Stakeholders rate oil, gas sector low, set agenda for 2008

No Comments » January 11th, 2008 posted by // Categories: Energy Development Project





Wednesday, January 09, 2008              

Stakeholders rate oil, gas sector low, set agenda for 2008
By Yetunde Ebosele, Taiwo Hassan and Sulaiman Salau

“I DON’T think the oil and gas sector in the year did very well. The year was not particularly a good one for the industry, the prices of crude at the international market increased and we cannot maximise it. We have great problems in the Niger Delta, militants attacked so many multinational oil firms, abducting their experts without cease throughout the year, many people have lost their lives to this menace, a lot of oil wells were shut-in, companies are vacating the region, unemployment was increasing and even the local content target was a flop.

“The year was a very difficult one for the industry, this means that it’s pertinent to find lasting solutions to some problems militating against the progress of the sector, particularly the Niger Delta issue so that smooth operations could have a place in the industry.” These were the words of the National President of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Comrade Peter Esele, who rated the performance in the oil and gas industry in 2007 below expectations.

As part of government drive to achieve crude oil reserve of 40 billion barrels and production capacity of 4.5 million barrels per day, it started year 2007 with the sale of about 45 oil blocks in the six sedimentary basins of the country.

The 2007 election, which held in April last year, actually affected the participation in the oil blocks by most notably multi-nationals oil companies who felt that the time was not right. So apathy and apprehension drawback the level of participation. Though the exercise ended up granting 23 oil blocks to prospective investors, the credibility of the exercise in terms of transparency and due process came to the fore after the change of government in May 2007.

Perhaps the most crucial of all the events in the past year was the crisis in the Niger Delta region. These resulted in the shut-in of several oil wells. As a nation, Nigeria was loosing between 700,000 to one million barrels of crude per day. Oil service companies were closing shops thereby compounding unemployment situation among the youths in the region.

With the change of government in May 2007, President Umar Yar Adua set up oil industry reform committee to restructure the entire industry. The government appointed three ministers of state for the re-christened Ministry of Petroleum Resources to Ministry of Energy. The status of the gas sub-sector was raised with a minister of state supervising. Those appointed are Mr. Odein Ajumogobia, a Senior Advocate of Nigeria (SAN) as minister of state for Petroleum, Mr. Odusina Emmanuel as minister of state Energy responsible for Gas development while Hajia Fatima Ibrahim appointed to oversee the Power sector.

Dr Rilwanu Lukman became Honourary adviser on Energy and chairman, Oil and Gas Reform Committee while Dr. Emmanuel Egbogah becomes Presidential Adviser on Petroleum matters.

At the NNPC, Engr. Funso Moses Kupolokun was retired and replaced with Alhaji Abubakar Lawal Yar Adua, who was then Group Executive Director Refining and Petrochemical in the NNPC.

In the downstream sector, attempt by President Olusegun Obasanjo to sale the Port-Harcourt and Kaduna refineries failed as the government of Yar Adua revoked the sales of the two companies while the National Assembly is currently reviewing the sale of Africa Petroleum Plc (AP) to Zenon Petroleum, an outfit owned by Femi Otedola.

The status of the nation’s refineries is still in comatose as government through the NNPC imports 80 per cent of refined products into the country.

As a result of these shortcomings, experts believed that 2007 posed greatest challenges to the nation’s petroleum industry as enumerated above.

Despite Nigeria’s ratings as the highest crude exporter in Africa and the sixth among the Organisation of Petroleum Exporting Countries (OPEC), the sector is yet to have a phenomenal impact on the developmental growth of the country, which often made stakeholders hinge their review of the sector on its impact on the local economy.

As for the expectations for the New Year and the bottlenecks that need urgent attention following the unending comments from major stakeholders in the industry, it would be seen that the year may be viewed as a bleak year for the industry because of the continued crises in the Niger Delta region, non improvement in the local content vehicle and the inability of the oil producers to meet gas flare out date.

Besides, the year witnessed a change over of baton in the NNPC as a new Group Managing Director of NNPC was appointed.

In addition, the review of the year could not be completed without mentioning the scam in the sale of United States based oil service company, Wilbros and the restructuring of the nation’s oil and gas sector by the new administration.

The year also witnessed high price of crude at the international market as it hits its all time high of about $100 per barrel.

Commenting on the expectations for the New year and the events that climaxed the year’s 2007, stakeholders in the industry believed that solving the crises in the Niger Delta would signal the right path in the industry.

According to an oil expert, Dr. Diran Fawibe, the year was a turbulent year for the industry. “For me, the year 2007 for the Nigerian oil and gas sector has been a mixed-blessing in the sense that this is the year that oil price at the international market rallied to $100 per barrel. But it’s unfortunate that we could not export the actual production we deserve because as a country, we have the capacity to produce about 2.6 million barrel of oil per day but the crisis in the Niger Delta region hindered this projections as we could only able to produced a little above the two million marks. So, I won’t say that we took the advantage of the rise in the international market because of the problem in the Niger Delta which got to a level where we witnessed mass kidnapping of expatriates, killing of people, restiveness in terms of fighting, looting and people committing lots of atrocity, all in the name of fighting for the legitimate of their rights that the Federal Government has abandoned them for long.”

Fawibe, who is the managing director of International Energy Service Limited, said the new year is going to be a challenge year for the government because the present government would want to set its agenda straight to the people due to some inconsistency in terms of policy decision taken by the previous administration which culminated into a set back for the industry.

“For this New Year, the task before the government would be on how to harness gas because we have been hearing it that we are blessed with a lot of gas so we would want to know the way forward this time around whether the government would find the balancing equation on the effective distribution of gas. You know that there are some on going projects in the country that would require gas to power the plants. Just as the need also arises that the government would want to continue the exportation of the associated gas. For me, the NLNG has done it work well. But this year would truly determine whether we have abundance of gas in place, ” he said.

On gas flaring, he opined that since the government has told the oil companies to stop flare out last year, this year might be decisive as stakeholders expect the decision of the government.

“The government has directed the oil companies to ensure that they stop flaring gas at the end of the year but when you look at this you would see that this can’t happen in the new year because most of them could not meet the deadline date,” Fawibe stated.

On downstream sector, he said: “As for the downstream sector, I must say that nothing was achieved because the continued importation of petroleum products has not augur well for the country and I don’t know when this would stop.

“So, I don’t know how long the government can keep the pact it has made with the labour union to show that they are not going to increase the price of fuel in the coming year in the face of this escalating price of crude at the international market where we have failed to export the actual production. Then for how long can we continue to subsidy this fuel importation? This means that we have to not only rehabilitate the existing refineries to make them work, we also have to establish new ones to meet the yearnings of the people.”

Speaking further on the establishment of private refinery in the country, the managing director said, “government took this step as an act of state policy that they are not willing to establish private refinery and they are not willing to establish new refinery. They want to even sell the existing ones so that they would encourage the private sector to establish the new ones. But we now know the constraints and the problems confronting the private set up in establishing private refinery in the country.

“So, if government is not achieving the desired objective in this area, it can bend backward to revive its policy decision i.e., if the existing refineries are fully 100 per cent government’s owned. Government can go into the establishment of new ones on a joint venture basis with the private sector. Probably, it would make it easier for private sector to come in either as a minority or majority shareholder.

“The government owes it to Nigerians properly to make product availability as part of the maximisation of the economic benefits of the industry which government set out to do. That is, we should get the product at minimum cost throughout the nooks and crannies of the country. Which means that we have to do everything humanly possible for us to start refining locally and to make product available,” he added.

The Niger Delta crises, he said is the major challenge facing the Nigerian oil and gas industry.

“It is known that without peace and stability in the Niger Delta region, we are moving nowhere as far as the industry is concerned. And you can see what is happening now that the militants have carried out their attack not only to the nation’s onshore facilities, that is, land facility. But, they have even moved to the offshore area, where most of the activities in the country’s oil and gas take place. And unfortunately, either by deliberate policy decision by the government to use war to force the militants out of the region, you can see that the Nigerian Naval authority has not been able to march the militants.

“This has given Nigeria a bad name in the international arena. We have the problem of image before; arising from the so-called corruption and money laundering and so on. Now, this crisis in the Niger Delta region, in terms of kidnapping foreigners, disruption of oil facility, killings and fighting has compounded the problem. This means that we have to do a lot of work to redeem the country’s image back at the rightful position it should be because Nigeria is a big country in the African continent.

So, the major challenge would be on how to restore peace back to the region and this can make us move forward in this country.

“President Yar’Adua has dealt with this issue appropriately in terms of holding consultation meetings with various stakeholders in the region with a view of resolving the lingering crisis.

“In specific term, government should adopt a genuine mechanism of solving the problem of the people in the Niger Delta and tackle the problems seriously so that peace can return to the area.

“Besides, government should engage the various stakeholders in the region in the decision-making that affects them. Like the proverb says that you don’t barb the head of a person in his absent. They have to involve this people whether they are elders, political leaders, youths and so on. I mean, all the stakeholders.

“There must be a forum whereby you try to accommodate everybody and put resources together for the restoration of peace in the area. Vividly speaking, I believe that if the Nigerian oil and gas were going to make any progress in 2008, the first consideration would be the resolution of the problems in the Niger Delta,” he said.

On local content, Fawibe shared the opinion of optimism. He said, “I would say that this is one area that government has made some immense benefits in terms of using the local people in the industry to ensure that we domesticate locally or increase the level of the local content in the count. Presently, quiet a lot of projects are being undertaken by Nigerian companies. For example, the engineering design, fabrication of some tonnage and also procuring material locally. I would say to a reasonable extent, things have changed. The level at which these things are changing may not be as good as we hope for but even the policy itself foresaw challenges.

“You cannot move from zero level or abject low level to a very high level. Am not saying that the target of 45 per cent or 70 per cent is not realistic but at the same time, we have to take stock and know what and what has been available for us to be able to meet this target. We would get there but it would take quiet some times,” he said.

Speaking in the same vein, the Managing Director of Platform Petroleum Nigeria Limited, Mr. Austin Avuru opined that there was need for government to fast track the development of the sector and lift it beyond its present comatose status.

Speaking with The Guardian on the expectations for the sector for 2008, Avuru noted that most revitalisation statements made about the sector-lacked action.

According to him, a lot still needs to be done to actually develop the sector to world standards and that can only be achieved if it’s handed over solely to the private sector.

Explaining further, he said except the government hands-off running of the sector and perform just a monitoring function the sector would still remain the same even by December 2008.

So, for the Nation’s Oil and Gas sector to be able to compete favourably with its contemporaries world over, it has to be wholly private sector driven in the coming year, he added.

His words, “I will disappoint you if I say things would be better in the sector in 2008. My opinion is very low for 2008, I don’t see anything on ground to suggest that by December 2008 there will be uninterrupted electricity, I don’t see any thing on ground to show that by December 31, 2008 gas distributions to local industries would be uninterrupted.

“I see a lot of statement of intentions and I’m yet to see any action on ground to suggest that we would be better off than we are now in 2007.

“I believe I’m kind of subjective as regards what I believe should be done to make the industry really work. I think the economy should be run by the private sector, so I don’t see anything being done, I mean one is yet to see any strong movement as regards handing over of the running of the three key sectors to the private sector. That is, the power, refineries and gas distribution.

“I think basically, handling over those sectors to the private sector will eventually be the solution to this problems and I believe that is why I said I don’t see anything happening by December 2008,” Avuru said.

He continued, “we’ve had the seven-point agenda for seven months now and nothing has happened. It is very cheap to talk, but taking action on statement made is usually difficult. Since the seven-point agenda was unveiled in June little or nothing has been done about it.”

Speaking on the Niger Delta crisis, Avuru said that the coming year would determine if the crisis in the region would be abated.

According to him, the onus is on the Senator Briggs’ committee to fast track the talk as regards the problems in the region.

To him, the seven-point agenda of the committee should be explored to the letter, adding that the mediation talks should be met with action so that the crisis in the region would be entirely rested.

“May be we will have to subject the problems in the sector to prayers. Except the situation is handled properly, nothing can be work. I just hope something would be done about it and very fast. At least, they are talking, lets hope that between now and next year, there can be some progress.

“I hope the Senator Briggs’ committee would be able to actualise its hope agenda as regards the problems of the Niger Delta. Since the committee has its own seven-point agenda for the region, I believe that the implementation of the agenda would go along way in solving the problems of the region and lasting peace guaranteed by the end of 2008. Besides dialogue, I believe action to end the surge of criminalities in the region should be carried out,” he said.

Esele emphasised that government must ensure that it developed the region, build bridges, hospitals, schools and other infrastructure facilities in the region so that peace can reign. He urged that the Federal Government should desist from fighting back the militants with ammunitions but rather seek development of the nation’s oil rich region so that aggregate development could be achieved.

According to him, the refineries are working below expectations thereby necessitating our importation of refined petroleum products. “I hope that the Nigerian National Petroleum Corporation (NNPC) statement that the Warri and Kaduna would come on stream by February this year would be actualised so that it would reduce the level of importation, but we still need to know that even if these refineries start working, they would not meet the local demand, therefore the government should not look at them and say we don’t have energy problems.

Commenting on the refineries, he said the refineries are working below expectations thereby necessitating our importation of refined petroleum products. “I hope that the Nigerian National Petroleum Corporation (NNPC) statement that the Warri and Kaduna would come on stream by February this year would be actualised so that it would reduce the level of importation, but we still need to know that even if these refineries start working, they would not meet the local demand, therefore the government should not look at them and say we don’t have energy problems.”

Seeing investment in private refineries as an alternative, Esele urged that the government should look into what are the problems of the prospective investors and create a conducive environment for them to operate. He noted that the main problem with the initiative is lack of enabling environment.

On expectations in 2008, the PENGASSAN boss said: “What I expect in 2008 is that the Niger Delta is more peaceful, the government should make provisions to meet the energy demand of the people, less of talks, we want more action than promises towards the aspiration of Nigerians. So I am wishing everybody that we should not lose hope in ourselves and our country, we should bury our differences and come together to make Nigeria great.”

On the local content agenda, Esele said the NNPC was unable to meet the target therefore it should be ready for the challenges ahead in 2008.

But the Executive Manager of Russel Smith, an indigenous oil and gas service firm, Mr. Kayode Adeleke said it was not a big deal that the target was not realistic. He said, ” the target is just set as a challenge, it does not matter that we reach the exact figure, all we need is to ensure that we progress drastically in the initiative. We among other indigenous players have benefited from the agenda, although it does not meet our expectations but I believe it is a gradual process.”

Meanwhile, a statistics from the NNPC showed that the cumulative oil production from 1958 to date is in the region of 25,288,426,000 barrels. Nigeria recorded the highest crude oil production of 2,365,900 barrels in 2005 compared to 2,233,900 representing 5.6 per cent decrease in 2006.

Crude oil production slides to 2,233,900 barrels while refinery total installed capacity stand at 445,000 barrels per day. The country has four refineries, the one in Warri otherwise known as Warri Refining and Petrochemical Company Limited has installed capacity of 125,000 barrels per day, Kaduna Refining and Petrochemical Limited 110,000 barrels per day. In Port Harcourt, we have two refineries located within the same area, i.e. Old refinery has 60,000 barrels per day capacity while the Port-Harcourt new refinery, an export-oriented plant has an installed capacity for 150,000 barrels per day.

As at 1999, Nigeria’s oil reserve was estimated at 22 billion barrels but today due to the aggressive exploration activities within the last eight years the reserve has jumped to about 35 billion barrels and daily production capacity of three million barrels. Despite improvement in reserve addition and production capacity within the period in question, Nigeria is described as gas zone than crude oil. As at the end of 2007, gas reserve was estimated at 184.2 trillion standard cubic feet.

Total gas production is put at 6.50 billion cubic feet per day, unlike in the past due to increase level of gas utilization facilities, 70 per cent of the gas produced in association with crude otherwise known as associated gas is utilized in various ways including power generation, industrial and domestic consumption as well as being used by oil producing companies to sustain the pressure of the oil wells while the remaining 30 per cent flared.

According to NNPC statistics, about 42 trillion cubic feet of associated gas and three trillion cubic feet of non-associated gas have been produced till date. The country flared 2.1 billion cubic feet of gas so far with government determination to end flaring by early this year.

Since year 2000, a number of oil blocks have been awarded to prospective investors both old and new in the petroleum industry. Apart from similar exercise in 2005 and 2006, a mini bid round was also conducted which was specifically designed to encourage more Nigerians into the upstream sector but more importantly to also develop the downstream infrastructures. These infrastructures include refineries, railways, pipelines, and power stations among other facilities. This attempt made an in root for the Asian companies from China, South Korea and India into oil and gas industry.



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