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Key To Successful Stakeholder Relationship Management In The Oil And Gas Industry

By Jimmy Ahmed

Introduction

Since the 1980s, some major changes relating to the management of Safety, the Environment and Stakeholder Relations have been taking place in the Petroleum Industry, resulting in poor and unhealthy business relationships between Oil and Gas Companies and the various stakeholders in the Industry. Safety and environmental management are now very well integrated into all aspects of the business processes and operations. One key area that is still undergoing embedment and yet to be fully integrated into venture management, and which has the potential to add lots of value to the business towards sustainability is Business and Stakeholder relationship management. The Industry has since realised that the growing costs of managing the fall outs and negative reputation that the poor stakeholder relationships were having on their Business and profitability was unacceptable. This was the advent of “Business Sustainability”, the effective management and coordination of financial, social and environmental (the three pillars of sustainability) risks, obligations and opportunities. The impact of these changes on the Industry has not only been seen in the quality of and increased manning levels but also in the increased costs associated with managing these new focus areas of the Business, albeit, leading to more responsible and sustainable outcomes. This article focuses on one aspect of managing these changes, Stakeholder Relationship Management.

The more successful companies that become Partners of Choice, and clinch better oil and gas deals with major resource holders, are those with a good reputation on having built and are maintaining sustainable relationships with host governments and other stakeholders; relationships based on trust, respect and a win-win mindset. It is therefore fair to say that ‘any relationship that is not based on a ‘win-win’ formula will not be sustainable and will end up in ‘Acrimony’.

Many companies in those days felt they knew what the society and stakeholders needed without the need for effective engagements and consultations. In some cases, the Companies were already operating in the countries before the Independence of those countries, so adapting to the new system with local host governments was a novel idea. Over time, friction in the relationships developed, between the Companies on the one hand and the governments, the host communities, Non-Governmental Organisations (NGOs) etc. on the other hand, leading to major reputational issues, high down time and production losses in the business. Something needed to give or be done to change the dynamics. Chief Executives who should be spending most of their time managing the business were spending almost 100% of their time managing crisis, mostly caused by poor relationships with their Business Partners, Host Governments, host communities, NGOs, Regulatory authorities and the NOCs.

What Changed and why?

With increasing oil prices, increased profitability of the Industry and increased social and environmental awareness of the impact of the industry on society and the environment came “lots of interest and pressure” from Resource owners, (mostly Governments), Non-Governmental Organisations (NGOs), Business Partners in Joint Ventures and host communities. These interests and pressures were of a varied nature, from demanding: a bigger share of the profits by resource owners and host governments, more transparency from Business Partners, more inclusiveness by host communities and more sustainable social and environmental practices by the industry.

The following are some of the issues and root causes of the changes:

  • Lack of shared objectives and goals, lack of trust, and unmet expectations on the part of Stakeholders and Business Partners. Governments are committed to their people to provide social services while oil and gas companies want to invest in projects that will deliver the highest returns on investments for their shareholders.
  • Changes to Petroleum fiscals Laws and Regulations by Host Governments and Resource owners mostly targeted at resource control and increasing Government take.
  • Structural Tension caused by irreconcilable differences between the current reality versus the visions and goals of the Partners in the business relationship. Creating appropriate action plans to move all Parties from where they are, to where they want to be, often times increases the tension, requiring lots of formal and informal meetings and engagements. For example, in some developing countries, the Governments want some of their gas resources utilised for local/domestic consumption and power generation at gas sales prices much lower than oil and gas companies can get from exporting the gas. Governments also expect the oil and gas companies to spend their resources on domestic gas projects that do not rank high in Operating Companies’ economic project list.
  • Outdated fiscals, Petroleum Laws and Regulations requiring review in the light of changes that have taken place in the business environment over time. The fiscal terms of some of the contracts were incentivised and put in place to attract investors during periods of high-risk investments with the companies bearing all the risk. Companies wants to stretch the duration of incentives while resource owners feeling that the investor has more than recouped the invested capital, hence the need to remove/reduce the incentive earlier granted.
  • Increased Commercial disputes and mistrust between Business Partners in Petroleum Ventures leading to Arbitrations and court cases caused by perceived lack of transparency of the Operator and perception of Operator making ‘profit from cost’ using their home offices or proxy companies.
  • Host Communities impacted by the activities of the Industry agitating for more inclusiveness, sometimes in violent ways, alleging not being carried along by the Operators. Expectations of Industry to replace or act as governments in the Communities where they operate to provide infrastructure needs etc. mostly in developing countries.
  • NGOs constituting themselves into Industry “ombudsmen”, to ensure that the industry operated responsibly, ethically and in a sustainable manner for the benefit of society.
  • Perceived arrogance of oil and gas companies and their staff in dealings with host government officials and external stakeholders.

A recognised best practice to manage and foster Business Sustainability is Stakeholder Engagement. It leads to organisations learning from customers, employees, host communities, Host Governments, Partners etc. The engagements are not unidirectional, only pushing out messages, but form the basis for gathering business intelligence, understanding the business environment, other Parties’ positions and needs, finding common grounds and involving stakeholders or taking their needs too into decision-making. These engagements also help to build mutual trust in the relationships between the Companies and their various stakeholders.

The Petroleum Industry already had relatively small in house Teams or Departments and or external groups (Legal Firms and Lobbyists) that managed what was in those days referred to as External Relations or Public Affairs. These were mostly small teams of a few staff, often perceived to be “dead woods”, headed by a middle level Manager, mostly managing Corporate social events, with no voice at all in senior Management. They also led the organisations in managing these engagements with their limited understanding of the discourse at the time, sometimes supported by lobbyists, particularly when it came to proposed changes to Petroleum, Environmental, Safety or Fiscal Laws and Regulations with potential to impact the profitability of the Companies. These teams were essentially “Door Openers or Gate keepers”! That was the level of attention the companies felt this aspect of their businesses needed at the time.

Where we are today

As the realisation of the need for very strong and effective business and stakeholder relations management grew in the Industry, Relationship Management teams in these companies grew beyond imagination, in some cases with more staff than some Technical(Petroleum engineering and Exploration) departments put together! While those functions were in the past staffed mostly with “staff that were no longer needed in core functions”, today, those functions are staffed with the brightest and best, high potential staff. – ‘High flyer high potential’ technocrats and staff that should be busy managing Assets or Business Functions to improve the bottom line and grow the business are now sent to manage these Relationships. In some cases, as development assignments for the high potential staff, in preparation for senior management roles, same as with a stint in Safety Management.There is also a Stakeholder Relationship management staff on most senior management teams, and /or top management meetings.

These changes to the way Stakeholder relations are managed have also increased the cost of doing business but the very positive impact of these costs on sustainability and profitability are now also very obvious. Besides increased staff costs, Corporations are having to spend more on logistics too, including the use of private jets and company guest houses by Executives outside of operational bases, to attend numerous and sometimes very unnecessary impromptu crisis management meetings with various stakeholders within countries and globally. Some of these costs and inconveniences can be avoided by having structured engagement plans and programmes in place. The cost benefit analysis of these increased spending is now clearly seen as having positive impact on the profitability and sustainability of the business.

Suggestions and Recommendations

Companies will have differences in their understanding and management of their stakeholders but one aspect comes out as best practice today which is, that it is not an area to be neglected as a core aspect of managing non-technical risks to achieve sustainability of the business.

  • Effective management of stakeholder relations should not be put at the back burner but must be built into the business and venture processes from inception (feasibility stage of the project) right through to project abandonment.
  • Carry your stakeholders along in whatever you do to always have a shared understanding and build trust. Engage proactively with all stakeholders and do not decide what you think is good for them. The relationships and engagements must also be maintained and carried out in an ethical manner and based on mutual respect.
  • NOCs and resource owners are getting smarter and wiser, trying to get more or claw back value from their resources, so ensuring fair deals in win-win business relationships throughout the venture life will create a “goodwill credit” for the companies during difficult economic periods or for consideration in new ventures.
  • The era when Relationship Management positions were filled with “Dead woods” or people the company did not know what to do with is long gone and any company that does not understand that will lose a lot of value. The Business and Stakeholder Relations teams should have a mix of core Business staff (Senior Technical professionals versed in the Key business processes who can more convincingly engage stakeholders and are empowered / trusted to make some key decisions)and staff skilled in interpersonal and People skills. The teams should also be represented in the top management of the companies with a seat at top management meetings where business deals and issues are discussed. Organisations and companies that have realised the value these positions bring to the business have elevated them to the levels of Executive Directors.
  • Even in small companies or ventures with Partners, the importance of ensuring that all Parties are kept happy with timely and transparent information, to guide their decision making, for approvals of business plans and budgets should not be underestimated.
  • If critical skills and knowledge gaps exists in the capacity of your venture Partners, particularly with the ‘senior’ partners, mostly National Oil Companies (NOCs), the Operator should have a skills and knowledge acquisition programme in place to bridge the gaps and make them competent to fully understand the Business processes and be effective Partners. This can save valuable time in removing bottle necks in your achieving timely targets.
  • If contracts are meant to be reviewed periodically, all Parties MUST ensure that these reviews happen as planned or delays agreed in formal engagements, to avoid problems that could arise from perception of a party deriving undue benefits from the delay.Some contracts may give undue advantage to a party in the venture at some stage of the project, but ensuring that contract review clauses are adhered to in a timely manner will help to sustain the relationship and enhance trust.
  • For small companies who need to manage staff numbers, they need to identify critical stakeholders and develop appropriate relationships management strategies, i.e. whether and which stakeholders the company would directly manage, and/or use consultants to manage others.

Jimmy Ahmed is a Non-Technical Risk Management Consultant in the Petroleum Industry. He retired as an  Executive Director of Shell Pet. Dev.Co. of Nigeria Ltd.

 

 


In the last 30 Years, the Nigerian Gas Market Has Evolved

By Foluso Ogunsan

Nigeria has taken some big crucial steps to create a natural gas market, although people don’t always acknowledge it, says Ed Ubong, Managing Director of Shell Nigeria Gas.

“When people talk to me about gas monetisation in Nigeria, I ask: when was the first real big step?”, Ubong told a group of over 150 delegates, most of them petroleum geoscientists, at a recent Session on Gas Monetisation in Lagos.

Although Shell was supplying natural gas to customers in Aba, in eastern Nigeria, as far back as the early 1960s, the really big initiative for gas market development was still some years into the future, Mr. Ubong told his listeners.

“I think that the date was 1989, when government passed the LNG Act. It was a landmark year for export gas. It was also a landmark year for domestic gas (DomGas) because that was the year the ELPS-(Escravos-Lagos Pipeline System), the single largest gas infrastructure in Nigeria, was commissioned”.

In the thirty years since then, country’s authorities worked on infrastructure as much as they did on policy framework, sketching out the shape of what has so far become one of Africa’s largest natural gas markets.

“Fast forward to 1995, NLNG had taken FID on its train. Another ten years to 2006, two trains had been completed. Export gas heading on an upward curve. A success story”, Ubong showed in his historical, calendar based analysis. “At about the same time NLNG took FID, there was a big company in Eleme, a petrochemical plant. Big massive facility, fantastic and world-class. By 2006, it was up for its first privatisation”.

This was a sign that while the export gas was on an upward trajectory, there was a domestic gas deficit, Ubong explained to the delegates, at the session, titled Gas Monetization in Nigeria – Need for Concise Strategy, organised by the Nigerian Association of Petroleum Explorationists (NAPE).

“Things were not quite working and there were various things that were done to try and fix it. You will remember the NIPPs (Nigerian Independent Power Plants), power plants in the Delta, seven of them initially, later on it became 11. Let’s get power to these power plants. There were different thought processes going on.

“The year 2008 was also important for the gas industry. We created the DSO-Domestic Supply Obligation. The National Gas Supply Pricing Regulation became law in the same year. In 2008, the Nigerian Gas Masterplan was adopted. It was in 2008 that we started hearing words like MYTO- the Multi Year Tariff Order in the Power Sector. It was also in 2008 for many people that it became clear that Nigeria was interested in gas as a business. There were laws and regulations, some we did not like, some we thought we could work with and all of that. And it is important because if you consider the period between 2008 and 2009, during which time Seplat moved to buy Shell assets, the core of Seplat assets is all gas. If these regulations where not in place, the valuations would have looked a lot different. In 2011, Niger Delta Petroleum led a consortium to purchase a stake in Oil Mining Lease (OML) 34, possibly still the biggest gas producing block in Nigeria. There was some sort of clarity and direction. If you map it, you’ll see a lot of players emerging between that period and now. Significant expansion work done by Axella in the Lagos Area, building its infrastructure; significant work done by SNG(Shell Nigeria Gas) developing industrial clusters in Ogun State; the emergence of the likes of Falcon Corporation, supplying gas in the Ikorodu Corridor. Things begun to happen when there was some regulation that indicated direction”.

Full text of Ed Ubong’s presentation: Where to Put the Investment Dollars in Nigeria’s DomGas Market, is available in the December 2019/January 2020 issue of the Africa Oil+Gas Report.

 


Africa to Double Natural Gas Production by 2040

By Foluso Ogunsan

The sunny continent will contribute as much as 9.2% to global natural gas in that time frame..

Natural gas will be the only hydrocarbon source to increase its share in the global energy mix, remaining the fastest-growing fossil fuel, according to the GECF’s Global Gas Outlook Model

GECF is acronym for Gas Exporting Countries Forum, which held its 2nd International Gas Seminar on Malabo, Equatorial Guinea, on November 27, 2019.

The Seminar noted that global natural gas use will double by 2050; replacing more traditional fossil fuels and facilitating an energy transition towards sustainable development.

GECF member countries currently represent 71% of natural gas reserves, 44% of marketed gas production, 55% of pipeline gas trade and 53% of LNG trade globally.

“Our main message is that natural gas is the destination fuel and will play a central role”, said  Yury Sentyurin, GECF’s Secretary General. “We continue and will continue to defend the position of the Forum on benchmark prices, stressing that oil indexation is still the optimum choice for buyers and sellers of gas.”

The African continent is set to increase its presence in the global energy sphere, more than doubling its natural gas production by 2040 and altering the global energy supply mix in the process. Africa will contribute as much as 9.2% to global natural gas production by 2040, resulting in an expansion from 255Billion cubic metres to more than 505Billion cubic metres and corresponding to a compound average annual growth rate of 3.4%.

“Natural gas is growing to become the fuel of choice globally,” stated. Seyed Mohammed Hossein Adeli, Head of the Iranian Delegation. “The share of gas in the energy mix used to be 18%. Currently, it is 23% and has the prospect to increase to 26% in the next couple of decades. Gas is replacing coal and oil. Coal represents 26% and will be down to 17-18%. Oil is now dominating at 32% and is going to be down to 25-26%. This goes mostly to gas and renewables.”

The Gas Exporting Countries Forum 5th Gas Summit is organized by Africa Oil & Power and is part of the Equatorial Guinea Year of Energy.


U.S. Insures ‘Troubled’ Israel –Egypt Gas Pipeline

By Toyin Akinosho

The United States has committed to back Noble Energy, a US independent, with $430Million worth of insurance to restore the 90-kilometre, 26 inch, East Mediterranean Gas (EMG) Pipeline, running from the coastal city of Ashkelon, Israel and under the Mediterranean Sea to its destination in Al-Arish, Egypt.

The pipeline supplied natural gas from Egypt to Israel for four years, from 2008, under terms agreed on the back of the countries’ 1979 accord. Egypt also supplied gas to Jordan from a tie in to the same pipeline. But the facility became a main target of saboteurs in the days of the Egyptian democracy uprising and the blow ups were so frequent that Israel’s infrastructure minister said the attacks were proof the country needed an alternative to Egyptian gas.

Egypt officially stopped supplying gas to Israel in 2012. The Zionist state, by strokes of luck, discovered large volumes of the molecules under its own seabed around the same time (Leviathan, 2010, Tamar, 2012).

The physical capacity of the Arish-Ashkelon pipeline is 250Billion cubic feet of gas per year, (roughly 700Million standard cubic feet a day) although technical upgrades can increase its capacity to a total of 850MMscf/d.

Now, the deal is that Noble Energy, which operates the new gas fields discovered in Israel, will pump the gas into the pipeline in a reverse direction, onward to Europe and other global markets.

The insurance contracts were signed with the U.S. International Development Finance Corporation (DFC) after Noble Energy and its partners achieved financial close for the project.

The $430Million in insurance commits to rehabilitating the EMG pipeline and transporting natural gas from fields offshore in Israel. Under the terms of the project, the gas will be purchased by Dolphinus Holdings, a gas trading company.

“The Dolphinus gas sales contracts and the EMG acquisition underpin delivery of natural gas from the Tamar and Leviathan fields in Israel into Egypt and represent a major milestone toward Egypt’s goal of becoming a regional energy hub. Both these transactions and the support from the U.S. Government provide further confidence in the long-term export market and growing cash flow from these premier assets,” said J. Keith Elliott, Noble Energy’s Senior Vice President, Offshore.

These transactions were originally approved by the Overseas Private Investment Corporation’s (OPIC) Board of Directors in December 2018. DFC is a new U.S. Government agency that combines and modernizes OPIC and USAID’s Development Credit Authority (DCA). With a more than doubled investment cap of $60Billion and new financial tools, DFC is equipped to more effectively mobilize private sector capital to urgent development challenges and advance U.S. foreign policy.


NDWestern Trounces Seplat in Gas Output for September 2019

Production from the latter has even dropped further, in October

The NPDC-NDWestern Joint Venture raced ahead of the NPDC-Seplat JV in natural gas utilisation for the month of September 2019, field records sighted by Africa Oil+Gas Report indicate.

In a reversal of trend, Seplat trailed behind NDWestern by around 30Million Standard cubic feet of gas per day (MMscf/d).

NPDC-NDWestern Joint Venture averaged 288MMscf/d compared with Seplat’s average gas utilisation of 258MMscf/d.

In the same month, NPDC operated Oredo field gas plant utilised 94MMscf/d, which fits a pattern of the last six months. But the NPDC/Neconde JV, which has reportedly installed two 40MMscf/d gas processing plant in the last one year, utilised less than 2MMscf/d from its fields.

NPDC-NDWestern and NPDC-Seplat JVs are the largest indigenous Nigerian natural gas producers for the domestic market. But they each trail behind the NNPC/Chevron JV, the original contributor of gas to the Escravos-Lagos Gas Pipeline System (ELPS), the nereve of the country’s gas transmission system.

Seplat has gas processing capacity of 525MMscf/d in its Western Niger Delta Assets and it is planning to build 300MMscf/d capacity in the eastern Niger Delta. NPDC sources attribute the company’s declining production to fluctuating offtake by customers, mostly Nigerian power plants.

Seplat continued the low gas output trend in October, averaging even less than September output, at around 235MMscf/d.

 


S. A Fiddles While Gas Burns

By Toyin Akinosho

In late October 2019, the South African government published the long-awaited Integrated Resource Plan, or IRP, which seeks to chart the means by which the country will manage and meet its electricity needs leading up to the year 2040.

The plan provides insight into the state’s 20-year approach to SA’s energy mix.

IRP 2019 envisages, among other energy types, some 1 000 MW of Gas To Power capacity being introduced into the South African grid by 2024, with a further 2 000 MW to be added by 2027

We have been here before.

Assigning a figure for proposed electrical power expected to be generated by natural gas in the energy plan does not begin to address the possibility of gas based industrialisation in South Africa.

For a country with such an absorptive capacity, a significant flow of gas into the economy is a compelling case against the forces of de-industrialisation, banging hard at the gates.

But the business/political elite has to have the appropriate mind-set to construct a system of opportunities to allow gas to flow in.

The absence of a framework for gas intake and utilisation is a core reason for the looming shutdown of the state run Gas to Liquid (GTL) plant which, at inception, was the largest such plant in the world.

The absence of a coherent guidance on gas to industry is why Sasol’s importation of (currently about) 400Million standard cubic feet of gas a day does not come across as a leverage factor for what the country can do with gas.

What has South Africa done to pump up its economy with natural gas? What has she done?

Find out the details in this Kick-starter piece in the October 2019 edition of the Africa Oil+Gas Report

 


Chevron Signs Second Gas Sale Agreement in Seven Months

Chevron Nigeria Limited, operator of the NNPC-Chevron Nigeria Limited Joint Venture (NNPC/CNL JV), has signed a gas sale and aggregation agreement with Olorunsogo Generation Company Limited, Niger Delta Power Holding Company Limited and Gas Aggregation Company Nigeria Limited.

It is the second time the American major would be signing a Gas Sales Agreement with a company that would use the gas in the Nigerian economy.

Last March, Chevron, which operates the NNPC/Chevron Joint Venture, signed a 75MMscf/d Sales Agreement with Dangote Fertiliser. The new agreement with NDPHC, will enable the company to supply on an interruptible basis, a daily contract quantity of up to 63Million standard cubic feet a day (63MMscf/d) of natural gas to Olorunsogo Generation Company Limited.

The Olorunsogo generation plant in Ogun State is an existing NDPHC electricity generation project designed to supply power of about 750MW into the national grid. “Natural gas is the feedstock of the Olorunsogo generation plant. The GSAA for the supply of the major input needed to run the power generation plant is another demonstration of the NNPC/CNL JV’s commitment to the domestic gas market,” explains Esimaje Brikinn, Chevron Nigeria’s General Manager, Policy Government and Public Affairs.

Sanjay Narasimhalu, Director, Chevron Nigeria’s Downstream Gas claims that  NNPC/CNL JV was currently the largest and most on-spec supplier of gas to the domestic market. “The JV continues to collaborate extensively with other stakeholders in finding creative solutions to issues relating to the domestic gas market”, he says.


Frontier Oil Gives Up on Uquo Gas, Now Focuses on Liquids

Frontier Oil, the Nigerian minnow known primarily for developing a gas field and advocating a robust domestic gas market, has given up on that business for now.

The company has handed over monetization of the gas in the Uquo field in south eastern Nigeria, to Savannah Petroleum, in the ongoing process of the latter taking over the bankrupt Seven Energy Limited.

Final long-form documentation has been signed by Frontier Oil Limited, Seven Uquo Gas Limited SUGL and Accugas Limited (both now part of Savannah Petroleum) in relation to the restructuring of economic ownership interests at the Uquo marginal field and the operatorship of the Uquo gas central processing facility (Uquo CPF) .

“The Frontier Transaction will result in SUGL assuming responsibility for all operations (including production) of the gas project at the Uquo marginal field (including, inter alia, control of gas-related capital investment projects, design and implementation of operations and production plans, as well as day to day gas operations at the Uquo gas field) and will retain 100% of the revenue from gas sales”., Savannah Petroleum says in a statement

Frontier Oil’s founder and Chief Executive, Dada Thomas, is a passionate advocate for a robust Nigerian market. His passion drove him to become the President of the Nigerian Gas Association, the highest, private sector advocacy group for the country’s gas market.

But as Thomas spoke on podium after podium, his company got caught up in the liquidity crisis of the Nigerian electricity industry. Frontier struggled with getting paid for gas sold to Nigerian state energy firms, including the Akwa Ibom State owned Ibom Power and the Federal Government owned Calabar IPP plant.

In the deal signed with Savannah, Frontier will control all oil related activities in the Uquo Field and retain 100% of revenue from oil sales. Operatorship of the Uquo CPF will be transferred to Accugas. Following completion of the Frontier Transaction, the Enlarged Group will have effective operational control of the Uquo gas supply chain. The Frontier Transaction is conditional upon completion of the wider Seven Energy Transaction, and is expected to occur following Transaction completion.

“The signature of the Frontier Transaction documentation represents the achievement of one of the final remaining milestones to be reached as we move towards completion of the Seven Energy Transaction”, says Andrew Knott, CEO of Savannah Petroleum: “The Frontier Transaction is of strategic significance, affording the Enlarged Group increased operational control across the gas value chain and enabling us to maximise value from the Uquo gas field..”

 

 


Africa’s Largest Gas Field Threatens Even More Output

The giant Zohr cannot be reined in

The giant massif contained Zohr field in the Mediterranean offshore Egypt is threatening to surpass its 2.7Billion standard cubic feet per day mark, its handlers are saying.

Luca De Caro, head of the IEOC Joint Venture, ENI’s partnership with Egypt’s state hydrocarbon company, says the 13 wells currently producing at the field will be surpass 3Bscf/d by the end of October, up from 2.7Bscf/d in August.

ENI discovered Zohr in the Sharouk concession in 2015, on the same acreage which Shell had held for 10 years before relinquishment.

The discovery affected the fortunes of Egypt, changing the country from a net importer of natural gas to a self sufficient consumer of natural gas with aspirations to be an exporter of natural gas again.

The company originally estimated that production would peak at 2.7Bscf/d, but, in consultation with the Egyptian government, it was agreed that output would rise above 3Bscf/d in 2019.

 

 


With Gas Reserves Confirmed in Bauchi, Who Needs an AKK Pipeline?

By the Editorial Board of the Africa Oil+Gas Report

If there is truly far more substantial natural gas reserves encountered in Kolmani-2 than was found in Kolmani-1, then there is a clear basis for a valourisation project targeted at gas supply to the commercial city of Kano, the ultimate terminus of the Ajaokuta-Abuja-Kaduna-Kano pipeline, AKK.

The Anglo Dutch major Shell reported 33Billion cubic feet of gas in one zone for the Kolmani-1 discovery in 1999.

NNPC has not provided any volumetric figures for the Kolmani River-2, the appraisal well it just drilled, but its statement about the probe is quite upbeat and the company did indicate that hydrocarbon was found in several levels.

It also says that Kolmani 2 is the first of a multi-well drilling campaign.

Should Kolmani be found to hold even just 500Bcf of gas, NNPC should be ready to commence a natural gas supply study project to ferry those molecules from Bauchi to Kaduna and Kano and therefore discard the $2.8Billion, 614 km project.

Some have suggested that discarding the expensive AKK pipeline would be too wrongheaded, considering that the project is already on course.

But the least the company can do for Nigeria’s sake is start evaluating the modification of the AKK project, now that there is clearer line of sight to hydrocabons in Nigeria’s geographic and political north.

NNPC has reported it had completed negotiations with Chinese Financiers to loan it the money for the AKK project, which will pump gas from the Niger Delta to the North of the country. But paying for that project has been a point of debate.

“What NNPC has done is to look at the entire receivables from gas flows from the existing pipelines today and used that to pledge in terms of the tariff”, says Emeka Okwuosa, Chief Executive of Oilserv, one of the contractors for the project.

So, even though the AKK is being called contractor financed, the state hydrocarbon company is essentially funding it and that has implications for the treasury.

We do know that pumping hydrocarbon from any point to another in pipelines managed by the NNPC or its subsidiaries is always riddled with inefficiency. And no one has said that the AKK was going to be managed by any entity other than this highly unaccountable state hydrocarbon company.

The Escravos Lagos Pipeline System is frequently sabotaged. A looping of the line (running a parallel line in order to double the throughput), has been under construction for seven years. The cost overruns ensuing from this kind of poor project management and what it does to the national treasury receipts never show up even in the most detailed reports of the Nigeria Extractive Industry Transparency Initiative (NEITI).

If we find natural gas in the north, should we not simply structure a north- north gas project to feed power plants and industries in the north and do away with expensive, long distance pipelines, the payment for which we are not entirely certain?

 

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