By Godspower Ike
Nigeria started the year 2018 with a fuel crisis which began December 2017, fuelling concerns that the crisis would persist throughout the year. However, despite the fuel supply challenges, numerous opportunities exist in the industry.
This article explores developments that would drive activities in the petroleum industry in 2018, identifying projects, investment activities and the numerous benefits that would accrue to prospective investors, as well as businesses, mainly indigenous firms, individuals and the country in general.
The Nigerian petroleum industry, irrespective of its numerous challenges and uncertain posturing, still presents a number of opportunities which would be driven largely by the expected reforms in the industry, following the passage of the Petroleum Industry Governance Bill (PIGB) and the commencement and revival of large projects that were, hitherto, suspended.
In its outlook for the year, OPEC had forecasted that the global Gross Domestic Product (GDP) would grow at 3.7% for 2018, same as in 2017, stating also that the global oil demand is expected to grow by 1.51 million barrels per day.
OPEC noted that Organisation for Economic Co-operation and Development (OECD) would contribute positively to oil demand growth, adding some 0.28 million barrels per day, whereas the bulk of the growth would come from the non-OECD with 1.23 million barrels per day of potential growth.
“The 2018 forecast for non-OPEC supply is associated with considerable uncertainties, particularly regarding US tight oil developments. US oil supply is now expected to grow by 1.05 million barrels per day next year, representing an upward revision of 0.18 million barrels per day and following growth of 0.61 million barrels per day in 2017.
“OPEC Natural Gas Liquids (NGL) and non-conventional liquids are expected to increase by 0.18 million barrels per day in 2018, compared to 0.17 million barrels per day this year. In November, OPEC crude production decreased by 133 trillion barrels per day, according to secondary sources, to average 32.45 million barrels per day,” OPEC explained.
OPEC noted that activities in the petroleum industry would be driven by firm economic growth, lending support to industrial and construction fuels in both OECD and non-OECD.
It also stated that expansion in the transportation sector is expected to provide the bulk of oil demand growth, noting that growth in petrochemical demand is projected to be one of the fastest-growing contributors in US, China, South Korea and the Middle East.
Coming home, the International Monetary Fund (IMF) predicted that economic growth in Nigeria and sub-Saharan Africa is projected to reach 3.4 percent in 2018, broadly in line with the April forecast, with sizable differences across countries.
Beyond the near term, according to the IMF, growth is expected to rise gradually, but barely above population growth, as large consolidation needs weigh on public spending.
For Nigeria, specifically, the PIGB, recently passed by the House of Representatives, would be a major determinant of the direction of the petroleum industry in 2018, and the implementation of legislations contained therein would either make or mar the industry in the year under review.
The Senate had in May 2017, passed the PIGB, while the House of Representatives followed suit by passing the Bill in January 17, 2018. The Bill would become law when the president assents to it.
The PIGB is seeking to establish a new regulatory agency, known as the Nigeria Petroleum Regulatory Commission, NPRC, which would take over the functions of Petroleum Inspectorate, PI, the Department of Petroleum Resources, DPR, and the Petroleum Products Pricing Regulatory Agency, PPPRA.
The new commission, among other things, would also administer and enforce policies, laws and regulations relating to all aspects of petroleum operations which are assigned to it under the provisions of the Act.
Also, the Bill would see to the creation of two new companies, Nigeria Petroleum Assets Management Company and National Petroleum Company, with certain assets and liabilities of the Nigerian National Petroleum Corporation, NNPC, while the National Petroleum Company, for instance, would operate as a full independent commercial entity.
With the PIGB becoming law, the Ministry of Petroleum Resources would be renamed Ministry of Petroleum Incorporated, which upon its recommendations, the Minister of Petroleum Resources can grant, amend, renew, extend or revoke any licence or lease required for petroleum or production, pursuant to the provisions of the Act or any other enactment.
When the commission is created, it shall be vested with all assets, funds, resources and other movable and immovable property, which immediately before the commencement of operation of the new commission, were held by the PI, DPR and PPPRA.
Executive Secretary of the Nigeria Extractive Industry Transparency Initiative (NEITI), Mr. Waziri Adio, stated that the PIGB when assented to by the President, would provide a dynamic governance framework required to reposition the petroleum industry to fully embrace competition, openness, accountability, professionalism and better profit and returns on investments to both companies and government.
Adio disclosed that the current stagnation of investment opportunities in the petroleum industry was as a result of the absence of a new law for the sector.
He said this had led to huge revenue losses to the tune of over $200 billion, adding that the revenue losses were as a result of investments withheld or diverted by investors to other, more predictable, jurisdictions.
According to him, the hedging by investors stems from the expectation that the old rules would no longer apply, but not knowing when the new ones would materialise.
Adio further stated that over $10.4 billion and N378.7 billion were lost through under-remittances, inefficiencies, theft or absence of a clear governance framework for the oil and gas industry, adding that the total cost to the nation in 2013 alone was N1.74 trillion largely as a result of the absence of a new law.
However, he said NEITI is optimistic that with the new governance law for the industry, these huge revenue losses to the nation as a result of process lapses and outright stealing will be strictly checked if not eliminated.
On his own part, Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, said the recently passed PIGB was designed to establish clear and enduring good governance principles; provide for fiscal regimes that are flexible and that would guarantee optimal take for the government.
He also stated that the PIGB would support domestic gas utilization through the National Gas Master Plan; enhance local content; properly align the roles and functions of institutions; strengthen and reposition the Nigerian National Petroleum Corporation (NNPC) for enhanced productivity; and ensure that NNPC runs like all world class commercial entities.
Kachikwu noted that the PIGB aims to create the governing institutions with clear and separate roles and establish frameworks for creation of commercially viable petroleum entities, that would eliminate bureaucratic bottlenecks, which discourage investors, hinder growth, and prevent the attainment of the summit of performances.
He disclosed that a single regulator provides a one-stop shop for investors; it removes duplicate procedures and its associated costs and therefore attracts foreign direct investments in the nation’s oil and gas sector.
According to him, in Nigeria today, the situation is such that foreign direct investment flows into the country are at high cost.
Kachikwu, however, noted that the challenges of any beautiful plan lie in its implementation, assuring that the administration would ensure the implementation in order to ensure that the Oil and Gas industry yields profit for the Nigerian people.
Another factor that would drive activities in the Nigerian energy sector is the rising crude oil price, spearheaded by the ongoing crude oil production output cut spearheaded by the Organisation of Petroleum Exporting Countries (OPEC).
Since the output cut deal started, the price of crude oil had risen from $30 per barrel to about $70 per barrel, bringing about renewed vigour in investment activities in the petroleum industry, with fresh projects set to come on stream, while hitherto, suspended project, such as the Bonga South-West set to return.
The Nigerian petroleum industry would see a rebound in activity this year, with major big ticket projects coming on stream, such as the Zabazaba, Etan and Bong South-West among others.
The Zabazaba and Etan Integrated Development Project is a green field hydrocarbon development, an offshore license block located in the deepwater eastern portion of the Niger Delta with water depths ranging from 1,200 metres to 2,400 metres.
The Production Sharing Agreement (PSA) for the block is between the Nigerian Agip Exploration (NAE) Limited (50%) and Shell Nigeria Exploration and Production Company (SNEPCo) (50%), where NAE is the operator.
Etan and Zabazaba were discovered in 2005 and 2006 respectively. NAE is developing the Zabazaba field as a standalone development and thereafter Etan field development as a tie-back to Zabazaba.
The project is estimated to create about 20,000 new jobs within the oil and gas industry, save over 30 per cent of the project costs using local manpower and retain up to $1 billion in-country spend.
Other benefits of the project include technology transfer in licensing and module know-hows, 9,000 tonnes fabrication locally, increased tax revenue generation for government and fostering greater collaboration between Nigerian companies.
The Zabazaba development has since progressed from plan approvals, regulatory checks and contract bid processes.
The Executive Secretary of NCDMB, Mr. Simbi Wabote confirmed the Board carried out detailed scoping of the project to ensure that the targets exceed the accomplishments achieved on previous deepwater developments in the country.
He expressed optimism that the development of Zabazaba would grow Nigerian content and impact the economy, much more than previous deepwater projects.
The field development would offer huge opportunities for local fabrication yards with the right set of skills and technology for fabrication of different topside modules that would be integrated into the main FPSO hull when it arrives Nigeria.
Over 50 percent of the topside packages would be awarded to local companies for in-country fabrication ahead of full facility integration.
The packages of the project included the Floating, Production, Storage and Offloading (FPSO) units, subsea, installation and rigs.
The $13.5 billion Zabazaba project will set a new record in local content development as the major contractors bidding for the project were said to have submitted competitive costs and concrete plans to fabricate and integrate over 50 per cent of the topsides of the FPSO in the country.
The terms of the Zabazaba deepwater project stipulated that the contractors must fabricate and integrate over 50 per cent of the topsides of the FPSOs in Nigeria.
In the case of the Bonga South-West Aparo (BSWA), there are plans to build a vessel that would be 337 metres long, 65 metres wide and 37 metres deep and displaces approximately 560,000 tonnes.
The topsides weigh 40,000 tonnes and the product storage capacity would be 2.5 million barrels. The vessel will be designed to operate permanently moored at the BSWA location for a minimum of 25 years without dry-docking and with a fatigue design life of 40 years.
Promoter of the project, Shell Nigeria Exploration and Production Company (SNEPCO) would witness the in-country fabrication of half of the topsides of the FPSO and their integration.
These would create jobs for most of the major fabrication yards in the country, bringing about increased activities in the petroleum industry and huge jobs opportunities in the industry.
Already, the Egina FPSO had berthed in the country and the integration of the topsides and other components would commence immediately, after which the vessel would move to site to commence crude oil exploration and production, with first oil expected in December 2018.
The Floating, Production, Storage and Offloading vessel for the $16bn Egina deepwater oilfield project by Total Upstream Nigeria Limited which arrived Nigeria from South Korea on Wednesday January 24th 2018, berthed at the newly built 500-metre FPSO integration quayside at the SHI-MCI Yard, Ladol island, Lagos, where the integration of six locally fabricated modules will take place over the next few months.
According to the oil major, Egina is the deepest offshore development carried out so far in Nigeria, with water depths over 1,500 meters and will add 200,000 barrels per day to Nigeria’s oil production.
It said the Egina FPSO had been designed for 25 years of operations and would produce 200,000 barrels of oil per day (at plateau).
The company said the Egina operations would generate significant activities for local contractors in various sectors, and continue to provide avenues for the training and development of Nigerians in various domains.
The Managing Director, Total Upstream Companies in Nigeria, Nicolas Terraz, who described Egina as the largest investment project currently ongoing in the Nigerian oil and gas sector, said it would be completed in the fourth quarter of 2018 with the initial budget of $16bn.
He said, “This is for me a collective success. Together with our partners, we are kind of making history. It is the first time we will have such a big vessel and such an activity of integration taking place in Nigeria. So, I am grateful to the partners and the authorities.
“I think Total has taken the unique position to invest significantly in Nigeria when times are difficult. Two years ago, the oil price was below $50 per barrel, and still we have continued to invest in deepwater in Nigeria.”
He said the oil major would continue to work with the Nigerian National Petroleum Corporation and its partners to grow its activities for the benefit of the country and the company.
The Egina field was discovered by TUPNI in 2003 within the Oil Mining Licence 130, some 200 kilometres south of Port Harcourt, Nigeria. The field is being developed by TUPNI in partnership with the NNPC, CNOOC, SAPETRO and Petrobras.
The Managing Director, Nigerian Ports Authority, Hadiza Usman, said the magnitude of the project presented the NPA with the opportunity to once again showcase unrelenting effort at building capacity to meet the needs of customers across board.
She said the project furthered the Federal Government’s local content policy with multiplier effects evident in employment opportunities, capacity building, technological transfer, cost saving, reduction in capital flight as well as the attraction of oil and gas hub to Nigeria for the sub-region. “As we shall be playing host to the Egina for the next few months, the NPA is determined to deploy all its resources to supporting the project unto completion. We wish her a safe stay in the Lagos harbor and in the onward journey to the Egina oil field offshore.
According to a statement, the integration of the six locally fabricated topside modules at the SHI-MCI Yard before its final sail-away to the Egina field is a game changer as far as the execution of deep offshore oil and gas projects in the country is concerned.
Another major project that would likely buoy activities in the petroleum industry in 2018 is the planned Trains 7&8 of the Nigerian Liquefied Natural Gas, NLNG.
Managing Director and Chief Executive Officer of Nigeria LNG, Mr. Tony Attah, said the company with the support of its Board, is making steady progress towards achieving Final Investment Decision (FID) on its Train 7 Plus (7+) project in 2018.
On completion of Train 7+, Attah stated that NLNG’s annual production capacity is expected to scale up from the current capacity of 22 metric tonnes per annum (mtpa) to 30 mtpa.
In addition to the NLNG project, another project that would provide much prospect for the Nigeria petroleum industry was the agreement signed towards the end of 2017, between the NNPC/ Total Exploration and Production Nigeria, TEPNG, Joint Venture with Greenville Energy for the construction of a $500 million mini-Liquefied Natural Gas facility in the country to increase domestic gas supply and boost supply to power plants.
The initial capacity of the mini-LNG project is 2,200 metric tonnes and has the capacity to grow to about 5,000 metric tonnes.
Phase one of the project, which would be situated in Rumuoji, Rivers State, would commence with three trains, with a capacity of 2,200, while the long term plans is to increase the trains to eight trains.
The NNPC had projected that the agreement would allow it increase its gas output to 1.4 billion standard cubic feet (SCF) with plans to increase it to 1.6 billion SCF in the months ahead.
Total outlay of the investment is around $500 million in the first phase, and plans to increase it to about $850 million, completely on equity without any bank financing.
Also, the Federal Government was able to secure over $3.7 billion investments into the Nigerian petroleum industry in 2017, as a result of the cash call under-funding challenge which rose to about $1.2 billion in 2016 alone.
This underfunding made the NNPC and its Joint Venture (JV) partners to explore alternative funding mechanisms that would allow the JV business finance itself in order to sustain and grow the business.
This initiative would trigger activities in the industry and bring about new investment opportunities and fresh projects, as the NNPC JV operators would undertake projects hitherto constraint by finances.
The average JV cash call requirement for the Federal Government through the NNPC stood at about $600 million a month, while coupled with flat low budget levels over the past years, the budgeted volumes were hardly delivered.
Breakdown of the investments secured included the $1.2 blllion multi-year drilling financing package for 23 onshore and 13 offshore wells under NNPC/Chevron Nigeria Limited Joint Venture termed Project Cheetah and the $2.5 billion alternative funding arrangements for NNPC/Shell Petroleum Development Company, SPDC, JV, termed Project Santolina; NNPC/Chevron Nigeria Limited, CNL, JV termed Project Falcon as well as the NNPC/First E&P JV and Schlumberger Agreement, $700 million.
Project Cheetah was projected to increase crude oil production by 41,000 barrels of oil per day (bopd) and 127 million standard cubic feet per day (mmscfd) of gas, with a Government-take of $6 billion over the life of the Project.
In the same vein, Projects Santolina, Falcon and the NNPC/First E&P JV and Schlumberger Funding Arrangement were projected to increase combined production of crude oil and condensate by 150,000bopd and 618MMscfd of gas with a combined government-take of about $32 billion over the life of the projects.
Furthermore, Kachikwu had also declared that the Federal Government would continue to address the Niger Delta issues and build a peaceful and prosperous Niger Delta, with emphasis on job creation for the teaming unemployed youths, investment in infrastructure, energy and promotion of sustainable livelihood.
From 2018, the planned engagement of 10,000 Niger Delta youths in pipeline surveillance is expected to kick off in earnest and this would help address the challenges in the Niger Delta, bring peace and address agitations in the region.
Other key areas of focus that would drive activity in the industry include the hydrocarbon tracking and cost reduction initiatives, and restructuring of parastatals under the Ministry of Petroleum Resources.
Again, following the fuel crisis which had lingered since December 2017, t he Federal Government had increased its emphasis on boosting Nigeria’s refining capacity, mainly through the modular refineries initiative and the revamp of the Warri, Kaduna and Port Harcourt refineries with the aid of private investors.
Specifically, the NNPC had stated that it is inching closer to arriving at the choice of financiers for the refurbishment of the country’s three refineries, the Port Harcourt Refining Company Limited (PHRC), Warri Refining and Petrochemical Company Limited (WRPC) and the Kaduna Refining and Petrochemical Company Limited.
According to the NNPC, the development holds the promise to boosting petroleum products supply and distribution in the Country, while it added that agreements on the potential financiers for the refineries were being fine-tuned, following which the endorsement of the NNPC Board would be secured this month.
When the agreements are finally consummated, local contractors would engaged to provide a number of services in line with the local content initiatives of the country.
The NNPC also added that it is encouraging new refining capacities to come on board, stating that two consortia had indicated interest to co-locate refineries in Warri and Port Harcourt.
It said the Kaduna State Government was also championing a proposal to co-locate another refinery close to the KRPC with the intent of sourcing Nigerien crude for its operations, while other Greenfield refineries were to be brought on board soon in Kano and Kaduna, which would source their crude from Niger Republic.
The NNPC added that the designs for the proposed refineries in Kano and Kaduna were ready, saying their construction would commence this year.
Also, the Ministry of Petroleum Resources said so far, the Department of Petroleum Resources (DPR) had received interests for about 35 modular refineries from investors and had issued licenses to about 13 of the investors. The ground breaking ceremony of the first of the modular refineries would be done in Bayelsa next month.
The Federal Government towards the tail end of 2017, had given approval for the $2.8 billion, 614 kilometer, 40 inch Abuja-Kaduna-Kano pipeline project, which when completed, would create the needed backbone for the Abuja’s 1,350 megawatts power plant, Kaduna’s 900 megawatts power plant and Kano’s 1,350 megawatts power plant.
All these projects, other things being equal, are expected to expected to come on stream in 2018, while other actions and the soon-to-be introduced reforms, present enormous opportunities for investments that would bring about renewed activities in the petroleum industry in 2018.