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DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION
ISSUE
February 24, 2011
AROUND EXHIBITION STANDS
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
Alternative Energy Will Not Threaten Oil & Gas - Maurice THE Managing Director and Chief executive of Total Mr. Guy Maurice, has allayed fear coming from some quarters in the oil and gas industry that the development of alternative energy will disturb the market share of the oil and gas business. He said this while presenting a paper titled “Adding Value through partnership” at the ongoing Nigeria Oil and Gas Conference NOG 2011 in Abuja. The Total Managing Director said government and energy producers will face triple challenges in the next 50 years, adding that Africa alone will account for about 20 percent of the world population by 2050. “There is always going to be demand for energy whether oil and gas or the alternative energy” he said. According to him, the challenges ahead will be that of funding, expertise and finding new oil. While the National Oil companies will be faced with the problem of funding,
securing bank loans and technological advancement, the international Oil Companies will be struggling to find new oil. Mr. Guy Maurice said that at present, oil reserves around the world squarely lie with the NOCs, but the national oil companies under-produce and under-invest in the business, thus, they cannot be left with the task of oil and gas production. The IOCs come in through technology, global experience in the integrated way to increase efficiency and through exposure, the IOCs have access to loan. The National Oil Companies has g ained tremendous growth over the years but they still need partnership with the IOCs to function effectively, he said. While speaking on the NOCIOC partnership, Mr Maurice said that the IOC intend to expose the NOCs to competition, strategic alliance with both parties, share costs to develop more complex projects and cooperation on environmental issues
Olusina O. Olusina,Executive Secretary NIBUCCA recieves donations raised at NOG 2001 from Scott Shelton of CWC Group
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Local Content Policy & Implications for Nigeria
OIL & GAS
Crude Oil Production Rises to 2.6m Barrels Daily NIGERIA'S crude oil
Dr. Tim Okon making his presentation at NOG11
production has increased from one million barrels per day in 2008 to 2. 6 million barrel per day due to the i m p r ove m e n t i n p o s t amnesty prog ramme. President Goodluck Jonathan made this known in an address at the official opening of Nigerian Oil and Gas (NOG) conference in Abuja. The President, who was representated by the Special Adviser to Government on Petroleum Resource, Mr. Emmanuel Egbogha, said that the postamnesty initiative was working. He said that the new level of oil production had fully justified the amnesty policy as initiated by the Fe d e r a l G o v e r n m e n t . Jonathan urged all the local and state governments to engage the youth in various capacities and rehabilitate them towards national development.
PAGE 3
FG to Tap From $20b Global Upstream Investment Surge PAGE 7
How Energy Reform May Affect Non-oil Economy
ISSUE 3 | February 24, 2011 | Page 2
DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION EVENING FORUM DRINKS
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 3 | February 24, 2011 | Page 3
DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION AROUND EXHIBITION STANDS
NEWS
FG Resumes Savings From Oil Revenue, Pledges Transparency MINISTER of Finance, Mr. Olusegun Aganga, has said the government has resumed savings in its excess crude account, after almost emptying the fund by September, and pledged to be more open about foreign currency reserves. The excess account swelled to $2.2 billion in December after dropping to as little as $500 million in September from $4.6 billion in April, Aganga said in an interview in Abuja. The fund had reached as much as $20 billion in 2007. Nigeria, the fifth largest supplier of US crude imports, relies on oil for 95 per cent of its export income, according to the Finance Ministry. Fitch Ratings lowered its outlook on Nigeria's BB-rating to "negative" from "stable" on October 22, concerned about withdrawals from the excess crude account and a drop in foreign currency reserves. The decline in foreign currency reserves increased the risk to the economy from any renewed drop in oil prices, Fitch said. Foreign currency reserves, including
the excess crude account, slid to $32 billion in December from $42 billion in January 2010 because of the government's expansionary policy, Aganga had said, adding that some of the money was also used to stabilize the exchange rate. The government is meant to save money when oil prices exceed the estimate in its annual budget. That forecast was set at $65 a barrel for 2011, compared with the $92 oil is currently trading in New York. Nigeria's planning ministry will soon be making information on the reserves available to the public, Aganga said noting that reserves are now rising again, reaching $34 billion on February 16, he said. Nigeria, sold $500 million of Eurobonds last month, attracting buyers from 18 countries in Europe, the U.S., Asia and Africa. It wouldn't have been successful if the country hadn't given investors all the information on its finances, according to Aganga. He said the Eurobond offer marked the beginning of Nigeria's "compliance with international standard on transparency, you'll see more of that going forward.�
FG to Tap From U.S.$20 Billion Global Upstream Investment Surge Minister of Petroleum Resources, Deizani Alison-Madueke, on Tuesday declared that Nigeria is determined to tap from the global upstream investment, which has grown by $20 billion. The minister stated this at the ongoing Nigerian Oil and gas (NOG) conference in Abuja noting that the country would not be left out of the new opportunities in the global oil and gas industry. Represented by the Nigerian National Petroleum Corporation (NNPC), Group Executive Director Exploration and Production, Andrew Yakubu, Alison-Madueke said in her presentation that the rig counts for about 30 per cent and a revisit of 100 barrel per day of crude oil recently. She added that the price however remains robust in the medium term. "As you are all aware energy plays an important role in powering the economic engine of any nation. Nigeria is endowed strategic proven reserves of 37.2 billion barrel of crude oil and
condensate an 187 trillion cubic feet of natural gas," she said. The minister said that Nigeria oil and gas account for about 20 per cent of Nigeria GDP, adding that crude oil and condensate production is currently about 2.4 million barrel per day while productivity has grown to over 3 million per day. Alison-Madueke said that the Federal Government was working out modalities to ensure that the country's oil reserve hit 40 billion barrels per day through the period of 2020. According to her, the country is already close to achieving the feat with the oil reserve currently above 38 billion barrels per day. She said today, Nigeria has had a stunning economic turnaround attributed to high world crude oil prices, Nigeria rich in petroleum resources as the country is a net energy exporter.
ISSUE 3 | February 23, 2011 | Page 4
DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION
BRIEFS Petrobras Snaps U p B e n i n Acreage BRAZILIAN state player Petrobras said today it has bought a 50% stake in Block 4 off the coast of Benin, Africa. The purchase was made from Compagnie Beninoise des Hydrocarbures (CBH), a subsidiary of Lusitania Petroleum, which will maintain the remaining 50% and operatorship of the block. Petrobras' work commitment includes acquisition of 2250 square kilometers of 3D seismic data this year and participation in a three well drilling programme once the exploratory potential of the area is confirmed. The block covers an area of around 7.4 thousand square kilometers, at water depths that vary from 200 metres to 3000 meters, at an average distance of 60 kilometres from the coast. The company said it aims to find light oil in existing discoveries and that it plans to seek opportunities in line with its deep and ultra-deep water strategy.
BP to Sell UK Assets BP intends to put up for sale its interests in a number of operated oil and gas fields in the UK, the UK supermajor said. The assets involved are the Wytch Farm onshore oilfield in Dorset and all of BP's operated gas fields in the souther n Nor th Sea, including associated pipeline infrastructure and the Dimlington terminal. BP anticipates that the staff currently working on these assets will transfer employment to the new buyer when the divestments are completed. These divestments will allow BP to focus resources and investment on its diverse central North Sea, northern North Sea, West of Shetland and Norway assets and on successful delivery of its new major projects. "The North Sea is a significant business for BP and we are currently investing here at the highest level for more than 10 years, with four major new field development projects under way in the UK and two in Norway,� said BP's North Sea regional president Trevor Garlick. “The assets we intend to divest are of high value but find it difficult to compete for capital and resource within our North Sea portfolio.
FEATURES
Local Content Policy & Its Implication For Nigeria By Stephen Ishola
THE administration of former President Olusegun Obasanjo initiated the Local Content Policy for Nigeria to increase local capacity and participation in the petroleum industry. The Obasanjo government needed to achieve the objective by ensuring that a substantial portion of the activities in the oil and gas sector, which is the mainstay of Nigerian economy, were carried out in the country by Nigerian companies and Nigerian workers. Industry sources estimate that more than 70 percent of the jobs in the oil and gas sector are still carried out by foreigners, an action, which is contrary to the local content policy of the Nigerian government. At a time, stakeholders in the industry argued that government was not serious in attempting to stop this act, as it could not lobby the National Assembly to sign the Local Content Bill into law. Many said that it is aberration that such a bill that is geared towards improving indigenous participation in the oil and gas industry, after many years it was initiated, was not been passed into law. Experts in the industry estimate that Nigerian content in the oil and gas sector is around 40%, which indicate that foreign workers and overseas suppliers provide most white-collar jobs such as engineering, material and maintenance work. Unfortunately, this noble dream of having the local content bill signed into law and implemented could not be achieved during Obasanjo's administration. The administration of Goodluck Jonathan saw the eventual passage of the bill which was then signed into law while he was in acting capacity. It is the federal government's hope that the new law will help provide domestic job growth to Nigeria's 140 million citizens who have seen little tangible benefit in their daily lives in the five decades since oil was first discovered. Stakeholders in the oil and gas sector immediately hailed the development as a great day for the industry as it would create many jobs among other forms of empowerment for indigenous personnel and operators. Beyond the issue of job creation, the law also has far reaching implications for technological advancement, long term cost effectiveness, post amnesty programme in the Niger Delta and the improved impact of oil and gas industry on Nigeria's Gross Domestic Product. The bill, which was sponsored by Senator Lee Maebe, made clear provisions for exclusive consideration of Nigerian indigenous service, companies which demonstrate ownership of equipment, Nigerian personnel and capacity to execute jobs. And as such, all regulatory authorities, operators, contractors, subcontractors, alliance partners and other entities involved in the project, operation, activity or transaction in the industry shall consider Nigerian content as an important element of their overall project development and management philosophy for project execution. The bill also provides that every multinational oil company operating in Nigeria must domicile a minimum of 10% of its annual profit in Nigerian banks, which means that Nigerian banks will have more money to fund investment in the country. The bill also provides for Nigerian insurance companies to do all aspects of insurance in the oil and gas sector except in the opinion of the Nigerian Insurance Commission, the capacity of Nigerian companies have been exhausted. Nigerian companies must also do all issues of legal services and every company doing project in a community must have a presence in that community. The Act will also create special fund into, which one percent of every contract awarded in Nigeria's oil and gas sector shall be paid for the purpose of building capacity and capability in the sector. This provision is meant to take care of funding local capacity building to ensure that greater percentage of the projects in the industry are done in Nigeria by Nigerians. Also at least 50% of the asset of any company seeking to execute oil and gas contract in Nigeria must be domiciled in Nigeria. This is to ensure that a large chunk of the payment for the contract is domicile in Nigeria. Under the Act as well, Nigerians shall be given first consideration in the award of oil blocks, oil field licenses, oil lifting license and shipping service and all project for which contracts are to be awarded in the industry; subject to the
The bill also provides that every multinational oil company operating in Nigeria must domicile a minimum of 10% of its annual profit in Nigerian banks, which means that Nigerian banks will have more money to fund investment in the country. The bill also provides for Nigerian insurance companies to do all aspects of insurance in the oil and gas sector except in the opinion of the Nigerian Insurance Commission, the capacity of Nigerian companies have been exhausted. Nigerian companies must also do all issues of legal services and every company doing project in a community must have a presence in that community.
fulfillment of such conditions as may be specified by the Petroleum Minister; and there shall be exclusive consideration for Nigerian indigenous services. It will also check a situation where jobs are given to unqualified personnel just because they are Nigerians, it will be appropriate to give such jobs to qualified foreigner who can satisfactorily execute the jobs. A critical challenge to the realization of the objectives of the local content law is the absence of a functional steel mill and sustainable power to support fabrication. Today, Nigeria does not have a functional steel mill; the Delta Steel Company, Aladja, and Ajaokuta Steel Rolling Mill are both in comatose conditions. As 85% of the oil industry project activities revolve around the steel industry, it may be difficult to realize government's target in the local content policy, if the issue of local production of steel and electricity are not urgently addressed. The government must ensure that all necessary arrangements are put in place to restore the power sector in Nigeria. Finally for such an important policy to succeed, government should collaborate with key stakeholders including civil society to monitor its implementation. Nigerians are in a hurry to see the enforcement of Local Content Act so that the Niger Delta people and Nigerians in general will reap the attendant benefits.
ISSUE 3 | February 24, 2011 | Page 5
DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION
INTERVIEW
BRIEFS
Environment Confuses Oil & Gas Industry - Oniwon GROUP Managing Director of the NNPC Austin Oniwon has said that the environment is causing confusion in the oil industry adding that the fate of clean coal is yet to be known, whether it would be the choice fuel of the future. For that reason, he said that most investments are now been directed towards gas. Oniwon said this while delivering a paper titled “The Oil and Gas Industry Current & future Realities: The global Trend”, at the ongoing Nigeria oil and gas conference NOG 2011 in Abuja. According to the NNPC helmsman, “as of today, the environment has done a lot in hydrocarbon energy. We do not know the fate of coal, whether truly clean coal will come into play or not, whether oil will remain the fuel choice or not. But something that we all know is that gas will continue to play a major role in the energy needs of the future. Whether the alternatives will take a sizeable proportion of the energy needs we do not know, but as an industry we must continue to keep with the positive hope that has kept us going that we shall continue to be in business for a long time to come”. The GMD said that with the upward movement in the price of crude oil, investment has also increased in the oil and gas sector, considering the risk being borne by multinational. He said it is rather unfortunate that in Nigeria the risk count is going down and it is a challenge to all stakeholders in the oil and gas industry. The country should not be seen doing things in contrast to the rest of the world. “If the risk counts are going up in other parts of the world, its going up for a reason and that reason is definitely positive and I believe that Nigeria should participate in all positive things in the industry” Oniwon said. He implore both the NOCs and the IOCs to inject investment into the industry, so that the industry can participate in the global opportunity. He also stated that gas is going to be a game changer in the nearest future. He said that if Nigeria wants to be a leading producer of gas in years to come, there should be a concrete plan at hand. He said the concentration of Nigeria's gas towards the US and European market should not be solely relied on. Oniwon said, although the country has the population and the market, the NNPC will not make the desired profit if it concentrates only inwardly. The future plan is to be focused to the east, specifically China. “For export, China is looking very good, you can see the gap in China up to year 2025. Somebody has to fill this gap and I believe that NNPC and its partners should be ready to take its own share of this gap by looking eastward”. According to him, Nigeria is probably the only OPEC country that exports crude oil and at the end of the day import refined product from the crude and this is not acceptable. He said the NNPC is committed to reviving all the ailing refineries. “As of today we have been able to contact the original contractor that built each of the refineries, for them to come back work with us and rehabilitate the refineries so that we can have another lease of at least 10 years good operating line in each of our own”. The rehabilitation will take off from the Port Harcourt refinery this year and will move to Kaduna refinery before the final rehabilitation of Warri refinery in the year 2013. However, with all the refineries working in full capacity, demand of the product in the country will still be more than supply. “Therefore there will be need for additional refining capacity to come into the country”. The GMD said. He said the introduction of NNPC mega stations is not to drive any company away, but rather to set standard and securing its right to play like any other company. That the mega stations will be a model to all others.
Nigeria is probably the only OPEC country that exports crude oil and at the end of the day import refined product from the crude and this is not acceptable. NNPC is committed to reviving all the ailing refineries. As of today we have been able to contact the original contractor that built each of the refineries, for them to come back work with us and rehabilitate the refineries so that we can have another lease of at least 10 years good operating line in each of our own. The rehabilitation will take off from the Port Harcourt refinery this year and will move to Kaduna refinery before the final rehabilitation of Warri refinery in the year 2013. However, with all the refineries working in full capacity, demand of the product in the country will still be more than supply. Therefore there will be need for additional refining capacity to come into the country”
The NNPC wants to transform into an independent entity, how long do you think this is achievable? For long now, the NNPC has been under the influence by government intervention and funds to run its activities. But under this present administration of the company we are trying to build a commercially viable company that will go out and compete with others in the larger market. We should not forget easily what happened to NITEL and NRC. Though the NNPC has tried twice in its transformation but to no meaningful success. Am telling you, the experience of the past will help us now in our quest. It is not how long but how well but am assuring you that in the next 24 months NNPC will be totally free from government intervention. You talked about new refineries, but for now no ground has been scratched, how soon are these refineries going to be built? Yes, already we are doing a feasibility study on all the locations of the Greenfield refineries. Already we have three sites in mind, Bayelsa, Lagos and Kogi state and presently work is at top gear on the cost of the refineries and other logistics that we need to be in place. Am assuring you that any time the project starts, we will tell you the time of its completion. You said the Petroleum Industry Bill will be passed soon, the minister said in weeks while the president said May. Can you please clarify this? Answer: Whether in May or next week, what I meant when i said soon is that the bill will be passed in the life of this administration.
Gaslink Pumps $100 Million Into G a s Expansion GASLINK Nigeria 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 company, said the investment is buoyed by the increasing demand from industries as they continue to switch to natural gas as the preferred energy 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 currently carrying out feasibility on the next phase of expansion of our natural gas pipeline network in Lag os termed Greater Lagos 4. He explained that the expansion will take gas to industries located at Orile, Okokomaiko and Lagos Island. He further disclosed that his company is at an advanced stage in the deployment of Compressed Natural Gas (CNG) from its grid that will guarantee access to the benefits of natural gas for small scale and stranded consumers beyond Gaslink's pipeline coverage. "This will assure our current gas consumers who have other operations located outside our grid, of unhindered access to the gas advantage through this initiative. We expect to begin the delivery of CNG to our first c u s t o m e r i n November 2011". He said East Horizon Gas Company (EHGC), the company's special purpose vehicle executing franchise in Akwa Ibom and Cross River state is expected to complete an interstate 128 km gas pipeline project in the first quarter of 2011.
ISSUE 3 | February 24, 2011 | Page 6
DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION
FEATURE
NEWS BRIEFS
Delivery Of Cuba Offshore Rig Delayed DELIVERY of a Chinese-built drilling rig that will open the first full-scale exploration for oil in Cuban waters looks unlikely until at least August in the latest delay to beset the project, sources said. They said an inspection of the newly built, high-tech rig had been ordered to make sure it was in good shape after taking on water in transit from the Chinese shipyard where it was built to Singapore for completion in October. The rig the Scarabeo 9, owned by Italian oil service firm Saipem had been expected to arrive in Cuban waters in late June or early July after several earlier delays postponed its original delivery date of September 2009. If the inspection turns up problems that need repair, the latest delay could stretch beyond August.. The water problem was not considered a major issue, but an inspection was ordered to assure the rig's overall quality, they said. Once the rig gets to Cuba, it will be used by a consortium led by Spanish oil company Repsol YPF to drill one or two exploratory wells, then passed on to other oil companies for exploration in drilling leases they hold in Cuba's part of the Gulf of Mexico. Repsol drilled the only offshore well in Cuba in 2004 and found oil, but said it was "non-commercial". It has long planned to drill another well, but is widely believed to have had difficulty finding a rig that does not violate limits on use of US-developed technology set by the 49-year-old US trade embargo against Cuba.
Cabot Sees Higher Profit In Quarter INDEPENDENT producer Cabot Oil & Gas said their fourth-quarter earnings rose 35% thanks to asset-sale gains, but saw adjusted profit decline more than expected on lower commodity prices and overall higher absolute expenses. The company said that despite higher output and lower per-unit expenses, lower commodity prices hurt revenue and an increase in total expenses drove the profit decline. Cabot's production levels have climbed, hitting a record quarterly high in the previous quarter. In the latest period, gas volume increased 45%, although average price fell 35%. Cabot, which has been developing sites in the Marcellus Shale in Pennsylvania and the Haynesville and Eagle Ford shales in Texas, has also been selling assets. In November, it sold its remaining Canadian business to a newly public Canadian company in a cash-and-stock deal it at $61.3 million, after it earlier agreed to sell some of its midstream shale assets in Pennsylvania's Marcellus shale to Williams Partners in a $150 million deal that included a 25-year gathering agreement. Cabot reported a profit of $49.1 million, or 47 cents per share, from $36.4 million, or 34 cents per share, a year earlier. Excluding items such as stock-based compensation, write-downs and asset-sale gains, earnings fell to 19 cents per share from 51 cents
FMC Bags Ekofisk Gig A subsidiary of FMC Technologies has agreed to supply ConocoPhillips Scandinavia with subsea equipment and services for a water injection development in the North Sea's Ekofisk field. Under the deal, worth about $75 million, FMC Kongsberg Subsea will supply eight subsea water injection trees and wellheads, two manifolds and control systems, with options for an umbilical and additional control. The equipment will be engineered and manufactured at FMC's facilities in Kongsberg, Norway and Dunfermline, Scotland. Deliveries are scheduled to begin in the first quarter of next year. The award is subject to Norwegian Parliament approval.
Nigeria Oil & Gas Industry: 2010 in Retrospect THE federal government, through the Ministry of Petroleum Resources in the last one year, has committed itself to the pursuit of reforms aimed at overhauling the country's oil and gas sector, but despite its achievements in some areas, the Petroleum Industry Bill (PIB), which is one law Nigerians have been earnestly awaiting, is yet to be passed into law by the National Assembly. Several calls were made last year to the National Assembly by various groups agitating for the speedy passage of the bill, which is aimed at holistically updating obsolete laws governing the industry since 1958, to reflect current international best practices. The PIB which experts have described as a driving force to achieving the much desired reform agenda in the oil and gas industry, is designed to create the National Petroleum Directorate which will replace the current Petroleum Ministry, and also restructure the NNPC and make it a profit driven national oil company similar to what is obtainable in some other countries, among other benefits. According to the federal government, the PIB is the panacea to problems in the oil industry, and one therefore wonders why the delay in the passage of such an important bill. Another major challenge which bedeviled the sector in 2010 was the activities of militants in the Niger Delta region. Although the amnesty programme is still on course, some unrepentant militants have continued to wreck havoc on oil installations in the region. It led to the shutdown of the nation's three refineries in Warri, Kaduna and Port Harcourt, following severe attacks on the major oil pipelines. There were also series of attacks on some major oil companies' installations which led to the declaration of force majeure at different points during the year. Nonetheless, the year saw the signing into law of the Nigerian Content Act by President Goodluck Jonathan, an Act which is bound to change the face of the industry. The Act among other objectives is to ensure that Nigerians and Nigerian companies participate actively in the oil and gas industry with a view to boosting the local economy. It is to also ensure that Nigerian independent operators shall be given first consideration in the award of oil blocks; oil field licences, oillifting licences and in all projects for which contract is to be awarded in the Nigerian oil and gas industry. Gas to power also received attention within the year as the issue was brought to the front burner with the unveiling of a two-point agenda for the gas sector to meet the federal government's aspiration of delivering enough gas to the power stations to ensure adequate power supply in the country. The most commendable achievement in the oil and gas sector in 2010 was the administration's zero tolerance for scarcity of petroleum products. The country witnessed in the last one year stability in the supply and distribution of petroleum products throughout the federation, and ultimately resulting in a fuel scarcity free yuletide, a fact that previous administrations could not achieve. To ensure that product stability was sustained, President Goodluck Jonathan directed the Minister of Petroleum Resources, Mrs. Diezani AlisonMadueke, to design and implement practical measures to ensure steady fuel supply to all parts of the country in the medium to long-term basis. To this end, the Nigerian National Petroleum Corporation (NNPC), engaged in an aggressive drive to increase its hold on the downstream sector through the expansion of its retail outfit, with the aim of checking any artificially-induced fuel scarcity. The ministry in the last year, under directives from the president, also renewed efforts in oil exploration in the Chad basin, which according to the federal government was critical to the nation's economy. The NNPC Chad Basin oil exploration drive was a very critical assignment for the corporation as President Jonathan gave the mandate to evaluate the prospects of commercial quantity of hydrocarbon in the area. The industry also received a major boost in 2010, with interest received from China State Engineering Construction Company (CSECC), China's largest engineering company, which in conjunction with the NNPC is to build three greenfield refineries and one petro-chemical plant in the country. The refineries are expected to increase the nation's refining capacity by 750, 000 barrels per day, translating to over
T h e f ed eral gover n men t f u r th er demonstrated its commitment to the oil and gas sector by restructuring the Nigeria Extractive Industry Transparency Initiative (NEITI) to meet the new EITI deadline on the requirements for attaining compliant status, after the agency failed to meet the compliant status requirements earlier in 2010. President Jonathan, while urging the ministry of petroleum to aggressively pursue the implementation of moves aimed at transforming the sector, restated his commitment to ensure continuity with the oil and gas industry reform in order to transform the sector into a modern one where international best practices would be strictly adhered to. 45million litres of fuel per day. This according to the ministry, is a dividend of government's efforts towards ensuring conducive atmosphere in the industry to increase and sustain investment inflow. The federal government further demonstrated its commitment to the oil and gas sector by restructuring the Nigeria Extractive Industry Transparency Initiative (NEITI) to meet the new EITI deadline on the requirements for attaining compliant status, after the agency failed to meet the compliant status requirements earlier in 2010. President Jonathan, while urging the ministry of petroleum to aggressively pursue the implementation of moves aimed at transforming the sector, restated his commitment to ensure continuity with the oil and gas industry reform in order to transform the sector into a modern one where international best practices would be strictly adhered to.
ISSUE 3 | February 24, 2011 | Page 7
DAILY NEWS OF NIGERIA OIL & GAS CONFERENCE/EXHIBITION
GALA DINNER
BOOK EXCERPTS
NIGERIA & HER OIL
How Energy Reform May Affect Non-oil Economy OIL revenues tend to distort the economic picture of Nigeria. Although petroleum usually contributes over 90% of external revenues, official government statistics for 2009 for instance have crude oil and gas accounting for just above 15% of GDP. Further reducing the direct economic penetration, the oil industry employs only a couple of thousands although at comparatively high individual earnings and the product is oriented predominantly towards foreign markets, because, let's admit it, markets favoured that and policy did not object either, until lately. In contrast, the same official data credits agriculture for nearly half of the GDP (42%) despite the fact that it is largely non-mechanized and dependent on the weather; it provides lowincome livelihood to tens of millions, while the product is mostly home used, so could impact the population more directly if it grows. Yet this mass employer remains grossly under-developed due to low investment in distribution and processing. In theory, oil and gas reforms hence the bill target to ultimately correct these very development imbalances arising from overdependence on oil and gas which does not sufficiently lift the rest of the economy. Government believes that it can make petroleum drive economy by introducing a cocktail of policy actions extracting more revenue from oil and gas operations, creating disproportionate incentives for indigenous companies, forcing locked in acreage from IOCs, compelling the industry to source financing locally and making most elements of local content a matter of law. In particular, it hopes for higher volume of activity in gas with compulsory proportions going into the domestic market to generate power, the lack of which has nearly strangled the economy. By creating greater linkage with the rest of the economy, it hopes to diversify the economic system, accelerate
In theory, oil and gas reforms hence the bill target to ultimately correct these very development imbalances arising from over-dependence on oil and gas which does not sufficiently lift the rest of the economy. Government believes that it can make petroleum drive economy by introducing a cocktail of policy actions extracting more revenue from oil and gas operations, creating disproportionate incentives for indigenous companies, forcing locked in acreage from IOCs, compelling the industry to source financing locally and making most elements of local content a matter of law. In particular, it hopes for higher volume of activity in gas with compulsory proportions going into the domestic market to generate power, the lack of which has nearly strangled the economy. growth and in the long run de-emphasize the role of oil itself. What this assumption overlooks is the possibility that by forcing through the reforms, without measuring the pulse and response of the industry itself and without reckoning with the force of competition from other investment destinations, and without resolving other drags on Nigeria's competitiveness, an already fragile industry could be so eroded as to render it unable to stimulate anything even itself. This is the very point of the IOCs aside from the exceptionally attractive 1993 PSCs, everything else is so marginal especially with a disproportionately high context cost thanks to security expenses etc, that the current reforms could leave Nigeria with only a bigger fiscal share of a much shriveled cake. This they say would mean the government has further weakened the one chicken that lays the golden egg and sunk hope of fueling the rest of the economy through it. The reality lies somewhere in between. There is no question that Nigeria has one of the most macro-economically de-linked oil and gas regimes in the world, if you look at the data. Its employs some 20,000 of them by
some estimates plus about twice that in nondirect staff, many times the average worker in Nigeria. Predictably, they are the most taxed, being the highest earners whom the weak tax system can get a direct siphon on. However, top decision makers in the industry are expatriates. The companies, certainly all the IOC upstream subsidiaries are private equities held by their parent or associated companies with a dwindling number of the downstream affiliates linked to the local stock market. Ironically, it is this detachment that keeps the industry insulated from the inefficiencies inherent in the rest of the economy and efficient while the rest of the system is mired in inefficiency, corruption or bureaucracy. And yet it is that insulation that makes petroleum sector an unsustainable island now buffeted by the clamour for reform!
Nigeria & Her Oil written by Dozie Arinze is available at www.a-specialists.com