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‘Despite Covid-19 challenges, Nigeria’s petroleum sector made some progress in 2020’

The Covid-19 pandemic and other economic challenges did not distract the petroleum resources ministry from its reform agenda

When President Muhammadu Buhari appointed Timipre Sylva, a former governor of Bayelsa State, as Minister of State for Petroleum Resources in late 2019, the country’s petroleum industry was in a deplorable state.

Daily oil production had fallen from 2.3 million barrels projected in the year’s budget to about 1.81 million barrels and high production cost was a serious headache. Also, a global economic downturn was making investment decisions on new projects difficult.

The Coronavirus pandemic further unsettled the global economy, in particular of commodities exporting economies like Nigeria after crude oil prices crashed to unprecedented levels.

Sylva and Next Level Agenda

At Mr Sylva’s swearing-in on August 22, President Muhammadu Buhari, who retains his status as the substantive Minister of Petroleum Resources, reeled out the nine-point policy agenda of his administration for the industry.

And in his maiden Next Level Strategic Retreat in Lagos with heads of agencies and departments in the Ministry, Mr Sylva pledged to work with the President in repositioning the ministry and chart a new course forward for the Nigerian petroleum sector.

Also, he promised to work with experts and technocrats at the Nigerian National Petroleum Corporation (NNPC) and the other departments and agencies under the ministry to move the sector to the next level.

At the meeting, the minister named 10 top priority areas for the ministry on his watch.

They include the reduction of government’s equity stake in Joint Ventures (JVs) to 40 per cent; curbing petroleum products cross border leakages; completion of the Nigerian Gas Flare Commercialisation Programme and improving the Liquefied Petroleum Gas penetration.

The other priority areas he listed are: Increasing Nigeria’s crude oil production capacity to three million barrels per day; reducing the current cost of crude oil production by at least five 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 and Collaboration with the private sector to aggressively increase domestic refining capacity.

Mr Sylva also promised to implement strategies to make the sector a significant contributor to the government’s plan to take 100 million Nigerians out of poverty via job creation.


Nigerian economy and recession

The economy was slowly recovering from the 2016 recession when President Buhari began his second term at the end of May 2019.

At the time, daily oil production averaged 1.75 and 1.81 million barrels, against 2.3 million barrels projected in the year’s budget. Average crude oil price was also below the $60 per barrel benchmark in the budget.

With crude oil the mainstay of the economy, low production level and low price of the commodity mean low government revenue. As Mr Sylva settled down on his new desk, the enormity of his task was obvious.

Impact of COVID-19

The situation took a turn for the worse early this year, with the outbreak of the new Coronavirus. The impact of the pandemic was severe on the global economy due to lockdowns in many countries halting economic activities. By the first quarter of 2020, oil prices had nosedived and Nigerian government revenues dropped below budgetary estimates. Economic growth dropped from 2.84 per cent to a negative 6.1 per cent at the end of the first quarter.

But while marking his first anniversary in office, Mr Sylva said there had been visible progress, despite the economic woes experienced across the globe this year.

Stability in Niger Delta

An urgent task he took up as minister was to end the upheavals in the Niger Delta region to improve oil production and exports.

He spoke to the people about his commitment to their best interest, recalling his record during his previous assignment in the ministry under his former boss, Edmund Daukoru. That time, Mr Daukoru had initiated policies that led to the establishment of the Amnesty Programme, which ended violent agitation in the country’s oil-producing areas.

Oil mining lease (OML) 25, known as the Kula oil field, had been shut down since August 11, 2017, due to a dispute between Shell Petroleum Development Company (SPDC) and a local oil company, Belema Oil Producing Limited (BPL), which had degenerated into a major community crisis.

The dispute was intractable as protesting community women and youth occupied the oil platform in Belema community in Akuku-Toru local council area of Rivers State. They accused Shell of neglect and of denying community members opportunity for participation in the operations of the oil field.

Mr Sylva, with the support of the Group Managing Director of the NNPC, Mele Kyari, immediately waded into the crisis and brokered dialogue between the parties.

Peace mission to Belema

On September 17, 2019, Mr Sylva told the people and traditional rulers at a meeting also attended by Mr Kyari that government was keen to attract investments to the area and create jobs for the youth.

However, for investments to come, he stressed the need for cooperation between the host communities and oil companies.

“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.

The urgency to produce hydrocarbon

Mr Sylva stressed the importance of quick restoration of harmony, reminding the people that, with new technology racing to develop alternative sources of fuel and energy, crude oil would lose relevance between 20 and 30 years.

He said now that there is still a market for the commodity, the region should avoid delaying the operation of oil companies so that oil revenue could go into building infrastructure to improve life in their area. He cited the examples of the United Arab Emirate (UAE) and Saudi Arabia where oil money has built quality infrastructure.

Following the intervention, the dispute was amicably settled and the traditional injunctions that stopped oil production at the OML-25 oil flow station were removed.

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 involves the Belema community in the security of the oil facilities, while Shell remains the operator, along with its partner, the Nigerian Petroleum Development Company (NPDC), the NNPC subsidiary in charge of upstream oil exploration and production.

Operations at OML 25 have since been reopened, restoring the production of about 35,000 barrels of crude oil per day from the field.

The resolution of the crisis helped the NPDC to improve oil production significantly and the company’s output has reached a new peak of 331,400 barrels per day as of May 28.

Cross-border smuggling of petrol

The ministry has also made noteworthy progress in the agenda to eradicate cross-border smuggling of petroleum products from Nigeria.

Through the NNPC’s “Project White” initiative to fight cross-border smuggling, daily consumption of premium motor spirit (PMS), popularly called petrol, in Nigeria, reduced from over 62 million litres to 52 million litres per day.

The Department of Petroleum Resources (DPR) also introduced the Crude Oil Lifting and Tracking System (COLTS) to fight the menace of smuggling of petroleum products and enhance transparency in the process of fuel distribution.

COLTS uses IT solutions in tracking all crude oil and products marketing in Nigeria. The tracking system, which involves the deployment of technology (DRMS, Smart Inspector), has eliminated the loss of between 60,000 and 100,000 barrels of crude oil along the pipelines systems conveying crude oil to the export terminals, especially the land-based terminals.

Increased collaboration among government agencies, like the Nigeria Customs Service (NCS), National Intelligence Agency (NIA), and the Office of the National Security Adviser (NSA), has also enhanced supervision, surveillance and monitoring of crude oil exports and petroleum products distribution, particularly the management of retail outlets in the border communities.

A 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 will 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, Mr Kyari, said the agreement aside from reducing importation of petroleum products from Europe, fuel transportation and freight costs would also strengthen intra-Africa business relationships.

Downstream industry deregulation policy

On March 19, 2020, Mr Sylva announced the 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 market fundamentals.

Mr Sylva said the policy has ended the fuel subsidy regime. Estimates by the National Bureau of Statistics (NBS) showed Nigeria spent as much as N1trillion annually to subsidise PMS.

Mr Sylva described the removal of the subsidy as a major achievement by the Buhari administration as previous administrations had tried but could not do so.

He said following the deregulation of the downstream sector, the government would face its traditional role as regulator of the industry, while the private sector would run 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 anymore. 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 also launched the Nigerian Gas Transportation Network Code (NGTNC) to open up opportunities for investors in gas transportation infrastructure as shippers, agents, and suppliers. The opportunities include gas anchor programmes, with huge potentials for job creation and poverty alleviation for Nigerians.

Under the Code, Mr Sylva said the ministry will provide the contractual framework between the gas network operators and users and enhance system security, safety and reliability.

Also, under the National Gas Expansion Programme (NGEP), the ministry wants to stimulate growth in the liquefied petroleum gas (LPG) and compressed natural gas (CNG) sub-sectors; develop gas-to-people structure; and ensure policy guidelines implementation, regulations and DPR guidelines.

Mr Sylva said the ministry has also continued to make steady progress in its gas flares commercialisation programme (NGFCP) aimed at eliminating gas flaring through the development of market-driven and commercial structures to harness flared gas.

The programme, he said, will encourage third-party investors to deploy proven technologies to harness flared gas for the market. The programme is in 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 on the scheme.

Boosting LPG penetration

Nigeria is one of the countries with the lowest LPG penetration in Africa. Mr Sylva said the ministry wants to change the situation by ensuring LPG is not used only in the cities, but in homes across the country.

In January, the ministry declared 2020 as ‘Year of Gas’, with opportunities identified for development of CNG, mini-liquefied natural gas (LNG), LPG, and gas-based industries. Under the CNG and LPG penetration programme, the ministry has been encouraging Nigerians to use CNG and LPG (otherwise called cooking gas) as domestic fuel.

Harnessing gas resources to create jobs

Mr Sylva said the government wants to make domestic gas affordable to the people in the villages and rural areas. The minister said the domestic gas use revolution would bring in new jobs improve the quality of life.

He said the government plans to commission this year the 110,000 metric tonnes 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 business, apart from its CNG business strategy developed to give the Nigerian consumers alternative fuel for their vehicles.

National Gas Expansion Programme roll-out

On December 1, the ministry unveiled the National Gas Expansion Programme in Abuja. Mr Sylva said about 18 locations would 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, Mr Sylva said about one a million vehicles would be to gas fuel in 2021, to deliver cheaper and cleaner alternative fuel to petrol.

Compared to a litre of petrol, which sells currently at about N170, the unit costs of CNG per litre is less than N100.

“The use of gas as automobile fuel is to provide an alternative to petrol, which has now been deregulated, thereby pushing its price almost beyond the reach of most consumers. The NGEP roll-out 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 liquefied petroleum gas, compressed natural gas or liquefied natural gas,” the minister said.

NLNG Train 7 Final investment decision

The ministry under Mr Sylva has been moving towards the monetisation of gas resources through the Nigeria LNG project.

The global economic crisis had delayed the final investment decision (FID) on the construction of Train 7 of the project for over two years. Just as the NNPC and its partners in the project were about 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 the shareholders, including the NNPC and its JV partners – Shell, Total, and ENI – to decide on the engineering, procurement contracts as well as the FID as a 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 commencement of construction engineering activities for the project.

On completion, the production capacity of the six-train plant would expand by 35 per cent, from 22 million tonnes per annum (MTPA) to 30 MTPA.

The project has the prospects of attracting new foreign direct investment (FDI) in excess of $10 billion to Nigeria.

Apart from over 12,000 jobs that would be created at the peak of the construction phase, the project will 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 boost the country’s local engineering and fabrication, provide opportunities for local content, including procurement, logistics, equipment leasing, insurance, hotels, office supplies, aviation, haulage, and many more.

Increased crude oil production

In spite of complying with the Organisation of Petroleum Exporting Countries (OPEC) output quota, Mr Sylva said the ministry has achieved its agenda to increase the country’s crude oil production to three million barrels per day, despite the COVID-19 crisis.

Nigeria’s average crude oil production in 2019 was about 1.8 million barrels per day, significantly below the 2.3 million barrels per day in the country’s budget for the year.

The crash in oil prices as a result of the COVID-19 crisis forced OPEC members to cut output, which affected Nigeria’s plan to ramp up production. But the minister is optimistic about the setback.

The NNPC said at the peak of the COVID-19 crisis, Nigeria’s oil production capacity reached a new high of over 2.5 million barrels between the first and third quarters of the year.

This is in addition to condensate production of between 360,000 and 460,000 barrels per day, which are exempt from OPEC curtailment.

OPEC quota for Nigeria announced in April was 1.412 million barrels per day for May and June; 1.495 million barrels per day for July to December and 1.579 million barrels per day between January and April 2022.

The ministry plans to bring on stream 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.

Despite the challenges in the industry, the ministry says the country’s oil reserve is about 36.89 billion barrels, consisting of 31.418 billion barrels of crude oil and 5.476 billion barrels of condensate. Nigeria has a target of about 40 billion barrels reserve by 2025.

In addition, the country’s national gas reserve is 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

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; optimise 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 executed the Head of Terms (HoT) for OMLs 118, 125 and 130 to boost oil production from them. It also executed 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 is located approximately 50 kilometres offshore in 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 an advanced stage, the ministry took new initiatives during the year to attract more investments in the deep offshore acreages, if the Petroleum Industry Fiscal Bill (PIFB) was approved.

The NNPC also 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 said 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 adding 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 is at an advanced stage and would be completed in the first quarter of 2021.

Cutting the cost of crude oil production

With crude oil price crashing to almost $10 per barrel as a result of the COVID-19 pandemic, Mr Sylva said the ministry supported NNPC in its determination to cut the average cost of producing a barrel of crude oil. At about $30 per barrel currently, production cost in Nigeria is one of the highest in the world.

He said the ministry was also backing the NNPC’s effort, through 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 cut the cost to an average of $19 and $18.3 per barrel, from the initial $31 and $24.3 per barrel respectively.

Currently, the NNPC puts the average production cost at about $15 per barrel, but it has a target of $10 per barrel.

The Ministry said the NNPC and its partners have identified 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 high costs of projects, and by extension, high cost per barrel.

In the last year, the Ministry has continued to encourage the regulatory agencies, including the Nigerian Content Development Monitoring Board (NCDMB) and DPR, to shorten their approval procedures and contracting cycles.

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; encourage the use of value monitoring and benchmarking tool for cost evaluation and analysis and deploy online tools and electronic resources.

Through the NNPC, the Ministry has also issued several industry circulars on the management of COVID-19; promotion of joint development and unitisation 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 optimise NPDC operations by ensuring proper project definition/front-end engineering design (FEED) as a requirement for sanctioning; ensured improved collaboration, resource sharing and process standardisation; improved capabilities in cost engineering and project management, and encouraged shared industry spare parts database.

Passage of the PIB and Legislative matters

The delay in the passage of the Petroleum Industry Bill (PIB) makes the future uncertain. New investments are not forthcoming. Even existing investors find it difficult bringing new projects.

Although the ministry has not 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 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 is optimistic of the passage by 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.

But the National Assembly passed the Deep Offshore and Production Sharing Contract Act.

Also, the ministry is also working with the lawmakers to review existing regulations to bring them in line with current realities, like the Finance Act, passed in January 2020; ensure streamlined processes, fees, to promote ease of doing business; update operational guidelines and procedures; and develop alternative dispute resolution (ADR) centre to facilitate industry growth.

Increasing domestic refining capacity

In 2018, the ministry unveiled the Refinery Rehabilitation Roadmap aimed at boosting local refining capacity and transforming Nigeria into a net exporter of petroleum products.

Under the roadmap, the refineries would be rehabilitated, Greenfield refineries developed and modular refining co-located.

Pursuant to the Roadmap, the ministry is collaborating with the private sector to increase domestic refining capacity by issuing five licenses and permits for refineries with combine refining capacity of over 623,000 barrels of oil per day to be completed latest by 2021.

They include the over 600,000 barrels per day capacity Dangote Refinery; the 10,000 BPD Niger Delta Petroleum Resources Refinery (NDPR); the 7000 BP OPAC Refinery; the 5,000 BPD Waltersmith Refining and Petrochemical Company Limited and the 1,000 BPD Edo Refinery.

Although the COVID-19 crisis has negatively impacted the Dangote Refinery project, forcing some suppliers involved in the construction contract to declare force majeure on some of the contracts, the ministry has continued to encourage work on the project.

Source: Premium Times