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2020: Rough, Progressive Year for Nigeria’s Oil & Gas Sector

-By Gideon Osaka

The global oil and gas industry has had a bumpy 2020, having been hit by several challenges – the most significant of which is COVID-19. The impact of the virus was particularly severe on the oil sector than on any other industry, Valuechain can report.

The impact of the virus on global crude oil demand and fall in crude oil prices also took a heavy toll on Nigeria’s economy as oil and gas account for over 90 per cent of Nigeria’s foreign exchange earnings and more than 60 per cent of its revenue.

At some point within the year, the country struggled to find buyers for its crude and had to settle for low prices, when it eventually got buyers. According to the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, buyers were begged to purchase Nigerian crude oil at $9 per barrel in April. The global oil benchmark, Brent crude, had plunged to as low as $15.98 per barrel that month, the lowest since June 1999 amid the collapse in demand.

President Muhammadu Buhari

In the face of the pandemic, countries like Saudi Arabia were giving discounts to off-takers for its crude, while jurisdictions like Nigeria with high cost of crude oil production struggled to cope with the competing prices.

The impact of this situation was a major strain on the country’s finances and budget, as the ability of the country to meet its oil revenue target was curtailed.

Despite the magnitude of the turbulence caused by the novel corona virus, Nigeria still recorded some key developments in the oil and gas sector that are worth highlighting.

Fuel Subsidy removal, deregulation

After several attempts by the federal government to end the corruption-laden and costly fuel subsidy scheme, the government finally mustered the political will to end fuel subsidy in March.

Estimates by the National Bureau of Statistics (NBS) showed that Nigeria spent as much as N1trillion annually to subsidise Premium Motor Spirit (PMS) or petrol.

Mallam Mele Kyari, NNPC GMD

Relying on the decline in crude oil price  as a result of the coronavirus pandemic, the government did what many thought was impossible to announce the end of fuel subsidy indicating that it would step back and allow market forces to determine prices.

The removal of subsidy on petrol paved the way for deregulation of the downstream sector early in the year. The implication, according to the government was that it would no longer control the pricing of petroleum products but allow the supply of the commodity to be determined by market fundamentals. The government would then face its traditional role as regulator of the industry, while the private sector would run the business.

The removal of subsidy on PMS and deregulation of the downstream sector was described as a major achievement by the Buhari administration as previous administrations had tried but could not do so.

Highest oil output, cost reduction

Despite the impact of the coronavirus pandemic on the international oil market, Nigeria achieved one of the best performances in terms of crude oil production during the crisis period.

According to the NNPC GMD, Mallam Mele Kyari, at the peak of the crisis in April, the NNPC achieved the highest level of crude oil production per day, a figure never seen in at least ten years (about 2.4million barrels per day). This was possible, according to the NNPC Chief, with the deployment of the latest technology under NNPC’s Business Continuity Plan activated during the crisis period.

“What the NNPC did was to engage with its partners to bring down the high cost. We negotiated contracts, cut down on contract’s life cycle; selected the right projects; engage the right institutions to bring down the cost. Our ultimate target is to bring the cost to at most $10 per barrel,” Kyari said.

Waltersmith Modular Refinery

The country was able to achieve this feat in spite of complying with the Organisation of Petroleum Exporting Countries (OPEC) output quota. The output increase was also accounted for by condensate production which are exempt from OPEC curtailment.

Nigeria joined OPEC to resolve on a programme to cut crude oil output by about 10 million barrels between May 2020 and April 2022.

Although the output cut programme helped stabilize crude oil prices and the market, the impact on Nigeria has been a general slow down on growth, as the country has to cut on its oil production, amid reduced oil exports.

However, after the OPEC+ output cut programme in April 2022, NNPC said its target is to raise Nigeria’s oil production from 1.579 million barrels per day to 3 million barrels per day and national oil reserve of about 35 to 40 billion barrels.

This will be achieved from projects already in line to come on stream between 2021 and 2022 to bring incremental crude oil production volumes in excess of 600,000 barrels per day. Such projects include the Bonga South-West development which could add over 200,000 barrels per day to the country’s oil production capacity.

Joseph Thalama Dawha

Besides, NNPC is also planning to increase the production of condensate from most of its oil field, as condensate is exempt from OPEC oil quota computation.

NNPC publishes audit report

NNPC on Thursday 11th June, 2020 made history with the publication of its first audited financial statements after 43 years of its operation.

In keeping with its commitment to transparency and accountability and in consonance with the principles of the Extractive Industries Transparency Initiative (EITI), NNPC released its 2018 and 2019 Audited Financial Statement (2019 AFS) within the year.

The 2019 Audited Financial Statement, which was concluded five months after the release of the 2018 Audited Financial Statement, was published on the Corporation’s website.

AKK gas pipeline commissioned

President Buhari on June 30, performed the virtual flag-off of the construction of the 40-inch x 614km AKK gas pipeline project, described as a key enabler to the development of industries in the north.

The gas pipeline is also expected and spur developmental activities in the northern region and kickstart some sort of revival in the construction industry.

Expected to be completed within a 24-month timeline, the AKK pipeline is a section of the Trans-Nigeria Gas Pipeline (TNGP) with capacity to transport about 2.2billion cubic feet of gas per day.

The pipeline which would originate from Ajaokuta, in Kogi State and traverse Abuja (FCT), Niger, Kaduna and terminate at Kano, would boost domestic utilization of natural gas for Nigeria’s social economic development, when completed.

It would also unlock 2.2billion cubic feet of gas to the domestic market, support the addition of 3,600 megawatts (MW) of power to the national grid and revitalize textile industries which alone boasts of over 3million jobs in parts of the country.

The AKK project would support the development of petrochemicals, fertilizer, methanol and other gas-based industries thereby generating employment opportunities and facilitating Balanced Economic Growth.

Marginal field bids round back again

Nigeria’s precarious economic situation looked to have lightened  up as the Department of Petroleum Resources (DPR) announced the commencement of marginal fields bid rounds for 2020.

The commencement of the 2020 oil bid round came 18 years after the first one was conducted in 2002.

DPR which is the implementing agency for the rounds, announced that the bid round exercise was open to indigenous companies and investors interested in participating in exploration and production business in Nigeria. For the 2020 oil bid round exercise, DPR said that a total of 57 fields located on land, swamp and shallow offshore terrains are on offer.

The exercise which was conducted electronically, would follow the process of   expression of interest/registration, pre-qualification, technical and commercial bid submission and bid evaluation.

The bid process is said to have reached an advanced stage and would be completed in the first quarter of 2021.

Industry welcomes iconic 17 storey NCDMB tower

President Buhari had in August commissioned the 17 storey headquarters of the Nigeria Content Development and Monitoring Board (NCDMB), in Yenagoa, the Bayelsa State capital. The NCDMB building comes with its own 10-Megawatt gas-fired power plant and a 1,000 seater conference hall.

The completion and commissioning of the tower is expected to further create the enabling environment for oil companies to interface better with the NCDMB and also for companies willing to relocate their offices to the region.

New gas Network Code goes live

The industry witnessed the launch of the Nigerian Gas Transportation Network Code (NGTNC), a programme intended to open up opportunities for investors in gas transportation infrastructure.

The network code, which is a set of rules and principles, guiding the use and operations of gas transportation network system, would deepen the domestic gas market as well as unleash the potentials of accelerated growth and economic development for the country.

The code together with related interventions, would enable improved gas supply to power, growth of gas-based industries, domestic LNG, LPG and CNG penetration, as well as enhance revenue to the government and create investment opportunities for Nigerians

PIB 2020 reintroduced

Significant progress was made with the transmission of the Petroleum Industry Bill (PIB) to the National Assembly in September by President Buhari.

The Bill which has dragged for nearly 20 years subsequently   passed first and second reading in the Senate and House who have sent a draft to relevant Committees for consideration.

With the current level of commitment by the lawmakers to work on the Bill, there is optimism in the industry that passage of the Bill might happen by the first quarter of 2021.

First ever 5000bpd modular refinery kick starts

Nigeria’s refining capacity received a boost with the official commissioning of the 5,000 barrels per day (bpd) Waltersmith Modular Refinery and Groundbreaking ceremony for the next expansion phases of the refinery to 50,000 bpd.

The refinery, located in Ibigwe, Ohaji/Egbema local government area of Imo state was commissioned by President Muhammadu Buhari late November.

The 5,000 bpd Waltersmith modular refinery is the first phase of a series of refinery development which will culminate in the delivery of up to 50,000 bpd refining capacity that will expand the product slate to include premium motor spirit (PMS), liquefied petroleum gas (LPG) and aviation fuel.

The expansion plan consists of 20,000 bpd crude oil refinery and a standalone 25,000 bpd condensate refinery both of which are at early stages of project development.

The refinery has a crude oil storage capacity of 60,000 barrels and is projected to deliver over 271 million litres per year of refined petroleum products such as diesel, kerosene, naphtha and heavy fuel oils, to the domestic market.

National Gas Expansion Programme launched

The federal government had in January declared 2020 as ‘Year of Gas’, with opportunities identified for development of Compressed Natural Gas (CNG) and liquefied natural gas (LNG), as alternative fuel to PMS.

In line with the Federal Government’s plan to make gas the first choice source of cheaper and cleaner energy, the government had in early December, unveiled the National Gas Expansion Programme with plans for 18 locations to be opened across the country as gas service stations for the three auto-gas streams – CNG, LNG, and LPG for industrial, transportation and domestic uses.

Under the programme, about one million vehicles would be converted to use gas in 2021, as a cheaper and cleaner alternative to petrol. Compared to a litre of petrol, which sells currently at about N163-N168, the unit costs of CNG per litre is less than N100.

The NGEP roll-out is to encourage Nigerians to convert their petrol cars to use gas as a cheaper and more reliable fuel.

Oredo gas handling facility comes online

Domestic production of liquefied petroleum gas (LPG) otherwise called cooking gas received a boost following the  commissioning in December of the Oredo Integrated Gas Handling Facility (IGHF) project built by the Nigerian Petroleum Development Company (NPDC). The plant which has an estimated product streams of 330 tons of liquefied petroleum gas, 345 tons of industrial-grade propane, and 2,600 barrels daily of condensate when completed, will deliver 260,000 metric tons of LPG representing 40 percent of domestic requirement significantly cutting the product import.

Curtain falls on Baru, Dawha

The death of two former  group managing directors of the NNPC in a space of two months added to the string of tragedies that befell the industry in 2020.

On the night of Friday, May 29, 2020 Maikanti Baru, immediate past group managing director (GMD) of the NNPC, drew his last breath after a brief battle with illness.

The raft of condolences that poured in following his passing summed up the personality of the late Baru as a peaceful, brilliant, observant, inspiring, compassionate, dedicated and a  gentleman of all times.

Baru’s achievements as a person and GMD were so enormous and obvious nationally and beyond.

In August, Joseph Thalama Dawha, a former Group Managing Director of the NNPC,  died after a brief illness. In 2014, former President Goodluck Jonathan appointed Dawha to replace Andrew Yakubu. Before he was appointed GMD, Dawha served as the Group Executive Director, Exploration and Production of the Corporation