All posts tagged in the news

Green Energy International, a Nigerian independent E&P firm, is in an expansive mode; drilling wells, installing a gas processing plant, assessing crude oil refinery investment, targeting Gas to Power and CNG markets, talking to partners about a methanol plant and hoping to deliver in these spaces and aggregate them into an industrial hub, licenced as a free trade zone, in Eastern Nigeria. Its chairman and CEO, Anthony Adegbulugbe, a professor of Energy Management, fielded a range of questions by Africa Oil+Gas Report’s reportorial staff. Excerpts:

AOGR: GEIL is currently implementing its expansion plans for Otakikpo field, onshore eastern Nigeria,    drilling two wells. You spud in April 2022. How is the project doing: funding, drilling, and hook up?

Professor Adegbulugbe: We have achieved our 3 major objectives for the 1st well.  These are to (i) deliver the well without a Lost Time Incident (LTI) (ii) encounter a commercially successful pay, and (iii) achieve the first two without damaging the asset.

People who had plan to do modular refineries but they cancelled their plan would be regretting that decision now. There is a lot of demand for aviation fuel now and once you deregulate and let the so called market forces take place, you will find investment will go where the opportunities are.

What’s the production story of Otakikpo field and what percentage increase on the current production do you envisage from this campaign?

 The Otakikpo -04 well is currently onstream after a successful well delivery exercise.  The Otakipo-5 drilling is going very well too. Otakikpo 4 has delivered beyond our expectations. So imagine that you are doing 4,000BOPD and just one well doubled your production? And this is at a choke back rate. It could do much more but we had to choke it back. We tested at almost 3,200 barrels and we decided to choke it back to conserve the energy. We hope to have the Otakikpo-5 online by the end of Q3 2022 and double the field output. There were three wells (at the time that GEIL was granted the marginal field in 2014). We re-entered two in 2017 and they produced around 6,000BOPD at peak, but that that has declined now. Before this campaign, we were doing around 4,000BOPD. If we allowed the wells to flow at their full capacity, it would mess up the formation. It was the same strategy we applied when we started in 2017 and this is going on six years and we were still doing over 4,000. That is a long time. Whereas if we had dragged it to produce at say 8,000 barrels per day, by now, maybe we would be doing 1,000 barrels. So that is the same strategy.

How do you get the funding for this project?

You know we are a partnership with Lekoil and I don’t want you to get the impression that all the money is coming from Green Energy. We are actually carrying 60% of the campaign and secondly, we have been very prudent with the way we spend our money. We don’t have private jets and all that so most of our bit of the money is from internally generated cash and a local bank.  

Do you want to put a number to that?

We want to be a bit circumspect but you should just know that we are prudent and the story is that we run a very prudent company and majority of our bit of the money comes from internally generated funds.

Would you want to take advantage of this success and drill more wells, immediately?

We will drill more wells but not in the immediate term. The philosophy of our company is to take it step-by-step. We are ambitious but we are not over ambitious. We are going to be doing it stepwise so that we can learn all the things we can learn, not only on the geology, but others as well. After we have learnt all that we can learn, we can step it up and step it up again and again. After this campaign, we will sit down internally and with our partners and ask what we have learned and determine what would be our next height to scale and we will plan the strategy accordingly.

You mentioned somewhere that your production operation is “amphibious”. How do you explain that?

We are not totally on land and we’re not totally offshore. Yeah, okay, we’re not offshore and so it is challenging in the sense that we have to not only deal with the issues related to onshore but our evacuation has to be offshore. We have to combine it with marine. As an example, a field that is purely onshore is hooked up to a pipeline onshore that solves all its problems. But we have to not only do that as our only route for evacuation is through the sea. That is why we say it is challenging but it also has some of its advantages which I am happy to tell you about.

So you barge your crude to an evacuation facility, more or less?

Do we call that barging? We are not barging. We have a two kilometre pipeline onshore from our facility. We produce there but because there is no viable pipeline that will take us to Bonny or to take us to any of those onshore terminals, we have to lay a six kilometre pipeline offshore. Then we use a shuttle tanker to help up take the oil for another six kilometres to a terminal, Amni’s (Ex-IMA) terminal. That is why we describe our operation as a little bit challenging because we have to deal with the offshore and onshore aspects of the operation. We pump the crude six kilometres offshore, to a point where a shuttle tanker comes, takes the crude to Amni’s terminal, dumps the oil there and comes back again to re-pump.

That shuttle tanker is on the Atlantic and your location is very close to the coast and that is why you do not need more than six kilometres of pipeline?

if we were located, say, 20kilometres from the coast, we would have been stranded like almost 18 fields around us that are within a 30km radius. They cannot produce because they cannot evacuate. But because we are close to the sea, we can quickly evacuate our crude. When we started, we thought of all these combinations that include barging, pipeline and so on, but at the end of the day, we solved the problem by saying why don’t we be amphibious? And like I was trying to explain to you, it has its own advantages. We do not have all these thefts people talk about. We produce 100 barrels, we get 99.99 barrels. But others produce 100 barrels and get 60 barrels but we get 99.99 barrels. Nobody has that record in Nigeria except us.

What is your cost per barrel? If GEIL has been spared the challenges of vandalism that other operators lament about their evacuation, it should show up as lower lost per barrel..

 Our operation is more challenging than most of our peers being amphibious in nature which implies incurring costs both onshore and offshore. We have deployed best-in-class cost management strategy over the past five (5) years to ensure our overall cost per barrel is competitive given our unique operational situation.

What are your expectations from the implementation of the Nigerian Upstream Cost Optimisation Programme (NUCOP)?

We welcome the implementation of the Nigerian Upstream Cost Optimisation Programme. We are committed to this programme because a low-cost operation is beneficial to all and is the only way to guarantee business sustainability in a sector fraught high volatility and uncertainty.  As a company, we are playing our part to bring down our cost per barrel and increasing our production is a big step in that direction. I served in a committee before the (Nigerian Upstream Petroleum Regulatory Commission) NUPR was created. I think the average and you can collaborate that, the average cost per barrel was hovering $30-35, two years ago when I was in that committee. Which everybody thought was getting too high and something had to be done. Some of the reason it was high was on contracting, I think. I served as a representative of the Independent Petroleum Producers’ Group (IPPG). I am sure that our cost is less than 20 dollars per barrel.  We are working on all options to see that it is down. In the next 2-3 years, I want to see 12-15 dollar per barrels production cost for Green Energy.

There are companies whose costs amount to $40 per barrel

They will not be in business for a very long time but we want to be. There’s a phrase that I like so much, “Capital stewardship”.  That is all this is and we have always been very particular about how we spend money because we don’t have too much of it. We have seen that cost of our evacuation, for us, is still really too high, but the key issue is that we are already optimized more or less on the onshore thing and on production. Our guys are well trained and we could still drive it down. The big chunk for us is the marine aspect: We have to manage the 6km onshore pipeline, we have to have a full gunboat. We have to pay for tug boats when we want to moor, you know, things like that. So those are things that we have seen and analyzed. A bulk here, a dollar there and our asset team is working on how can we minimize this. Is it by going further? If we go further, then we have to get a bigger vessel because of the draft. Because we are about 6km, the draft is about one to one from where we are. So, there’s a limit to the size that we can carry but when we go further, say maybe we can go 20 kilometers, who knows? To go by our calculations, we can carry a bigger vessel. So those are what the asset management team is doing, studying and we’re not leaving any option unattended to; both the terminal and synergy with other FSO in the region so we can drive the costs really down. And I am sure that in the next two or three years we think we can get to that point.

The name of the company, Green Energy, suggests a strong focus on lower carbon energy sources. But you have produced crude oil alone for going on six years now. What are your current plans to increase lower carbon products in your production mix?

I am sure that our cost is less than 20 dollars per barrel. We are working on all options to see that it is down. In the next 2-3 years, I want to see 12-15 dollar per barrels production cost for Green Energy.

 Our objective to deliver reliable and affordable energy to the world without jeopardizing environmental and social excellence makes us prioritize, plan and implement the development of associated gas reserves in parallel with the oil reserves; a very atypical strategy that clearly separates us from our peers in the industry. We are on track to commissioning a 12Million standard cubic feet per day (12MMscf/d) modular LPG extraction plant and 6MW power generating plants at Otakikpo by Q4 2022. With 12MMScf/d input, we think we will get 60 metric tons per day. In the context of the demand in the country, it is small, but this scale of modular LPG plant will be the first to be installed in the country and we intend to showcase same to other industry players and the Government as one of our bold contributions to eliminating associated gas flares in Nigerian oil fields.

Are there other lower carbon products, apart from LPG, that you envisage? Are you doing gas to power, you doing LNG small trucks, you know, that sort of thing? What are the plans in that area especially as Nigeria has declared this as a decade of gas?

When we got to this business, everyone was flaring and the penalties were low so nobody cared. But we decided to have an integrated field, using this as a small scale to do an integrated field that is exciting and you are right that we are doing gas to power. The 6MW gas to power which we are going to commission very soon is much more than we need so we are going to give the excess to the community. We had this romantic view of life at the time we came into the business. We prayed that the gas (from our oil reservoirs) will be rich so that we can also extract the wet gas which is LPG and again, our dream is coming true. On our field operations, we only use 1 or 2 MW of electricity so we have up to 4MW in excess. So what are we going to do with the excess power that we have? We planned an industrial park in that region. But things are a bit slow because people get scared and say, “what are these guys trying to do?” but sooner or later, the communities will cooperate with us and we will have that built. Here is a place where you have gas, and you can have electricity and with that, you can transform the economic landscape of that region.

Very soon, we are going to be putting CNG on a small scale of about 2-4Mscf/d of CNG in that region first but we are going to be expanding with time. We will have trucks deliver it to some of the estates and companies in that region and even to the greater Port Harcourt area. If it is successful, we are also planning to expand CNG so that we can take gas to the eastern region of the gas network in the country so that those who are in Lagos or so, can get it. We are planning all these little schemes to just tell people to think outside the box because we can really do a lot outside the big billion dollar projects and still make some impact. Just before COVID-19, we were on the verge of signing a contract with the Chinese to have our methanol plant. The partners came in and we met with the Minister of Trade and Investment, the former Governor Adebayo. Again, because of the need for us to focus and get this production going, there is still a need for us to revisit that. All in all, we are looking at methanol which will take almost 20MMscf/d of gas and then the CNG planned which will take gas in the first instance to see if they can satisfy the Port Harcourt area. We may ultimately jack up the gas to power from 6MW to 10 – 20MW, because if we eventually decide to do an onshore terminal, they might need around 10-15MW of power and that is the kind of integrated approach that we are looking at to develop the field.

When you say if you ‘eventually do the onshore terminal’, does it mean it is an option?

if we want to go forward, if we do 10,000Barrels of Oil Per Day (BOPD) now and we want to go to 25,000BOPD, we are going to have a challenge with our evacuation. Our present evacuation option will not work. If you want to take off on that scale and you are still depending on a third-party terminal, is that reasonable? Due to no fault of yours, if they close down for just one day, please multiply 25,000 by $50 and you will understand the amount of money that is on the table. That’s why I am I’m saying we have not closed out any options and that is why we are saying we might still build our own terminal. We might still talk with the likes of Notore and so forth. But definitely by the time we are going to 10,000 barrels, we have 140,000 barrels storage onsite now that we are doing 5,000 barrels and that is 14 days. If we are now going to 10,000 would 14 days storage be reasonable? If there is some problem on the other side and you keep on producing in just 14 days you won’t have any storage capacity and those are some of the issues that we are looking at. Every option is on the table and we are still looking for ways to debottleneck our processing facility and a lot of interesting things are going on. Again, this goes back our original philosophy of taking things step by step.

These “little schemes” as you call them, look like pieces of an industrial hub; power plant, methanol plant, LPG, CNG..

We are also planning an industrial park there and we have also applied to the Federal Ministry of Trade and Industry to make it an export free zone. When you have gas and power, interesting things can happen and I think our application has gone very far in government and we are likely to be declared an export free zone there. That way, we can have people bring their gas based industry there. In fact, we are pioneer member of CORAN which is an association of modular refineries operators. We have a license for a 5,000BOPD modular refinery there as well. So that general area becomes something else. We want to change the face of that area.

WE HAVE A REFINERY AMBITION but it hasn’t taken off because we are small company and we have no money. What is propelling us are ideas and the grace of God. We have so many things that we want to do and these young guys are too fast. I am the one slowing them down and asking them to take it easy and just take one step at a time. We have gotten our license 4-5 years ago and we were among the first set of people that got it and we went so far with some of the people that we could do it with but when you have a limited amount of money, what do you do first? The first thing is to produce otherwise you will not be in business and now it looks like we are getting there. 10,000 barrels is not a lean feat like you said and it is choked back; so with that increase in cash flow, we can do other things that we have planned. And like I said, we want to have an export free zone over there and the ministry has gone there to inspect and it could happen very soon. I wish we had done this two years ago with the diesel price being what it is today. I could have just retired early and gone to read my bible.

You are saying that the refining business has good margin possibly?

Yes it does. I mean that is the experience we have now. Once the prices are right, everything is fine. I am sure that people who had plan to do modular refineries but they cancelled their plan would be regretting that decision now. There is a lot of demand for aviation fuel now and once you deregulate and let the so called market forces take place, you will find investment will go where the opportunities are. We have a license and Crude Oil Refinery-owners Association of Nigeria  CORAN, has also just been licensed by the government through the CAC. And Barrister Ilori who is our Director of Corporate Services is the secretary of CORAN so we are still very keen on doing that. So when you have an export free zone, a lot of interesting things can happen.

Let’s talk about your host communitY issues. In your view, is the 3% of (the Previous Year’s) OPEX mandated by the PIA the best idea? Is it    too low or too high?

Operators are required to contribute 3% of the previous year’s OPEX to their respective host community development trust funds. We believe there is a lot of value in investing in the development of the host communities where we operate.  We took a unique approach to host community development and incorporated host community development trust funds for all our host communities as far as 2014, long before setting up a trust was a statutory requirement. Importantly, we funded these trust funds before achieving first oil because we wanted to positively impact our host communities notwithstanding the uncertainties. I believe this gesture might explain the relative peace we have enjoyed so far.  In our view, with the NUPRC taking an active role in host community development, stakeholders can expect the host communities to derive more value from the 3% OPEX contribution required by the PIA 2021.

• We have not had any host community issues since inception at Otakikpo and the reason is that they are very educated people. We have Chief Justices, we have politicians, we have generals and royal admirals there. For them, once we have an MoU, we follow the letter with a good spirit. When it was COVID and we explained to them, they understood and reduced their demand. For the PIA, the advantage for us is that it sort of streamlines what we do. So instead of us having MoU that is guided by just the two of us with either party over negotiating or thinking that the other cheated him or her, we now have an all-encompassing MoU saying that 3% of your OPEX will be dedicated to the community and we now have a trust fund registered with the government. So let’s that we finish our financials at the end of the year and give it to the government, they know what the OPEX is and that is what we are going to give to the communities. But with the government, what we would do is just provide some kind of oversight; we are not going to be intrusive with what they want. What we did in collaboration with the then DPR was to do a NEEDS assessment so as to have an idea of the community needs and we have submitted that to the regulator. So going forward, what we need to do is just implement. We have setup the trust fund also and once we kick start in August or September plus maybe another 60 days, we are ahead of schedule and we are ready to start from tomorrow because it reduces the subjectivity in negotiation and we are very happy with it.
• Pre-PIA, it is like we saw this coming and before the PIA, we already had, in place, a very progressive community engagement. Even before first oil, we were already doing a lot for the community. We give electricity to the community right now and we give them diesel for their generators free of charge every month.

How many litres of diesel did you give them every month?

We have always done that PIA or no PIA. Nobody compelled us. When we came to town we said hey, let’s do this because it is just common sense. They see a shiny little city there and they are in darkness. It means you are attracting vandals to your site. We also did trust fund ab-initio without the PIA. We had two sets of communities of about five villages. One is made up of four villages and the other one is just one village. We asked if they wanted to come together but they said no because of age old rivalry or something. So we have two MoUs with them.

We produce electricity and give them electricity and we employ a lot of their indigenes and turn them into operators. I remember there is a joke around the villages that every lady wants to marry our boys because we treat them very well. We started a programme called Future Leaders Programme PIA where we give scholarships; and our scholarships are bigger than what Shell was giving those days. We give N500,000 to each student as soon as they get into the university and when they are done, they come work with us. Then we also started encouraging the local entrepreneurs and I would say 80% of our civil works that runs into billions of naira are done by indigenous local contractors.

We have always had a very robust and progressive relationship but then, we now have the PIA and the regulator is telling us that we are ahead of them because we have submitted everything and they say ah, you are ahead because we have not come out with that regulation. It is good sense because if you don’t have peace with your community, someone would just come up one day and disrupt your operations and we cannot afford that.

Do you have to adjust anything in your ongoing Host Community Plan to fit the one stipulated by the PIA?

The PIA introduced far reaching reforms in the development of host communities and this has required our team to overhaul the existing MoUs and the obligations therein to ensure compliance with the PIA.  Importantly, we are required, in collaboration with the host communities, to conduct a host community Needs Assessment which then dovetails into a Community Development Plan (CDP).  The CDP then provides the roadmap for the Board of Trustees of the HCDT to implement projects which are targeted at the peculiar needs of the host communities.

 So far, our host communities have been well disposed to these developments and they have presented their best hands to help us deliver sustainable development initiatives in their communities.

You are not refining yet. How do you give them diesel?

We give them money and they buy it themselves. They have an old arrangement of diesel generator and we help fund it.

The Marginal Field bid round is being wrapped up. With licences now granted to the awardees,  the sight to first oil is clearer. What is GEIL’s Marginal field story? You applied? Did you get? Did you go to the secondary market? Can you tell us your 2020 marginal field bid round story?

While we are very interested in increasing our reserves and production base, our Company’s current focus is primarily to develop and optimally exploit the reserves in its current assets. We did not apply. We had a soul-searching internal discussion and I am not criticizing anybody. You are given an opportunity but instead of maximizing your opportunity, you are busy acquiring and putting more assets into your portfolio. To us, that is not the way to do it. I was approached by so many people to come and partner with them and we said no. We told them to be careful about this and that and to be careful with people who will tell you they will raise you $200Million but at the end of the day, you will end up in arbitration and they won’t raise you a penny. We thought we have an heirloom; let us optimize the opportunity and so show the world what we can do. Acquiring other assets in the future would not be a problem once people can see that you have made good use of the opportunity that you have. I am the happiest person that didn’t apply and that is because the work we have on our hands right now, we can’t finish them in the next five years.

This is a parable of the talents.

Honestly, a company that has an LPG plant, a power plant, an industrial park and so on is huge. One other thing about our story is that we are building what I call technocrats of the future. Our lawyers and our engineers, about six of them in phase one and four more in the next phase making them ten. They are going to one of the best business schools in the world, Our engineers have MBA and our operators have MBA and we have an excellent workforce.

If we want to increase to 25,000BOPD, our present evacuation option will not work. We can’t depend on a third-party terminal…

But they are not committed to working for you when they come back.

We have not lost any of them since we started operations seven years ago. The only person that resigned did so because he was relocating to Canada to be with his wife. I am proud of that and when we go to meetings, people say your team is younger people and they ask them how they are coping with academics in Warwick which is a very though business school. The second bit is that during COVID, nobody could go out and nobody could come into the office and my asset management head suggested that we turn this into something productive and they started training people in financial modeling. Both engineers and finance people and they started doing certification courses and again, I am not bragging, I want anybody to challenge me, no bank in Nigeria has the capacity of financial modeler in Nigeria than our company. No bank in this country. I am not saying that they are bankers but financial modeling, to structure and do the modeling, no bank has that capacity.

So if a bank throws a number at you, you can vet it?

They can’t even do what we are doing in our company, so we have to do it for them because they can’t do it. so why do we do it? There was this time we went to London and somebody came to us that they can do this algebra modeling and that we should pay $400,000 for it and I said ah, I am a university man and if I have $400,000 I would set up a university but he (Kayode) picked it up and we have trained four people already in that with an additional six to come this October. And I am not saying how to give loan oh, no but the real financial modeling.

‘Gbite Adeniji, Managing Partner at ENR Advisory, is a specialist with expertise in policy, regulatory and commercial issues in the energy, natural resources and infrastructure sectors. He was, between 2015 and 2018, the Senior Technical Adviser (Upstream and Gas Policy and Regulation) to the Nigerian Minister of State for Petroleum Resources, in which role he advised and provided direct support to the Minister on policy development, governance, regulation and reform of the petroleum sector. He led the preparation of the National Gas Policy and the National Petroleum Policy among other reform deliverables. In a wide ranging interview with the Africa Oil+Gas Report, he fielded questions on the entire spectrum of the energy industry, the highlights of which include: opportunities in the midstream infrastructure, challenges of low domestic offtake of natural gas; the heavy subsidy of gasoline (PMS) importation, mitigating the poor finances of the Bulk Electricity Trader, conundrum of price fixing in the natural gas market and all through the conversation, he kept repeating the warning: “there are 13 years left for Nigeria to make the most of its fossil fuel resources, achieve domestic industrialization on the back of those resources, ensure power sector growth and start making foreign currency reserve gains…

Excerpts:

AOGR: How Challenging, or exciting, do you find the Nigerian energy sector?

ADENIJI: The first point is that Nigeria is expending 1.2Trillion Naira per annum on gasoline (PMS) subsidy. But you have to question whether that is the correct policy choice. We have an economy waiting to accelerate, if you just direct money to proper places. Left to me, I’d take the money from PMS subsidy and move it to the power sector where we are more likely to have wider economic impact. This is where the focus should be, not on PMS. As it is, many of us have more than two cars. We are the people that are being subsidised.

So, We Might as Well Subsidise the Power Sector?

Not quite. Let me explain.

70% of the demand for gas is from the power sector where most of the power plants are owned by government. There’s a bulk electricity trader (NBET) that buys most of the power that is produced. It has no balance sheet of note. Therefore, it is not an effective purchaser of power, which also means it is not an effective purchaser of gas. As you know, gas is an input for power production.

The Bulk Trader takes power that is produced with gas, but is always delaying payment. You certainly cannot run a utility business that way. So, the NBET’s weak balance sheet affects the natural gas sector. If you were a gas asset owner, and you are presented with a power sector offtaker and you know that most of that power is not paid for, what position would your directors take on such a transaction? What do you think your lenders will be saying? You simply cannot sell gas to an impecunious offtaker. It’s just not a bankable project if your offtaker is not bankable.

So why doesn’t the Government put some of this subsidy money behind NBET? As you start producing more power, the economy starts growing. The purchasing power of these poor people that you say you’re helping will gradually start increasing as you produce more power. That’s how you build a market for natural gas.

You mentioned a balance sheet?

Yes, you need to put that money right behind NBET to give it a strong balance sheet. You just cannot attract the right investments into the sector if you still present a bulk purchaser that doesn’t have a meaningful balance sheet. So, I would rather take the money that is going to PMS, and put it at NBET. You must of course understand the argument about putting money in development as opposed to consumption.

But that’s what they’re doing and NBET has been the one that they’ve been giving the money to, over two trillion naira.

It’s not enough. A policy choice was made to put NBET in the centre as a bulk purchaser. When you take that decision, you cannot now not back it up, because it’s central to the bankability of the chain.

That’s true. And it’s in the law, which you helped draft.

I didn’t draft the power sector reform, I just contributed to part of the debate.

My point is, where is all that money?

Let me contextualize it. NBET is the centre as the main purchaser of the power, which it sells to the DISCOs. Again, the decision was taken to privatise the DISCOs. The privatization was badly done clearly, because the DISCOs are not strong enough and the purchasers of the DISCOs also bought with a commitment to roll out meters within eighteen months. It’s been several years now and that hasn’t happened, which is why all this other damage is happening. Many things have happened wrong in the handling of the entire power sector reform. But what I’m just trying to illustrate is that proper funding of NBET is very important for the time being. You can then put more attention around the DISCOs because revenue collection through the metering programme is very, very, important. The more revenue you collect, the more fluid the power sector becomes and it becomes easier to pay those who have made the investment in gas and in power generation. So, the two areas of focus should be distribution and bulk purchase of power. Another area is transmission, which the Government also decided to retain ownership of but doesn’t seem to be able to fund adequately. However, I think that with consistent support from multilateral finance institutions, this issue will be resolved in the long run.

 But what happened to the Gas Flare Commercialization Programme that you championed when you were in Government?

Our regulatory system sat on it after I left.

The President made a very correct call when he went to Glasgow for COP 26 when he said that Nigeria cannot commit to Net Zero by 2050. But he had a low hanging fruit that would have made him look like a like a giant among all the global leaders at the summit, because he had signed the Natural Gas Flare (Prevention of Waste and Pollution) Regulations into law in 2017 to address the enormous waste of approximately 320Billion cubic feet of (Bcf) gas that is flared every year. This was a programme that Nigeria had presented to the world’s largest gas flaring nations at various fora in Paris, Baku, in  Azerbaijan and in Cairo in Egypt, and was acknowledged as the most advanced solution to gas flaring globally. Everyone was looking for Nigeria to lead on gas flare – out and were ready to follow.

Part of NPDC/NDWestern’s 320MMscf/d Utorogu Gas Plant: “The escrow account and aggregate gas price hard wired into the law, are potentially poison pills to investment and need to be removed, so that those who are going to invest in the upstream have more clarity regarding price. The next area is that requires clarity is the question of when the transitional pricing phase would end. As you just cannot have an indeterminable period of fixed pricing”.

In the Niger Delta onshore and shallow water, we identified 197 flare sites because every company was compelled to submit their data. Now let us assume that only 97 of the 197 sites are doable because some sites are so remote and therefore might not have immediate solutions. If there are 97 sites within the Niger Delta where people are investing millions of dollars in communities, you will first of all be able to address some environmental issues, but then also the social and economic activity or value from that that activity may change the Niger Delta story entirely.

But what do you have instead? You hear that we have a shortage of LPG in the country whereas most of that gas that is being flared and wasted contains a lot of valuable Natural Gas Liquids. A lot of that gas would have been captured and put into the domestic market to meet LPG and related gas shortages. Supply meeting demand keeps prices down, not so?

This was a scale thinking behind the gas flare commercialisation programme. It was not only an environmental programme, but it was also a multiple developmental impact programme.

Unfortunately, our regulatory system sat on it. They preferred to go out and licence marginal fields instead. Basically, this country took the wrong policy choice again. How does that make us look?

You have to wonder why Nigeria keeps taking the wrong decisions even when opportunity is staring it in the face?

That Conclusion Should Take Us to Discussion on Energy Transition and Industrialisation

Now, there is roughly 13 years left for the country to make the most of its fossil fuel resources, if we go by the energy transition plans of most industrialised nations which will impact demand, especially for crude oil. In those 13 years the country has to have achieved domestic industrialization on the back of those resources, ensured power sector growth and started making foreign currency reserve gains with gas-based products. The hard truth is that a lot of Nigeria’s future rests in the hands of the CEOs of the petroleum sector regulatory agencies. Basically, they have to understand how these things fit together and rise up to the challenge and drive everybody to achieve the most profitable outcome for the country. They don’t have to wait for any minister to steer the industry towards these economic imperatives. As regulators, they are already empowered by the law. The Petroleum Industry Act is powerful. I have dissected the law from several angles. The regulatory powers are clear and enforcement powers tighter than they have ever been.  These guys literally have to assume the toga of war, unlike previous regulators.

What’s your take on Nigeria’s pricing scheme for gas to power and gas to other products”

It’s interesting that you raised it. If you look at the PIA, it says there will be a transitional phase and a fully competitive market-led pricing phase. During the transitional phase, prices will be fixed. In fact, the exact wording is price control. So, the price for power will be derived from what we call a Base Price. So what’s the base price? No one actually knows because the law requires the regulator to go through a consultative process with stakeholders for that price to emerge. Whenever that price emerges it will be a fixed price. Then you add a topping on it every year to take account of inflation.

We’re not there yet at a particular price?

The legacy price will have to continue the consultative and determination process is completed. Now, when that price emerges, the gas aggregation process will kick in. So how that works is that every year the Nigerian Midstream and Downstream Petroleum Regulatory Authority will ascertain what the domestic gas demand requirement is from three strategic sectors: the power sector, the commercial sector, and the gas-based industries. It will then advise the Nigerian Upstream regulatory Commission to impose a domestic gas delivery obligation on all Lessees (holders of Oil Mining Licences) in respect of that ascertained demand.

The Commission will then take that demand requirement and spread the obligation around everybody. What the obligation really means is that you will deliver the gas to a location that the gas aggregator will determine. The concept that everyone should contribute towards gas supply into domestic economy is very good and important.

But where it breaks down is around the pricing. The price is fixed in the contract but you actually do not get that price. The law creates what we call an Escrow account which will be held with the aggregator where all payments due to a supplier will be paid by the purchaser of the gas. All the payments due for gas supplied under this scheme from the three strategic sectors go into these extra accounts and are blended to arrive at an aggregate price, so you’ll actually get paid an aggregate price. So, imagine that you are in the boardroom and your managing director requires the board to make an investment decision to produce gas to supply to let’s say the power sector. If the economics based on the base price show, say a price $2.50 per MillionBtu (roughly $2.5 per thousand standard cubic feet), but the directors become aware that the price in reality will be a different yet unascertained price, the board will likely not approve the project because they’ve got shareholders that they must account to. So they need to know the basis upon which they are making decisions and they also need to know what they are going to earn from the investment. In case the board falls asleep and says yes, you’re still going to end up with your lenders who are likely to be more alert and likely going to say sorry, they cannot lend you money based on an unknown or unquantifiable outcome.

So, gas supply based on the aggregate price concept is not bankable. Again, please put your mind to that 13 years that I mentioned earlier because the time is very short. Anything that gets in the way of a quick turnaround or a quick investment in the power sector growth, quick investment in domestic gas industrialization and quick development of the gas market opportunities, should go out of the law. In fairness to the law, it says that if you find someone who is ready to buy the gas on a willing buyer- willing seller basis, go ahead. So maybe some would take that window. If you find someone who can take the exact volume then you can be exempted from the domestic gas delivery obligation and you’ll be deemed to have complied basically. But if you don’t, then you will have to go through that process. So basically, they need to just clean that bit out of the law quickly.

You’ve been talking about power, the energy deficiency and the fact that people aren’t empowered to build an economy that will demand for power at the end of the day. A large complaint has been that the power tariffs haven’t been robust enough for investment. If you’re sitting across the table from power producers and talking with them, what would be your take? 

Remember the big error, just before the 2015 elections, when the tariffs were due for review and the government intervened with NERC and they could not proceed with the tariff review. That was an awful decision, because it sent a warning signal to the investment community. And it took a while for us to come to the point where tariffs were now reviewed. So, tariffs have been reviewed now to a point where recently, they are headed in the right direction and NERC is becoming more alive to its statutory obligations. Because the law is very clear. The law says when there is a major macroeconomic event, let’s say inflation goes beyond minimal level or there’s an FX devaluation, you must review the tariffs, because you must give those who have invested, the cost reflexivity. You can’t invest one way and then they just find that what they’ve been getting has been eroded by these macroeconomic events. So you’re supposed to adjust the tariffs to make them whole. That’s the law. So, what’s going to happen is that the tariffs have now been adjusted in continuance with these macroeconomic events. We’re not quite there yet but it’s going in that direction. And these are the things that will basically help bring more investment into the sector. It’s also important to ensure that there’s pressure put on DISCOs to roll out meters because you have to be able to collect the money. You’re actually collecting on behalf of the entire chain anyway, which is all the way to the gas sector really. So revenue collection is central to this equation. And that’s where the regulations on the petroleum side must have a good handshake with NERC because it’s an energy chain so they need to be able to work well together.

The Renewable Energy market has taken off from a low base and it is growing, though no in grid scale, in Nigeria. Are you concerned that it will eclipse the gas to power part of the electricity supply industry?

Well, the truth of the matter is that you need a mix.

So you’re not worried about possibly diminishing  investments in gas to power? When everybody in Ikoyi, V.I, and some of the most economically viable places in Kaduna, Kano, Awka and Onitsha, is looking to install renewables?

Firstly, the country has many energy-fuel sources, so we’ve got huge solar intensity in Northern Nigeria, which we need to tap, because it’s going to take a long time to get a gas pipeline carrying base load volumes into Northern Nigeria. And you may see that even when that happens, solar would still be cheaper than gas going through the pipeline to the north. Again, back to fuel-to-fuel competition. We also have two great rivers, Benue and Niger, of which there is a dam in one, Kanji, producing power, cheaper than even the gas for thermal plants.

So there’s a good mix?

There’re many rivers in the country and many dams we could have, producing power discreetly to certain areas that are stranded. Again, there’s the opportunity, with the virtual pipelines, the CNGs and the mini-LNGs to get gas into stranded areas and help respond to and further build up demand in those areas until when there could be a hard pipeline going there. So there are many possibilities here. So, different parts of the country are positioned for different types of energy solutions, so gas should not necessarily trump all. However, what’s great about gas is that it’s useful for industrial projects and also large power plants, particularly in the south. But there’s no reason why you shouldn’t have many solar projects up in northern Nigeria, large ones for that matter because of the solar intensity up there.

Can you respond to this challenge we hear from people all the time? Nigeria has abundant gas resources, but very few offtake transactions are happening at scale in country. Most of the announcements that Savannah Energy has made are about trickles: 10MMsf/d; 1MMscf/d, 5MMsf/d….  There’s a methanol plant that is penciled down for Bayelsa State. It’s planned gas requirement is about 350Million scf/d, the largest single domestic offtaker. But the FID is not yet in clear sight. What exactly is going on that outside the dysfunctional power sector, there is hardly a >100MMscf/d  offtaker, with the exception of Dangote and Eleme?

You really put your finger on some very concerning issues. The truth of the matter is that gas projects are incredibly difficult to implement. When you put the gas projects together, it’s like you’re putting together a jigsaw puzzle. There is such a mutual dependency of so many things in that chain, and they must work together in sync. If one aspect of these dependencies is off kilter, you don’t have a project. So let me put it this way. Fortunately, we don’t have resource issues in Nigeria as everything starts with the resource being available. But the other end of the equation in gas is the off-take. I illustrated to you that 70 percent of the demand for gas in Nigeria comes from one sector: the power sector, which must be a priority sector for any economy. So if you don’t sort out whatever the problems are in that major off-take sector, then you’ve got a problem and your gas resources may end up being stranded within that 13 year period. So that’s one. I also know that within the 13 year period, funds can gradually start drying up, so time is of the essence. But then also, major industrial plants can take large volumes in gas. So you mentioned the methanol project, yes that’s the second or third largest project being done since the Nigerian LNG project. So it’s a very important for the country.

Another is the Indorama (Eleme) fertilizer project which took off on the back of the initial petrochemical plant at Eleme. So when they went looking for money to do their fertilizer project, it was oversubscribed with 90 percent of the funding for that plant provided by lenders. That’s never been done in Nigeria before but it is because the borrower has a hugely successful petrochemicals business. That shows that sponsor capacity is very important because that’s important to lenders. Alas, most sponsors in Nigeria are weak and that’s why many gas projects just go into the graveyard. I have the experience of many of them. People wanting to do a lot of big interesting projects, but cannot even fund the development of that project. You should be open to bringing in other investors into your project as it makes it more likely to happen.

The brain desk at Egbin Power Station in the north of Lagos: “if you don’t sort out whatever the problems are in that major off-take sector, then you’ve got a problem and your gas resources may end up being stranded within the 13 year period ending 2035. So that’s one. I also know that within the 13 year period, funds can gradually start drying up, so time is of the essence”.

Again, we have a syndrome in Nigeria where investors like to hug everything. An example emerging today are upstream asset owners who want to control the midstream and downstream projects. You don’t necessarily have to do it that way. Someone else can more conveniently build the process plant so the CAPEX spend can be avoided by the upstream. You pay OPEX instead to process your gas and you can still retain the compounds that will come out of the processed gas. But there are hardly any tolling projects in Nigeria today because upstream investors aren’t as focused around capital efficiency in spite of the creation of a distinct midstream sector in the policy reform which allows third parties to invest purely in infrastructure. My point is that upstream people should be happy about putting their money into looking for oil or gas, finding it, producing it, and letting the midstream provide the service.

I have just one last question.

Yes.

It’s in two parts. The first basically addresses your final line in your magical presentation in late 2021 at the Petroleum Club. You just mentioned midstream, with midstream gas and all that, and that has probably been the centerpiece of your legal career. But then you have a problem with two regulators, and the fact that even though you say now that policy reform in your time in government advocated for a separation in terms of projects, but you still consider it too expensive or cumbersome to have a regulator working in midstream and downstream, and another overseeing upstream. I would like you to respond to that. The second question is; what’s your solution to the gas pricing conundrum?

In the sector policy reforms that was accepted by the government, we advised that a single regulator be established for the petroleum sector because it is a petroleum chain. You produce resources, you either refine crude oil or you process gas, then you store, transport, and then utilise the resource. So, if you’re a regulator, it’s important that you have a full view of your regulatory field so that you don’t have what I call asymmetry of information. If you’re not seeing things fully then you take decisions based on only what you are aware of. Whereas if you are in full view of the chain, then you have what we call structural efficiency in regulation. But when you bifurcate it as they have wrongly done in the PIA, with a regulator with focus on the upstream, and another one focused on the midstream and downstream, then your focus will be limited to areas within your regulatory remit. That is another example of a policy choice taken by the Government notwithstanding its position in published policy.

Now, when you make such a choice, you have to be ready to address the inherent problems in such a structure, especially the regulatory gaps you will have between the upstream and the downstream or the potential clash of power in terms of environmental regulation, competition regulation and even in terms of agencies cooperating together. So you have to have a way of moderating the relationship between the two agencies. If the leaders of the agencies appreciate this problem well and they take up the challenge to work together, they would have served Nigeria well. This is because, the onset of any regulatory system is an inherently risky phase because the system is needs to settle. So typically, investors would ratehr wait and see how things work before they make big investments. So, the early signaling, because of the structural design issues which requires co-operation by the leadership of these two agencies is very important. They have to find a way of working together very quickly, and also calming their respective teams down so that they present a very unified image to existing stakeholders and even prospective ones.

As for the pricing of gas, it’s very important for the PIA to be amended. There are many areas of the PIA that need amendment due to the quality of the drafting and the resulting interpretation problems. But , to the substantive issue of pricing, it would really help the country given its need to take advantage of the direction of global energy policy. This escrow account and aggregate price hard wired into the law, are potentially  poison pills to investment and need to be removed, so that those who are going to invest in the upstream have more clarity regarding price. The next area is that requires clarity is the question of when the transitional pricing phase would end. As you just cannot have an indeterminable period of fixed pricing. You can’t stimulate investment and demand that way. We’ve seen that the market has been calling for competitive pricing, and a lot of people are ready to do willing buyer- willing seller gas supply. So you basically need to steer people in that direction with clarity around the sunset of the fixed pricing framework. We had that clarity in the National Gas Policy but the PIA has detracted from that position to something rather fuzzy.

NNPC seems to, even though it’s no longer the be-all and end-all of the Nigerian petroleum system, have a huge monopoly of the infrastructure. What do you have to say about that?

It still is.

Can people actually use the law to pry away from NNPC this power?

Savannah Energy’s Accugas infrastructure: “In fairness to the law, it says that if you find someone who is ready to buy the gas on a willing buyer- willing seller basis, go ahead. So maybe some would take that window. If you find someone who can take the exact volume then you can be exempted from the domestic gas delivery obligation and you’ll be deemed to have complied basically”.

Yes and no. The first thing to understand is that the PIA has protected NNPC such that nothing invasive has been done to the national oil company. In fact, the new one created out of the old one shed out its liabilities to create a liability-free entity with huge assets vested onto it. In terms of its power in the upstream, nothing is done there and it has a potential to be a very strong upstream entity because of the size of the assets vested onto it, but its governance is the big issue that must be addressed so that it can deliver on its promise. And that has implications for the 13 years. It’s the issue of how it will use those assets and how to drive crude oil or gas development, keeping an eye on the 2035 period, so that’s one. Then go to its infrastructure. Most of the infrastructure for gas assets in the sector belong to NNPC directly or indirectly. Indirectly because it’s a 60 or 55% interest owner in the JVs. So it has big control there. Also, it has its midstream subsidiary, NGC which controls most of the transmission system. In competition law that is a monopoly. Now, I’m trained in competition law, so I hasten to say that there’s nothing wrong with the monopoly per se; what is important is how you use your monopoly power. So, what the PIA has done is to open the space for other people to come and invest in infrastructure, but then you cannot duplicate infrastructure as that would offend against the waste doctrine. But there are other opportunities, for instance Ibadan is waiting to happen, so is the entire eastern Nigeria.

But Ibadan is under the franchise of NNPC?

The PIA doesn’t recognise franchise. Rather, the PIA vests sole power for determining entry into the midstream along with competition regulatory powers onto the Midstream and Downstream Petroleum Regulatory Authority, and not NNPC. There are eight midstream licenses, including transmission and transportation of gas and network operations. That’s all within the power of the regulator. So, NNPC may not determine who builds and operates gas pipelines to Ibadan, Enugu, or Nnewi. This position is very clear in the law.

What about the former Oando Gaslink, which is Axxela now? Was that not a franchise? What happens to it?

It was. If they want to transport gas, they should go and apply for a license. The law says you must make an economic case and show potential demand if you want a pipeline license. Once you make that case with the regulator, and meet up with the other conditions, you will get the license. So you don’t have to go to NGC to enter the midstream otherwise that would be anti-competitive.

Twelve 12 years ago, Transnet, the South African state-owned logistics company, was constructing a new, $1.5Billion, 715 kilometre long, multiproduct pipeline (MPP) to transport petrol, diesel and jet fuel from Durban, on the coast of the Indian Ocean, to Gauteng, in the north of the country, to replace the ageing Durban-to-Johannesburg fuel pipeline. The network, expected to have a life cycle spanning more than 70 years, was designed for a capacity of 1,000 cubic metres per hour (m³/h) when brought on stream, and could be scaled up to 3,000 m³/h through the addition of new pumpstations.

In Nigeria, around the same time, Shell, the UK major, was commissioning the Nembe Creek Trunk Line (NCTL), a 97 kilometre, 150,000 barrels of oil per day pipeline to receive and transport crude oil from over 15 oil fields in eastern Nigeria to the Bonny terminal on the Atlantic.

These two transmission lines have suffered significant vandalism, in the short time since their inauguration.

In Nigeria especially, the rule has become not to have a single crude evacuation route, if the primary route is through a pipeline.

But just because the risk of pipeline transport is growing does not mean that opportunity in Africa’s hydrocarbon pipeline space is necessarily diminishing. For every kilometre of line that is tampered with in Durban and Warri, there are three kilometres of new pipes being laid in Kabaale in Uganda and Western Desert in Egypt.

And while the focus is high on grid length lines which move fluids from production centres to demand nodes, there is a lot of opportunity in spur lines, in pigging, in maintenance and in integrity issues.

The pipeline story has been an integral part of our reporting in Africa Oil+Gas Report ‘s 21 years of publishing. It surprises even us that an annual edition had not been dedicated to Pipeline issues. With PIPELINE ANNUAL 2022, we are grabbing the opportunity.

Read your copy here.

The Africa Oil+Gas Report is the primer of the hydrocarbon industry on the continent. It is the market leader in local contextualizing of global developments and policy issues and is the go-to medium for international corporations, local entrepreneurs, technical enterprises or financing institutions, for useful analyses of Africa’s oil and gas industry. It has been published by the Festac News Press Limited since November 2001, and, since the COVID -19 season, as a monthly digital (pdf) publication, delivered to subscribers around the world. Its website remains www.africaoilgasreport.com and the contact email address is info@africaoilgasreport.com. Contact telephone numbers in our West African regional headquarters in Lagos are  +2347062420127, +2348036525979, +2348023902519.

MANUFACTURING

Bell Oil & Gas says it is looking forward to commissioning a multi-million-dollar, integrated facility, located at the Lekki Free Zone in the eastern flank of Lagos, Nigeria.

The facility is on a site with a total size of over 15,000 square metres, according to Kayode Thomas, the company’s CEO.

The first phase of the project “comprises state-of-the-art valve assembly, maintenance, testing, painting and production”, which will deliver “Made in Nigeria valves for the oil and gas industry”, Thomas explains.

The second phase of the facility is for piping, pipe threading, machining and production of pup joints, crossovers and accessories. Thomas says that commissioning is at hand. “The facility will also accommodate our composite pipe fabrication services as well as serve as a storage and logistics base for our entire operation”

Bell Oil & Gas is a Nigerian owned service company which produces, supplies, installs, commissions and maintains a range of composite pipes. It is involved in some of the country’s ongoing large E&P projects including TOTALEnergies’ Ikike oilfield development, Nigeria Liquefied Natural Gas (NLNG)’s Train 7 construction and the ANOH Gas Processing Company’s ANOH midstream gas processing project. It is looking forward to participate in such future projects as the Shell led Bonga Southwest/Aparo, a deepwater oil field project.

MEANWHILE, IN PORT HARCOURT, THE LARGEST CITY IN THE NIGER DELTA BASIN, Tag Energy says it will commence the construction of a 3,000 square feet factory for the design, production, and repair of valves of all types and sizes by the year 2025.

The company ordinarily does flange management services; providing solutions for bolting requirements, including torquing, tensioning, stress analysis, and joint integrity quality assurance and quality control (QA/QC), with services catering to “high-integrity sealing of flange joints at chemical plants, refineries and offshore installations, as well as general industrial sites”.

Tag also supplies, services and repairs valves, mostly in engineering facilities in the oil industry. As the company builds the manufacturing facility, it has taken charge, as part of its CSR, of training young people in the eastern Niger Delta at its new valve service centre in Port Harcourt. Tag will “offer paid internships to qualifying students to produce a steady stream of skilled resources for the industry, further reducing our dependence on foreigners for ongoing maintenance and support activities”, says Yemi Gbadamosi, the company’s Chief Executive