-By Daniel Adugbo
Nigeria remains the pivot of West Africa’s oil & gas and maritime activities, owing to the country’s strategic location in the gulf of Guinea.
Blessed with vast inland waterways, resource estimated at nearly 3,000 kilometres, comprising more than 50 rivers that can support a vibrant intra-regional trade, the country is the largest oil producer in Africa and the fifth-largest exporter of liquefied natural gas in the world.
Nigeria’s size and population are key drivers for large-scale importation, especially of petroleum products, owing to the lack of sufficient refining capacity.
The oil & gas and maritime industry have, for decades, been of strategic importance to the economic and even political stability of the country. Nigeria’s crude oil and natural gas resources are the backbone of the country’s economy.
As crude oil and natural gas continue to be exported in large quantities, and refined petroleum products correspondingly imported into the country, the demand in shipping services sees the maritime industry playing an important part in the exploitation and distribution of oil and gas, with the industry taking the front seat as an important contributor to the nation’s economy after petroleum.
The high level of vessel activity related to the offshore oil and gas industry provides an opportunity to retain substantial value in-country through the provision of shipping services. Some of the opportunities in the marine sector include: vessel building, maintenance, manning, support services like insurance, legal, catering among others.
Statistics obtained from the Nigeria Content Development and Monitoring Board (NCDMB) show that there are over 20,000 ships working for the oil and gas sector in Nigerian waters with an annual expenditure of over $600 million in the upstream sector. The oil sector spent $3 billion on marine vessels between 2014 and 2018, of which 73 per cent was spent on crew boats, security vessels, dive support vessels and fast supply intervention vessels.
According to the immediate past Director General of the Nigerian Maritime Administration and Safety Agency (NIMASA), Hon. Dakuku Peterside, the potential of the Nigerian blue economy is huge and remains largely untapped for the benefit of the country.
To him, the maritime sector has the potential of contributing, at least, 10 per cent of Nigeria’s gross domestic product (GDP) in no distant future, as Nigeria has the biggest market in Africa, and generates about 65-67 per cent of cargo throughput in West Africa, and 65 per cent of all cargo heading for these regions most likely end up in the Nigerian market.
As at today, the maritime sector is the propeller in the exploitation, distribution and exportation of the nation’s ocean resources, with a total annual freight cost estimated at between $5 billion and $6 billion annually. The maritime component of the Nigerian oil and gas industry is estimated to worth about $8 billion, which further reflects the prominence of maritime to the Nigerian economy.
With a prospect to generate over $8 billion yearly, the maritime sector has the resources to propel the desired growth in the nation’s economy.
Despite having these rich ocean resources, Nigeria is yet to gain full benefits of its vast blue economy.
The maritime industry in Nigeria shares common business interests with the oil and gas sector as shipping has always been of strategic importance to the oil and gas industry right from when Nigeria started exporting crude oil some five decades ago. Statistics show that over 70 per cent of all crude oil production is transported by ships. More oil production activities are being carried out offshore which shows that the oil industry will continue to rely heavily on the maritime industry for its smooth operations.
Similar challenges and the mismatch
In Nigeria, the maritime industry not only shares common business interests with the oil and gas sector but also common challenges. The most pronounced of these challenges is foreign domination. It is a known fact today that in spite of the huge activities and revenue generated by these two industries, their impacts in terms of employment and generation of economic growth has been so low.
For instance, the oil and gas sector of the Nigerian economy accounts for almost 90 per cent of the foreign earnings for the country, but less than 20 per cent contribution to the country’s GDP, and five per cent of total employment which is a misnomer.
The situation in the maritime industry is not different. Nigeria ranks the seventh largest oil producer in the world, and it is the only Organisation of the Petroleum Exporting Countries (OPEC) member that cannot transport her crude to the world market.
Statistics showed that the country generated an estimated annual cargo throughput of $150 million with freight earnings in excess of $5 billion in her international trade transactions. However, 95 per cent of the income was earned by foreigners with the attendant job deprivation to the country.
The challenges confronting the maritime, oil and gas sectors manifest in other different forms.
Instead of empowering indigenous ship owners, government and other players in the sector continue to show preference for foreign ship owners who are increasingly being empowered to dominate the sector. According to shipping and economic experts, Nigeria loses billions of dollars every year to these foreign ship owners due to inability to lift her crude to foreign buyers. The Federal Ministry of Transport estimates a total of about $8 billion freight cost yearly for the oil industry. This, of course, is lost to foreigners.
A very important trade facilitation tool Nigeria sorely lacks is vessels. Efforts by the present and past governments to refloat the Nigerian National Shipping Line (NNSL), or establish a national carrier have been largely unsuccessful, and there has been little effort to encourage Nigerian ownership of vessels. Ownership of ships is very critical to the implementation of the local content policy, especially in the maritime and oil industries. If the local content policy laws and the Cabotage law are implemented in terms of trade facilitation, experts project that Nigeria can generate over N20 trillion and 10 million jobs in five years.
The seeming uncomplimentary relationship between the oil & gas and maritime industries, according to experts, is so because for many decades, Nigeria had clung to exclusively oil to the detriment of other veritable revenue sources like the maritime and shipping sector which is supposed to drive the oil sector for maximum prosperity.
It is, indeed, sad that despite her enormous natural and material resources, the country has to borrow to finance annual budget or execute capital projects, despite being blessed with maritime resources that, if properly harnessed, could create wealth, and fund vital capital projects.
The oil industry has always been seen as the nation’s major revenue earner, but the sector lags behind the maritime industry that has earned its pre-eminence in Nigerian economy since the pre-colonial era when the Trans-Atlantic slave trade thrived on the coastal waters of what later became Nigeria. The strategic importance of the Nigerian maritime sector to the growth and stability of the nation’s economy is attested to by its value in the upstream sector of the oil industry.
The neglect of the maritime and shipping sector is very glaring in the way port infrastructure has been allowed to decay over the years. The bad shape of the port access roads in Lagos, Port Harcourt and Onne, which has been allowed to linger all these years, shows the nation’s lack of seriousness in maximising the revenue from the ports.
The notorious Apapa traffic gridlock, which is induced by bad roads, uncontrolled truck movements and corruption, is costing the nation a lot in terms of revenue. Yet it has been allowed to linger.
COVID-19 and the imperative for industry-wide collaboration
The need to look inwards, and strengthen the synergy between maritime, oil and gas has been necessitated by the emergence of COVID-19 which has hit the global economy hard with many aspects of the pandemic affecting the oil & gas and maritime sectors put together.
The unexpected outbreak of the COVID-19 pandemic has brought about increased ambiguity for the global shipping industry and the promising projections for Nigeria.
The maritime and shipping sectors observed increased congestion in ports, decreased demand for key commodities, supply chain issues and coronavirus cases on vessels. According to IHS Markit in a report, maritime trading volumes took a hit with seaborne trade down by 9.5 per cent, and total global trade slowing down significantly in H1 of 2020.
Like maritime, the global oil and gas industry faced difficult times, and the situation that currently confronts it is unprecedented. The outlook is complex, as the erosion of demand caused by the COVID-19 pandemic has staggered an already challenged industry. The industry may need to reinvent itself.
As the industry evolves, the relationship between players in the maritime and oil & gas sectors is, in some cases, shifting from a transactional approach to an association that is collaborative and mutually beneficial. Challenges facing the sectors underscore the need for operators to review their relationships, and see how they can create more value by forming closer partnerships.
The oil & gas and maritime sectors have operated in relative isolation from one another, and synergies have not been effectively explored.
Plain and simple, collaboration is key to the industry’s future. Operators in the sectors must collaborate, not only with one another, but with their ecosystem. Enablers such as sharing data can unlock a lot of that value. Some prominent examples of the benefits that derive from collaboration include: enhanced sharing of warehousing and logistics assets, standardisation of parts and equipment, reductions of unplanned downtime and improvement of technologies.
There are major opportunities for collaboration that are untapped. Valuechain has identified potential areas below:
Interagency collaboration – regulation, compliance, projects
The beginning point for any collaborative model between the oil & gas and maritime sectors must be championed by Federal Government entities across the sectors. There is currently a perceived lack of focus across sectors due to issues such as: conflict in roles and directives, as agencies flex muscles on superiority; lack of synergy in conception; and execution of projects among others. This problem constitute major hindrance to collaboration on projects, and the consequences of such are that many projects are delayed, or abandoned to the detriment of the stakeholders. Inter-agency collaboration would offer opportunities for learning and to have a competitive edge. It would also boost compliance level, increase revenue, trigger zero tolerance for inefficiency among others.
Sensitive government agencies in the maritime system, like the Nigerian Maritime Administration and Safety Agency (NIMASA), Nigerian Ports Authority (NPA), Nigerian Navy (NN), Nigeria Customs Service (NCS), Nigerian Shippers Council (NSC) among others must explore collaborative opportunities around security, regulation, compliance, projects etc, with counterparts in the oil and gas, like the Department of Petroleum Resources (DPR), Nigerian National Petroleum Corporation (NNPC), Nigeria Content Development and Monitoring Board (NCDMB) among others.
The need for relevant government agencies to work in true partnership with one another in unlocking the huge resources accruable to Nigeria through her maritime corridor has become pertinent more than ever. The development of new greenfield port projects like the Ibom Deep Sea Ports, the Badagry Deep Sea Port and the Benin River Port, with a view to reducing congestion at existing ports, and to meet global shipping trends, should be prior to these agencies.
It is important to highlight some recent commendable collaborative initiative geared towards the development of local content in the maritime sector of the oil and gas industry. One of such is the new partnership being forged by the management of NCDMB and NIMASA through a joint committee to reconcile their overlapping functions, and achieve the objective of capital retention and in-country value addition in the marine sector.
Section 105 of the Nigerian Oil and Gas Industry Content Development Act (2010) states that: “NCDMB, in conjunction with NIMASA, shall have powers to enforce compliance with relevant sections of the Coastal and Inland Shipping Act (Cabotage Act) in relation to matters pertaining to Nigerian Content Development.”
The NOGICD Act also provides for first consideration for Nigerian goods and services, and stipulates targets from 45 per cent spend on supply vessels to as much as 90 per cent spend for supply of very large crude carriers and towing of oil and gas infrastructure.
According to the Executive Secretary of the NCDMB Engr. Simbi Wabote, during the inauguration of the joint committee, Nigerians can only benefit from opportunities in the sector, if regulatory agencies like NCDMB and NIMASA discharge their statutory functions effectively.
Wabote listed focus of the committee to include defining appropriate documentation that will ascertain ownership of vessel and authentication of NIMASA vessel ownership documentation. The committee will also examine the effect of Temporary Import Permit on marine vessel ownership, and come up with strategies that will encourage collaboration on promotion of investment in vessel construction, repairs and maintenance capability. Other subjects include: maritime training, sea- time and certification for Nigerians and proliferation of expatriate crew on vessels working in Nigeria.
NCDMB, NIMASA and the National Inland Waterways Authority (NIWA) have also partnered in the introduction of a revised Marine Vessel Categorisation Scheme, designed to increase indigenous participation, manning and ownership in marine operations of the oil and gas industry. The key attribute of the scheme is the reduction of the requirements for vessel categorisation from 21 items to 14, taking out some unnecessary documentation, and referencing existing process with global standards.
These agencies have also identified categories of vessels (tugboats, security patrol vessels and crew boats, among others), with high demand in the Nigerian offshore industry that will require to be financed with the NCDMB local content fund. Similarly, the manpower framework for critical skills required in the maritime industry, as developed by NIMASA, continues to gain ground, and would increase Nigerian maritime labour participation in the maritime industry.
With the Nigeria LNG Limited Train 7 expansion project expected to be carried out mainly by Nigerian companies (similar to how the Egina FPSO was primarily constructed and integrated in Nigeria), a great deal of value is expected to be added to the offshore industry, considering the project’s estimated ability to attract $10 billion into Nigeria’s economy, the synergy between NIMASA and the NCDMB around the project could be a game changer.
The sustainability and escalation of such synergy across other related government parastatal is key to moving the maritime industry forward. It is high time the country’s port operation processes are digitalised, paperless and in such manner that port operations take place 24/7. The effort would ensure that decisions that hitherto used to take months to achieve would now take few days. This can happen with improved synergy between the heads of all government agencies in the maritime, oil and gas industry.
NIMASA and the NCDMB in another landmark collaborative initiative have expressed intentions to partner in relation to joint ship building. This follows the announcement in January 2020 by NIMASA the government’s plan to ban the importation of certain categories of foreign-built vessels from December 2022. In support of this proposal, it was also announced that the Central Bank of Nigeria (CBN) would prohibit the provision of foreign exchange for the purchase and importation of vessels affected by the ban on vessel importation, just as the Nigerian Customs Services (NCS) would stop the issuance of import waivers (i.e., temporary import permits) in respect of the banned vessels.
Security-combating piracy, crude oil theft (COT), illegal oil bunkering, smuggling
Diverse threats of insecurity around the country’s coastline have, over the years, been a considerable source of concern to the nation’s network of oil and gas installations. Threats from crimes such as piracy, sea robbery, crude oil theft (COT), illegal oil bunkering, smuggling, illegal unreported and unregulated (IUU) fishing, militancy and kidnapping for ransom, continue to hamper smooth operations of maritime and upstream oil activities.
According to the government, the big issue is security as spike in the number of piracy attacks and maritime security incidents within coastal waters continue to present a serious threat to the economies and lives of national and international operators. This affects international trade conditions for the offshore oil sector, and collectively, each and every Nigerian today.
The consequences of these maritime security problems include higher prices of petroleum products. A further implication is the derivate effects of pirates financing illicit activities on land, which, in return, disturb and fluctuate the security situation in the country, even more.
As part of measures to tackle this menace, the Federal Government, through its representatives from maritime law enforcement agencies, ministries, department and agencies (MDAs) majorly saddled with the responsibility of curbing maritime crimes and administration of justice, the local and international operators, must strengthen existing platform(s) geared towards enhanced maritime security in the country.
Ensuring enhanced maritime security in the country is key to enhancing economic growth with the vast majority of oil trade going by sea. Presently, several countries are investing comprehensively in harbours and infrastructure.
No doubt the industry has experimented with collaborative models in the past. Valuechain anticipates more initiatives aimed at fostering collaboration between oil & gas and maritime industry companies and its ecosystem. Key initiatives may include: creation of global networks and hubs (establishment of regional hubs to facilitate the sharing of offshore logistics, warehousing and surplus inventory), standardisation of datasets, digital collaboration platforms, and the identification of upskilling and reskilling needs and opportunities for cross-industry redeployment.
Conclusion
The oil & gas and maritime industry faces multiple challenges, and must plan for an increasingly complex and uncertain future. The sectors’ success largely depends on the ability of its leaders and players to identify critical signals, and to act decisively.
One key decision is to pursue collaborative initiatives. By working collaboratively more across board, the industry can achieve improved efficiency, lower operations cost and greater value creation.
Collaboration, in combination with actions by governments and regulators, can help the industry to better deliver for all its stakeholders, and play a key role in the transition to a clean energy future.
Daniel Adugbo is a media and brand management expert with special interest in the energy and utilities market.