| From nigeriafirst.org
Whereas oil accounts for more than 90 per cent of the nation’s foreign exchange earnings, 80 per cent of its revenue and 40 per cent of its Gross Domestic Product, this was the industry that suffered a lack of investment, clear policy initiatives and wore a choleric domestic mien that could not be exemplary for a nation that boasts being the fifth largest oil producer in the world. Similar neglect also afflicts the gas sector where Nigeria with 183 trillion cubic feet (Tcf) ranks 7th in global ranking and accounts for 93 per cent of Africa’s proven gas reserves. 70 per cent of this gas is, however, flared and in quantitative terms this means that only 24 Tcf is being produced. Domestic fuel scarcity leading to chronic queues at filling stations, black marketing, mass-scale hoarding of petroleum products and frequent vandalism of oil pipelines were the hallmarks of the industry under the military. More significantly, the lack of a clear policy focus for the industry was brought into sharp relief by the neglect of the gas sector, overtly characterised by flaring of gas, with its attendant degradation of the environment and loss of revenue to the nation. The Obasanjo administration, upon taking office in 1999, launched a policy initiative dubbed the 2010 Aspiration to salvage the rot in the industry with clear objectives including: • Attaining 40 billion barrels oil reserve by 2003 • Achieving 4 million barrels per day oil production by 2003 • Monetising the abundant gas resources in the country • Achieving gas flare-out by 2008 • Ensuring uninterrupted supply and distribution of petroleum products • Achieving a minimum level of 30% local content utilisation • Strengthening indigenous capacity by 2003 and 50% by 2010,up from the current level of between 10-15% • Stimulating private sector participation • Maximising the sector value, assuring fair share of the value for Nigeria To achieve these goals, the administration provided a conducive environment for capital inflow. Similarly, it provided incentives for indigenous capacity development and put in place conditions that would motivate participants. In addition, it habitually addresses the challenges that emanate from joint venture funding and embarks on new licensing rounds. Indications are that these efforts are yielding the desired fruits in such areas as increased exploration activities, foreign capital inflow and production capacity. The fall in oil prices in 1998 saw a drop in the number of wells drilled from 30 in 1998 to 17 in 1999,when the administration was elected into office. However, two years into the administration, 50 wells were drilled in the deepwater with technical success of about 50 per cent and this is expected to increase to 76 wells by the end of 2002. Foreign capital investment in the sector also rose steadily from $4.65 billion in 1999 to $9.47 billion in 2002.Industry sources even argue that the administration recorded more investments in the sector in its three years in office than in the last 30 years. This is alongside the execution of new projects such as the EA/EJA, Amenan/Kpono, Yoho, Forcados Yokri, Bonga, Agbami and Erha, aimed at enhancing the nation’s production capacity. With these projects, production capacity is expected to rise significantly so that a level of between 3 million and 4 million barrels per day is achievable by 2003 and 2005 respectively. This means that the government would not only meet its projections in record time but also improve its revenue by 50 percent in early 2005. Similarly, the interplay of the strategies adopted by the administration to salvage the oil and gas sector has translated into an impressive annual net reserve growth, in excess of the administration’s 1999 target. In quantitative terms, these reserves account for 31.6 billion barrels of oil reserves and 19 trillion cubic feet (Tcf) of gas reserves this year. Given the scarcity that had bedevilled the industry before the inception of the civilian administration, the most significant intervention of the government in the industry stands out in its ability to make fuel available at designated retail outlets nationwide. Success was recorded as a result of rehabilitation of existing refineries and the boosting of their capacity utilisation. By the first quarter of 2001,local refineries refined about 330,000 barrels of oil per day and this has now levelled off at 250,000 barrels per day. As a result of consistent Turn-Around-Maintenance of the refineries, they now operate at about 52 per cent capacity. To further forestall a relapse, other mechanisms were put in place to ensure regular fuel distribution nationwide including: • Completion of the Bonny Export Terminal (BET) project to facilitate the evacuation of finished products from the Port-Harcourt refinery • Accelerating the completion of the marketers’ jetty at Apapa, Lagos, in order to improve product distribution • Effective management and enhancement of equipment integrity in the supply and distribution system • Building a Single Point Mooring (SPM) at the Atlas Cove, Lagos, to improve import and to complement old and failing facilities • Tackling the problem of fuel pipeline vandalism through more effective surveillance Localising the Oil & Gas sector One of the abiding concerns of the Obasanjo administration since inception has been how to strengthen indigenous capacity building and local content in the oil industry. For this reason, it focused on such policies that could make Nigeria the hub for the supply of technical services and human resources in the industry in the West African sub-region. Amongst these measures are appropriate incentives to private sector operators and the setting of measurable targets for oil companies in terms of ensuring a minimum of 30 percent local content in their operations, utilisation of Nigerian goods and services and the manning and management of professional cadre in the industry by Nigerians. Another plank of the policy measures is the establishment of focused local content performance monitoring system such that technical jobs hitherto exclusively executed abroad are now being carried out in the country. Examples of these are: 3 TFE Amenan Drilling deck k in Warri, 3 SNEPCO Bonga Topside modules, 3 Shell EA drilling jackets in Warri, Agip/NPDC Okpoho drilling platform in Port Harcourt and quality assurance of the Forcados Yokri project, said to be the first of its kind on the continent. The industry is equally now beginning to find application for the large pool of technically competent indigenous oil and gas industry workers and consultants that have become available after 40 years of oil exploration activities in the country. Also significant for the administration was its ability to persuade multinational oil companies on the need for accommodation of government, leaseholders and small indigenous players, on such matters as farming out marginal fields to Nigerians in addition to working out mutually beneficial packages for all. It was under this scenario that the government in 2002 put on offer 24 fields for local participation by entrepreneurs. 142 companies submitted 398 bid packages. As part of the government’s efforts at liberalising the downstream sector of the oil industry, indigenous firms working with foreign partners were also given the opportunity to establish and operate private refineries.31 companies applied out of which 18 were successful. Stepping up the Gas After 30 years of planning, it was only in 1995 that government reached a Final Investment Decision (FID) for the first two trains of the Liquified Natural Gas (LNG) project in the country. Since then, Trains one and two were commissioned at the inception of this administration in 1999, while the FID for train three, taken in February 1999, was completed in November this year. Trains four and five FID also taken in 2002 are expected to see first gas-in by the third quarter of 2005.Upon completion of trains four and five, LNG production would increase from the pre-1999 5.8 MTPA to 16.7 MPTA. Based on its Aspiration 2010, President Olusegun Obasanjo has set an ambitious target of complete gas flare-out by 2008 and revenues from gas to equal that of oil by 2010. Given this, a new fiscal regime was put in place to encourage gas transportation to third parties and a plan of action enunciated by government with its joint venture companies to actualise its production, transmission and utilisation objectives for the gas sector. As a result of these efforts, it was able to reduce the flaring ratio from 70 per cent in 1999 to 51 per cent as at the end of 2001, a 17-percentage reduction in the three years of the administration. This compares favourably with the ratio of 71 per cent in 1996 and 68 per cent as at the end of 1998, a reduction of only three percentage points. Government officials and industry watchers are upbeat that a full implementation of the administration’s on-going domestic and export gas programmes could result in flare-out being achieved earlier than the targeted date of 2008. ‘’Indeed, flared gas will be essentially eliminated before the end of 2006 even if a production of three million barrels (production) per day is attained by 2003’’, a special aide to the President on petroleum matters said at a recent forum. Current domestic demand for gas is less than 500 million scf/d out of which 225 million scf/d is used exclusively for power generation. Government plans to boost domestic utilisation in this area by rehabilitating several generating units of the national electricity company (NEPA) , partaking in joint venture with multinationals for the establishment of new Independent Power Plants (IPPs), exploring additional domestic gas projects and market development. It is envisaged that these developments would cause domestic demand to grow from the current level to 1,800 MFCD and about 4,800 MFCD in 2010 and 2020 respectively. In the area of exports, the administration hopes to produce such products as LNG 31, MTPA, LPG 6 MTPA and condensates 5 MTPA by 2008, from the NLNG and such other on-going new LNG projects such as Brass, Nnawa/Doro and ExxonMobil. An aggregate net cash flow of all gas projects is projected to yield revenues of $4.3 billion in real terms (at 2002 prices) in the overall government net cash flow by 2010.This will invariably lessen the 82 per cent current OPEC quota dependency for revenue by the country. To buttress growth in exports, the administration took decisive steps on the West African Gas Pipeline project which is to deliver about 400 million standard cubic feet of natural gas per day to the sub-region for power generation and other uses, upon completion. Since the signing of the Memorandum of Understanding (MOU) in August 1999 between the project developers and the governments of Nigeria, Ghana, Benin and Togo, the Definitional Phase Project Development Joint Venture Agreement has also been signed while the preliminary commercial evaluation has been completed. © Copyright 2006 nigeriafirst.org |
