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Egypt’s Domestic Gas Market Hit by the War in Gaza

By Toyin Akinosho

Egypt’s imports of Israeli gas fell almost 20% after Israel suspended production at the Chevron operated Tamar field, owing to the war with Gaza.

And that has affected the consumption in Africa’s largest domestic gas market.

Imports of piped Israeli gas slumped to 650 Million standard cubic feet per day (650MMscf/d) from 800MMscf/d, after the Israeli energy ministry instructed Chevron to halt production, due to the security situation. The Leviathan, Israel’s other major gas field, remains online.

Egypt had relied on Israel to keep natural gas consumption as high as 6.8Billion scf/d, as the former’s own production declined for the ninth consecutive month.

Egypt’s gas output reached an all-time high of 7.06Bscf/d in September 2021, but the numbers have  continuously headed south, as the ENI operated Zohr, the country’s flagship gas field, battles  unrelenting water infiltration problems.

Egypt used part of Israeli imports to satiate local demand while it exports the rest as LNG to earn foreign exchange.

Israel’s retaliatory launch of the siege of Gaza, after a massive attack from that coastal city, was the reason to cut supplies to Egypt from Tamar field.

“Israel has been a key energy partner during a difficult summer”, reports the Egyptian business website, enterprise.com.  ”Egypt has been importing increased volumes of Israeli gas this year, helping to offset the ongoing electricity crisis that has triggered nationwide rolling blackouts for over two months”.

“This could keep our LNG terminals offline”, enterprise.com says in an editorial. “Uncertainty about the supply of Israeli gas could potentially delay the Oil Ministry’s plans to resume gas exports in October 2023”.

 

 


‘The Nigerian Government’s Chokehold on Gas Pricing Is a Major Disincentive’

Sunday Okunbor, General Manager, Commercial at NDWestern Ltd, an E&P independent, is concerned about the Nigerian Government’s predilection for arbitrary price control in the domestic gas market.

“As government is prone to abrupt changes in the policies, we find ourselves strenuously adjusting and adapting”, he told Africa Oil+Gas Report ‘s  Akpelu Paul Kelechi in an interview.

Okunbor advanced that his company is concerned about “how to survive the current price reduction that the government passed last year through the minister of petroleum resources, from $2.50 per thousand standard cubic feet (Mscf) to $2.18 per thousand standard cubic feet.

“It’s a been a major one for us plus the lingering debt that Power sector incurs as they offtake our gas. It is hurting to us”.

Allowing that “what is being owed the (NPDC/NDWestern) Joint Venture by the country’s power sector is over ₦100Billion”, he said “it’s a lot of money so and what that means is that we have to source for money elsewhere to continue running the business. it’s a major problem and we’re doing everything at the advocacy level and also trying to get the government to see reasons why this money actually has to be paid….”

 Okunbor said that his company cannot trigger or exercise the terms of the contract because any attempt to do that will be seen as a sabotage against the government because cutting off gas to the thermal power plants “means that there won’t be power, there won’t be light to the populace and that’s what we don’t want to do. So, we find ourselves begging and at the same time, rendering services to these people without getting the necessary payment for the services”.

Below are excerpts of the full interview:

You handle the commercial side of the Natural Gas business for NDWestern. How has it been like?

The company started selling gas mainly to the power sector and then from there we enriched our portfolio, selling to the GBIs that is, the Gas Based Industries. Dangote Industries for example, uses our gas for fertilizer production.

How have government policies encouraged the business? Nigeria’s Minister of state for Petroleum has declared this decade as the decade of gas

It has been a very interesting time. As government is prone to abrupt changes in the policies, we find ourselves adjusting and adapting.

A major cause for concern is how to survive the current price reduction that the government passed last year through the minister from $2.50 per thousand standard cubic feet (Mscf) to $2.18 per thousand standard cubic feet. It’s a been a major one for us plus the lingering debt that Power sector incurs as they offtake our gas. It is hurting to us. What is been owed the (NPDC/NDWestern) Joint Venture is over ₦100Billion, it’s a lot of money so and what that means is that we have to source for money elsewhere to continue running the business. it’s a major problem and we’re doing everything at the advocacy level and also trying to get the government to see reasons why this money actually has to be paid.

Sunday Okunbor (pictured above): “For us, over 60% of our volume goes to power and you can imagine what that price drop would mean to our business. So it’s a major problem and in fact I can say it is a major disincentive for us to want to invest more in this gas business. Interesting enough, the (Oil Mining Lease (OML) 34 in which ND Western owns 45%, is a gas asset. The production that comes from that field is majorly gas and that is where all the investment is. So, if we’re not getting value for that gas, the owners of the business will not be incentivized’

We cannot exercise those terms of the contract because any attempt to do that will be seen as a sabotage against the government, because cutting off gas from the gas fired thermal plants means that there won’t be power, there won’t be light to the populace and that’s what we don’t want to do. So, we find ourselves begging and at the same time, rendering services to these people without getting the necessary payment for the services. So that’s basically my major highlight in the gas space in the industry since I joined.

Many analysts argue that the way to improve the domestic gas market in Nigeria is to fix the broken power sector. But there are other gas-consuming sectors in the economy: methanol plants, urea factories and merchandise centres like the Ariara market…

NDWestern wanted to have a kind of a robust portfolio, as to where our gas goes to, and we’ve been able to capture the three major sectors in the in the gas industry, which is basically the power sector which consumes the highest in terms of volume; the LDCs that’s the Local Distribution Industries or Companies, and then the GBIs as I mentioned. We wanted a situation where we are able to touch all the sectors and that’s why we brought Dangote in. This contract was executed late last year and the contract is operational as I speak. We Supply Dangote gas for their fertilizer plant. Supplying companies like Dangote could actually help us to balance out. Instead of giving gas to the power sector that doesn’t pay us regularly, it’s better to give it to Dangote who, from the information that we have gathered, pays regularly. For us, it is still early days and we cannot judge but we have started supplying since late last year and it’s been good. We believe, based on the information we gathered from Gas Aggregation Company of Nigeria (GACN, that Dangote would pay us promptly.

How many million standard cubic feet per day does Dangote Industries offtake?

I don’t know if this would affect the contractual obligation on our side, to put out the amount that we supply. Some of these are very sensitive in terms of volume, price and then other clauses in the contract because there are confidentiality clauses in the contract. I can only tell you we’re supplying volumes. These things are very sensitive. Once I quote it, it may get into the press and then before, you know, it’s everywhere and the question is how did this get out, because they are confidentiality non-disclosure Clauses in the contract.

The issue of government allowing a willing seller, willing buyer philosophy in the Nigerian gas market has been on the table for a while. And now government suddenly declares that prices should even be less. What other things are gas producers battling with?

The major challenge has been that we actually wanted a higher price based on our cost of producing this gas. The price should actually be higher than the $2.50. We’ve been on the $2.50 for close to 10 years and the expectation was that this price was supposed to go up but as the government would have it, it went down and also the users also, I’m sure they also were using their power to kind of press government for a reduction. I can tell you this has adversely affected the gas producers. Now, the first thing is that we don’t get enough payment. That’s the first problem. We are not getting our payment as and when due and we have this backlog of debts hanging on us.

The announced reduction of price from that $2.50 to $2.18, effective August 2021, means is that, the revenue that you already taught you have, and that have you projected into the future in terms of forecasting, has now been reduced to that price that has been given. And also, that does not change the payments pattern. So it’s a major setback, to all gas producers, mostly to those that are supplying to Power

For us, over 60% of our volume goes to power and you can imagine what that price drop would mean to our business. So it’s a major problem and in fact I can say it is a major disincentive for us to want to invest more in this gas business. Interesting enough, the (Oil Mining Lease (OML) 34 in which ND Western owns 45%, is a gas asset. The production that comes from that field is majorly gas and that is where all the investment is. So if we’re not getting value for that gas, the owners of the business will not be incentivized in any way to want to put in more money, so that’s the major challenge to us.

The industry has associations that can try to help push your case to the government. Are you guys trying to do that in any way right now?

I’m actually part of a team working in IPPG (an association of indigenous Nigerian Exploration and Production (E&P) companies with a current membership of twenty-five(25) companies) to see how we can push our advocacy as regarding gas price. We would do all we can, in terms of talking to those people that can change things or that can make things to happen to see why we should be incentivized. If government is not even willing to change the price, let it give us other things that can cushion the effect of this price and that’s what we’re asking.

We may not be able to act to make them change the price immediately but they should give us other incentives that can help cushion it. About 30 or 40% of those power plants that are heavily indebted to us are owned by government. Government retained about 20 or 30% of those are those power plants as their own when they privatized them. Government should be able to do something about those debts and that’s why we said if they are not able to pay or if there are other ways, they should incentivize the gas suppliers so that they are able to continue doing this business and push in more gas to power this country. We need gas to make this country work.

What other incentives would you want to see?

There are several others that we’ve looked at; it could be the area of us bringing in equipment. So all those others equipment that we use for maybe drilling or for our wellheads, or anything else that has to do with oil and gas equipment coming in, there should be a tax waiver or all they shouldn’t be any import duties on those so that that, alone, you can count on as something that you can hold on to reduce your cost. Two, we can look at it from the area of royalties. We still pay royalties on these invoices that I told you have not been paid. We have actually paid government royalty for those invoices even though we’ve not received payments. I’m sure you’ll be surprised to hear this.

We believe that those debts should actually be used to reduce royalty payments to government and that would be in major a major incentive to us, if the government is able to do that.

Let us talk about the AKK. There are a lot of people who say opportunities abound with the AKK as industries will spring up along with the AKK.  . Are you lining up to be a feedstock supplier into the line?

We see opportunities in the north as regards to this AKK projects. We attended the last summit that was done and we’ve actually started getting enquiries from people that are planning to develop or put their business in those places. So we’re reviewing those opportunities now and the plan is that, at some point, we will start negotiating most of these volumes that will be going there. So for us, as part of our Global plan to kind of you know, put our foot also in the North through the AKK project, we actually started with that and we have plans to grow our volumes. So for you to go that way, definitely you need to increase your volume. So you know that we have about 600MMscf/d capacity. We’re not fully utilizing those capacity. But again, we need to drill more Wells.

Sunday Okunbor oversees the commercial side of the gas business at NDWestern, the Nigerian independent whose Joint Venture with state firm NDPC is the largest indigenous supplier of gas to the country’s domestic market. Okunbor has over 20years of professional working experience in the oil and gas industry, starting with Shell Nigeria Gas Limited, through Pan Ocean Overseas, to NDWestern, which he joined in 2013.

 

 

 


Why Aje Field Cannot Yet Supply Gas to Lagos

It would seem a no-brainer that the Aje gas and condensate field, which reached first oil in May 2016, should have advanced to the stage of supplying natural gas to Lagos by mid-2021.

The field is strategically located 24 kilometres offshore Lagos where it should benefit from increasing local energy demand, particularly for gas which is viewed as a replacement fuel for diesel and commands a premium.

“But gas projects take…Read more…        


Will Nigeria’s LPG Demand Buckle under the Weight of the Country’s Forex Problems?

By Bunmi Aduloju, NAREP Fellow

…Some say that growing in-country LPG production should mitigate these concerns, but..

When Vitalis Obinna, an LPG retailer and dealer in gas cylinders and accessories in Festac Town, a western suburb of Lagos, Nigeria, caught sight of a figure advancing towards his shop, he jumped to his feet with an anticipatory flash of excitement. Surrounded by other LPG retailers at the location, a new customer would mean more sales for the day. Soon, his interaction with this reporter took a turn of business reality.

“Since last year, business has been very dull,” he said. ‘But when the year began, it became really bad. There’s been no profit in cooking gas. We buy gas for about ₦4300 and sell it for about ₦4500. 

“Before now, we used to make profit of at least ₦600 on 12.5kg of cooking gas but now, our profit is ₦150 to about ₦200 for 12.5kg of gas.”

Asides a drop in profit, he also has to put up with reduced customer patronage. 

“Before the price increased, I used to refill at least 10 cylinders everyday but now, I hardly refill three cylinders. In fact, when I think some customers are going to refill their 12.5kg cylinders, you would be surprised that they will only buy ₦500 worth of cooking gas,” he added. 

Nike Kazeem and Christiana Sikiru, both petty traders (selling provisions and groceries) in makeshift stalls, express concern about the increased price of the product in the first quarter of 2021.

Whereas Mrs. Kazeem, who says she’s been using LPG for decades, has resorted to kerosene stove to cook for her family in the meantime, Mrs. Sikiru switched to cooking gas in January “because she found that “Kerosene dries up quickly.” She said that the increase was a normal trend with commodities. “There has been an increase in price but I understand that things are now expensive,” she explained.

Fluctuations in LPG Price Lead to Regional Distortions

According to the National Bureau of Statistics (NBS), the national repository for statistics in Nigeria, the average cost of refilling 12.5kg cylinder of cooking gas was ₦4,117.55 in January, and ₦4,363.51 in February but it fell to ₦4,359.23 in March. 

The average price for refilling 5kg LPG cylinder increased from ₦1,949.02 in January to ₦2,018.91 in February and inched up again, in March, to ₦2,057.71.

In 2021, the total average price for refilling 12.5kg in Q1, stood at ₦12,900.28. However, in 2020, the total average price for refilling LPG cylinder was ₦12,542.04.

Eyono Fatai-Williams, General Manager, NLNG responding to a Thisday enquiry about the increasing price of Liquefied Petroleum Gas (LPG) in January replied that the dependence on imported LPG had put undue pressure on the price of the commodity.

In the same vein, two LPG stakeholders gave a similar account for the increase.

“Gas price is highly seasonal. LPG is a global commodity and during the winter seasons, prices are usually high and then, they go down towards the end of the summer. Then again, by the end of 2020 and early 2021, because of forex changes in Nigeria, it took the prices higher than normal,” says Mr. Bashir Koledoye, Managing Director, Dharmattan Gas and Power Products Ltd, adding that the prices “will continue to drop until the summer”.

Fatai Ogungbenle, Head, Business Development and Sales (LPG), Kwale Hydrocarbon Nigeria Limited, an independent downstream gas company, agrees that the increased price of LPG is tied to the seasonal demand for LPG in Europe during the winter seasons.”

“Europe has more of sustained cold season this year because of global warming. It added to the issue of high demand in Europe and part of America, making us to price highly. But in few weeks to come, I think the price of LPG may likely decrease a bit. But the downside to it is the exchange rate. If nothing is done to it, we may experience this for a longer time more,” he explained. 

“I can remember vividly that a truck of gas in November 2020 was ₦4 Million to ₦4.2 Million. But now, it is around ₦5.5 Million to ₦5.6 Million for over a period of about 6 months,” he added.

Nor is the higher price restricted to the gas molecules alone. The cost of the equipment too is rising. Vitalis Obinna said that he sells a 6kg gas cylinder with an accompanying burner for ₦11,000, a 30% jump increase from ₦8,500 which he sold the two equipment just five months ago, in December 2020 

Koledoye explains that “demand dips with higher prices, but because Nigeria is rapidly adopting LPG, the effect is not significant”. He admits that there are challenges with the Forex situation, “but increase in in-country LPG production is expected to reduce this problem very soon”. In general, he feels comfortable with the way the market is now.

In Q1 2021, 55.7% of LPG consumed was imported. This contrasts with 58.4% of LPG consumption, which was imported in Q1 2020, according to the Petroleum Products Pricing Regulatory Agency (PPPRA), a monitoring and regulatory agency of petroleum products in Nigeria. In both quarters, importation took the lead. 

Apart from the price volatility of LPG in Nigeria and enormous dependence on imported products, the price in each State in the country is largely determined by the landing cost of the product. 

In March 2021, Cross River State paid the highest for cooking gas at ₦4762.65 and Zamfara State, ₦3,749.06, accounting for the lowest.

Similarly, Lagos paid ₦4,435.45 to refill 12.5kg cooking gas cylinder. 

Cross River state residents paid the highest price in the nation for 12.5kg LPG in Q1 2021, with a sum of ₦14,407.89 while Kaduna paid the lowest with ₦10,900.79 in total.

Different Retail Prices

An LPG retailer at New Site, Satellite Town, a sprawling housing estate in the west of Lagos, who pleaded anonymity, says that LPG price varies among retailers too.

“The price of cooking gas differs depending on who we buy from. If we buy at a high cost, we sell at a high cost. If we buy at a lower cost, we sell at a lower cost. The gas station sold 12.5kg of cooking gas to me at ₦4,500, I sell it at ₦4,600.”

“The business of LPG has always been a good business but it is just that now, it is not really yielding money like it used to. Last year, it was sold to us at ₦4,000 naira but since January, it increased”, he added. 

Abundant Resources, Lack of Utilization

Nigeria has the largest gas reserve in Africa. As of June 2020, Nigeria’s proven gas reserve was 203.16 Trillion cubic feet (Tcf), according to a report by the Department of Petroleum Resources (DPR) 

In the report, Sarki Auwalu, the director of DPR, said that even with this huge proven gas reserve, gas utilisation was only about 5.5%. 

Mr. Ogungbenle of Kwale Hydrocarbons expressed dissatisfaction at the underutilisation of Nigeria’s gas potential.

“For domestic use of LPG, we are doing less than 25%, far below what we can do,” he said. 

Some of the challenges that the domestic LPG market is faced with include uneven terminal distribution, lack of adequate transport facilities and administrative charges on the domestic sales of LPG, although deregulated.

INTERVENTION PLANS

Nigeria’s federal government set up the LPG Penetration Framework to encourage the use of LPG in households, power generation, auto-gas and industrial applications in order to attain five million Metric Tonnes of local consumption of LPG in 2022, according to the Federal Ministry of Petroleum Resources (FMPR).

The government’s objective of attaining Five million MT of LPG consumption by 2022, puts the national consumption target of LPG at an estimated 83.33 thousand MT per month from 2018 to 2022. 

In 2021 Q1, only March’s LPG consumption met this monthly target at 87, 199.846 Metric Tonnes (MT). 

Even though the calorific content of Liquefied Petroleum Gas (LPG) is higher than kerosene and other cooking fuels, LPG is more capital intensive than most cooking fuels in Nigeria. 

This initial cost of switching to LPG is a contributing factor to the 43% population without access to clean cooking, as at 2018. 

The LPG Gas Expansion Plan was introduced to increase the consumption of LPG in the nation, as the domestic energy mix consist of 60% firewood, 30% kerosene, 5% LPG, 5% charcoal. 

With plans to increase usage of LPG, the federal government will be injecting 10Million cylinders in ten years to the market, according to Dayo Adeshina, Programme manager of the national LPG expansion plan, during a sensitisation workshop on LPG adoption and implementation for industry stakeholders, in Lagos. 

This story was produced under the NAREP Media Oil and Gas 2021 Fellowship of the Premium Times Centre for Investigative Journalism.


ENI Set to Re-Start the Damietta LNG Plant in Egypt

By Bunmi Aduloju

Italian player ENI says it has signed a series of agreements with the Egyptian government, two of the country’s state hydrocarbon firms and a Spanish firm, paving the way for the restart of the Damietta liquefaction plant in Egypt by the first quarter of 2021.

The state hydrocarbon firms include the Egyptian General Petroleum Corporation (EGPC) and the Egyptian Natural Gas Holding Company (EGAS). The Spanish company is Naturgy.

The agreements culminate in the amicable settlement of the pending disputes of Union Fenosa Gas and SEGAS with EGAS and Arab Republic of Egypt and the subsequent corporate restructuring of Union Fenosa Gas itself, whose assets will be shared between the partners ENI and Naturgy.

The liquefaction plant’s owner is the company SEGAS, which is 40% owned by ENI through Union Fenosa Gas (50% ENI and 50% Naturgy). The plant has a capacity of 7.56Billion cubic meters per year, but has been idle since November 2012.

The agreements, signed on December 1, 2020, are in line with the ones finalized last February and take into account the evolution of the energy scenario, allow to reinforce ENI’s strategic objectives in terms of growth of its LNG portfolio, in particular in Egypt, where the Company is the main gas producer, and are of primary importance for all parties involved to resolve all pending disputes.

“The operation, subject to the authorization of the European authorities and subject to the fulfilment of certain conditions precedent, allows to strengthen the presence of ENI in the Eastern Mediterranean, a key region for the supply of natural gas, an important resource for the energy transition”, ENI says in a statement.

“The participation of Union Fenosa Gas in the Damietta plant (80%) will be transferred 50% to ENI and 30% to EGAS. The resulting shareholding of SEGAS will therefore be ENI 50%, EGAS 40% and EGPC 10%. ENI will also take over the contract for the purchase of natural gas for the plant and will receive corresponding liquefaction rights, thus increasing the volumes of LNG in its portfolio by 3.78Billion cubic meters per year, which will be available on an FOB basis, with no destination restrictions”., the company explains.

As regards Union Fenosa Gas’ assets outside Egypt, ENI will take over the commercial activities of natural gas in Spain, strengthening its presence in the European gas market.

The agreement comes at an important moment, when also thanks to the fast time to market of ENI’s natural gas discoveries, especially the ones in the Zohr and Nooros fields, Egypt has regained its full capacity to meet domestic gas demand and can allocate surplus production for export through its LNG plants.

 


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.

 

 


Egypt Connects 300, 000 More Homes to the Gas Grid

By Mohammed Jetutu, in Cairo

The Egyptian Government reports it has connected around 305,500 housing units to natural gas between July and September 2019, bringing the number of households connected to the natural gas grid to 10.4Million.

Tarek El Molla, the Minister of Petroleum, says that natural gas was delivered to 178 commercial consumers as well as three factories, during the three month period, while 4,613 cars were converted to run on natural gas, reaching a total of 288,400 converted cars.

Even so, local consumption of natural gas and petroleum products declined by 5.2%, compared with the same period a year before, recording around 19.6Million tons.

The consumption of natural gas represents around 63% of the total local consumption of all petroleum products (diesel, kerosene, gasoline, etc), yet it declined by 4.9% compared with the same period a year before. This is due to the drop in natural gas consumption in power stations by 6%.

 


Oil Companies Work towards the Industrial State

PAID POST

Nigeria’s hydrocarbon sector has largely been about extraction of crude oil for export and importation of petroleum products for consumption.

And when the authorities talk about diversification of the country’s economy, the focus isn’t always about diversification within the hydrocarbon industry itself.

“We should include talk about diversification within the oil industry”, says Ebi Omatsola, founding Chief Executive of Conoil.

This kind of thinking is already enshrined in the draft National Oil and Gas Policies, widely circulated in 2016, but not gazetted.

One company that has actively interrogated the industrial economy through its hydrocarbon assets is Niger Delta Petroleum Resources (NDPR) Limited.

Layi Fatona, who just left the mantle of the CEO, explains in this video.


Angola Needs to Drill More Oil Wells to Produce Gas

By Sully Manope, in Soyo

Angola’s LNG plant has dropped in production as a result of reduced amount of natural gas that come from the crude oil platforms that supply it.

It sounds intriguing, but the plant relies entirely on associated gas: natural gas which cohabits in the same reservoirs as crude oil.

ALNG’s production capacity is 5.2 Million Tonnes Per Annum (5.2MMTPA). The train can process up to 1.1 billion cubic feet of natural gas per day,

Diamantino Azevedo, Angolan Minister of Mineral Resources and Oil is quoted by Angolan state news agency Angop, as saying that additional investments are needed in drilling more oil wells in the country, in order to increase the natural gas that is channelled to ALNG plant “to reach the installed production capacity.” The minister reportedly added: “This is a challenge that Angola LNG and the country have to take on, in order to achieve capacity and maintain project stability over a long period of time”.

The immediate challenge to Mr. Azevedo’s wish is the immediate status of Angolan rig count. Angolan rig activity figures had crashed from robust 22 in September 2015 to 4 in August 2018, according to the August /September 2018 edition of the monthly Africa Oil+Gas Report.

Angolan LNG has had its fair share of challenges since it came on line in 2013. Barely a year after commissioning, it faced an extended plant shutdown of more than two years from April 2014 to June 2016 to fix a number of design issues that caused an incident on 10 April 2014

That situation led Chevron, the operator, to create an internal project management system to better track contractors and subcontractors on major projects. Chevron is the largest stakeholder in the facility, holding a 36.4% interest, with partners that include Sonangol, 22.8%, and BP,  ENI and TOTAL, with 13.6% each.

 


Seplat Signs Commercial Agreements on 300MMscf/d ANOH Project

Seplat has cleared one major hurdle toward Final Investment Decision  regarding the Assa North/Ohaji South (ANOH) gas project, located in Rivers State, Nigeria’s largest natural gas holding state.

The London listed company signed, together with the Nigerian National Petroleum Corporation (NNPC) and other related companies, the Shareholder Agreement and other Commercial Agreements for ANOH Gas Processing Company (AGPC) project on  Monday, 13th August 2018, at the NNPC Towers, in Abuja, the country’s Federal Capital.

The signed Shareholder Agreement will govern SEPLAT and Nigerian Gas Processing and Transportation Company (NGPTC) respective interests in the AGPC incorporated Joint Venture.

The AGPC incorporated joint venture, in which Seplat and NGPTC hold 35% each, is the midstream company that Seplat has always talked about. Patterned after the NLNG, in which NNPC, Shell, TOTAL and ENI hold equity, AGPC will buy natural gas from the upstream JV: the NNPC/Seplat JV in Oil Mining Lease (OML) 53, and process and deliver both dry gas and several products to customers in the domestic market.

“The execution of these Agreements is an important precursor to the Final Investment Decision (FID) for the ANOH project”, Seplat says in a release.

There are other conditions precedent to the FID, of course, and the timeliness of the completion of plant and inauguration project all of the depend on these conditions, but the agreements signed on Monday, especially the completion of incorporation of the AGPC incorporated Joint Venture, have been collectively close to 12 months in the making.

AGPC is being promoted by the NNPC and Seplat to develop, build, operate and maintain the Company “as a world class Organization delivering on its objectives”, the NNPC said at the event. Seplat, on its part, explained that the ANOH Gas Processing Plant is a milestone project which aligns with the gas infrastructure development initiative of the Federal Government of Nigeria.

The company assures that the AGPC would deliver the project on schedule within the next eighteen months and achieve its objective of being a major gas supplier to the domestic market.

 

The Agreements signed were:

  • AGPC Shareholders Agreement between AGPC, NGPTC and SEPLAT;
  • AGPC Share Subscription Agreement between AGPC, NGPTC and SEPLAT;
  • Wet Gas Sales and Purchase Agreement between NNPC, SEPLAT and AGPC;
  • Gas Sale and Purchase Agreement between AGPC and Nigerian Gas Marketing Company (NGMC);
  • Gas Marketing Agreement between AGPC and NGMC.

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