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Founded sixty years ago, the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce& Industry, has become a foremost advocacy group in Nigeria, helping to shape policies that enhance growth in the country’s upstream value chain while protecting the interests of member companies. Rick Kennedy, Managing Director Chevron Nigeria and incumbent Chairman of OPTS, shares with select journalists including Africa Oil + Gas Report, factors that have kept the organisation going strong as it marks its 60th anniversary.

Sixty is such a milestone, tell us a little bit about the journey so far.

The OPTS really Is a trade group and the intent is to improve the health of the offshore and onshore oil and gas industry in Nigeria by allowing the operators to come together in a forum where we can address common issues.

Obviously, we have to respect laws on competition but, there are a number of common issues that we deal with, so we work collectively and I think the organization has been very successful in moving various things forward on behalf of industry and in partnership with the Nigerian government for the benefit of the country, as well as the oil and gas industry.

This is done through advocacy, providing input on the development of regulations. I think the other big success over that 60 years is not only contributing to enabling the success of the oil and gas industry but also being able as an industry to give back to the country in terms of direct and indirect jobs, revenue to the country and social investments by member companies. For example, we have provided funding for universities, scholarships, and other social investment activities tied to economic empowerment, health, as well as education.

At a high level, OPTS supported the government in moving forward with the oil industry bill and we are now focused on supporting the implementation of the petroleum industry act.

So what have been some of your biggest challenges thus far?

Probably the biggest issue of the day is oil theft, insecurity, and the impact on the industry’s ability to produce safely and reliably. We’ve had infrastructure that has either been damaged or forced to be shut in. And we’re all aware of the impact on production revenue to the government.

I think probably the other challenge that we have more recently given the state of the economy and the reduced revenue coming in due to oil theft, is the ability of the NNPC to pay their share of Joint Venture operating expenses in a timely manner.

And so the outstanding cash calls are building up and lack of reinvestment just further hurts the ability of the industry to deliver…

But there were efforts made by the NNPC to address these arrears, what happened?

There was a significant effort to address the historical arrears. We were able to form a great partnership between industry and the government to come up with an innovative approach to address it. That has been largely successful and I think in a few cases those historical arrears have been fully paid off.

Unfortunately, more recently, with maybe the challenges of the economic environment and then the increasing oil theft,  outstanding cash calls have became an area of concern in the latter part of 2021 and through 2022.

Investments into the Nigerian oil sector have been few and far between and many projects are yet to come on stream. As an advocacy group, what measures do you recommend to attract investments into Nigeria?

That’s a good question. Obviously, there’s probably a long list of things but in general, developing and maintaining investor confidence is key. Are we competitive, relative to other opportunities, globally?

If the government can perhaps address and mitigate factors such as the impact of inflation, unemployment, and ease of doing business. Issues around security, for example, increase in the cost of our operation. Cost competitiveness is really critical, and that’s something that we’re  doing a lot of work on.

The Nigerian upstream cost optimization program is an area where the industry is partnering with the government to try to lower the contracting cycle times and drive down costs.

We are working closely with the regulators to try to help the development of regulations that are effective and streamlined hopefully, to minimize some of the administrative burdens that may be placed on the industry which again, leads to cost.

Historically, there’s been a lot of levies and fees and various taxes applied to the industry and we are seeing that continue even in the current legislative activity. There is a discussion on even more taxes to be placed on the industry to help fund various programmes and departments across the country.

So really, this whole area around cost competitiveness and driving down costs is a critical element.

On the plus side, the passage of the petroleum industry Act has brought some clarity to the industry and a certain level of certainty around the fiscal framework. So that’s a real positive in gaining investor confidence.

 What would you say are some of the successes recorded by the OPTS in the past 60 years?

Well, I’m going to point to the passage of the PIB and that’s not all OPTS but I know OPTS was involved. This success goes back to the willingness of President Buhari and the Minister of State for Petroleum Resources and NNPC GMD to collaborate with the industry and this gave us an opportunity to make an input.

The government ended up crafting a very good bill that ultimately got passed and OPTS and the member companies spent a lot of time supporting that effort, providing input and ideas. So that to me is a very recent example of success.

In addition, we’ve had numerous scholarships given to different students in different communities. We’ve built numerous hospitals, in different communities within the nation and around the Niger Delta. During the COVID pandemic, the OPTS put forward about $30 million to support government efforts. We did a lot of vaccination and built health care facilities in the six geopolitical zones of the country.

So for 60 years, you’ve managed to stay relevant as an advocacy group, what is the secret?

I think there’s probably an element around governance. We all have a common purpose and we do have positive intentions for the country, its citizens, and the government. We have very positive working relationships with all stakeholders. The folks that first came together to form OPTS, I think, laid down a good set of governance. It’s very inclusive. It’s very collaborative. We follow all the  relevant anti-trust and competition laws in how we conduct our activities.

It is several factors and right now we have 29 members, including five IOCs, plus some other larger exploration and production companies and many of our indigenous companies. So we work hard to really bring in all the perspectives and collaborate very closely across the member companies.

There is a mindset of true partnership and collaboration, not only within the member companies but with all stakeholders in the country.

By Tony Attah

Nigeria has had a very long history with “oil” starting from the very agrarian era of the 19^th century, when palm oil was the main “oil” of the economy even though we have now lost our edge on this front to other nations like Malaysia, and Indonesia who have been more deliberate in deploying technology to scale up the integration of the entire palm oil chain for optimal value.

I choose to open with this analogy hoping that we can draw some parallels with our crude oil and gas industry to see if there are any lessons, we can learn therefrom hoping that we will not lose our edge in Deja-vu, as we have seen in the case of Palm oil industry.

While the 1950s/60s were characterised by the palm oil trade, the 1970s to date have been largely about crude oil and more recently gas.  I do not need to repeat the history of Nigeria’s oil and gas industry, but you will all remember the journey from Oloibiri and the emergence of the IOCs onshore and Nigeria becoming a member of OPEC nations in 1971 through to the recent foray into deep offshore and the growth of Nigeria as a recognised Oil Nation to now becoming, as some would say a Gas Nation with some oil. It is however important to put a few things in perspective in respect of the enablers that underpinned the growth we enjoyed largely between the mid-80s and early 2000s – from the Petroleum Act 1969 (as amended) through the IOC partnerships that underpinned the likes of the 1986 MoU and the 2000 MoU; without which it may have been difficult to realise the kind of growth that Nigeria experienced in that period.

All through the ’80s and ‘90s the global focus was on oil as the major source of energy and a key component of the energy mix and indeed revenue earner for producer nations. This energy mix was underpinned by the demand from western economies, predominantly for transportation, residential and commercial heating as well as support for massive industrialisation, and a key source of competitiveness for western economies. Indeed, Oil and Gas guaranteed the Energy security for western economies over the last century and more.

Nigeria’s case is no different, but even more so that oil became the country’s major revenue and foreign exchange earner to date. Nigeria’s oil activities were always underpinned by the partnerships with western IOCs and more recently, the independent and indigenous producers, heralding the era of the joint ventures which largely was dominated, and still is, by the federal government with an average of about 57% of the entire onshore JV equity and strong holder-ship of most of the concessions offshore which are modelled as Production Sharing Contracts (PSCs). The JVs by their nature are designed such that you contribute and distribute earnings according to equity holding, which essentially means government by implication is required to contribute about 57% of the entire cost of running the onshore JV business as well as entitled to take commensurate value in return.  As you may recall, the industry over time struggled with government cash calls for funding its share which subsisted till very recently when creative solutions were developed by NNPC leadership working with the IOCs to resolve the cash call. Since then we have seen the advent of some creative options like the “Outright Carry arrangements, Modified Carry Agreements, Strategic alliances and more recently the Financial and Technical Services Agreements (FTSA).

“Some of the proffered solutions on the crude oil theft debacle are largely about detection of the criminality rather than very robust response and deterrence to ensure full consequences for these illegal activities.”

The hydrocarbon industry is highly capital intensive. The creative solutions of the 1990s and early 2000s largely addressed the issues of funding and incentivising the IOCs; but also facilitated the emergence of smaller indigenous players to diversify the game, noting the importance of the industry to Nigeria as a key contributor to both GDP at about 10% and over 80% Forex and more than 75% of government’s revenue. This perhaps is why the industry was referred to as the goose that lays the golden eggs!

While the 90s and 2000s were characterised by the issues of funding, cash calls, and trust deficit between partners, today’s industry in Nigeria is facing more local challenges and globally interwoven issues of higher complexities and dimensions requiring more collaborations and broader creativity if Nigeria is to remain in reckoning globally. There’s need for a  new agenda that is robust and consistent with current realities. Permit me to dimension the current issues broadly as internal and external; but first, lets start with the external.

Most of the external issues are largely around the global interconnectivities of the world and the integration of energy systems beyond geographical boundaries. A  butterfly flaps its wings in Australia and floods happen in New York, Hurricanes charge up in Florida, Tsunami rattles Japan and earth quakes shake Africa in the chaos theory and butterfly effect also known as the  Edward Lorenz theory of deterministic chaos.

Global energy integration has become intertwined with geopolitical power to the extent of becoming an instrument of economic and political weaponization, as we are currently experiencing in Europe.

“A school of thought suggests that Energy transition will switch to over-drive mode once the dark cloud above the uncertainty around Russia is lifted, giving clarity to policy makers in the EU. For this reason, Nigeria needs to brace to respond to an even steeper trajectory in the energy transition journey but note the tempered refinements including accepting Gas as the credible transition fuel as against the blanket castigation of all fossil fuels as dirty and harmful to the planet.”

The global consequences of climate change has heightened the consciousness for decarbonisation of the energy systems resulting in energy transition with a fast-changing energy mix. Even though the world needs more energy as a result of global population growth from the current 8Billion to 10Billion people by 2050 (Nigeria expected to double; 400Million). The world no longer needs energy at all costs, thus instigating the current dilemma on energy. Yes, the world needs more energy, but it, also needs it cleaner, cheaper and in abundant supply.  The requirements for “cleaner” and advancement in technology have led to the quantum growth in renewables which remain the cleanest but unfortunately is still costly and constrained by intermittency in most cases and unable to meet the full energy demand growth thus making gas, the next best option of a global transition fuel to power the world. In all of these, the key considerations of Availability, Affordability and Accessibility must be maintained to guarantee sustainability, which gives gas a crucial edge in the energy mix, even though Hydrogen is fast gaining ground on the back of improvements in technology. As the demand for energy prioritises electrons over hydrocarbons to meet the projected 30% demand growth, suppliers need to prioritize which hydrocarbons will bridge that transition before Hydrogen takes centre stage. On balance, Gas meets that standard and checks most of the boxes today.

Energy transition is also exacerbating the issue of how we secure funds for new projects development, including new exploration scope, especially for gas and being able to produce at capacity consistent with our massive oil and gas reserves. Securing funding remains a key challenge for the industry with the international banks, Export Credit agencies and Multilateral Institutions no longer keen on financing fossils/oil and gas projects that are either outside of their territories or perceived as contributing to further CO₂ emissions.  This in addition to the introduction of carbon taxation portends very grave impediments to the viability of oil and gas projects going forward, even though the ongoing Russia and Ukraine crisis is slowing down the overall pace of the energy transition in Europe.

The Domestic Environment

The internal dynamics, of course responds to the global issues of Climate change, Nigeria’s market share is constrained by the twin  challenge of reduced funding for oil and gas infrastructure developments across the world and the emergence of new global energy powers with the shale revolution in the US and new major discoveries around Africa in places like Mozambique, Senegal, Namibia, Tanzania and Ghana.

Outside these external dimensions, local above-ground risks, such as crude oil theft, Pipeline Vandalism, Insecurity, Community development and agitations, Infrastructure deficit, are perhaps the biggest obstacles for investment for our industry today. They are compounded by value attacks due to multiple agencies/ministries with cross functions, which collectively make the ease of doing business in the industry more cumbersome compared with the  new frontiers in Africa.

That said, it is commendable to see the progress made to approve the PIA; at least we now have a clear basis to go forward on the fiscals to attract new investments into the industry. There however, has been some critique on how long it took to pass PIB to PIA; some believe it has come rather late and may not have taken full cognisance of the emergent global circumstances in the world of energy where the energy mix is fast changing, and the energy system balance is shifting both in joule terms and the extremes of political power. Moreso, they argue, asserting that the PIA fiscals may not be inspirational enough to lure back investors and attract the requisite level of investments needed to unleash the potential of the industry again.

Irrespective of our thoughts, the fact remains that the PIA indeed took so long and while waiting, Nigeria lost quite some grounds and opportunities noting that, of the over $70Billion investments that came into Africa between 2015 and 2020, only about 5% made it into Nigeria, 5%! ($4Billion)! Essentially the rest of the world continued to move on while we were vacillating on the passage of the PIB over the last 20 years. That said, I personally think the PIA is a welcome development which will go down in history as one of the key legacies of the President Muhammadu Buhari’s administration even though the real value addition will be tested by how well we are able to operationalise and make it effective to attract new investments while protecting the existing ones through preserving the sanctity of contracts and agreements.

Operationalising the PIA and being able to sort out the now near cancerous issue of crude oil theft and its attendant impact on the industry, environment and indeed the nation’s economy, will have to form the key pillar of whatever new agenda will be developed in order to have a fighting chance of regaining our position as industry leader and a force to reckon with in Africa.

“I see a future where there will be mainly 3-5 major independent producers in Nigeria with capacity to manage the onshore scope against all odds while also playing a crucial role across the African sub region alongside the now commercial NNPC Limited.”

The industry in Nigeria continues to be plagued by massive and industrial scale crude theft which is now becoming endemic and on the brink of completely getting out of hand if extraordinary steps are not taken to stem this ugly situation. But while it is debatable whether the recent exits of the IOCs from the onshore plays in Nigeria is linked to this issue of chronic crude oil theft, the resulting divestments could portend a hint of opportunity to deepen and grow more local content participation and capacity building with more independent and indigenous players emerging as part of the new agenda. Essentially, we are beginning to see the advent of indigenous companies’ consolidation on the back of IOCs divestments which could also mop up some of the recent marginal fields in whatever guise of partnerships, merger or outright takeover for scale. I see a future where there will be mainly 3-5 major independent producers in Nigeria with capacity to manage the onshore scope against all odds while also playing a crucial role across the African sub region alongside the now commercial NNPC Limited.

The future of Nigeria’s oil and gas industry will not be complete without ensuring the consolidation of the independent and indigenous players. It is instructive to note that the indigenous producers have grown tremendously over the last decade to be accountable for about 30% of national production (from just about 2% in 2010) with capital and development investment of over $20Billion within the same time frame. The role of the indigenous players has got to be a  critical element of the new agenda.

Against the backdrop of the foregoing, permit me to put some stakes in the ground in respect of what should be the main building blocks of the new agenda for Nigeria’s oil and gas industry going forward:

Let me start with the PIA as an opportunity:

The opportunities offered by the approval of the PIA which is designed to deliver effectiveness, efficiency, accountability, competitiveness, and safety are immense if the Act is conscientiously and diligently applied as the new foundational basis for a reset of the Nigerian oil and gas industry; it could become a key enabler to win back investor confidence and restore Nigeria’s hitherto vantage position in Africa. This should inspire the unbundling of the full industry value chain, thus creating an improved enabling environment for Nigeria to become the investment destination of choice once again.

While we are at it, it is very heart-warming to see NNPC Limited emerge as a key product of the PIA, repositioning it as a commercial entity under CAMA regime, consistent with the realities of other private entities in the industry. This can only serve to increase the much-needed transparency to boost investor confidence in the overall governance of the oil and gas industry in Nigeria.

“As the demand for energy prioritises electrons over hydrocarbons to meet the projected 30% demand growth, suppliers need to prioritize which hydrocarbons will bridge that transition before Hydrogen takes centre stage.”

Another critical component of the new agenda linking to the PIA must be the focus on Energy transition, the fast-changing energy mix and the new global direction with respect to Energy systems. Even though the ongoing geopolitical situation in Ukraine seems to have slowed down the initial momentum of the transition, this is seen in some quarters, as just a temporary but necessary desperate measure to focus on the survival of Europe which needs to manage its over dependence on Russia while working to create new avenues to guarantee security of supply to wean itself from Russian oil and gas. There is however, another school of thought which suggests that Energy transition will switch to over-drive mode once the dark cloud over the uncertainty around Russia lifts giving clarity to policy makers in the EU. Hence, we need to brace to respond to an even steeper trajectory in the energy transition journey but note the tempered refinements including accepting Gas as the credible transition fuel as against the blanket castigation of all fossil fuels as dirty and harmful to the planet. This may also catalyse the acceleration of further state backed investments in renewables which holistically could accelerate the pace of transition but either way, gas remains a  credible partner to renewables and hydrogen as the transition fuel of choice.

Let me touch on the Role of Gas in this new agenda.

The new thinking of gas as a global transition fuel has got to be a second opportunity for Nigeria to reposition and take advantage of the new demand and supply gaps to deploy our gas reserves as the catalyst for development and industrialisation while taking centre stage as a leading gas nation supplying most of Africa, Europe, and rest of the world. Nigeria currently has over 206Tcf of proven gas reserves with massive potential to become top five in the league of Qatar, USA and Russia as a gas superpower. We must crank the engine on gas to bring about massive developments deploying and taking advantage of the PIA but also being very deliberate about the focus on gas with thoughts around exclusive moratorium to create more gas development incentives and waivers to inspire new investments in the gas value chain. We must take advantage of the ongoing work on the declared “Decade of Gas” programme which is meant to form the bedrock of how we transition Nigeria into a full-fledged gas economy as a national priority and a key element of the new national agenda for the oil and gas industry.

Therefore, the other key components of the new agenda must be hinged on gas development, specifically on deliberate gas exploration to rebase our gas reserves, and consideration for more attractive fiscals to incentivise further gas developments, infrastructure investments and cost reflective pricing for the domestic and export gas supplies. Essentially government needs to do everything including granting additional and far-reaching fiscal incentives focused on gas development as the main pillar on which our industrialisation will be built and also for global exports as a key forex revenue earner for the nation. The potential Five Billion standard cubic feet per day 5Bscf/d local market for gas is huge and we must domesticate a significant part of our gas development to drive our national economy. This focus on gas should also result in a structural improvement of the current ministerial portfolios to create a critical position solely to focus on gas development – the “Minister for Gas” should be tasked with doing every and anything possible and necessary to ensure all the gas policies and guidelines cum initiatives are brought to fruition as part of the call to declare emergency on gas and power development in Nigeria.

This story will not be complete without addressing the issue of Crude theft

Against the backdrop our current reality, whatever agenda we design will be inconsequential if it cannot resolve the issue of the massive industrial scale crude oil theft and illegal artisanal refineries plus pipeline vandalization currently going on. This is of major concern both locally and internationally. Worryingly, there does not seem to be any quick fix solution in sight without government rising up to its responsibilities of securing lives and livelihoods. I have followed active debates on the subject and note some of the proffered solutions including the socio-political ones and deployment of technology which largely are about detection of the criminality rather than very robust response and deterrence to ensure full consequences for these illegal activities. Government at all levels and across all arms need to, in unison, declare a state of emergency on crude oil theft and deploy technology to fight the crises and deal more decisively and transparently too as a deterrent to those involved in the nefarious activities and economic sabotage. This singular issue threatens our economic and energy security and so must be dealt with as a consequential security emergency.

In summary we need to press the reset button as part of the new agenda to galvanise the oil and gas industry in a post PIA world. The basic components of the new agenda can be encapsulated in the following suggestions:

1. First and foremost, we need to take back control and secure our oil and gas production territories to create a more enabling environment by declaring a security state of emergency on crude oil theft and illegal artisanal refining activities in the Niger Delta.
2. While it is encouraging to read about government’s recent push towards tackling the crude oil theft menace, this needs to be sustained and underpinned by fresh thinking including deployment of geo referencing and geo-spatial tracking technology and diplomatic cooperation across the Gulf of Guinea. This new drive should include active Gulf of Guinea regional and international cooperation and partnerships especially with the EU, USA, and the Britain to help proffer and implement sustainable solutions including fingerprinting our crude oil, following both the molecules and the money in order to tackle crude theft once and for all.
3. Fully operationalise the PIA by deploying all the enabling fiscal incentives therein to boost investor confidence and attract new investments to stay relevant in Africa and globally.
4. Focus on gas as a strategic imperative to drive the ongoing Decade of Gas declaration to cause the implementation of very deliberate moratorium and gas focused incentives cum waivers to instigate massive exploration and development of our gas reserves for both domestic and export markets.
5. As part of the strategic imperative on gas, create a focused position for the “Minister for Gas” to ensure laser pointed focus on gas matters including actionable policies, fiscals and investments to reposition gas as the bedrock of Nigeria’s industrialisation
6. Take advantage of the ongoing global demand and supply imbalance to partner with the EU, towards unlocking the requisite funding and technology needed to develop our gas reserves within this decade of gas agenda.
7. Encourage government to bite the bullet on the petroleum subsidy issue by enabling more modular refineries to scale up alongside the much-anticipated Dangote Refinery and the rehabilitated NNPC refineries to supply the domestic market and the sub region as a net exporter of petroleum product thus eliminating smuggling.
8. Deliberately focus on more human capacity development and skills acquisition to international standards to make Nigeria a net exporter of skilled engineers and technicians across emerging oil and gas markets in Africa. Our over 60 years of operating a functional oil and gas industry has got to count for something to restore our dignity as the giant of Africa one more time!

Signed: Amaopusenibo Engineer Tony Attah (FNSE), Lagos, September 13, 2022

The article is an abridged version of the keynote address delivered at the Richardson Oil & Gas HSSE Forum. Attah, a former Managing Director of the NLNG Ltd, is currently an independent Energy Consultant.

By Macson Obojemuinmoin

Crude oil producing companies operating in Nigeria used to report to the Department of Petroleum Resources (DPR) to obtain export permit for the commodity.

Until the Petroleum Industry Act (PIA).

The overarching law of the Nigeran hydrocarbon sector, enacted in September 2021, created two regulatory agencies out of the DPR: the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).

The legislation inadvertently authorised both agencies to be in charge of regulating crude oil export terminals.

Section 7EE of the PIA empowers the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to:

• Issue certificates of quality and quantity to exporters of crude oil, natural gas or petroleum products from integrated operations and crude oil export terminals established prior to the effective date and the commission shall have the power to monitor and regulate the operations of crude oil export terminals and the responsibility of weights and measures at the crude oil export terminals shall cease to exist from the effective date.

And Section 32ii of the PIA empowers the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) to:

• Issue certificates of quality and quantity to exporters of crude oil, LNG and Petroleum products.

These two clauses have created a conundrum. Which agency is the rightful authority to issue export permit?

“This issue was one among several that the PIA implementation team saw and pointed to both agencies in our interactions with them and they promised to resolve implementation via the presidential steering committee”, a ranking manager at an International Oil Company told Africa Oil+Gas Report.

The two agencies fought out the issue of export permit during the third quarter (Q3) 2022 permitting round as they both insisted on issuing the permits and actually did. “This points to serious implementation hiccups in the law than ever envisaged”, the manager said.

Operators had to apply to both agencies but after much haggling, paid the fees only to the downstream agency as operators refused to pay twice for same permit.

Some analysts have wondered how storage and export of crude which is produced through upstream operations be a midstream to downstream activity.

But the PIA also explicitly defined upstream operations as terminating at the crude oil production Platform, such that there is validity in the argument that the NMDPRA should be the agency to grant export permit to terminals.

Prior to the enactment of the PIA, permits were issued by the midstream and downstream divisions of the DPR, which constitute a significant part of the NMDPRA, but those permits were dependent on clearance by the upstream divisions of the DPR, where the technical allowable and proof of royalty payment were checked.

Even so, there are terminals and there are terminals. In the deepwater terrain, where about half of Nigeria’s crude oil output is delivered, the FPSO is both the production facility and the terminal. In several shallow water fields, the FSO or a Production Platform, is effectively the terminal. From most onshore (and swamp) fields however, the commodity is transported to terminals at the edge of the Atlantic.

Based on this geography of supply, the Minister of Petroleum and the deep divisions, the Minister of Petroleum has directed that the NUPRC will issue permits for export from deepwater as well as those shallow water assets for which their FSO or Production Platform sere as their terminals.

But some still kick against the Minister’s directive, in private, arguing that “dual regulatory powers” are not the intent of the PIA.

“Segregation clauses are meant to resolve the matter but segregation is not immediate”, a Nigerian owned operating company staff explained to Africa Oil+Gas Report. “From late 2021 to end of the 2^nd Quarter 2022, operators were taking export permit from NUPRC but this was probably because NMDPRA was still finding its feet then as NUPRC was able to take off more effectively because it took over most of the structure and activities of DPR”.

The PIA is not a straight forward document the makers thought it is and so much unforeseen issues have come up and are coming up.

“Some of the segregation clauses were written by those who are not industry practitioners and operators seem to have paid more attention to the fiscal clauses in their advocacy such that there are several confusions in the operations clauses”, several analysts say.

So, what should be the way forward?

Everyone seems to agree that poor drafting is the big issue and this is clearly one area where some amendment will help.

“A literal reading of  the provisions of section 7 of the PIA would suggest  that the NUPRC remains responsible for any existing terminal”, says Adeoye Adefulu, Managing Partner at Odujinrin & Adefulu, a full service commercial law firm, “the NMDPRA would only be allowed to supervise the terminals which are established afterwards”.

In the long run, however “to address the conflict on regulations between the two regulators, the PIA needs to be amended to ensure that the full upstream value chain from acreage management to crude oil export is regulated by the upstream regulator while the midstream regulator is focused on midstream and downstream”, argues an asset manager at one of the International Oil Companies, who has had oversight function on regulatory permits. “In the interim until PIA is amended”, he argues, “the minister of petroleum/ President should issue a policy directive to effect the change”.

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.