Restructuring the Nigerian petroleum industry
By Odein Ajumogobia
Odein Ajumogobia,
Minister of Energy
for PetroleumIn a manner that delivers sustainable economic
growth and impact on Nigeria Nigerians and other
stakeholders .This vision speaks to both the fundamental issues of increased reducibilityof the oil and gas reserve and reserve addition but the important and missing compo nent is its linkage to the broader economy.
It is the intention of the present Administration to continue to grow the nation’s reserves base and producibility. The national aspiration still remains attaining 40 billion barrels base by 2010 and producibility of 4 million barrelos per day at the same target date . Currently, crude oil reserves are about 36 billion barrels while producibility is 3.2 million barrels per day.
In order to attain this target, the industry embarked on a number of oil blocks bidding rounds in the years 2000,2005,2006 and 2007. These new blocks that have been awarded to some operators may form the bedrock of our future reserves addition. Of significance is the fact that in the 2007 bidding round exercise in particular, efforts were made to extend the nation’s search for hydrocarbon beyond the Niger Delta . In this respect, blocks were also offered for sale in other Nigeria’s terrain as the Deep Offshore of the Gulf of the Gulf of Guinea, the Inland Basin of Chad , Anambra and Benue.
The challenge in respect of achieving the reserves addition has to do with our Manage general rising industry costs occasioned by the rising cost of crude, steel etc and the situation in the Niger Delta well as higher costs associated with a rapidly maturing/ageing assets base.
Meeting industry investment requirement of between $15 - $20 billion annually nin view of competing sectoral demands on Government.
Nigeria is often said to be more of a gas province than oil. Indeed, much of the gas discovered has been incidental to oil discovery. Regarded to be of high grade (i.e. 0 per cent sulphur; reach in liquids), Nigeria’s current daily gas production is about 4 billion standard cubic feet per day. Currently, there is an unprecedenmted growth in forecast gas demand due largely to the rising gas price and the aggressive power sector reforms. From less than 5 bcf/d in 2004, Nigerian gas demand is forecast to grow to about 20bcf/d by 2011. This growth level is significant in both the export and domestic categories, more so in sthe domestic market . To the new administration, the guiding principle in respect of gas monetisation project is that domestic agenda must be the focus of any export project fro it to be acceptable .landed aligning the export focus with the domestic utilization is critical in any plan to establish a supply base in Nigeria
In delivering timely gas reserves growth in the long term ,we are focusing our attention on the following developing and executing JV exploration masterplan Stimulating participation of gas focused operators through acreage allocation Developing PSC terms for gas.
For mitigating short / medium term gas supply availability, we also need to:
Finalize and implement gas supply and pricing regulations Allocate supply obligation to international Oil Companies (IOCs) and implement compliance process Implement institutional recommendations fro execution of gas pricing e.g .form strategic aggregator.
Develop portfolio rationalization to manage demand.
But there are challenges in meeting gas supply. These challenges include the issues of reserves availability , supply development limitation, infrastructure adequacy, affordability of gas and funding.
Reserves availability: For instance , although the nation’s gas reserves is estimated at about 184TCF, almost 40 per cent of this reserves is not available in the short term as they are stranded in gas caps and not accessible until much after the production of oil. The remaining available reserves falls short of the required reserves base to meet the projected demand growth.
Infrastructure adequacy:- Also, the existing gas pipeline infrastructure is inadequate in capacity and reach / accessibility for the current and projected demand growth. There is also lack of connectivity between East and West. Part of the country, coupled with limited throughput capacity which severely constrains supplies. While gas reserves are concentrated in the East, there is limited connectivity with the West and the North of the country where demand is concentrated. This infrastructure situation limits the flexibility of supply. It is heart warming to note that, the Federal Executive Council has recently approved a National Gas Infrastructure Blueprint which outlines progressive development of infrastructure elements that will support the increasing domestic utilisation of gas over the medium to long terms.
Price affordability:- Another major challenge in meeting gas supply shortfall has to do with the significant variation in the capacity of the various sectors to bear gas prices. However , a sector based pricing framework has now been developed which will allow many of the domestic gas projects, including power to overcome the barrier of price affordability.
Funding :- We also need to come to terms with the fact that the investment level reguired to deliver both export and domestic opportunity is significant. Therefore , a radical approach to sector financing is essential –one which exploits the relative finance – ability of the various projects to seek low cost funds.
3. Consolidation of Capacity Growth for Economic and Macro – economic value Maximization.
Strengthening cross – sectoral linkages using the oil and gas sector as a spring –board for economic development is an attractive policy direction for the present administration. This is expected to be achieved by taking the existing local content policy to the next level. Specifically , we need to consolidate on the achievement target of 37 per cent ( of aggregate spend) in 2007 and aim at meeting the 2010 target 70per cent.
It is also the intention of this Administration to emback on the following National Content programmes
(a) Extend guideline to cover downstream operations Carry out review of downstream as done for upstream to identify Gaps & Opportunities .
Design Capacity building programs for local players in downstream operations & maintenance
(b) Strengthen Nigeria content policy in recognition of its performance as driver for local Capacity building.
Complete JQS functionality & launch dull implementation Push for passing of the Nigerian Content development Bill after ensuring alignment with industry aspirations Progressively issue guidelines to expand NC scope as the Opportunities are created
(c) Expansion of the training scheme beyond Engineering & Welding to Geosciences, O & M Skills, marine & Diving QA / QC etc Implement existing approvals for 2600 Engineers & 3000 Welders.
Implement additional training course based on extended capacity audits for additional skill sets.
Maintain collaboration with PTDF to align training plans with immediate & strategic training objectives of industry
(d) Follow up on implementation of FEC approval of incentive model to promote investment in critical facilities.
Deep water fabrication yard for topsides integration .
Deep water support based for FPSO operations Nigerian flagged offshore installation vessels.
Steel Mills for in- country manufacturing of line pipes
(e) Complete implementation of fabrication yard upgrade programs to boost local capacity from 30,000 to 100000 in 24 months Implement the INTSOK program & continue to fund it to completion.
Support the efforts of local yard expansion programs by channeling commensurate work. Complete industry wide fabrication yard audit to generate baseline data for the JQS tracking module .
(f) Operate the NCSF to propel it to the next level that will provide local Companies with equity funds in addition to the working capital of phase 1.
Facilitate drawdown of loans by local companies.
Launch second phase of fund at maturity of Phase 1.
4. Improve Supply and Distribution Performance in the Downstream
A major policy direction of the new Administration in respect of the downstream sector is to build on the existing improved supply and distribution performance through rehabilitation of plant equipment while optimizing turn around maintenance preparation and execution.
Improve plant economic optimization and refineries upgrading margins and reduce energy and hydrocarbon loss.
Ajumogobia is the Minister of Energy for Petroleum
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