has received a major boost.
The company’s new peak output of 331,400 barrels per day as of May 28, 2020 has improved the country’s quest for increased oil production capacity.
Eradicating cross border smuggling of petrol
A review of the activities by various agencies under the Ministry shows that during the period, the agenda to eradicate cross border smuggling of petrol has largely been achieved.
Through the NNPC’s “Project White” initiative, cross border smuggling of petroleum products has significantly reduced, with the country’s daily consumption of premium motor spirit (PMS), popularly called petrol, brought down from over 62 million litres to an average of 52 million litres per day.
Also, part of the effort to curb smuggling of crude oil and diversion of petroleum products was the introduction of the Crude Oil Lifting and Tracking System (COLTS) by the Department of Petroleum Resources (DPR).
The system allowed the Ministry to deploy IT solutions in tracking all crude oil and products marketing in Nigeria, to improve efficiency, eliminate any human interference, promote transparency and enhance the process of fuel distribution.
With the tracking system, which involves the deployment of technology (DRMS, Smart Inspector), between 60,000 and 100,000 barrels of crude oil hitherto lost along the pipelines systems conveying crude oil to the export terminals, especially the land-based terminals, has been eliminated.
Besides, the increased stakeholder engagements and collaboration with the various government agencies, like the Nigeria Customs Service (NCS), National Intelligence Agency (NIA), and the Office of the National Security Adviser (NSA), also enhanced effective supervision, surveillance and monitoring of crude oil exports and petroleum products distribution, particularly the management of retail outlets in the border communities.
Bilateral agreement with Niger Republic on fuel supply
In November 2020, the Federal Government signed a bilateral agreement with Niger Republic for the transportation and storage of petroleum products.
Under the agreement, the NNPC is to buy refined petroleum products from Niger Republic’s 20,000 barrels per day capacity Soraz Refinery in Zinder National Oil Company, through the state-owned Societe Nigerienne De Petrole (SONIDEP), to augment Nigeria’s fuel supply requirement.
NNPC GMD, Mele Kyari, said the agreement with Niger Republic is not only to reduce the importation of petroleum products from Europe, eliminate fuel transportation and freight costs, but also to strengthen Nigeria’s intra-Africa business relationships with its neigbhours.
Downstream industry deregulation policy
On March 19, 2020, Mr Sylva, on behalf of the President, announced the complete deregulation of the downstream sector of the petroleum industry.
The policy allows the government to remove its hands completely from the pricing of petroleum products and allow the supply of the commodity to be determined by the fundamentals of the oil market.
Mr Sylva said the policy has finally brought to an end the fuel subsidy regime, which, for years, constituted a major source of massive bleeding of government revenues that could have been used to provide essential services to the people.
Conservative estimates by the National Bureau of Statistics (NBS) showed the country was losing as much as N1trillion annually to subsidize the importation and supply of petroleum products.
Mr Sylva said removing the fuel subsidy from the pricing template by the Petroleum Products Prices Regulatory Agency (PPPRA) was a major achievement by the Buhari administration as previous administrations could not do so.
He said the deregulation of the downstream sector means the government would henceforth be facing its traditional role as regulator of the petroleum industry, while the private sector would take over the business.
“We have now published the framework for fuel pricing to allow Nigerians to calculate the price on their own. The government is no longer involved in the business of fixing fuel prices.
“We have stepped back and allowed market forces to determine prices. So, PPPRA cannot announce fuel prices any more. We only make sure that the marketers are aware of the price range based on the Platts of the time,” Mr Sylva said.
Nigerian Gas Transportation Network Code (NGTNC)
The Ministry has launched the Nigerian Gas Transportation Network Code (NGTNC) to open up opportunities in the petroleum industry for investors in gas transportation infrastructure and market participation as shippers, agents, and suppliers.
The opportunities include several gas anchor programmes, with huge potentials for job creation and poverty alleviation among Nigerians.
Under the Code, Mr Sylva said the Ministry will provide a contractual framework between the gas network operator and users as well as enhance system security, safety and reliability.
With the Code, the Ministry hopes to provide open and competitive access to gas transportation infrastructure to promote the development of the Nigeria gas sector.
Also, under the National Gas Expansion Programme (NGEP), the Ministry will stimulate growth of the liquefied petroleum gas (LPG) and compressed natural gas (CNG) sub-sectors; develop gas-to-people structure; ensure policy guidelines implementation, regulations and DPR guidelines.
Again, Mr Sylva said the Ministry has continued to make steady progress in its gas flares commercialization programme (NGFCP) aimed at eliminating gas flaring through the development of market-driven and commercial structures to harness flared gas to the market.
The programme, he said, will attract third-party investors that would deploy proven technologies to harness flared gas to the market
The programme has so far progressed to the bid evaluation phase, with about 45 bidders participating in the process.
“There are significant opportunities for technology providers, partnerships, financial services, equipment supplies, gas distributors, training and capacity building for Nigerians”, the Minister said..
Boosting LPG penetration
Considering that Nigeria has been identified as one of the countries with the lowest LPG penetration rate in Africa, Mr Sylva said the Ministry’s challenge has been how to change the situation to ensure LPG is not used only in the cities, but in all homes across the country.
In January 2020, the Ministry declared 2020 as ‘Year of Gas’, with opportunities identified for the CNG development, mini-liquefied natural gas (LNG), LPG, and gas-based industries in the country.
To boost the government gas commercialization agenda, the ministry has continued to pursue its CNG and LPG penetration programe to encourage Nigerians to use CNG and LPG (otherwise called cooking gas) as alternative sources of fuel in the country.
Under the CNG and LPG penetration programme, the ministry’s agenda is to encourage Nigerians to use the commodity (otherwise called cooking gas) as alternative sources of fuel in the country.
Harnessing gas resources to create jobs
Mr Sylva said part of the government’s agenda is to make the domestic use of gas in the villages and rural areas affordable to the people.
The Minister said the gas revolution is one of the strategies the government is deploying to help create jobs for the people and improve their quality of life.
He said other gas development programmes by the government during the year include the commissioning of the 110,000 metric tons per annum (MTPA) LPG Integrated Gas Handling Facilities (IGHF) by the NPDC.
During the year, the NNPC also established its LPG Unit in the downstream business unit to drive the LPG business, apart from its CNG Business strategy developed by the government to give the Nigerian consumers an alternative petrol for their vehicles.
National Gas Expansion Programme roll-out
On December 1, 2020, the National Gas Expansion Programme was unveiled in Abuja.
Under the proggramme, Mr Sylva said about 18 locations are to be opened across the 36 states of the federation as gas service stations for the three auto-gas streams – CNG, LNG, and LPG for industrial, transportation and domestic uses.
Under the programme, Mr Sylva said about one million vehicles are to be converted before the end of 2021, to deliver cheaper and cleaner alternative fuel to petrol for transportation.
The objective of the programme, he said, is to deepen domestic usage of natural gas as auto-fuel in the country to give the masses an alternative petrol.
Compared to a litre of petrol, which sells currently at about N170, the unit costs of CNG is less than N100 per litre.
“The use of gas as automobile fuel is to provide alternative to petrol, which has now been deregulated, thereby pushing its price almost beyond the reach of most consumers. The NGEP rollout is to encourage Nigerians to convert their cars to gas as a cheaper and more reliable fuel.
“We expect everybody will convert their petrol cars to gas. We expect that filling stations would also upgrade their infrastructure to ensure that people can drive into filling stations and fill up the fuel tanks with gas either liquefied petroleum gas, compressed natural gas or liquefied natural gas,” the Minister said.
Also, he said the gas roll-out programme is to ensure the development of the midstream sector of the petroleum industry, to help focus attention on the development of the abundant gas resources in the country and diversify the economy.
NLNG Train 7 Final investment decision
One landmark achievement of the Ministry in the last one year has been its effort towards monetization of gas resources through the Nigeria LNG project.
As a result of the crisis in the global economy, final investment decision (FID) on the construction of Train 7 of the project was delayed for over two years.
Just as the NNPC and its partners in the project were getting ready to proceed with the FID, Mr Sylva sad the COVID-19 crisis set in. But, he said the Ministry braved the odds and went ahead.
On December 27, 2019, the Ministry brought together all the shareholders, including the NNPC and its JV partners, consisting Shell, Total, and ENI, to decide on the engineering, procurement contracts as well as the FID as demonstration of their commitment to the project.
The partners also signed the engineering, procurement and construction (EPC) contract for the project awarded to the Saipem, Chiyoda and Daewoo (SCD) JV Consortium, to confirm the effective commencement of construction engineering activities for the Project.
On completion, the production capacity of the six-train plant would expand exponentially by 35 per cent, from the extant 22 million tonnes per annum (MTPA) to 30 MTPA, and boost Nigeria’s competitiveness in the global LNG market.
The project has the prospects of further attracting foreign direct investment (FDI) in excess of $10 billion to Nigeria.
Apart the creation of over 12,000 jobs during the peak of the construction phase, the project on completion would boost trade and commercial activities within the Niger Delta region.
The Executive Secretary of the Nigerian Content Development Monitoring Board (NCDMB), Simbi Wabote, said the NLNG project execution would support the development of local engineering and fabrication capacity in the country, provision of opportunities for local content, including procurement, logistics, equipment leasing, insurance, hotels, office supplies, aviation, haulage, and many more.
Increased crude oil production
Apart from the usual constraint by the Organization of Petroleum Exporting Countries (OPEC) to compel its members to cut their output to strengthen the international crude oil market and stabilize prices, Mr Sylva said the Ministry has largely achieved its agenda to increase the country’s crude oil production to 3 million barrels per day, despite COVID-19 crisis.
The country’s average crude oil production capacity in 2019 was about 1.8 million barrels per day, significantly below the country’s approved 2.3 million barrels per day capacity in the year’s Federal Budget.
The crash in oil prices as a result of the COVID-19 crisis compelled the OPEC members to resolve to carry out an output cut, which limited Nigeria’s capacity to ramp up its oil production.
But, the Minister remains optimistic the country’s aspiration was only suffering a temporary setback, as the government was committed to developing a growth plan adjusted to comply with the OPEC+ cut production targets.
The NNPC said during the peak of the COVID-19 crisis, the country’s daily oil production reached a new high level, with current technical capacity of over 2.5 million barrels between the first and third quarters of 2020.
This is in addition to condensate production of between 360,000 and 460,000 barrels per day, which are exempt from OPEC curtailment.
The country’s actual oil production capacity has been negatively impacted by compliance with OPEC cuts announced in April 2020, Nigeria was allowed to produce only 1.412 million barrels per day between May and June 2020; 1.495 million barrels per day between July and December 2020, and 1.579 Million Barrels per day between January 2021 and April 2022.
Despite all the challenges in the industry, the Ministry says the country’s current national oil reserve is about 36.89 billion barrels, consisting 31.418 billion barrels of crude oil and 5.476 billion barrels of condensate, with a target of about 40 billion barrels by 2025.
In addition, the country’s national gas reserves 203.16 trillion cubic feet (TCF), made up of 100.69 TCF of associated gas and 102.47 TCF of non-associated gas, with a target of 210TCF by 2025 and 220 TCF by 2030
Part of the Ministry’s plan is to bring on stream in the near future projects, like the Bonga South-West development, to add over 200,000 barrels per day to the country’s oil production capacity before the end of the year.
During the year, Mr Sylva said the Ministry took steps to improve security in the operating environment; protect pipelines to reduce vandalism and sabotage of oil facilities to improve pipeline availability during the year; optimize current crude oil production; reduce contracting cycle to six months; increase exploration activities and bring to maturity other opportunities.
Through the NNPC, he said the Ministry, during the year, also executed the Head of Terms (HoT) for OMLs 118, 125 and 130 to boost oil production from them. It also executed a funding and technical services agreement (FTSA) as well as an alternative financing deal for NPDC’s OML 13 valued at about $3.15 billion and OML 65 for $876 million.
The respective agreements resulted is a 32 and 21 per cent incremental production output in OMLs 40 and 30 respectively.
Also, he said 14 companies participated in the auction for the financing and redevelopment of OML 119 operated by the NPDC. The twin offshore block made up of Okono and Okpoho fields located approximately 50 kilometres offshore south-eastern Niger Delta operated by ExxonMobil.
Inland and deep-water basin exploration programme
On the inland and deep-water basin exploration programme, apart from operations in the Bonga South-West oil field, which the Minister said are at advanced stage, the Ministry has taken on new initiatives during the year to attract more investments in the deep offshore acreages if the provisions of the Petroleum Industry Fiscal Bill (PIFB) were approved.
The Ministry, through the NNPC, has recorded significant success in the search for oil in the country’s inland sedimentary basins, particularly in the northern part where hydrocarbon deposits were discovered in commercial volumes in the Kolmani River II Well on the Upper Benue Trough, Gongola Basin, Bauchi and Gombe States in the North Eastern part of the country.
Mr Sylva says the Kolmani River-II Well oil discovery is expected to significantly boost NPDC and the SPDC’s oil production capacities and increase the country’s overall output, apart from additional 33 billion cubic feet (BCF) of natural gas to Shell Nigeria Exploration and Production Company (SNEPCo) production.
Marginal field development programme
The Ministry, through the DPR, is already pursuing the marginal field development programme expected to add significant volumes to the country’s production capacity.
The bid process for the auctioning of about 57 oil blocks to indigenous oil industry operators has progressed to an advanced stage to be completed in the first quarter of 2021.
Cutting cost of crude oil production
With crude oil price crashing to almost $10 per barrel at the international oil market as a result of the impact of COVID-19 pandemic, Mr Sylva said the Ministry supported NNPC in its determination to drastically cut down on the country’s average cost of producing a barrel of crude oil from about $30 per barrel considered as one of the highest in the world.
Again, he said the Ministry was involved in NNPC’s effort, through its subsidiary, the National Petroleum Investment Management Services (NAPIMS), to revise the joint venture and production sharing contract (PSC) operators’ unit costs.
The objective, he said, was to see the cost brought down to an average of $19 and $18.3 per barrel, from the initial $31 and $24.3 per barrel respectively, to save costs for the government.
Currently, the NNPC puts the average production cost at about $15 per barrel, with a target of $10 per barrel.
The Ministry said the NNPC and its partners have identified and commenced implementation of 56 cost reduction initiatives across the various cost drivers, namely cutting down human resources, security, logistics, direct lifting, etc.
Describing the $15 production cost level as unsustainable, the ministry has identified the problem of long contracting cycle as being responsible for the higher costs of projects, and by extension, higher cost per barrel.
In the last one year, the Ministry has continued to encourage the regulatory agencies, including the Nigerian Content Development Monitoring Board (NCDMB) and DPR to take steps to shorten their approval procedures and contracting cycles to cut down on the cost of projects.
Already the Ministry has directed oil companies to halt single sourcing and encouraging open tendering process in line with NNPC’s transparency, accountability and performance excellence (TAPE) principle.
The Ministry is also developing a cost database for cost-benchmarking to establish a template for the industry; encouraging the use of value monitoring and benchmarking tool for cost evaluation and analysis as well as deployment of online tools and electronic resources.
Through the NNPC, the Ministry has also issued and enforced several industry circulars on the management of COVID-19; promotion of joint development and unitization of fields; monitoring of cost in field development plan (FDP) and streamlining of regulatory approvals process and cycle relating to contract awards
Part of the Ministry’s cost cutting agenda is to optimize NPDC operations by ensuring proper project definition/front-end engineering design (FEED) as requirement for sanctioning; ensured improved collaboration, resource sharing and process standardization; improved capabilities in cost engineering and project management, and encouraged shared industry spare parts database.
Passage of the PIB and Legislative matters
But, with the pervading uncertainty in the petroleum industry as a result of the delay in the passage of the Petroleum Industry Bill (PIB), the future seemed bleak.
New investments were not forthcoming. Even existing investors found it difficult bringing new projects, as the business environment continued to be unfavourable for taking of final investment decisions.
Although the Ministry has not yet met its target of getting the PIB passed, significant progress has been made in moving the process, which has dragged for nearly 20 years, closer to the finishing line.
The Ministry has generally restructured the Bill into two parts – The Petroleum Industry Bill (PIB) and The Petroleum Industry Fiscal Bill (PIFB).
The document is broken into 294 sections, with the PIB made up of four broad parts dealing with governance, administration, host community development and interpretations, while the PIFB deals with the fiscal framework.
With the current level of commitment by the lawmakers to work on the Bill, Mr Sylva said he was optimistic the passage of the new law for the country’s oil and gas industry may not linger beyond the first quarter of 2021.
“The PIB is currently with the National Assembly. The process has already passed the second reading in the Senate. They have sent the draft to the relevant Committees for consideration.
“We are expecting that both Chambers would go through the committee stages by the first quarter of next year and pass it into law,” Mr Sylva told PREMIUM TIMES in a recent interview.
Beyond the PIB, the Ministry achieved its target of getting the National Assembly to pass the Deep Offshore and Production Sharing Contract Act, while its implementation is ongoing.
