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DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION
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February 23, 2011
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P E O P L E | T E C H N O L O G Y | P R O D U C T | S E R V I C E | P E O P L E | T E C H N O L O G Y. . .
After the merger - Page 7
Oil Producing Communities To Receive Over $600 Million - Diezani
Our Goal Is To Be Recognized As The Undisputed OIL & GAS Leader In IOCs to Play a Energy Key Role in Nigeria's Future Management - Hochet Development
F E D E R A L Government is to pay annual dividends worth over Six hundred Million US Dollars to oil producing communities in the Niger Delta. This was made known by the Honourable Minister of Petroleum Resources Mrs. Diezani Allison-Madieke while speaking on the topic titled “Nigeria's Energy Industry in the New Era” at the ongoing Nigeria Oil and Gas Conference tagged NOG 2011. The Minister said, there is the need to address the Niger Delta problem and make the host communities key stakeholders with incentives to protect oil and gas facilities located in the area. The Minister who was represented by Mr. Andrew Yakubu, Group Executive D i r e c t o r, P r o d u c t i o n /Exploration and Production of NNPC, also said, the government is on course to g row the country's oil reserves and maintain it at about 40 billion barrels through the period to 2020. The Minister also said that the
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SHELL Regional
Cross section of delegates at NOG 2011 government will reposition the natural gas sector to support a greener, flare free basis for ag g ressive economic growth while driving for more effective linkages between the industry and other economic sector such as industries, agriculture and human development through increased local content and indigenous participation. In order to entrench transparency and accountability in the energy sector. According to her the Federal Gover nment and the
National Assembly are working so hard to see the passage of the Petroleum Industry Bill (PIB). “Indeed the Nig eria Petroleum Industry Bill contains the most fundamental legal requirements that will apply to the entire petroleum industry in Nigeria. As you are all aware, this bill has underg one legislative processes resulting in discussions, modifications and debates by all stakeholders in order to ensure a viable legal and
regulatory framework for the benefit of not only the Nigerian people but also local and international investors”. She said. The Minister said that the c o u n t r y w i l l c o n t i nu e leverage on the Nigeria content act which was signed into law by the President Jonathan adding that with the act in place, operators and ser vice companies that provide services to the petroleum industry will be required by law to perform designated scopes of work in-country.
Executive Vice President, Sub-Saharan Africa; Ian Craig has said the international oil companies operating in the country should have a key role to play in the next phase of the county's development. He said this at the ongoing 2011 Nigeria Oil and Gas Conference in Abuja, while delivering a paper titled “The Role of the long-ter m international Partner in Nigeria's Future”. He said the role of the IOC in Nigeria can be termed as an industry leader or enabler and that it should be involved in future plans. According to him, Nigeria has enjoyed a leading position in sub-Saharan Africa through onshore oil, LNG and deepwater development but as time goes on and the industry matures, a number of challenges must be Go to Page 3
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Gas Should Spur The Proliferation Of Petrochemical Plants - Ibeneche PAGE 7
Why Proposed Reforms Matter
ISSUE 2 | February 23, 2011 | Page 2
DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION OPENING DAY DINNER
Editorial Co-ordinator: Frank Uzuegbunam Reporter/Researcher: Stephen Ishola Design/Graphics Felix Omorogbe Operations/Administration: Ikenna Nwamaife Editorial Advisers/Contributors Prof. Wumi Iledare Abubakar Atiku Nuhu-Koko Alexandra Gillies Val Ezeokeke
- Nigeria’s Mainstream Energy Resource
Meet us at the press room of NOG10 International Conference Centre, Abuja Call: 08033071135 or 08051340651
www.nigeriaenergyintelligence.com
ISSUE 2 | February 23, 2011 | Page 3
DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION CULTURAL EVENING
CONTINUED FROM FRONT PAGE
GAC Extends Global Agency IOCs to Play Key Role In Nigeria’s Future Development Network GAC addressed. “More needs to be done to harness the substantial gas reserves. Which means much more domestic gas for power generation and for the industry, more LNG and possible step out such as GTL or export via pipeline as now being pioneered by the West Africa Gas Pipeline” he said. He explained that the role of the IOCs in the next phase is not going to be that of capital support but rather as a bringer of global expertise and leading edge technology. That, he said, will be a differentiator. He declared that, learned or new technique used in other parts of the world would be transferred to the country. He however reinstated the fact that Nigeria's deepwater arena is underdeveloped. “The Nigeria deepwater province produces around 600,000 bbls/day and has helped to sustain revenues despite the fall in onshore production. Bonga and other similar developments have been a great success, yet they only represent only a fraction of what could be produced'. He
maintained further that, there is much more deepwater potential and, subject to a favourable investment climate, he said the IOC can play a major role in helping to unlock this value and secure the critical national revenue streams for decades to come. Mr. Ian Craig said that the industry is ever more challenging and he believes the IOCs can assist in surmounting these challenges. “I believe, the IOCs can provide impetus. So, for Nigeria there is plenty of scope for many more years of productive and mutually beneficial IOC/NOC partnership as well as scope for developing indigenous companies both as operators and as partners”. He said the business environment must provide the framework that these multi-billion dollar investments require.
shipping company has formed an alliance with the Bahamian agency Elnet Maritime Co. Ltd., to form GAC-Elnet with effect from 1 March 2011. Elnet Maritime Co. Ltd was founded by shipping veteran Elbert Ellie Hepburn in 2008 after serving a variety of top managerial positions at agencies in Grand Bahamas. Since then, the company has provided effective and efficient first-class agency services to Principals with vessels calling at ports throughout The Bahamas. The reputation that Elnet Maritime Co. Ltd has gained over the years, prompted GAC Maritime Co. Ltd to form an alliance. The Group decided to expand its network to the Bahamas in response to the growing demands of its clients, in particular oil majors operating and using the country's storage terminals. According to GAC's Group Vice President for the Americas Lars Heisselberg, he said “throughout its history, GAC's growth has been opportunistic and customer-driven to meet the needs of our clients and this latest move into The Bahamas is another example of that”. He explained that, “the professionalism
and performance of Elnet Maritime make it an easy match to the values of GAC. Expansion in the Caribbean makes strong business, and Elnet Maritime is the ideal partner to help make that happen.” In his response, Elnet Maritime Co. Ltd President Elbert Hepburn says, “Our local know-how and GAC's global standing make GAC-Elnet a winning combination. Through this alliance we will be able to pursue international clients and GAC's customers will benefit from our frontline expertise here in The Bahamas.” GAC-Elnet is ideally placed to serve the needs of owners, operators and charterers with vessels calling at Bahamian oil terminals or the shipyard. One of the key reasons GAC decided to expand its presence in The Bahamas was an expected rise in the demand for agency services, partly arising from an anticipated increase in use of the South R i d i n g Po i n t c r u d e s t o r a g e a n d transshipment terminal on Grand Bahamas, to supply refineries in the USA with crude oil and feedstock.
ISSUE 2 | February 23, 2011 | Page 4
DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION
BRIEFS Nigeria's Crude Production Slips THE 2.1 million barrels daily oil production from Nigeria has slipped by over 200, 000 barrels as the shutdown of Bonga oil field continued. Royal Dutch Shell Plc, operators of the field, which stated that the facility was on maintenance shutdown declared that it could not say when the fold up will end. "I can confirm there's a maintenance shutdown for Bonga this February," Precious Okolobo, the company's spokesman, said, adding "We can't say for now when it will end.�The Bonga field, located 120 kilometers (75 miles) in the Atlantic waters offshore Nigeria, has the capacity to pump more than 200,000 barrels of crude and 150 million cubic feet of gas a day, according to the company's website. It also supplies natural gas to the Nigerian Liquefied Natural Gas (NLNG) liquefaction plant on the coastal Bonny Island that supplies long-term buyers in Europe. Nigeria is Africa's top oil producer and the fifth-biggest source of U.S. oil imports.
Oil Jumps On Libya Unrest BRENT crude futures have risen more than $1 on concerns that violence in Libya could cut more of the OPEC-member's output, and that a similar story could play out in other top oil producers in North Africa and the Middle East. One company shut down as much as 100,000 barrels per day (bpd) of oil output in L i by a , a b o u t 6 % o f production from Africa's third-largest producer. Other oil giants said they were withdrawing staff as Libyan leader Muammar Gaddafi fought to hang on to power and dozens were reported killed in the capital, Tripoli. Brent crude for April delivery rose $1.13 cents to $106.87 a barrel after rising as high as $108.18 in early trade. Brent hit a 2-1/2 year high of $108.70. US crude for March delivery touched its highest since October 2008 at $94.49 a barrel. The contract trimmed gains later to trade at $92.82 a barrel, still up more than $1. Barclays Capital commodities analyst Yinxi Yu said the market was nervous over news of violence in Libya and that this was what was driving prices.
INTERVIEW
Our Goal Is To Be Recognized As The Undisputed Leader In Energy Management In Nigeria - Hochet What services do you offer the Oil and gas industry? Schneider Electric has been established to be a true leader in the country in terms of energy management and to be known as the global specialist in energy management. Schneider Electric Nigeria became a full fledged subsidiary of Schneider Electric France in 2005. From 2002, it operated as a liaison office and prior to this date we were present in the country with known brands such as Merlin Gerin and Telemecanique through authorized partners and distributors. We offer solutions in energy efficiency and energy management to key global companies, leveraging on our local presence and expertise to bring solutions that are safe, reliable, efficient, productive and green. The skills and competencies of our services team also enables us offer top class support to our customers in the area of audit, maintenance and training to ensure that they are able to evaluate the effectiveness of their installations and properly utilize them. Our critical power solutions help our customers to have safe and reliable power to effectively run their operations, our power distribution and electrical terminal distribution solutions ensure energy optimization including solutions for remote monitoring, our building management offer provides a wide range of possibilities in lighting control, HVAC, access control, fire detection and security while our process control solutions helps refineries, industries and factories reduce their energy consumption and better manage their facilities. Schneider Electric has invested heavily in the development of our human capital in line with the Nigerian content development act. We recruit Nigerian engineers who we have trained to be able to provide world class services. We have also set up a manufacturing and assembling facility where we produce Low voltage electrical distribution panels up to 4000A and local adaptation of Medium voltage equipment.
Marcel Hochet, Country President, Schneider Electric, Nigeria
How has the experience operating in Nigeria been? Operating in the Nigerian market has been very rewarding. Of course, as with every foreign investor, there are always concerns about the risks involved with large scale local operations but over the last 5 years, we have succeeded in building a sustainable organization that has helped to serve oil and gas clients within the the framework of the Nigerian content development act. As a result of our commitment to our goals, we have acquired most of the necessary certifications and implemented procedures to meet the very high standards of the industry and regulatory bodies. It has been a long process but we have remained optimistic to attain the excellence levels required with the dedication of our local teams and indeed we have started to see the positive results of our commitment What will you consider as the biggest hurdle Schneider Electric face doing business in Nigeria? Our biggest challenge is meeting our targets in on-time delivery. We are constantly faced with changes in importation processes or tariffs, clearing and port congestions. This impacts a lot on our activities though we strive continually to mitigate these challenges by being proactive and anticipatory in our internal processes. Do you have any plans extending your operations to other countries in the West African sub-region? Schneider Electric Nigeria is currently finalizing plans to develop its operations with a full local presence in Ghana and Liberia in the short term and Sierre-Leone and Gambia in the long term. We hope to leverage on our business success in Nigeria, our local expertise and logistics operations to extend into the West African sub region. For us at Schneider Electric Nigeria, going to Accra to perform a service job or site audit has become no different from going to Abuja or Port-harcourt. That's the level of ease of operations we have been able to achieve.
Five years ago, Schneider Electric recognized the energy need and potential of Nigeria and took the necessary steps to invest as we have done. We are now positioned such that we are able to participate seriously in the privatization of the distribution companies as the global specialist in energy management bringing its local presence and expertise to improve the electrical network and quality of energy produced and supplied.
With Nigeria's government focus on the power sector, will you consider Schneider Electric lucky to have presence in the country before this time? Five years ago, Schneider Electric recognized the energy need and potential of Nigeria and took the necessary steps to invest as we have done. We are now positioned such that we are able to participate seriously in the privatization of the distribution companies as the global specialist in energy management bringing its local presence and expertise to improve the electrical network and quality of energy produced and supplied. We are currently working on a range of solutions we will be able to offer investors in this regard. How long have Schneider Electric participated in NOG conference/exhibitions? This is Schneider Electric's second full scale outing at the NOG conference and exhibitions and we intend to remain a regular exhibitor. With our vast solutions offer for the oil and gas sector and more especially what we provide in response to the local content demands, our presence at NOG cannot be undermined. Where do you see Schneider Electric in Nigeria five years from now? Our goal is to be the recognized as the undisputed leader in energy management in Nigeria by growing our local manufacturing base to cover Industrial automation, Building management systems, Critical power and cooling, security and control. We also hope to have developed valuable partnerships and a reliable network of local technical partners.
ISSUE 2 | February 23, 2011 | Page 5
DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION
INTERVIEW
BRIEFS
“Gas Should Spur The Proliferation Of Petrochemical Plants� - Ibeneche As the first indigenous CEO of Nigeria LNG what have been the major challenges that you've faced? Am I really the first indigenous MD of Nigeria LNG? During the project phase we had one or two people who were Nigerians who were MD so I am not the absolute first Nigerian at the helm of NLNG, just the first Nigerian MD in the production phase. But what are the challenges? I think the challenges I have faced are not unique to a Nigerianborn managing director. They are challenges that I think anybody who's managing the business would face. We tried to increase the production capacity of the plant from 22 million tones to 30 by building train 7 and we've been slowed down by the same factors that slowed down Brass LNG and OKLNG's ambitions and these things are not unique to whether or not the MD is Nigerian. The overall security environment has been one of our major challenges and we have been faced with similar challenges to other companies operating in the same sector in Nigeria. Government has also tried to reorder priorities for gas allocation from export to domestic use; that again will affect anybody who is operating an LNG company in Nigeria. I think one issue peculiar to Nigeria LNG has been attempts to extract value from Nigeria LNG by people who believe that because they are quasi-government agencies they can extract value. By that I am talking about people like NIMASA, NDDC, and others who have been trying to infringe on the rights protected by the NLNG act. So fending off these attempts to extract value is part of the challenges. Lastly, and this can apply to anybody, making sure that we continue to be a world-class company in terms of asset integrity, in terms of the competencies of the employees, making sure that we're world-class in our capabilities, will always remain a challenge in any organisation because no organisation can afford to stand still. For you to really stay in one spot in this kind of world, you have to keep running fast, so you have to continue to improve competencies and you have to continue to improve the control structures in the organisation. These are the key challenges on the job. Nigeria now is being touted to be a gas nation with some oil, do you see gas overtaking oil in the nearest future? For a long time I think gas and oil will coexist. We've had almost 50 years of oil business in Nigeria, primarily for exports, what you will see is that the shape and colour of gas will be different from that of oil. Gas will be for both export and for domestic use, while oil will continue to be dominated by exports. Further development of gas will require a balance in gas allocation between export and domestic use, because of things like gasto-power, and gas-to-petrochemicals, and potentially gas becoming a dominant domestic energy source for cooking and heating, gas is likely to have more impact on the life of ordinary Nigerians than Oil will ever have. So in that sense gas will overtake oil. I believe that if gas achieves its full connectedness with the economy, overall in the Nigerian economy it will be rated of greater value than oil. But it will take a little while before gas will actually overcome oil as a source of foreign earnings because you will need to have constructed additional gas export plants; and that does not appear to be the priority of government. The ambition of government today, which I think is right, is to make sure that gas begins to be an engine for the development in the rest of the economy especially in Power and Petrochemicals. The revenues from gas will come first from direct export but also derived indirectly from other activities in the economy when gas is transformed into power and petrochemicals. How can the profitability of Natural gas in Nigeria be made attractive to investors? That question assumes that investors need to be lured into investing, which is right, but we must also take care of the returns to the resource holder. There are two parties that need to be happy for business to go ahead. The first party is government which represents the resource holders. Governments return on gas needs to be satisfactory to government otherwise there'll be no authorization for investment. And returns for investors should also be attractive to justify investment. I think that what government has done so far in the gas pricing within the Gas Master Plan, has made domestic gas price competitive. The visible interest in developing additional export plants also suggest that gas price for export is also competitive. I think the price issue about the revenue split between investors and the government has more or less been solved, I think it's been pitched at the right level. There is another factor that gas investors are interested in. They require an assurance that the gas will be sold and if it is sold the people buying it will pay; and this over long period, sometimes up to 20 years. This makes investments in gas different from investments in oil development. So for exports, that is why we would usually have a long term sales and purchase contracts before we invest in gas liquefaction plants. For exports, the assurance on competitive gas purchase price and availability of long term sales and purchase contracts provide sufficient basis for investors to go ahead with an investment decision. Where there is a big challenge is in the domestic market. The experience with selling gas for power generation in Nigeria has not been very good because PHCN has not been a very good payer. So even though the price at which people can buy gas in Nigeria may be commercial if the buyer does not pay or is incapable of paying then there is no guarantee of an economic return. The buyer may signs up to a commercially attractive contract, but if he does not pay you cannot have viable investment. So I think that is why government has been working on establishing a bulk power-buying company
Chima Ibeneche, MD NLNG
The experience with selling gas for power generation in Nigeria has not been very good because PHCN has not been a very good payer. So even though the price at which people can buy gas in Nigeria may be commercial if the buyer does not pay or is incapable of paying then there is no guarantee of an economic return. between independent power company and power distribution companies. it is expected that the bulk buyer will be capable of paying for bulk power to enable upstream investment in gas development and in power generation. for the same purpose, government has secured a world-bank partial guarantee on the payment for power that is sold to distributors to limit the impact of payment default by distributors.. If that is made to work it will eliminate the doubt about the ability of the eventual consumers of gas, in the form of power, to pay. If that happens then I think investment in domestic gas will become more realistic, because people can then invest in gas development, knowing fully well that they can get a commercial price for it as indicated in Gas Master Plan. But then those who buy gas should also be able to on-sell it to power with the assurance that those who buy power can pay. So it's actually the assurance that those who buy power can pay their bills that will improve the attractiveness of gas development in Nigeria. I think the gas price issue has been sorted out, the ability of the bulk power consumers to pay is to the remaining challenge. So what do you think government should do to balance the quest, to export gas at the expense of domestic gas consumers? I think government has actually done most of what it needs to do. The whole point of the gas master plan, and the whole point of the emphasis in the last couple of years about rebalancing and making IOCs commit to domestic gas obligations, is to state clearly that
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Gaslink Pumps $100 Million I n t o G a s Expansion GASLINK Nig eria Limited, a subsidiary of Oando Plc, says it has invested more than $100 million in recent years in the expansion of its natural gas network in the country. Bolaji Osunsanya, the managing director of the c o m p a n y, s a i d t h e investment is buoyed by the increasing demand from industries as they continue to switch to natural gas as the prefer red energ y source. Osunsanya, who spoke at Gaslink's award ceremony for its customers in Lagos, said his company would continue to pump more money into gas expansion with a view to satisfying the needs of its customers nationwide. According to him, his company is cur rently carrying out feasibility on the next phase of expansion of our natural gas pipeline network in Lagos termed Greater Lagos 4. He explained that the expansion will take gas to industries located at Orile, Okokomaiko and Lagos Island. Shell Shortlists Industry Giants For Oil Blocks THE planned sale of some oil blocks belonging to Shell Petroleum Development Company and its foreign partners under the NNPC/Shell joint venture got underway in Shell's London office last Thursday with the opening of negotiations with four of the companies that bid for the oil blocks being offered for sale. Negotiations between Shell and another batch of bidders, it was learnt, will continue tomorrow in London, following which the companies will be required to deposit 10 percent of their bid price in a d e s i g n a t e d e s c r ow account. The companies that were invited for negotiations and asked to pay the 10 percent deposit, according to a Shell official, include Chief Mike Adenuga's Consolidated Petroleum; Femi Otedola's African Petroleum Plc (now Forte Oil Plc); African Independent Oil & Gas Company (known as Afren); and Neconde Energy, of which Ernest Azudialu, owner of Nestoil is said to be a member of the consortium.
ISSUE 2 | February 23, 2011 | Page 6
DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION
Continued from Page 5
NEWS BRIEFS
Oil Majors Pick Holes in Local Content Act OIL majors have listed the absence of a clearly-defined transition period and insufficient qualified h u m a n resources capacity in certain areas as two of the difficulties facing them in the implementation of the local Content Act. However, the Chairman, Oil Producers Trade Section (OPTS) Andrew Fawthrop, who stated this, maintained that all the oil majors have been making every effort to ensure effective compliance with the Act. Fawthrop, who doubles as Managing Director of Chevron Nigeria, commended the Nigerian Content Development and Monitoring Board (NCDMB) for initiating engagements with the oil companies, which will build consensus on the implementation of the Act. NCDMB's executives visited the oil majors in Lagos recently. A statement issued by its Public Affairs Officer Obinna Ezeobi, noted that Fawthrop said this when the executives visited him at Chveron. Fawthrop explained that Chevron was committed to complying with the Act, but pointed at some difficulties arising from the absence of the transition period and insufficient capacity in certain areas. He illustrated the dilemma of balancing government aspirations with corporate goals, suggesting that "if you are seeing resistance, it is because we have goals to meet on oil production and gas delivery, among other things, and failure has got some penalties." In his comments, the Managing Director of ExxonMobil Nigeria Mark Ward, assured NCDMB that the company will be proactive in complying with the Act. According to him, "You are going to see a different approach from ExxonMobil. We will not wait until we get everything right because doing nothing frustrates implementation.�
Shell Alerts on Global Oil Drought ROYAL Dutch Shell said the world is heading for an oil drought as global appetite for energy is likely to rise far more rapidly than available supply in coming decades. Shell Vice-President for Business Environment, Jeremy Bentham, said in a report updating energy scenarios published by Shell that the surge in energy demand will come as oil production hits a plateau and emerging markets see rampant economic growth. He predicted that by 2050 world energy demand may have tripled compared with 2000 levels, based on historical patterns of development. Shell said by the end of this decade, the world will run into a plateau in oil production, a development that will put "upward pressure" on oil prices. Shell noted in the report that since the recession set global energy demand back by about two to three years, it means that the 2008 oil demand levels will be reached again only this year. The oil giant further projected that oil production is likely to rise 16 per cent between last year and 2020, adding that growth over the subsequent 10 years will be virtually non-existent, leaving oil production at about 96 million barrels of oil a day. Bentham noted that while oil production is set to plateau at the end of the current decade, "the stresses in the oil markets may come much earlier".
“Gas Should Spur The Proliferation Of Petrochemical Plants� - Ibeneche government wants to achieve a balance between export gas and domestic use and I think that has really been accepted. By altering the pricing for gas, increasing it now to about $2 per million btu for domestic use, aiming to achieve market compatibility in the near term, demonstrates that government also wants to make gas sold domestically to compete effectively with gas exported. Having stated that in policy and in the gas master plan I think government has done all that it needs to do, bar one thing which is that they have to implement it effectively because policies and strategies can be good on paper, but they're no good to anybody when they are not properly implemented. It is the implementation of the gas master plan and gas pricing policy that will actually lead to that balance. I don't see government authorizing the construction of additional export plants without making sure that the reserves required to supply realistic domestic demand is protected. I think they will do that. So it really depends on those who are charged with implementing the gas master plan. If they do what has been written then I don't see any problem with balancing. On pricing, what is your take on the plan by government to fix a special price for natural gas consumers, especially a body like the manufacturing association of Nigeria and other industrial concerns, what is your take on government's plans to fix this further? The prices that have been stated in connection with the gas pricing policy and in the gas master plan are reasonable and balanced. What will distort the market is now if you, over and above this, go and grant special pricing to lobby groups. The tendency if you do these special deals is that you may risk subsidizing inefficiency and incompetence. The whole idea of the gas pricing policy, which NNPC and those working on the gas master plan have demonstrated, is that you can price the gas locally to encourage industrial investments in Nigeria. But you should not price it such that nobody will be willing to invest in gas field development, so you have to find that balance. Because people who will invest upstream to bring the gas to the surface will expect to see a good return and also the people who will have to use it have to be able to use it in a business that will pay a return and still make profit themselves. So if you subsidise any business that cannot on its own pay a commercial rate basically you may be subsidizing inefficiency and incompetence. That's a risk, but every country has a right to gauge the right price to encourage activities in its economy. I think that's what the gas master plan is trying to do. When and if government wants to make a special price for say the manufacturers association it should be time-bound and there should be an exit plan because unnecessary protection always leads to inefficiency and the best test of your ability to do something in an economy is to be able to compete with others. So what would be ideal is to have a general pricing for gas use domestically. That allows people within the economy to compete for that gas so that those who are more efficient can use it. To specify a specific price for a specific sector, excluding others from competing with it, can actually mean that you deny other parts of the economy that could have put that gas to better use, the opportunity to use it. While people who are not able to use it effectively are protected. I think that is the danger. Looking at growth, are there any special efforts that are being made with financial institutions to finance future growth for the company? I think the point to be made is that Nigeria LNG is a creditworthy company. We have borrowed in the past to buy ships. We have borrowed in the past also to construct plants and whenever we feel like it we will go to the financial markets to borrow like any business will do. So I don't think there's anything special about us going to the financial markets to look for funds. We will always do that when we find a good enough project to invest money in. That is simply what it is. We are happy that we have an ongoing presence in the financial markets. We would like to maintain our credit presence in the market and each time we have tested the market, we have found that the market is willing to respond to positively to our enquiry. So we are happy to be in that state and it is based on the strong balance sheet we have. We have a very strong balance sheet and we also have the ability to generate a lot of cash so those combined make us very attractive to lenders and we're happy to
The prices that have been stated in connection with the gas pricing policy and in the gas master plan are reasonable and balanced. What will distort the market is now if you, over and above this, go and grant special pricing to lobby groups. The tendency if you do these special deals is that you may risk subsidizing inefficiency and incompetence. The whole idea of the gas pricing policy, which NNPC and those working on the gas master plan have demonstrated, is that you can price the gas locally to encourage industrial investments in Nigeria. But you should not price it such that nobody will be willing to invest in gas field development, so you have to find that balance. Because people who will invest upstream to bring the gas to the surface will expect to see a good return and also the people who will have to use it have to be able to use it in a business that will pay a return and still make profit themselves. So if you subsidise any business that cannot on its own pay a commercial rate basically you may be subsidizing inefficiency and incompetence. That's a risk, but every country has a right to gauge the right price to encourage activities in its economy. I think that's what the gas master plan is trying to do.
be in that position. We would like you to paint a picture of the gas industry in Nigeria ten years down the line. I think I had almost alluded to that when I talked about the linkage I expect gas to have with the greater Nigerian economy - talking about gas to power, gas to petrochemicals and also gas becoming a dominant domestic energy source; that is the picture which I think will emerge. In addition to these three building blocks I would expect to see more accessible open systems for trunk lines that will deliver gas from the south to the north and from east to west and west to east, basically, providing highways for gas transmission, so that people can tee off pipelines to various areas. This is in contrast to what we have today where pipelines are point to point controlled by producer and user. If you look at the plans being made, we are almost certain to see open access to pipelines, especially the trunk lines, to allow people to have multiple inputs into the gas system and multiple outlets to the gas system to make gas a little more integrated with the entire Nigerian economy. I also expect to the an increase in gas export capacity through the construction of new greenfield liquefaction plants and the expansion of capacity at Bonny. So the picture would be that gas would play a major role in power. Gas should hopefully spur the proliferation of petrochemical plants in addition to the Indorama one we have today. I see that gas, both pipeline gas and bottle gas will become more used in cooking in Nigeria, and I would expect to see a more open access to gas pipelines across the country. Lastly I see growth in gas exports as LNG.
ISSUE 2 | February 23, 2011 | Page 7
DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION
TOUR OF THE EXHIBITION STANDS
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NIGERIA & HER OIL
What Are The Proposed Reforms And Why Do They Matter? OVER the last two decades, various Nigerian administrations, military or civilian have actively sought a more homeward looking energy policy. Between the lines of most policy documents, you can almost feel and touch many elements of resource nationalism. Here is the upper crust of goals. These aspirations have now crystallized as the core goals or recent legislative proportions, namely; Frontloading government tax in the form of stiff royalties, a tacit admission of the difficulty of collective back-end-taxes or tracking revenues through the bureaucracy; also a way of hedging oil price fluctuations and the impact on revenue. Focusing under-exploited portions of concessions out of the hands of the international oil companies which have found them too small to develop immediately, and handing such over to new players Privatizing the NOC, the national oil company, the Nigerian National Petroleum Corporation (NNPC) albeit with exclusive Government shareholding and incorporation of parallel joint venture companies to manage acreages jointly held by the NOC and its joint venture partners Assigning title to plum hydrocarbon blocks to NNPC, one of the world's most financially insecure NOCs, as a capital basis for refinancing; this in parallel with organizational restructuring of the NOC and stripping it of its regulatory powers, putting the state and the NOC, instead of the operator in the driving seat ultimately Removing all confidentiality and entrenching transparency in the administration and management of the Nation's petroleum investment portfolio Establishing new regulatory institutions and restructuring some existing ones, thus recreating the industry bureaucracy to reflect both new global realities and a
These aspirations have now crystallized as the core goals or recent legislative proportions, namely; Frontloading government tax in the form of stiff royalties, a tacit admission of the difficulty of collective back-end-taxes or tracking revenues through the bureaucracy; also a way of hedging oil price fluctuations and the impact on revenue; Focusing under-exploited portions of concessions out of the hands of the international oil companies which have found them too small to develop immediately, and handing such over to new players; Privatizing the NOC, the national oil company, the Nigerian National Petroleum Corporation (NNPC) albeit with exclusive Government shareholding and incorporation of parallel joint venture companies to manage acreages jointly held by the NOC and its joint venture partners
changed political packing order Empowering indigenous operators, building on the local content policy which gained significant ground in the last two decades, culminating in a recent Nigerian Content Act Increasing the state's fiscal take on the whole, so as to cream off additional revenues whenever prices exceed certain thresholds, in the belief that oil price will remain at levels way beyond what was previously conceived and will indeed spike from time to time as it did in 2008 Introducing community equity, community development and environmental remediation to pacify the agitation in the Niger Delta thus attempting a fiscal solution to a political dilemma Separating gas development from oil, especially for tax and royalty purposes but also to enable investment in dedicated gas exploration and development
Creating a new framework for alternative ways of financing the upstream that would be less strenuous on state funds Laying a basis for reversing Nigeria's decade-long lag in reserves replacement Freeing the downstream sub sector from the stranglehold of subsidies enabling optimal benefits to permeate the economy and diversify it Boiled down, those are some of the fundamental thrusts of the incremental reforms which the Nigerian state has pursued sometimes in drips, sometimes in waves.
Nigeria & Her Oil written by Dozie Arinze is available at www.a-specialists.com