Oil & Gas Sector: Things are not getting worse
In the last nine months, the Federal Government has halted the crisis in the oil and gas sector and set it on the path of sustained growth and development.
This has been achieved with the resolution of the perennial Niger Delta crisis through government’s adoption of collaboration, intervention and partnership strategies to calm the restive community people in the region.This effort, in the last nine months, has paid off, with oil production increasing from 1.2 million bpd to 2.2-2.3 million bpd, including condensate.
The sector has, over the years, been known to encounter daunting challenges in form of ineffective regulation, concentration and control of petroleum resources within limited set of license holders, JV funding issues, high operating costs, unsustainable importation of petroleum products, limited refining capacity, insecurity in the Niger Delta and dilapidated midstream oil network as a result of systemic inefficiencies and vandalism.
At the beginning of the year, the country faced challenges posed by crashing global crude oil prices, which dropped from about $120 per barrels to as low as less than $30 per barrel. The situation was worsened by the spate of militant attacks and pipeline vandalism in the Niger Delta, resulting in the country losing over 54 percent of its daily oil production, from about 2.2 million barrels to about 1.2 million barrels.
A cursory look at the oil and gas sector in the past indicates that the industry faced the challenge of an unstructured and unprofitable Nigerian National Petroleum Corporation (NNPC) that was in dire need of understanding its purpose; huge subsidy and foreign exchange distortions arising from the cut in oil production and reduction in crude oil prices as well as shrinking national oil reserves.
There was also the issue of shortage of petroleum products supply which was a regular occurrence, resulting in long queues of anxious motorists at filling stations as a result of uncertainty in products availability. However, in the last 365 days, the federal government has mid-wifed the establishment of the National Petroleum Policy to set the medium to long-term parameters and targets for industry strategies and policies on oil resources, including oil reserves growth and utilisation.
Other milestones that happened during the year under review included the approval of the National Gas policy, to define the strategies for harnessing and development of the country’s gas resources, elevate gas from being a subsidiary of oil, and giving it the practical expression of Nigeria as a gas territory.
Also, new joint venture arrangement was approved by Executive Council of the Federation, to modulate how the operating companies pay cash calls, to promote new investment while freeing government from Joint Venture funding obligations.
Appropriate fuel pricing framework was created, which facilitated the immediate disappearance of fuel queues at filling stations across the country. Since then, refined petroleum products consumption has dropped from over 50 million litres per day to average of 28 million litres, creating certainty and peace in the operating environment.
Ayodele Oni, an energy expert and partner, Bloomfield Law Practice in Lagos, while assessing the oil and gas sector in the last one year, observed that there have been a lot of policy formulations and conversations more than action.
Oni observed that in the last 365 days, Nigerians have not had fuel queues which, he says, is a plus and then there is some excitement in terms of the proposed marginal fields bid round and the near-passage of a new governance bill.
To him, in all, things are at least not getting worse in the oil and gas sector and look to be headed north. The performance is one of ensuring stability in the sector and not so much of landmark achievements in my view. He urged the federal government to elevate results beyond politics; ensure that regulators enforce relevant laws, rules and regulations as the challenge with Nigeria is not really the lack or insufficiency of laws.
According to him, “It is also pertinent that the federal government continues to work hard at providing an enabling environment for the private sector to thrive in Nigeria and also take bold steps on policy issues and implementation”. The oil and gas industry equally witnessed the development of fuel receptor terminals where ships laden with petroleum product to the tune of 100,000 metric can anchor.
In addition, National Petroleum Development Company, NPDC, was invested in growing its production capacity, from 30,000 barrels to over 200,000 barrels per day, bpd, with a projection to reach 500,000 bpd. Nigeria has continued to play leading roles on issues stabilising the oil market and bringing price elevation, from $38 per barrel to $50.
Other strategic interventions include the establishment of the National Council on Hydrocarbons, the multi-purpose body for policy makers on exploitation of hydrocarbons in Nigeria and the Nigerian gas flares commercialization programme, to stop gas flares and take flaring to a commercial sector to earn money and remove environmental hazards.
Also there were moves within this period under review to reduce the contracting cycle within the industry from an average of 18 months that has been the practice to an average of nine and 12 months.
According to Emmanuel Ibe Kachikwu, minister of State for Petroleum Resources, “we would like to see that process further come down substantially. There is no reason why approvals, from conception to contract awards, should not happen between 90 to 120 days”.
Other goals set for the industry includes removal of government monopoly and freeing the private sector to grow; focusing on making the business profitable, by encouraging competition with its peers around the world in terms of profitability index.
On local content, the minister said the government was determined to identify about 100 projects in the industry, from infrastructure, investment, finance, technology, to field development, to help transform the country.
Apart from prioritising refining, to end the importation of petroleum products in 2019, Kachikwu said the government priority going forward would cover investments in the search for oil in the Benue Trough and Lake Chad Basin.
There was also positive in the production end of Oil and gas industry as Shell Petroleum Development Company (SPDC) during this period under review restarted the Trans-Forcados crude export pipeline which was first attacked by the Niger Delta Avengers in February 2016, the first attack on a subsea pipeline in the country.
A spill that occurred on February 14, 2016 on the subsea crude oil export pipeline, had forced Shell to declare force majeure on Forcados liftings a week later.
There was also further cheering news for the sector as the Senate, in a historic move, passed the Petroleum Industry and governance Bill, PIGB, almost 17 years after the process started.
With the passage of the bill, which is tagged, Petroleum Industry Governance Bill, PIGB, a new regulatory agency, known as Nigeria Petroleum Regulatory Commission, NPRC, took over the functions of Petroleum Inspectorate, PI, the Department of Petroleum Resources, DPR, and the Petroleum Products Pricing Regulatory Agency, PPPRA.
The new commission, among other things, will also administer and enforce policies, laws and regulations relating to all aspects of petroleum operations which are assigned to it under the provisions of the Act.
The senate is expected to pass two more bills to further regulate the oil and gas sector. Already, the Host Communities’ Bill, which has passed first reading in the Senate, is expected to be passed into law before the end of 2017. Thereafter, the Senate will also commence moves to pass another tranche of the bill that would deal with the fiscal aspect of the oil and gas sector. Corrupt practices will be reduced.
Government plans to automate the licensing process, to check people going around the Department of Petroleum Resources (DPR) and other regulatory agencies, while growing human capacity, through on the job training.
OLUSOLA BELLO, FRANK UZUEGBUNAM & KELECHI EWUZIE