Oil & Gas - December 29, 2021

Nigeria’s Oil, Gas Industry in Retrospect

MEDIATRACNET

The impact of the COVID-19 pandemic on the global oil and gas industry in 2020 did not put it in the best position.

Coming into 2021, the sector expected to see a rebound, as businesses and travelling across the world reopened and adapted to the new normal.

The development of COVID-19 vaccines raised hopes, though the stubborn virus continued its mutation.

Predictably, world demand for oil and gas increased in 2021 with the average crude oil price hovering around $74 per barrel, according to an Organisation of the Petroleum Exporting Countries (OPEC) report.

For a country like Nigeria whose economy is largely dependent on oil and gas, the increase in demand could not have come at a better time.

This is especially as the world moves towards global energy transition.

The Nigerian government desires to maximize the nation’s abundant hydrocarbon resources for national development within the shortest possible time.

Below is an overview of some major issues and events in the sector in the outgoing year.

Nigeria’s Proven Natural Gas Reserve, as at January 1, was put at about 206.53 Trillion standard cubic feet (TCF) by the defunct Department of Petroleum Resources (DPR).

The new figure represented a major increase of 3.37TCF in proven natural gas reserves; a 1.66 percent rise from the 203.16TCF recorded on January 1, 2020.

The Director of DPR, Sarki Auwalu, gave a breakdown of the figures, which showed that of the 206.53TCF, Associated Gas was 100.73TCF and Non-Associated Gas 105.80TCF.

Declaration of Decade of Gas Development

In January, the Minister of State for Petroleum Resources, Timipre Sylva, declared the Year 2021 to Year 2030 as the Decade of Gas Development.

This followed the success of the declaration of the Year 2020 as the Year of Gas. Sylva said the initiative was to transform Nigeria to a gas-powered economy by 2030.

“Our efforts will continue to focus on gas to transmute Nigeria from the conventional dependence on white products to a cleaner, more available, accessible, acceptable, and affordable energy use in gas.

“This will not only cushion the effects of current deregulation, but also create enormous job opportunities for Nigerians,” he said.

Inauguration of National Oil and Gas Excellence Centre

On January 21, President Muhammadu Buhari inaugurated the National Oil and Gas Excellence Centre (NOGEC) in Lagos aimed at strengthening Nigeria’s position as regional leader in the oil and gas industry.

The NOGEC flagship centres included Search, Rescue and Surveillance (SeRAS) Command and Control Centre and National improved Oil Recovery Centre (NIORC); Oil and Gas Dispute Resolution Centre (DRC), Oil and Gas Competence Development Centre (CDC) and Integrated Data Mining and Analytics Centre (IDMAC).

The centre is structured to drive the three-pronged objectives of safety, value and cost efficiency, which are critical for oil and gas industry stability, growth and sustainability.

Contract award for construction of Nigeria’s first Floating LNG

In February, the Federal Government awarded the contract to UTM Offshore for the development of Nigeria’s first Floating Liquefied Natural Gas (FLNG) project.

Group Managing Director, UTM Offshore, Julius Rone, said the project is expected to be completed by 2025.

The multi-billion-dollar plant, when operational, is projected to be processing 176 million cubic feet per day of natural gas and condensate and give the nation’s economy a boost.

NNPC signs $1.5bn contract for rehabilitation of Port Harcourt Refinery

In April, the NNPC signed an Engineering, Procurement, Construction, Installation and Commissioning (EPCIC) contract for the rehabilitation of the 210,000 barrels per day capacity Port Harcourt Refinery in Alesa-Eleme, Rivers State.

The rehabilitation project has a completion timeline of between 18 and 44 months under a three-phase arrangement.

It was awarded to Milan-based Tecnimont SpA at a lump sum contract price of $1.5 billion, inclusive of VAT and other statutory payments.

The Group Managing Director of the Nigerian National Petroleum (NNPC), Mele Kyari, said the PHRC rehabilitation project was in line with President Buhari’s promise to the Nigerian people to make the refineries work.

Marginal oilfields bid round

In May, the Federal Government announced the conclusion of the bidding for 57 marginal oilfields, which began on June 1, 2020.

Some 161 companies were allocated marginal fields, with the Federal Government raking in about $500 million as signature bonuses from the successful companies.

Sylva said the bid round was aimed at deepening the participation of indigenous operators in the upstream segment of the industry.

He said, it wiould also provide opportunities for technical and financial partnerships for investors.

The minister said some of the indigenous companies which came out from previous marginal oilfield bid rounds were now competing with International Oil Companies.

NNPC acquires 20% stake in Dangote Refinery

In August, the Executive Council of the Federation (FEC) granted the NNPC approval to acquire a 20 percent minority stake in the Dangote Petroleum and Petro-Chemical Refinery under construction.

The Minister of State for Petroleum Resources said the acquisition was in the sum of $2.76 billion, with the NNPC also planning to acquire stakes in other private refineries being established in the country.

Also, Kyari said NNPC as the National Oil Company of Nigeria primarily has a dual role of providing stewardship for the nation’s hydrocarbon resources and adding value to the resources for the benefit of all Nigerians and other stakeholders.

These roles, he said, enable it to achieve the twin objectives of providing energy security for the country and stimulating the nation’s economic development and growth.

$1.5bn for rehabilitation of Warri, Kaduna refineries

Also, in August, the FEC approved the award of contract for the rehabilitation of Warri and Kaduna Refineries at the combined total sum of $1.5 billion– $897.67 million for Warri Refinery and $586.9 million for Kaduna Refinery.

Sylva said the rehabilitation contract awarded to Messers Saipem SPA and Saipem Contracting Limited at a total of $1.48 billion, would be carried out in three phases, over a period of 77 months.

Enactment of the Petroleum Industry Act 2021

On August 16, President Buhari signed the Petroleum Industry Act (PIA) following the passage of the Petroleum Industry Bill by the National Assembly in July.

The landmark PIA is expected to unleash the transformation of the oil and gas sector in Nigeria by enabling investments and codifying the regulatory, administrative and fiscal framework for the industry.

Regional Director, Africa, Society of Petroleum Engineers (SPE), Omowunmi Iledare, commended the Executive and the 9th National Assembly for bringing the wobbling PIB journey since the early 2000s to an end.

“Although I have no crystal ball, I am confident the Act stands a good chance to enhance industry value to the economy,” he said.

Chairman, Major Oil Marketers Association of Nigeria (MOMAN), Olumide Adeosun, promised support for the Federal Government to ensure timely and effective implementation of the PIA.

“We believe that it is critical that there should be a robust participation from market players in the implementation,” he said.

NNPC declares historic profit

On August 26, Buhari who is also the Minister of Petroleum Resources, announced that the NNPC had declared a Profit After Tax of N287 billion for the year 2020.

He noted that the net profit was the first in the 44-year history of the establishment.

Chief Executive Officer of Dateline Energy Services Limited, Wilson Opuwei, applauded the declaration of profit by the NNPC.

“It is great that the NNPC is now opening up its books to auditors for us to see how the company is being run. That level of transparency and accountability is what investors looking to invest in Nigeria are interested in.

“For the NNPC to declare profit in its audited reports is a big plus for the industry because it will attract more investments,” Opuwei said.

Group Managing Director, NNPC Ltd., Mele Kyari, said the NNPC would continue to deliver dividends to its shareholders going forward, especially with the passage of the PIA.

Scrapping of DPR, PEFMB, PPPRA
The signing of the PIA led to the scrapping of the Department of Petroleum Resources (DPR), Petroleum Equalisation Fund Management Board (PEFMB), and Petroleum Product Pricing Regulatory Agency (PPPRA).

They were replaced by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).

In October, Gbenga Komolafe was named as head of the NUPRC, while Farouk Ahmed was appointed as Chief Executive Officer of the NMDPRA,.

The NUPRC is in charge of upstream petroleum regulatory activities while the NMDPRA is responsible for oil and gas activities in the midstream and downstream sectors.

Incorporation of NNPC Limited

NNPC Ltd. was incorporated as a Companies and Allied Matters Act (CAMA) company on September 22 in line with provisions of the PIA.

The NNPC Limited will operate under CAMA 2020 without recourse to Government funds, declare dividends to its shareholders and retain 20 per cent of profits to grow its business.

The company and its subsidiaries will conduct business on a commercial basis without recourse to government funds.

The new company is to be the supplier of last resort for security reasons and all associated costs shall be for the account of the federation.

The year 2021 witnessed intensified calls for global transition to cleaner sources of energy and reduction in investment in fossil fuels exploration activities.

Divestment by IOCs
The major International Oil Companies are divesting from crude oil to gas and other renewable resources of energy.

Many of the companies have changed their names from oil companies to energy companies to reflect their current positions as they move to become carbon neutral by 2045.

Energy Transition
The world leaders gathered at the United Nations Climate Change Conference (COP 26) in Glasgow, Scotland in November where the issue of energy transition dominated the discussion.

President Buhari who addressed the conference demanded for energy justice for Nigeria and other developing countries with hydrocarbon resources.

He said there was need to exploit the available resources as a pathway to attain the net-zero carbon objective by 2050.

The president noted that though Africa accounted for only about three percent of the global carbon emission, the continent still had the responsibility to join the world in combating climate change.

Nigeria, he said, identified its abundant gas resources as its fuel for energy transition which informed the declaration of the Year 2021 to Year 2030 as the Decade of Gas by the government.

He said enactment of the PIA would attract investment to deepen gas utilisation in Nigeria with various incentives granted to investors.

Technical Adviser on Gas Business and Policy Implementation to the Minister of State for Petroleum Resources, Justice Derefaka, on his part, believes that gas is the future of Nigeria.

Derefaka said the government had initiated policies such as the National Gas Expansion Programme (NGEP), the National Gas Flare Commercialisation Programme (NGFCP) and the National Gas Transportation Network Code (NGTNC).

“As a nation, we are working on converting the massive amount of gas being flared now to energy for Nigerians with the commencement of the NGEP and the NGFCP.

“We are dealing with the energy poverty in the country. We are unlocking the natural gas potential of Nigeria and will drag over 120 million Nigerians out of energy poverty.

“The major objective of the Buhari-led administration is to transform Nigeria into an industrialised nation, with gas playing a major role,” he said.

Derefaka said the Central Bank of Nigeria’s N250 billion gas sector intervention fund will help optimal development of the sector within the next decade.

He said the autogas scheme, NLNG Train 7 project and the Ajaokuta-Kaduna-Kano pipeline project were geared towards actualising the objective.

Proposed removal of fuel subsidy

In November, the Minister of Finance, Budget and National Planning, Zainab Ahmed, announced that the government would remove subsidy on Premium Motor Spirit from 2022.

The minister said the government plans to replace it with a monthly N5,000 transport grant to about 40 million poor Nigerians.

Managing Director, Petroleum Products Marketing Company (PPMC), Isiyaku Abdullahi, said the full deregulation of the downstream sector would save Nigeria N12 trillion in four years.

“At $80 crude oil, 60 million litres daily consumption and N411 to a dollar foreign exchange, PMS under recovery (petrol subsidy) per litre will be N138 per litre.

“Daily PMS under recovery will be N8.3 billion. Annual PMS under recovery will escalate to N3 million.”

Abdullahi said the savings made from the removal of subsidy on petrol could be channelled to other critical areas such as infrastructure, health care and education among others.

He noted that removal of subsidy would make the price of petroleum products in Nigeria at par with its African neighbours which would discourage smuggling.

immediate-past President, Major Oil Marketers Association of Nigeria (MOMAN), Tunji Oyebanji, said continued subsidising of petrol was not sustainable in light of current economic realities.

He said the 2022 deadline was realistic and its impact might be mitigated with the coming on stream of the 650,000BPD Dangote Refinery, BUA Group Refinery, Waltersmith Refinery and other modular refineries.

However, National Auditor, Trade Union Congress (TUC), Obinna Ogbonna, said labour unions had given the government certain conditions that should be fulfilled before the removal of subsidy.

He said, “what we are saying is that for there to be full deregulation, government should provide palliatives to the masses and should ensure that there are no job losses in the implementation of the reforms in the sector”.

Hike in prices of cooking gas

2021 witnessed an unprecedented hike in the price of Liquefied Petroleum Gas (LPG), also known as cooking gas, across the country.

The increment forced some low-income families to go back to firewood and stove, which was a setback to the government’s aspirations to deepen gas utilisation in the country.

As at January, the price of cooking gas ranged from N4,500 to N5,000 depending on the location, but few days to the end of the year in December, sold for between N8,500 and 10,000.

Marketers attributed the hike to global supply challenges, high international prices, limited availability of foreign exchange and high exchange rates.

Executive Secretary, Nigerian Association of Liquefied Petroleum Gas Marketers (NALPGAM), Bassey Essien, also blamed the increment on the reintroduction of Value Added Tax on imported LPG.

Ikeja gas explosion

On June 18, five persons died in a gas explosion after a truck conveying Liquefied Petroleum Gas spilled its content at the Ogun State Property Investment Company (OPIC) Plaza in Ikeja.

The incident also left 11 persons injured and several vehicles destroyed.

AITEO oil spillage

On November 5, Well head 1 in Nembe, Bayelsa operated by AITEO Petroleum spilled its contents, causing serious damage to the environment.

The company, working with local and international experts, was able to stop the leakage on December 8, while clean up and investigation into the incident continued.

2022 Projection for the industry

In their projections for the future, experts believe that the PIA has created opportunities for growth in oil and gas infrastructure development.

Group General Manager, National Petroleum Investment Management Services, Bala Wunti, expressed optimism that Final Investment Decisions would be taken on some critical projects by 2022.

Wunti said some of the projects which were being executed by the IOCs and the NNPC were suspended for years due to uncertainty in the oil and gas sector.

He said the enactment of the PIA restored investors’ confidence in the industry and repositioned Nigeria to optimize its hydrocarbon resources.

Executive Secretary, Nigerian Content Development Monitoring Board (NCDMB), Simbi Wabote, said the projects attracted by the PIA would create a lot of opportunities for local content in the oil and gas industry. (NAN)

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