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Insecurity and No Diversity of Supply

By Gerard Kreeft

Security and Diversity of Supply: Two golden rules of the energy sector, have been dashed.

The new credo is ‘Insecurity and No Diversity of Supply’.

What started as an oil war between Saudi Arabia and Russia to gain or maintain market share has produced uncertainty and destabilization across the entire energy sector. Add the corona virus to the mix and you have the perfect storm.

How long will traders and end users tolerate such a situation? Yes, traders on the spot market can gain a few windfall moments but in the long term this disruption could herald an established entry for renewables. End users want stability and more now than ever are willing to pay a small premium to ensure stability of their fuel supply.

How will this volatility affect Africa? Here’s a place where the oil majors have key assets and control major portions of the value chain; where little attention has been given to renewable energy.

Here’s a continent which the World Energy Outlook 2019 forecasts to have unprecedented growth in the next 20 years.

In its “Stated Policies ScenarioThe World Energy Outlook 2019 declares that energy demands woud rise by 1% per year to 2040. Low-carbon sources led by solar photovoltaics (PV) supply more than half of the growth, and natural gas, boosted by rising trade in LNG accounts for another third. Oil demands flatten by the 2030s and coal use edges lower. The key is “the momentum behind clean energy technologies is not enough to offset the effects of an expanding global economy and growing population. The rise in emissions slows but with no peak before 2040, the world falls short of shared sustainable goals.”

A second scenario entitled “Sustainable Development Scenario” maps out a way to meet sustainable energy goals in full, requiring rapid and widespread changes across all part of the energy system. These scenarios are fully aligned with the Paris Agreement by holding the rise in global temperatures to well below 2 0C and pursuing efforts to limit it to 1.5 0C.

Back to the Future

Prior to the ensuing energy dispute, the “Sustainable Development Scenario” might have sounded like a birthday wish. Something to give you a feeling that your good intentions will indeed save the planet. And then get on with the business on hand. Now the future has arrived and in harsh terms. Do we really think that the oil majors will act as a white knight and come to the rescue? Pursuing projects with the hope of adding on some symbolic renewable energy projects? The real fear is not changing from fossil-based fuels to renewables. Rather it is the fear of not being to see or totally fathom how a renewable future will look. We should have no illusion about the state of paralysis of the oil and gas sector.

According to a recent study by the Institute for Energy Economics and Financial Analysis the largest oil and gas companies for years have lived beyond their means and paid more money to investors than they can reasonably afford. Analysis found that the five largest Big Oil majors — Exxon Mobil, Chevron, Royal Dutch Shell, BP and TOTAL— spent $536Billion on shareholder dividends and stock buybacks since 2010 while bringing in just $329Billion in free cash flow.

“The oil majors are consistently under-performing the market and may believe that shareholders won’t notice, as long as they receive generous dividends,” said Tom Sanzillo, co-author of the report and director of finance for the institute, a think tank that supports renewable energy. “As these companies continue to sell off assets and acquire more debt, they reveal a sector in disarray.”

This study covers the period of the last oil bust from 2014 to 2017, when a lot of companies limited their reductions in dividends in buybacks — as revenues fell more sharply — to stop investors from abandoning their firms. BP also was a shrinking company during most of the last decade, selling off many assets after the 2010 Deepwater Horizon tragedy in the Gulf of Mexico.

Rystad is predicting that if the price of oil remains at the $30 level this could lead to cuts of $100Billion production and exploration budgets. In 2021 there could possibly be cuts of another $150Billion, leading to bankruptcies in the oilfield sector.

Africa’s Requirements

The World Energy Outlook 2019 notes that under “the Stated Policies Scenario”, the rise in Africa’s oil consumption to 2040 is larger than that of China, while the continent also sees a major expansion in natural gas use.

WEO-2019 continues:” The big open question for Africa remains the speed at which solar PV will grow. To date, a continent with the richest solar resources in the world has installed only around 5 gigawatts (GW) of solar PV, less than 1% of the global total. Solar PV would provide the cheapest source of electricity for many of the 600Million people across Africa without electricity access today.”

By 2040 Africa’s urban population is slated to grow by more than half a Billion, much higher than the growth seen in China’s urban population between 1990 and 2010. China’s production of steel and cement sky rocketed. Africa’s infrastructure will probably not follow this course but the energy implications for the urban growth will be profound. For example, air conditioning or other cooling services.

Total external debt for sub-Saharan Africa jumped nearly 150% to $583Billion in 2018 from $238Billion ten years earlier, according to the World Bank. This could become unsustainable as the average public debt increased from 2010-2018 to 59% GDP up from 40%.

The World Bank has operations of some $20Billion on the continent, while the African Development Bank has commitments of some $10Billion. Both banks have a wide variety of financing tools at their disposal for a variety of projects: be that wind, solar, or geo-thermal. Yet the problem is not one of financial engineering nor technical competence. Both banks have these resources available.

Rather what is required is the vision and strategy to create an African Energy Transition Roadmap coordinated by the World Bank, African Development, IMF and Africa’s national governments. Such a roadmap should also include public-private partnerships in order to leverage project economics, Instead of a Joseph’s coat of many colours in which only regional, national or project interests are featured. Such a roadmap should meet the criteria of the “Sustainable Development Scenario” set out by WEO 19. Certainly when the energy value chain is being totally re-invented its time to make the quantum jump to bring Africa to the frontline where economic innovation and technical breakthroughs are being done.

Gerard Kreeft,  BA ( Calvin University, Grand Rapids, Michigan, USA ) and  MA (Carleton University, Ottawa, Ontario, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe. He writes on a regular basis for Africa Oil+Gas Report.


The Future of Oil Companies: A Clearer Outline

By Gerard Kreeft

Dogger Banks is in a large sandbank in a shallow area of the North Sea.

It is sited about 100km off the east coast of England.

During the last ice age the bank was part of a large landmass connecting Europe and the British Isles. It has long been known by fishermen to be a productive fishing bank.  It was named after the doggers, the  medieval  Dutch  fishing boats especially used for catching cod.

In the next 25 years Dogger Banks will undergo a remarkable face over, becoming a key infrastructural hub for northern Europe’s Energy Transition.

The Norwegian player Equinor, has announced that the world’s biggest offshore wind farm off Dogger Bank, could be just the start of a renewable mega-hub with potential for more than 20GW of power production in the North Sea – enough to supply one third of UK electricity demand.

The Equinor announcement is a follow-up of the North Sea Wind Power Hub (NSWPH) study outlining the possibility and conditions required to build one or several wind power hubs in the North Sea. The consortium comprising a nucleus of Danish, Dutch and German companies has conducted a wide range of studies, investigated a number of different scenarios and conducted intense engagements with policy makers, leading offshore wind farm developers and Non-Governmental Organisations (NGOs).

By 2045, the consortium is confident that 180GW or the equivalent of 1.2Million barrels of oil equivalent per day (1.2MMBOEPD) of fuel can be produced. Such production figures should gain the attention of the major oil companies in their quest for energy transition and projects having economies of scale.

Certainly, a candidate of merit is BP, strategically located in the heartland of the North Sea. BP’s new CEO Bernard Looney announced that it will be a “net zero company” by 2050 or sooner, opening the door to participation in new renewable mega- energy projects. Currently BP produces 3.7MMBOEPD. Adding a possible 1MMBOEPD of renewable energy to the company’s reserve count can only bring a smile to the face of a BP shareholder ensuring that the 6+% annual  dividend is  safe. How to arrive there is not his problem. This can be delegated to BP’s Management!

Looney’s management team is  faced with a classic Catch-22: To safeguard the shareholder’s dividend the company must know with some certainty that any decision it takes must be given the green light by its shareholders. If not shares will be dumped. When is it a good time for management to introduce a new and  forward looking policy? BP has chosen now. Will the shareholders back this? Will they decide that moving into a new strategic direction-taking renewables on board in a massive way- will guarantee in the long term their golden dividend ? Possibly avoiding that BP’s oil and gas assets be viewed as  stranded assets.

Following the renewable route is not a guarantee  for BP that it can maintain its golden dividend policy. Among Europe’s energy companies dividend results show a mixed bag : Orsted 1.5%, RWE 3.7% and Enel and Iberdrola both with 5%. Oil companies must still test what their future will be! Yet what is certain is that their oil and gas assets, formerly the mainstay of the dividend, is now in freefall and in need of life support.

For these reasons and more, the reserve count must be strengthened.

The reserve count is an important tool to ensure that oil and gas assets have a longer life span. The Reserve Replacement Ratio(RRR) is currently at an all time 20 year low. Currently the RRR count is based on only fossil-based fuels. Why? Because the SEC has deemed this on the advice of the oil and gas industry. Is it not time that the Oil and Gas Sector begins  to understand that if they now include renewables as part of their reserve count their oil and gas assets could have their life cycles extended? Extending the life cycle of these assets should surely be used  as a currency to invest in renewables!

Crossing the Rubicon

Perhaps it is too early to discuss the demise of the oil and gas sector. But that its footprint is dwindling is obvious. According to BloombergNEF investments in renewable energy in the period 2010-2019 was $2.6Trillion. Through 2025 $322Billion per annum will be spent, almost triple the $116Billion invested in fossil fuels.

While the oil and gas sector may find a protective umbrella in the shade of the Renewable Revolution there may come a time, very soon, that oil and gas assets will be dumped. This may create much like what happened in the financial sector: Good Bank vs Bad Bank scenario. The Bad Bank scenario will see sector-wide mergers and acquisitions to ensure a last-minute reprieve before the assets are written off as liabilities. The timeframe? Perhaps 10 -15 years but certainly by 2050.

Possibly the countdown has already begun. Repsol was the first oil company to commit itself to become a net zero emissions company by 2050. The company also adjusted it’s 2019 net income to reflect the new reality. In 2019 it suffered a net loss of $4.10Billion primarily because of impairment charges on its assets in North America due to its climate targets. Can Repsol, given its pole position, utilize its oil and gas reserves to help strengthen its renewables? For example the company has Windfloat, the world’s first semi-submersible floating windfarm with the capacity to provide enough power for 60 000 people in Portugal. Repsol also has hydropower plants which provide 700MW of installed capacity, enough to supply power to every household in Madrid for a year.  Finally it also has two photovoltaic parks in Spain for generating solar power.

Equinor has pledged ‘that by 2050 each unit of energy produced will, on average, have less than half of the emissions compared to today. The ambition is expected to be met primarily through significant growth in renewables and changes in the scale and composition of the oil and gas portfolio’.

Oil and gas subcontractors also face a grim future. Dayrates for the drilling contractors, even for the deepwater floaters, are at cutthroat levels: varying between $175 000 – $250 000. This range is less than half the US$500 000 needed to meet 15% unlevered internal rate of return.

The grim reaper is also knocking on the doors of Halliburton and Schlumberger. Share prices  in both companies have since 2018  more than halved : Halliburton’s share price in January 2018 had a high of $55.61 and in February was down to US$21.95; Schlumberger share price in January 2018 had a high of $76.42 and in February 2020 was down to $34.29.

Conclusions

  1. The oil and gas carbon footprint will shrink in the coming decade and probably include mergers and acquisitions to ensure specialization and economies of scale.
  2. Shrinking the oil and gas sector will also have a drastic effect on the sector’s sub-contractors such as the drilling contractors and service providers.
  3. Oil and gas assets should be used as a currency to invest in the energy transition.
  4. Translating renewable energy units from GW (Gigawatts) to Barrels of Oil Equivalent is a strategic tool to buttress up a company’s oil and gas assets and it’s RRR .
  5. Becoming a player in the renewable sector-be that wind or solar- requires special skills not necessarily found in the toolbox of the oil majors.

6    Orsted now a windfarm  powerhouse company and Equinor with its diverse portfolio of windfarms and gas pipelines have a wide variety of tools and policy options to plan and implement their energy transition strategies.

The shrinking of the oil and gas sector and emergence of renewable energy is a global happening, and Africa will not be excluded in these developments.

Gerard Kreeft,  BA ( Calvin University, Grand Rapids, Michigan, USA ) and  MA (Carleton University, Ottawa, Ontario, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe. He writes on a regular basis for Africa Oil +Gas Report.

 


Africa’s Life after OPEC+

 

 

By NJ Ayuk

Underneath the panic caused by Coronavirus and the fall out of OPEC+ lies opportunity for African oil producers

Sometimes it is easy to forget how interconnected human lives across the globe have become. Perhaps we no longer talk as much about globalization as we used to in the 1990s because it is no longer an issue to be discussed or protested against, it is simply the reality that surrounds us. And there is no cruder evidence of that than the Coronavirus.

Despite the fact that the virus hasn’t yet affected African nations in anyway as seriously as other regions of the world, a fact the World Health Organization is still unable to explain, forecasts already indicated that just through reduced demand for African exports, the virus was expected to wipe at least USD$4 billion in revenue from the continent’s economy. Most of that was simply because China in particular, and Asia and Europe in general, were reducing oil and gas consumption dramatically as transport and economic activities came to a standstill in light of the epidemic that already forced several dozens of millions of people to be put under quarantine.

Last week, news reports indicated that oil traders in Africa were unable to find buyers for fifty-five Nigerian oil cargoes as global demand crashed. By last Friday morning, the virus had wiped the equivalent of USD$5 trillion in value from the global stock markets. That’s two and a half times the GDP of the whole African continent.

And all that was before OPEC+’s Friday meeting in Vienna. Wasn’t that one surprising?

I believe it is safe to say that few people could have expected this outcome. After all, for the last three and a half years, the world, and the oil industry in particular, had learned to trust the alliance of OPEC countries with Russia and other oil producers to work together to stabilize the markets and guarantee a sustainable price for the barrel of crude.

Through their decision to cut down oil production to address reduced demand and balance out the effect of the US shale play, all together, they were keeping 1.7 million barrels of oil per day away from the market, a landmark decision of cooperation like we had never seen in history. Perhaps also because of its novelty, of its width and because it was dependent on the will and cooperation of so many, it also fell victim to the infestation this virus has brought.

The Saudi-led consortium of nations was proposing a combined further cut of 1.5 million barrels per day to continue to match the decline in global demand. The Russia-led group was not going to go further than 600 thousand. The conclusion… no new cuts at all and no renewal of the previous cuts. The OPEC+ alliance that saved the industry from collapse in 2016 has, at least for the moment, come to an end. All bets are off. At the end of April, when the current agreement ends, all restrictions will be lifted and the world is bracing for an oil flood.

The markets have already factored that in, with the Brent and the WTI registering its biggest daily crash since the beginning of the first Gulf War. While oil seems to have rebounded slightly today, it will take time to make up for Monday’s 25% crash. That is, if the recovery is anywhere in sight, since Saudi Arabia announced it was ramping up production and selling its oil discounted by as much as USD$8 per barrel, on a barrel priced at little more than USD$30.

In all honesty, the situation looks bleak. If Saudi Arabia and Russia do go on having a price war, a USD$20 barrel is possible, if not probable.

But what does this mean for Africa?

Several African petroleum and energy ministers were in Vienna last Friday, both as members of OPEC and as members of APPO. Shortly before the announcement on the fall of the agreement, they had decided to strengthen cooperation between African oil producers, promote synergies, intra-african trading, and knowledge exchange. Surely, we need that more than ever.

For the moment, however, there is no reason to panic. Surely, things might get worse before they get better, as the world battles this rapidly spreading virus. And surely, some oil dependent African nations will suffer with reduced revenue. Angola’s state budget, for instance, was designed for an oil price of USD$55 not USD$35. But we have survived the oil price crisis of 2014, and we will survive this one two. Further, most African producers have learned from the past experience and have adjusted themselves to respond to price crashes. The progressive economic diversification the continent has witnessed in recent years will also contribute to minimize the impact of this situation. Yes, final investment decisions might be slightly delayed until the situation stabilizes, but they will come in due time.

So what’s next?

If 2020 is showing itself challenging for African energy, 2021 will be a year of opportunity, but for that to happen, we have to start adapting now, laying down the policies that will allow us to take advantage of the future opportunities. It is in moments of crisis that true leaders have the opportunity to shine.

While it is difficult to predict the future, there are a few deductions and inductions we can try to make with some certainty.

One, is that neither Russia nor Saudi Arabia want a low oil price and there is a limit to how long they are willing to sustain it. No one gains from it and if anyone has the capacity and funds to sustain it for a longer period of time is Saudi Arabia. So, it is not really a price war, since it can’t really be a war if you already know the winner at the head start. Already, Russia has suggested it might be open to negotiate coordinated cuts within OPEC+ during the group’s next meeting in May/June.

What seems likely that will happen, is that the first to suffer from this will be American shale producers. This sector was already finding it hard to finance itself in recent years but continued to unbalance the market with its rapid response times to price fluctuations. These producers are highly leveraged, and it is likely that most will go bust in the present situation. This is something Russia and Saudi Arabia tried to do back in 2015/2016. While it did not succeed at the time, it might have better chances now.

Further, in three months time, at the time of the next OPEC+ meeting, the virus situation might also be very different. This week, president Xi Jinping visited Wuhan, the epicenter of the epidemic, for the first time since the beginning of the outbreak, in a clear demonstration of a strong response to a rapidly evolving situation that seems to be stabilizing. China itself is an extremely leveraged economy and can not afford to slow down for much longer. It can be expected that demand in the country will start rising again in the foreseeable future. If that happens in a scenario when the US shale sector is no longer able to respond, it might just be that the price will climb higher than it was before the virus, and with Saudi Arabia securing for itself a much larger slice of the global marketplace. Again, things will get worse before they get better, but they will certainly get better.

So, for African nations, this is the time to position ourselves correctly, and that will require close attention to international developments and close cooperation, to be able to take advantage of new opportunities. The African Energy Chamber will be instrumental in that, but so will be the African members of OPEC. The time to show statesmanship and stay close to Saudi Arabia and the decision-making table is now. To grow Africa’s relevance in the international oil stage by showing level-headedness and cooperation in face of a global crisis. If we take that route, we will come out of this stronger than ever.

NJ Ayuk is Executive Chairman of the African Energy Chamber, CEO of pan-African corporate law conglomerate Centurion Law Group, and the author of several books about the oil and gas industry in Africa, including Billions at Play: The Future of African Energy and Doing Deals.


FIX IT: NIGERIA’S POWER SECTOR IS TOO EXPOSED TO GAS

Power Outage

By Adedamola A. Adegun
Nigeria’s electricity mix still ranks as most imbalanced amongst the MINTs.

The electricity supply situation in Nigeria has evolved considerably in the last decade, so much that an observer has aptly named it the ‘decade of power’.By 2002, the incessant power shortages, inefficiencies of a government monopoly, a rapidly growing economy and a dearth of investments in the sector had brought the electricity supply industry to its knees. Infact, from 1990 – 2001(a whole decade), not a single mega watt of generating capacity was added to the electricity grid while the available capacity dwindled rapidly.

However, after a return to democracy, a splurge of investments bygovernment and a comprehensive reform programme was established, installed generation capacity1has been scaled up from about6000 MW (4 Gas Fuelled & 3 Hydro Powered)2in year 2002to about 13,700MW(25 Gas Fuelled & 3 Hydro Powered) in 2013 – a very significant growth in gas fired generating capacity.

Given the circumstances as at then, government’s focus on developing gas fired generation capacity was a no-brainer. An average gas plant can be constructed and commissioned relatively quickly – within three (3) years, construction costs compared to other fuel sources are quite competitive, gas flaring would be considerably reduced and the long term availability of gas were guaranteed. But these advantages have now created a different challenge for the country. We have built an electricity mix that is mono-fuel dependent and a fragile energy infrastructure system which Nigeria considering its security and political peculiarities cannot afford.

THE GAS PROBLEM

Hardly would any day pass since the conclusion of the Phase I privatization without the problem of gas supply being recanted by government and its agents. There seems to be a real challenge with getting the power plants around the country to run due to gas supply issues. About 20% of gas fired generating capacity is ‘left on the table’ due to gas availability. Gas pipelines and infrastructure are being continually sabotaged.Several power plants are down because of gas supply constraints and other technical faults.There are uncertainties and increasing regulation around gas prices. The whole eastern part of the country gets a dismal 300MW of electricity because of gas supply constraints.  The consequence of all of these is a significant drop in power supply far worse than the PHCN days.

By now in other climes, a ‘state of emergency’ would have been declared on the issue of gas supply security because it has morphed into a serious danger to the nation’s economy. Moreover, it would be naïve to ignore the core underlying challenges which include the lack of a robust energy policy, an unreliable/inflexible gas infrastructure (pipelines, underground gas storage) and a disproportionate dependence on gas for electricity generation. Infact,if the major arterial gas pipeline, the Escravos – Lagos Pipeline is sabotaged today, at least seven (7) major power plants (mostly located in the high demand centers of the south west) with installed capacity of about 3500MW would be knocked out of the grid completely. Nigeria’s electricity supplyis too exposed to gas.

ELECTRICITY MIX: NIGERIA AND OTHERS.

The challenge of finding a balanced energy mix is universal and very germane for every country’s economic prosperity. Various governments try to enact laws and establish policies around the natural resources available, the variety of energy needs and the economic, social, environmental and geopolitical situation. The overarching aim is to achieve a useful balance and control over energy security and also limit exposure to a mono-fuel and its attendant risks. Most developed/emerging countries have succeeded and continue to evolve and Nigeria must follow suit. The current narrow focus on gas fired generation even with the abundance of natural gas must be carefully balanced.

It’s noteworthy that other nations with bigger gas resources than Nigeria have pursued a balanced electricity mix. The chart below shows the current electricity mix of Nigeria and other very populous member nations of the Gas Exporting Countries Forum (GECF), the ‘OPEC’ of gas exporters.

Source: Wikipedia (List of Power Plants) & Enipedia

Note that Russia is the most developed of the quartet and also has the biggest gas reserves in the world but it has the most balanced electricity mix – gas, hydro, coal and nuclear contributing adequately. Iran, also arguably the more developed of the remaining trio has managed to achieve a better balance of its electricity but Egypt just like Nigeria has a disproportionate dependence on gas for its power supply. Egypt is suffering badly from this imbalance.Power cuts and rationing is now the order of the day due to gas supply/production constraints just like Nigeria. The government has resorted to draconian diversions of gas meant for export by International Oil Companies (IOCs)3.Qatar, a smaller country and ally  is sending ‘LNG bailouts’ to Egypt4. It’s a crisis. Infact, the government of Mohamed Morsilost the people’s confidence and was easily overthrown by the military because of the acute power shortages that hit the nation especially during the hot summer months5.If Egypt had managed to diversify its electricity base earlier, the impact of gas shortages would have been minimized. The lessons for Nigeria is, no matter how abundant your resources are; don’t depend on it solely for your electricity. Establishing a balanced energy mix is a matter of national security.

Let’s take a further look at our economic ‘peers’, the MINT countries’ (Mexico, Indonesia, Nigeria & Turkey) energy mix.

Source: Wikipedia – List of Power plants.

Nigeria’s electricity mix still ranks as most imbalanced amongst the MINTs, underscoring the humongous work ahead for the nation’s energy policy makers. It is very critical.

Many other developed nations have very susceptible electricity generation mix but the protection the energy sources get from government is usually enormous. France is a good example as the country is just one nuclear accident away from possible electricity emergency. The country has about 60 nuclear power plantsgenerating about 80% of its electricity needs. Protecting the nuclear industry means that France will continue to invest and risk lives in Uranium rich countries like Niger and fight wars to protect its supply lines (Mali).Little wonder some government officials are campaigning vigorously for ‘clean fracking’6 despite adverse public opinion. South Africa also generates about 95% of its power through coal. But there is a possibility that baring very extensive investments in infrastructure, the cheap coal resources left would only be enough for just about half a decade7. In reaction, government is planning to amend the country’s mineral and petroleum law to constrain the export of certain ‘strategic’ resources’ like coal. Truly, many are the challenges of a mono-fuel dependent country.

THE EBEANO – MAMBILLAALTERNATIVES

If diversification of the electricity mix is imperative and essential for economic growth and prosperity, then what are the options?

HYDRO POWER

Hydro power currently supplies about 16%8of worldwide electricity needs and is the most popular of all ‘renewable’ energy sources. Hydro power is well understood, is clean energy, has longer economic lives and less susceptible to sabotage. Nigeria used to be keen on hydro power and was a key element in the old days of ‘National Plans’ but over time we seem to have abandoned this very important resource. It is time to return.

By world standards, the existing hydro power stations in Nigeria are just medium sized. The total installed capacity of all the three operational hydro stations (Kainji, Jebba & Shiroro) is less than 2,000MW (with far less available capacity) while the biggest dam in the world, the Three Gorges dam located in China is 22,500 MW. Its high time Nigeria re-energized its hydro power strategy to deliver on the much needed megawatts and also diversify the electricity mix. The Zungeru & Mambilla hydro power stations are huge projects that have been in the pipeline for almost three (3) decades. Infact, both projects were an integral part of the 1982-2002 national plan. The world has changed a lot since then but these projects have now become more critical than ever.

Funding models and environmental expectations could have changed over the years but China with over 2,000 dams is still very much in the business.To ramp up hydro capacity, urgent and decisive measures must be taken to remove the usual policy, commercial and technical encumbrances that frustrate projects in Nigeria. It won’t be out of place if we generate about 25 – 30% of our electricity from hydro in the near future.

COAL

  • There are 2300 coal fired power plants worldwide. About 600 are in the US, 620 in China. – World Coal Association.
  • China & India builds four coal fired power plant every week.9
  • In 1973, about 38% of worldwide electricity was generated from coal but it has increased to 41% in 2011 – International Energy Agency.
  • South Africa, the biggest economy in Africa generates about 95% of its power from coal.

It’s inconceivable that Nigeria would ever fulfill its economic potentials without adopting coal as part of its electricity generation mix. The only coal fired power plant in Nigeria today is a derelict 10MW power plant in Oji River, Enugu State. Coal has a ‘brand deficit’ and is usually discouraged by the many supranationals and aid agencies that swarm the developing world but it is still one of the most important energy resources in the world. It is cheap, abundant and very reliable for base load electricity. Without much delay, Nigeria urgently needs to establish a sound commercial and environmental framework to support the growth of coal energy.I am aware that NERC has licensed some coal power plants but the body language of the commission’s CEO in recent times does not imply that coal will be taken seriously.

To address the environmental issues, it’s important to note that we have a ‘late mover’ advantage because building our coal plants in this generation gives us the opportunity to accept only cleaner and more environmentally friendly coal plants. Its also noteworthy that at the peak of indiscriminate gas flaring in year early 2000s, we were not even among the top 40 countries emitting CO2 in the world. Nigeria emits less carbon per capita than countries like Germany, Pakistan, Venezuela, Canada, France, even the United States. Infact, the UK (Population –63 Million) emits CO2 six (6) times ofNigeria. If Nigeria targets a 10 – 15% range for coal power, it definitely would hardly increase our carbon footprints.

The inclusion in the 2014 budget proposal of a proposed feasibility studies in various parts of Nigeria is thus a welcome development.Coal resources are abundant in Nigeria, construction of a typical plant can be done in reasonable time and the operating costs are relatively cheap. What are waiting for?

SEQUITUR

There is no universal standard for a country’s electricity mix but diversification and balance considering the availability and cost of energy resources is key.Proper planning and the awareness that achieving the most appropriate electricity mix takes time is key for Nigeria’s energy policy makers. Furthermore, the commercial, legal and technical framework must be continually attuned to stimulate and sustain investment in diverse energy resources. Without such, our hopes of becoming a great and prosperous nation might never be realized.

1This article will focus on installed capacity because of data reliability. Data for available capacity is too dynamic and unreliable.

2 Source: Presidential Task Force Presentation at Investors Forum, Wikipedia.

3https://africaoilgasreport.com/2014/01/in-the-news/egypt-diverts-1bcfd-of-gas-from-lng-to-domestic-market/

4 http://www.reuters.com/article/2013/08/20/qatar-egypt-energy-idUSL6N0GL0N820130820

5 http://www.ft.com/intl/cms/s/0/5aabd292-52c1-11e3-8586-00144feabdc0.html

6http://www.upi.com/Business_News/Energy-Resources/2014/02/03/French-minister-supports-allowing-clean-shale-gas-fracking/UPI-25851391403720/

7 Forbes AfricaMagazine – November 2013 Edition

http://www.iea.org/publications/freepublications/publication/name,31287,en.html

http://www.thegwpf.org/china-india-building-4-coal-power-plants-week/


NDDC: The Necessity of a Rebirth

By Adedayo Ojo

Adedayo Ojo“Akwa Ibom state has some of the best and brightest Nigerian professionals in the oil & gas industry today. Why can’t one of them be seconded to run NDDC? The upstream sector of the Nigerian oil industry is arguably the most efficiently run business sub sector in Nigeria, yet a significant percentage of the management cadre is made up of  Nigerians. Can’t we get one of them to run NDDC? Governor Akpabio pleasantly surprised many when he recently named a technocrat from the banking sector as Secretary to the state government. Why can’t we get him to do the same thing with NDDC?”

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Nigeria’s unending Gas Dilemma, By Adedayo Ojo

Nigeria has enormous gas resources. The official estimates of the country’sojo natural gas reserves is in the region of 187 trillion cubic feet (TCF). Despite a history of more than 50 years of oil production, Nigeria is predominantly a gas province.
Almost every successive Nigerian government aspired at one time or the other to legislate a regulation that will optimize the use of the country’s vast gas resources. Quite a good number gas projects have been conceptualized but unfortunately few have been actualized. The bottom line is that decades after the discovery of gas in commercial quantity, Nigeria’s gas sector and gas system remains underdeveloped.
Today’s reality in the international oil and gas market requires Nigeria to wake up and make something of the gas resources or be left behind countries that are more committed to utilizing their gas resources. Ghana’s gas company is expected to begin production this year. If the tension in the Middle East abates (as it may), oil & gas prices will drop!
Gas Aspiration
Several Nigerian government policies have highlighted plans to monetise gas resources. In 2008, the Federal Government developed the Gas Master Plan (GMP) in order to lay a framework for gas infrastructure development and expansion within the domestic market. According to the Nigerian National Petroleum Corporation (NNPC), the GMP is a guide for the commercial exploitation and management of Nigeria’s gas sector which seeks to grow the Nigerian economy with gas. The GMP has three key strategies, namely to stimulate the multiplier effect of gas in the domestic economy, position Nigeria competitively in high value export markets and guarantee the long term energy security of Nigeria.
In response to government policy, a number of ambitious gas projects were initiated by both government and the private sector. Some of the most popular gas projects and initiatives include;
a) Liquefied Natural Gas (LNG) Projects

b) Trans –Sahara Gas Pipeline Project

c) The West Africa Gas Pipeline Project (WAGP)

d) Gas To Power Projects Around The Country

Liquefied Natural Gas
Despite initial momentum on LNG projects, Nigeria remains far behind. Production started from trains 1 and 2 at the Nigerian Liquefied Natural Gas Limited in 1999. By 2007, NLNG added four more trains. Although the seventh train has been planned, six years later, it hasn’t been sanctioned.
Apart from NLNG, other planned LNG projects include Brass LNG and Olokola LNG (OKLNG). Final investment Decision (FID) on Brass LNG was planned for 2006; it was later rescheduled for 2008; then 2010. The FID was never realised on any of those dates; nor has it been now. The same applies to OKLNG. The shareholders of OKLNG signed a memorandum of understanding (MoU) in 2006; FID was billed for 2007 while production was scheduled to begin in 2009.
The originally proposed dates for streaming these projects have long expired; yet final investment decision (FID) has not been taken on any of the projects. In all these years, not much has been accomplished on Brass LNG and OKLNG.

Other countries have shown more commitment with LNG projects. Consider Australia. In 2011 alone, four LNG projects in Australia reach FID. These projects include: Australian Pacific LNG T1, GLNG T1-2, Wheatstone LNG T1-2 and Prelude LNG. Another Australian project, the two train, Ichthys LNG T1reached FID in January 2012.

According to the international Gas Union, Qatar, the world’s largest LNG exporter produced 77 metric tonnes per annum in 2011, about 31 per cent of global supply. Meanwhile new LNG frontiers have emerged in Eastern Africa such the Anadarko’s LNG project in Mozambique and the onshore LNG project by BG in Tanzania.

The United States, a former net importer of LNG is now turning away cargoes while increasingly relying on unconventional domestic gas, such as shale gas, to meet its energy need. In addition, the United States plans to become a net exporter of gas in less than a decade, effectively shrinking the global gas market.

The chokehold in the world LNG market and the emergence of new supplier nations will ultimately make Nigeria’s position increasingly vulnerable if the country’s LNG projects are allowed to continue to suffer. If FIDs on existing LNG projects in Nigeria are not taken now, the global LNG market will become increasing tougher for the country and more so in the coming years.

Trans-Saharan Gas Pipeline

In January 2002, the Nigerian and Algerian governments, through their respective national oil companies signed a memorandum of understanding (MoU) to build a Trans-Saharan gas pipeline running from Nigeria to Algeria to make Nigerian gas available to European market.

Since the signing of the MoU eleven years ago, not much has happened on the project except the feasibility study and intergovernmental agreement between the governments. As a result of the decade-long inactivity, it does appear that the project may have been abandoned.

Dr Ghaji Bello, Acting Director of Nigeria’s Infrastructure Concession Regulatory Commission (ICRC) said in Abuja in January that the Federal Government of Nigeria has earmarked $400 million for the project in the 2013 budget. Industry analysts received the news with scepticism in view of apparent non-commitment to the project.

West African Pipeline Project
The West African Gas Pipeline is a 680-kilometre gas transport project jointly-owned by Shell, Chevron and the Nigerian National Petroleum Corporation (NNPC) forming the African Gas Pipeline Company (WAGPCo). The project takes Nigerian gas from Itoki in Ogun State through Agido near Badagry in Lagos, passing through 33 Nigerian communities to Togo, Benin Republic and Ghana. West African Gas Pipeline Company (WAGPCo) and the participating countries signed an International Project Agreement (IPA) in May 2003 to pipe 200million standard cubic per day of gas (200mmscf).

Over the years, this project has failed to deliver the anticipated volume of gas due to a plethora of reasons – policy, politics, infrastructure, funding, security, etc.

Central to the operation of WAGPCo is the availability of gas. With vandalism and associated shut-ins, gas supply is never guaranteed.
As a result unavailability of gas, an average of 134mmscf is often piped in the 475mmscf capacity pipeline, thus making the $1billion facility to be sub-optimally utilised.

Other Gas Projects

Ironically, it is in the smaller gas projects operated by small Nigeria independents that real success has been observed. Consider the Ovade-Ogharefe gas processing facility, the largest carbon emission reduction project in sub Saharan Africa. The first phase of Pan Ocean’s gas utilization project which was streamed in 2010 has capacity to process 130 million standard cubic feet of gas per day. Pan Ocean is expected to stream the second phase of its Ovade-Ogharefe gas project before the end of 2013.

Uquo gas project: Seven Energy and Frontier Oil have made commendable progress on Uquo gas project. The gas central processing facility (CPF) of the Uquo gas project is owned by Frontier and Seven Energy while Seven Energy through its subsidiary, Accugas, runs the pipeline. The gas is delivered to Ibom Power plant owned exclusively by Akwa Ibom State Government. Power generation at the Ibom Power Plant is tied to gas generated at Uquo. The project has the capacity to boost power generation in Nigeria by 1000 megawatts of electricity.

East Horizon Gas Company (EHGC), a subsidiary of Oando Plc, is a special purpose vehicle set up to Develop, Finance, Construct and Operate a gas transmission pipeline linking the Calabar Cluster of Industries to the Nigerian Gas Company (NGC) grid in Akwa Ibom state. The company is embarking on a $125m project which involves the construction of an 18inch by128 kilometre (km) gas pipeline through forest, swamps and built up areas. The project has a total capacity of 100million standard cubic feet of gas per day (mmscfd).
Oando Gas and Power Limited has developed a robust natural gas distribution network. The company has built extensive pipeline network to distribute natural gas to industrial and commercial consumers and has successfully revived private sector participation in the gas distribution business in Nigeria. Oando has over 100km of pipes already laid in Lagos State and another 128 km in progress in Akwa Ibom and Cross River States.

If more players will be as committed as these not-so-big players, the collective contribution will add to big gains in the drive to grow the gas sector and optimize Nigeria’s gas resources.

Wake up call

The time left for Nigeria to make something tangible from her gas resources is running out. As we end the first quarter of 2013, policy makers and oil and gas industry operators have another opportunity to think long and hard and make the committed decision of making the Nigerian gas a key contributor to national economic life.

The largest obligation rests with the government. A robust and thriving gas sector would require good legal framework that will clearly specify the rules of engagement. The law will necessarily provide good fiscal terms that will encourage investment in the gas sector. The gas sector will only thrive under an effective regulatory structure. These are the necessary conditions that can ensure private sector commitment in the gas sector. It is the government that can provide them.

Adedayo Ojo is Lead Consultant/CEO of Caritas Communications Limited, a specialist reputation strategy and corporate communication consultancy in Lagos/Accra.
Caritas is the West Africa affiliate of Regester Larkin, the pioneer reputation strategy and management consultancy with offices in London, Washington, Houston, Singapore and United Arab Emirates.


The Return of Oil Industry Kidnappers

By Adedayo Ojo

The dark days of kidnapping in Nigeria’s oil and gas industry have returned. Seven expatriates working for a contractor to Chevron Nigeria Limited at the Pennington oil platform offshore Nigeria were recently abducted. Six of the men are Russians and the seventh is believed to be an Estonian.

A criminal gang attacked a barge offshore Niger Delta in the last quarter of last year, killing two Nigerian sailors, injuring two other Nigerians onboard and abducting one Indonesian, one Iranian, one Malaysian and one  Thai national. The foreigners were eventually freed a few weeks later. Around the same time, Augustine Wokocha, Rivers State commissioner for Power was kidnapped.

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Deregulation, Trade Unionism and Opportunism

By Adedayo Ojo

Is Julius Malema an enigma? Just maybe. Today, the 31 year old is a thorn in the flesh of the African National Congress (ANC)-led government of Jacob Zuma in South Africa. A former Zuma ally and former President of the ANC Youth League, Malema was expelled from the ruling party in February 2012 for anti-party activities. Since then, the man who was once described by Zuma as “future leader” of South Africa has become one of the harshest critics of the President and his government.

Malema featured prominently during and after the recent industrial action by workers of the Lonmin-owned platinum mine in Marikana. The protest erupted into a police action in which 34 of the demonstrating workers were shot. Malema heaped scorn on the poor handling of the crisis by Zuma and has since called for a national miners’ strike in South Africa.

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By Adedayo Ojo

The explosion that occurred at the Amuay refinery in Venezuela recently is unarguably the most fatal disaster in the history of the oil and gas industry in the South American nation. A gas leak at the refinery, located near Punto Fijo in western Venezuela, caused an explosion that ignited and damaged nine storage tanks, killing at least 39 people, including a ten year old boy and injuring more than 80 people. Many of the victims were members of the National Guard stationed at the refinery.

Amuay refinery processes 645,000 barrels of oil per day (BOPD) and it is part of the Paraguana Refinery Complex, and one of the biggest refineries in the world. The Paraguana Refinery Complex, which also includes the Bajo Grande and Cardon Refineries, processes a total of about 955,000BOPD.

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Great Expectations

By Adedayo Ojo

The Nigerian oil and gas industry is undergoing what will arguably be its most transformative season. The revised and harmonised version of the Petroleum Industry Bill (PIB) has been forwarded to the national assembly; there has been a change in the leadership of the Nigerian National Petroleum (NNPC); the Special Committee on Subsidy Payment Verification and Reconciliation has submitted an interim report and EFCC has arraigned a few individuals and corporates. These are significant issues for the oil sector, nay the economy.

The world waits with great expectations, hope and anxiety that these events will play out positively and provide the much needed drive for economic and social transformation.

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