…N3.05trn received from crude oil & gas sales in 2019

The Nigerian National Petroleum Corporation (NNPC) has revealed that Nigeria spent a total of N1.96 trillion in 2019 on oil and gas assets developed through joint ventures. The joint venture partners are usually private firms, and mostly international oil companies (IOCs). The state oil corporation represents Nigeria’s interests in the JVs.

A data released by the Corporation on Monday, showed that the federal government generated N3.05 trillion from the sale of crude oil and gas in 2019, out of which N1.96 trillion was transferred into the joint venture cash call account while the balance of N1.09 trillion went into the Federation Account.

Furthermore, the NNPC said in 2018, it used N1.83 trillion, more than half of the total revenue (N3.11 trillion) generated from oil and gas sales, for the payment of the JV cash calls. The dollar allocation to the JV cash call account was $3.45 billion (from oil and gas export receipt of $4.84 billion) while the naira portion was N907.91 billion (from domestic oil and gas sale proceeds of N1.41 trillion). The transfers were made to the JV cash call account as first line charge “to guarantee current and future production,” the report said.

The JVs accounted for 32.07% of the average daily production of 1.98 million barrels recorded in November 2019 while the PSCs contributed 41.91%, according to the NNPC data. The NNPC lifts and markets Nigeria’s crude oil and gas, classified into equity export and domestic, whereas the proceeds are remitted into Nigeria’s Federation Account.

The equity export receipts, after adjusting for the JV cash calls, are paid directly into the Federation Account domiciled in the Central Bank of Nigeria (CBN). Domestic crude oil of 445,000 barrels per day is usually allocated for refining to meet domestic products supply.

Nigerian National Petroleum Corporation owns 55% of the JV operated by Shell, and 60% of all the others. Under the JV arrangement, both the NNPC and the private operators contribute to the funding of operations in the proportion of their equity holdings and generally receive the produced crude oil in the same ratio.

The NNPC is expected to make payments the Federation Account after removing costs incurred in crude and product losses, pipeline repairs, management and other losses. Nigeria’s oil and gas production structure is mainly split between the JV (onshore and in shallow waters) with foreign and local firms, and Production Sharing Contracts in deepwater offshore. However, the report indicated that production from the JV assets has declined over the past few years, partly due to funding constraints occasioned by the NNPC’s inability to fulfil its cash call obligations as and when due.

In March 2019, the Federal Government announced plans to cut its stakes in the JV assets to 40% in a restructuring programme expected to be completed last year. The then Minister of Budget and National Planning, Senator Udo Udoma, said the government would intensify efforts to improve its finances with the “immediate commencement of the restructuring of the joint venture oil assets so as to reduce government shareholding to 40%.”

The 2019 approved budget presentation showed that N710 billion was expected to be generated from the oil assets ownership restructuring in the 2018 budget but it was not achieved in both years. Nigeria did not include the sale of the JV oil asset stakes as a source of expected revenue in the 2020 budget, the highlights presented by the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, showed.

Chibisi Ohakah

OPEC Secretary General, HE Mohammad Sanusi Barkindo on Saturday condoled with President Muhammadu Buhari, and the people of Nigeria on the death of the President’s Chief of Staff, Mallam Abba Kyari.

Barkindo who described Kyari’s passing as a tragic death said Nigeria had lost an outstanding public servant par excellence adding that Nigerians would feel his loss, he stated in his condolence letter to President Buhari.

The OPEC scribe, however, noted that Kyari’s death was another reminder of how COVID-19 had cast a terrible shadow over all of humanity.

“It is with profound shock and sadness that I learnt of the tragic passing of Mallam Abba Kyari.  May his gentle soul rest in eternal peace.  We have lost an outstanding public servant par excellence and all Nigerians will feel his loss.

“On behalf of the Organisation of the Petroleum Exporting Countries (OPEC), I would like to offer our sincere condolences to you, Mr President, his family, and the entire people of our great country, Nigeria.

“May Almighty Allah give you, Mr President and the people of our great country, Nigeria, the fortitude to bear this rude shock. Please know that you are in our thoughts and prayers at this tragic time.

Mallam Abba’s passing is another reminder of how COVID-19 has cast a terrible shadow over all of humanity,’ Barkindo said.

Extolling late Kyari’s leadership virtue, Barkindo said, “Mallam Abba was a gallant public servant, fiercely loyal to the common good. While this is of course a time of profound sorrow, we also take succor from his exemplary life, his courage, his dedication to duty and love of country.

“At this dreadful hour, we give thanks for your strong leadership and look to the timeless principles of cooperation and fraternity among all nations and peoples of the world to guide us through the darkest period in living memory.”

Peace Obi

African Development Bank (AfDB) has rebutted claims that it plans to provide financial support to the East African Crude Oil Pipeline Project. The Bank said last weekend that a misleading article had referenced a letter by a group of civil society organisations and climate change advocates asking the institution to withdraw from the project due to its potential social and environmental damage.

Putting the records straight, AfDB said NEPAD Infrastructure Project Preparation Facility (NEPAD-IPPF) has not provided financing to any private sector company for upstream oil or gas pipeline projects in East Africa. “No commitment was therefore made to any party to fund the East African Crude Oil Pipeline Project. The project is not included in the Bank’s lending program,” a statement said last weekend.

The Bank said it is strongly committed to renewable energies. It also said that the group has for more than a decade played a leading role in crafting policies and delivering investments that promote sustainable development practices on the continent, including climate adaptation and resilience. “The Bank is committed to facilitating the transition to low-carbon and climate-resilient development in African countries across all its operational priority areas.”

These commitments are articulated in the range of strategies, policies and action plans which are aligned to all Bank operations and are available to the public. In 2019, approximately 36% of total financial approvals were directed to climate action. The African Development Bank further commits to doubling its climate finance to $25 billion between 2020 and 2025. The Bank is also joining forces with the other multilateral development banks to design a framework that ensures that all our investments align with the goals of the Paris Agreement.

The Bank has prioritized investment in renewables and has not invested in any coal project in the past decade as it sees renewable energy as the future. Since the launch of the Bank’s Strategy for the New Deal on Energy in 2016, up to 2019 renewable energy projects constitute about 85% percent on average of the Bank’s power generation investments.

The Bank is working closely with African countries to realize their renewable energy potential and has developed dedicated programs and instruments to achieve this goal, upholding the principles of inclusion, participation, ownership, transparency and accountability. The Bank said however that it recognizes and appreciates the critical role that civil society organisations play in promoting transparency and accountability in all spheres of development for the common good of grassroots communities.

“The African Development Bank has made significant strides and continues to enhance its engagement of Civil Society and Community Based Organisations, through information sharing and regular exchanges on various platforms such as the Civil Society Open Days, the Annual Civil Society Forum and many other fora,” he said.

Chibisi Ohakah

As the global oil industry responds to the dramatic slump in prices, oil companies in Nigeria have reportedly asked contractors to cut their rates by almost half, a Bloomberg report said yesterday.

Addressing its service providers, Total SA’s Nigerian unit confirmed in a letter that the Nigerian National Petroleum Corporation (NNPC) had told producers “to take immediate steps to reduce our operating costs, budgets and re-negotiate our contracts downward by 40% in the face of this adverse situation.”

Oil prices are near 18-year lows as the Coronavirus pandemic wipes out global demand and a price war between Saudi Arabia and Russia, which ended over the weekend, brings a wave of unwanted crude to the market this month. Brent, the international benchmark is currently trading around $28 a barrel, after reaching near $70 a barrel in January.

Confirming the letter, Total said in a statement that given the current economic environment, it would “have ongoing discussion with all our contractors in Nigeria on the subject of cost reductions. The outlook remains acutely gloomy and the trend is forecast to continue in this trajectory for the foreseeable future,” according to the letter.

Majors including Royal Dutch Shell Plc, Chevron Corporation and Total pump most of the country’s oil through joint ventures and production sharing contracts with NNPC. The French oil giant asked its contractors in Africa’s biggest crude producer “to show understanding and cooperation in our effort to ensure cost optimization for the survival and sustenance of current and future mutual business interests.”

Exxon said in a statement that, while it won’t comment on third parties’ business, it is “looking to significantly reduce spending as a result of market conditions” caused by the coronavirus pandemic and “is evaluating all appropriate steps to significantly reduce capital and operating expenses in the near term.” A spokesman for Chevron said it is working with the NNPC and other partners “to explore ways of reducing costs in the current price environment to sustain our business.”

The NNPC is working with its “upstream partners both in the JVs and PSCs to review their work program and budget to levels which can be supported by the low crude oil price environment,” said Bala Wunti, group general manager of NNPC subsidiary that manages its investments in the upstream oil and gas sector.

“Our objective is to achieve a reasonable outcome for all stakeholders that can guarantee a sustainable future for the industry.” Nigerian-owned oil services companies have significantly increased their share of contracts in the last decade since the country introduced a law to boost local participation in the sector.

Margins of these businesses are being hit simultaneously by producers’ belt tightening and additional costs generated by lockdowns imposed by governors of some oil-producing states, according to Bolu Odusanya, Managing Director of TREXM Oil & Gas Services Nigeria Ltd. “We are getting squeezed on both sides,” he said. “Costs are going up and clients are trying to renegotiate all contracts.”

Total requested that its contractors accept the 40% reduction from April 9 “without compromising” on service quality, Bloomberg quoted the letter.

Chibisi Ohakah

The global COVID-19 outbreak is not just a health catastrophe but increasingly is evolving into an economic crisis of global proportions. What does this mean for Africa’s energy story?

On one hand, the envisaged economic rebuilding process will present a huge opportunity for the fast-tracking of low-carbon investments. With organisations like the World Bank and the European Investment Bank dropping their support for much African fossil fuel production, it begs the question whether there is a future for accessing finance for oil E&P – gas is another story entirely.

Additionally, reduced lending appetite, particularly given the current historically low crude oil prices and other uncertainties caused by trade wars could result in a revised look at lending to cleaner energy transition and large-scale investments in renewable energy initiatives.

On the other hand, geopolitical pressures to lower carbon emissions will likely have to be balanced with the more immediate effects of the expected economic downturn resulting from the COVID-19 outbreak. As such, existing benefits derived from oil and gas operations in Africa will likely remain key for the foreseeable future.

This unexpected devastating pandemic has reminded the world (its people, communities, states, continents, and Public and Private sectors alike), of an even wider range of risks and economic vulnerabilities, but has also underlined opportunities likely to emerge from the rebuilding process.

Africa Oil Week

For the past decade Africa has been a vibrant continent for hydrocarbons exploration. Over those years the main story, apart from the traditional North African natural gas heartlands, has been oil. However, parts of sub-Saharan Africa are on the precipice of a new natural gas era which could radically change their economies for the better.

Within the industry, the fervent excitement for major LNG projects being developed and coming on-stream has been equally tempered by caution against too much gas being made available at a time when markets catch up with their ability to use the commodity.

Yet, much like the gleaming new LNG tankers on course to their original market only to turn abruptly on a sudden spot trade towards a new region which offers higher margins, industry opinion from the days of the “gas glut” is changing dramatically. In fact, some analysts, including those at the EIA, believe the world could see a natural gas production shortfall as suppliers struggle to keep up with demand by the early-to-mid 2020s.

All this is testament to the phenomenal growth of natural gas and the evolving ability to trade and ship it to developing markets globally. Gas has cemented its reputation as the bridging fuel which will necessarily drive the energy transition to a lower-carbon future of reduced GHG emissions. 

With U.S. EXIM Bank’s recent $5 billion investment in Mozambique LNG, the major economies are recognising Africa’s vast potential in the switch to natural gas and therefore as a key player in the global energy transition. Many supermajors including Shell, Total, ExxonMobil and Chevron have been active in various African countries for years, but their growing natural gas portfolios tell of a distinct trend emerging, spurred on by America’s success in the past decade.

Everyone is now familiar with the shale revolution that the United States has experienced over the last decade, taking it from a thirsty importer to a net exporter of oil and gas – in fact, the world’s largest producer in 2017. Cheniere Energy, the first past the post in the U.S. LNG exporting race, is now in a state of healthy operation and is expanding further with its giant Sabine Pass terminal in Louisiana.

Joining Cheniere after some delays, Dominion Energy’s Cove Point facility has now shipped out its first LNG cargo from its $4 billion project in Maryland. It is a remarkable story of complete reinvention for American energy and has taken shape particularly rapidly given delays in other parts of the world. Cove Point started construction back in 2014 and liquefaction began just four years later.

The American model is intent on grabbing market-share from traditional gas suppliers. As an example, the $4.3 billion LNG Limited project, Magnolia LNG, has created a unique, disruptive portfolio in which a customer could buy LNG supplies 40% under long-term contract with another 40% on a mid-term basis, and the remaining 20% as spot purchases. In the volatile (and oil-indexed) natural gas trading market, this is an attractive way to mitigate risk whilst countries and major buyers adapt their energy hunger, driven by rampant electrification in developed regions.

Although China is often perceived as a main culprit in recent GHG emissions, it too has been catapulted into its own energy transition, with diminishing use of coal in favour of natural gas. Over the last ten years, China’s natural gas consumption has nearly quadrupled to over 25 Bcf/d (about 1/3 of average U.S. usage). China will account for 30-35% of all new gas demand in the years ahead and has stipulated its aim for natural gas to account for 10% of its energy by the end of this year.

So, natural gas is well-positioned as a cornerstone for the energy transition in terms of economics, supply and environmental benefits. With projects like Mozambique LNG and Rovuma, as well as the giant Brulpadda discovery led by Total offshore South Africa, the Southern African region is poised for a brighter, cleaner future as a leader in the energy transition.

Africa Oil Week

The Major Marketers Association of Nigeria (MOMAN)  has called for full “price liberalisation” rather than “price modulation” with respect to Premium Motor Spirit (PMS) commonly known as petrol.

The Chairman of the Association, Mr Tunji Oyebanji made the disclosure in a statement issued on Thursday and made available to newsmen in Lagos, said that full price deregulation will bring about long term stability in the downstream sector.

Oyebanji said it became necessary for the Association to state its position owing to the Honourable Minister of State for Petroleum Resources, Chief Timipre Sylva’s recent statement that the government would implement a policy of “price modulation” which means it will give effect to existing legislation enabling it to set prices in line with market realities through the Petroleum Products Pricing Regulatory Agency (PPPRA) as provided in its Act.  

“Our current situation laid bare by the challenges of Coronavirus to the health of our citizens in particular and economy of our country in general, demands that we are honest with ourselves at this time. A fundamental and radical change in legislation is necessary.

“When crude oil prices go up, government has always been unable to increase pump prices for socio-political reasons leading to these high subsidies and we believe the only solution is to remove the power of the government to determine fuel pump prices altogether by law.” 

Oyebanji said: “Purchase costs and open market sales prices should not be fixed but monitored against anticompetitive and antitrust abuses by the already established competition commission and subject to its clearly stated rules and regulations.”

“There is no country or economy where governments do not have the power to influence prices. Nigeria is no different with respect to any other commodity or product. Governments use economic tools such as taxes or interventions on the demand side or the supply side of the market and other administrative interventions to influence prices where it needs to.

“The problem here is that government has retained for itself by law the power and the responsibility to fix pump prices of PMS which is what puts it under so much pressure and costs the country so much in terms of under-recoveries or subsidies when it cannot increase prices when necessary to do so. It makes sense to relieve itself of this obligation now when crude prices are low and resort to influencing prices using the same tools it does for any other commodity or item on the market.

MOMAN Chairman further stated, “We want the market to determine the price. There should be a level playing field. Everybody should have access to foreign exchange to be able to import and sell petrol at a pump price taking its landing and distribution costs into consideration.”

“Government should no longer fix petroleum prices. Health and educational sector should be given a higher priority than paying for subsidy on petroleum. We support the pronouncement of the NNPC GMD,  Mallam Mele Kyari which said subsidy or under-recovery must be things of the past,” he said. 

“Downstream sector operators advocate for a market-based philosophy based on sustainability of the petroleum industry which encompasses free-market competition where equal access to foreign exchange at competitive rates to all market players must be guaranteed. 

“This would mean the discontinuation of the Direct Sales and Direct Purchase (DSDP)  program and all foreign exchange proceeds from all sales of crude be paid into the same pool from which all importers can access foreign exchange at the same rate.”

“Fuel import will however enjoy priority access in the allocation of foreign exchange, again through a transparent auditable and audited process of open bidding. Conditions for accessing foreign exchange should be streamlined and specific delays before access imposed unilaterally on the downstream oil industry should be discontinued as being inequitable.”

He said that MOMAN recommends a legal and operational framework comprising of a downstream Industry operations regulator, the Federal Competition and Consumer Protection Commission (FCCPC) or Competition Commission (for pricing issues) and the interplay between demand and supply which will ensure a level playing field, protect the Nigerian Consumer and curb any market abuse or attempts to deliberately cause inequities in the system by any stakeholder.

He said the pricing system should allow internal equalisation by marketers which would be both competitive and equitable. 

“MOMAN recommends that the Price Equalization Fund mechanism should be discontinued and its law repealed as the cost of administration of equalization has become too high and the unequal application of payments by marketers distorts the market and creates market inequities and unfair competition. Internal equalization has been the practice with diesel distribution and sales since 2010 when diesel was fully deregulated.

“In line with change management principles, consultation and engagement with market players should clearly spell out the path and final destination which is full price deregulation.

Our Correspondent