Nigeria in 2016 Special Edition
Presentation by the Hon. Minister of State for Petroleum and GMD, NNPC, Dr. Ibe Kachikwu.
What the current administration met on ground
NNPC recorded huge cash deficits in the last 5 years despite high crude oil process. All three refineries; Kaduna Refining and Petrochemical Company, KRPC, Port Harcourt Refining Company, PHRC and Warri Refining and Petrochemical Company, WRPC shut-down and domestic crude allocation exported or processed offshore. Refineries are huge cost centres. Non-functional depots due to poor asset integrity. Average national oil production of 2.1mbopd and Nigerian Petroleum Development Company, NPDC equity production of 99kbopd as at July, 2015. Declining Joint Ventures, JV reserves due to inadequate or low investment in oil assets. Funding constraints. Matured fields and ageing facilities. Suspended seismic data acquisition activities in the Chad Basin due to security issues. High rate of pipeline vandalism resulting in huge losses of crude and products of over N280b since 2005. 27,967 recorded incidents of pipeline vandalism/thefts in the same period. 300 lives lost within the last three years. Unutilised pipelines and poor pipeline integrity leading to high cost of trucking and impact on roads. Average gas-to-power generation of about 3,000 MW. Domestic gas supply of 1bcf with contribution from NPDC of about 600mmscf. Gas pipeline network disruptions and legacy debt on gas supply to the West African region to the tune of $180m.
The current administration has a tripod agenda in the oil and gas sector which are as follows. Security: ensure security of lives and properties. Anti-Corruption: achieve zero tolerance for corruption. And Economy: growth the economy.
The new agenda for the oil and gas industry is centred on having the right people, doing the right things, at the same time, for the right purpose, to yield the right results.
Weakening oil demand growth and supply glut
Managed capacity expansion is at the core of Nigeria’s response to the oil crisis. This can be achieved by: Growth in oil reserves and managed expansion in production capacity; Reposition gas for rapid domestic, regional and export penetration; Revitalise downstream capacity to support domestic energy needs; and Reform key institutions to anchor sustained growth in the industry.
Developing a world-class oil and gas sector for Nigeria
A clear roadmap is needed to achieve the following:
- Address leakages and curb loses. This first 6 months plan has the objective to create market-based reform and immediately address sources of leakage.
The key activities here is to: Cancel swaps, Offshore Processing Agreements, OPAs, and other unprofitable product and crude arrangements; Ensure adequate supply of Premium Motor Spirit, PMS and kerosene nationwide and ensure a competitive downstream sector; Curb pipeline vandalism and theft and improve the integrity of all critical assets.
- Prepare NNPC to be a world-class National Oil Company, NOC. The next 6 months is aimed at placing NNPC on the trajectory to be a world-class operator and strengthen Regulatory Institutions.
Key activities to achieving the objective include: Increase revenues: ensure strong growth and performance of NPDC, restructure refineries, and increase retail profitability; Decrease costs: restructure organisation, unbundle Pipelines and Product Marketing Company, PPMC, and reduce costs across NNPC’s Strategic Business Units, SBUs; Improve transparency and accountability; Eliminate rent seeking and develop a market-based framework for the management of petroleum product subsidiaries; Strengthen regulatory institutions- Department of Petroleum Resources, DPR, and Petroleum Products Pricing Regulatory Agency, PPPRA.
- Create regulatory stability and strong governance. This is a subsequent 12 months objective to build a competitive and stable investment regime that balances the needs of the nation and private investors. This can be achieved by: Reviewing and update the Petroleum Industry Bill, PIB for stakeholder engagement and passage into law; Clearly defining roles of regulators, operators and JV managers; Attracting investments from a broad set of Exploration and Production, E&P players to increase production, and bridge any capability gaps.
Priorities of the upstream activities
The priorities of the upstream sub-sector are to reduce crude oil losses and increase production. The objective is to increase production by creating a well-funded, competitive exploration and production sector.
The strategies in achieving these are in 3 folds which include:
- Plug production gaps and look for quick win opportunities. This is a priority for the first 6 months and key activities here include: Investing in direct security along critical pipelines to plug crude losses; Identifying quick win opportunities to increase production and reduce costs; and Collaborating with military and local Niger Delta communities to reduce theft.
- Stabilise the sector and implement growth opportunities. The objective is targeted on the subsequent 6 months periods and the strategy includes: Stabilising the sector and identify investment and alternative funding mechanisms; Increasing production and open the sector to a broad set of E&P companies; Creating a simple, robust and transparent upstream contracting process; and Setting clear roles for the different upstream government entities.
- Keep growing and adding high value opportunities for the sector. The sector intends to carry out this in the next 12 months and key activities will include: Identifying and adding high value assets through organic growth or acquisitions; Divest poor performing assets, and minimise flaring of gas.
Priorities of the midstream activities
The priorities of this administration in the midstream sub-sector are to restructure the refineries and bring in strategic partners. The primary objective is to create a competitive, market-based midstream sector by evaluating midstream management solutions from leading markets.
Sacrosanct in achieving these priorities are:
- Curbing of theft and losses and ensuring policies in place. In the first 6 months, the key activities will be to: Invest in refinery Turn Around Maintenance, TAM to ensure refineries achieve 60% capacity utilisation; Work with the government to equip the military and improve security of assets; Invest in direct security along critical pipelines; and Review existing gas and power master plan.
- Restructure refineries and invest in infrastructure. In the second 6 month period, the administration intend to: Implement new Operation and Maintenance, O&M model and restructure refineries as profit centres that buy crude inventory and market their products; Invest in refinery infrastructure and TAM to ensure refineries achieve 90% capacity utilisation; and Continue to build gas pipelines, prioritising East-West and North-South.
- Explore private sector partnerships. By the second year the key activities in the sub sector will include: Enabling ASV, Asset Sharing Venture to co-locate refineries; Increasing Nigeria’s competitive refining capacity and position; Establishing gas financing as well as develop market opportunities.
Key downstream priorities for this administration
The priorities will be to reduce subsidies and unbundle PPMC. The primary objective will be to create a competitive and market-based downstream sector. Key to achieving these include the following.
- Curbing losses. In the first 6 months we intend to achieve this by: Cancelling swaps, OPAs, and other unprofitable products; Ensure adequate supply of PMS and kerosene nationwide; Review approach to crude marketing to maximise value; and Establish reliable petroleum products demand and supply data.
- Reduce or eliminate subsidies. To achieve this in the subsequent 6 months period, the administration will: Eliminate rent seeking and develop a market-based framework for the management of petroleum product subsidies; Improve retail operations and increase profitability; Invest in downstream pipeline infrastructure to provide additional resilience and redundancy in the system.
- Unbundle PPMC and Nigerian Gas Company, NGC. By the second year, the key objectives will be: Unbundle PPMC to create an efficient infrastructure and logistics entity for Nigeria; and Unbundle NGC to ensure effective investment and management in Nigeria’s gas transmission infrastructure.
Job creation and national growth
Enshrining Nigeria content will transform the oil and gas industry into the economic engine for job creation and national growth. The objective is to aggressively develop both the in-country and indigenous capabilities and this is exposited into 3-phased period.
- Improve processes and ensure compliance. This target is set for the first 9 months and includes the following action plan: Improve internal processes to reduce the unacceptable lengthy contracting cycle in the industry; and Develop capacity within value chain in the Nigeria oil and gas industry and other ancillary support industries.
- Expand activities and scale up operations. The next 9 months will reel on key activities which include: Growing the Nigerian Content Fund to over $700m; Ensuring better access to the Nigerian Content Development Fund, NCDF; by prospective indigenous business desirous of investing in the Nigerian Oil and Gas industry; and Facilitate the injection of over $10b into the industry through various initiatives.
- Consolidate activities. This will be achieved in the next 18 months via the following activities: Realize the planned Nigeria Oil and Gas Park Schemes; Facilitate additional investments including the umbilical and gas cylinders manufacturing facilities; Establish Training Centres of Excellence, TCE; and Promote youth empowerment programs targeted at 50,000 youths.
Engaging Niger Delta host communities
Engaging the host communities will benefit the communities and ensure smooth operations in the region by creating harmonious relationship with them. This will also be done in phases.
- Improve Corporate Social Responsibility, CSR, in the host communities in the first year of this administration by: Expanding social responsibility facilities and projects in selected host communities, Science, Technology, Engineering and Mathematics, STEM education; and Actively supporting and fast-tracking Ogoni environmental remediation.
- Provide engagement opportunities to reduce restiveness. This is scheduled for the next year with key activities of: Providing engagement opportunities, including community policing of pipelines and facilities; and Creating regular dialogue sessions with community leaders.
- Maintain a sustainable harmonious relationship from the third year by deploying a sustainable framework with JV partners to guarantee harmonious relationships.
Accelerating industrialisation in Northern Nigeria
In 2016, the administration wants to accelerate industrialisation in the northern region and will begin to implement initiatives which include: Progressive 3-D seismic acquisition in Chad Basin; Progress exploratory activities in Oil Prospecting License, OPL 809 and 810 in Bauchi and Gombe by deploying unconventional exploration technologies; In Gas Pipelines, conclude all Pre-Engineering, Procurement and Construction, EPC activities for Ajaokuta-Abuja-Kaduna-Kano, AKK pipeline and award EPC Contract; In Power, conclude all feasibility and Preliminary- Front End Engineering Design, pre-FEED activities for Abuja, Kaduna, and Kano Power Plants; In Pipelines, Depots and Retail activities, invest in direct security along critical pipelines, revamp 3 critical depots and increase NNPC Retail’s footprint; Revamp the KRPC petrochemical plant; Fast-track the completion of Kaduna Petroleum College; Promote the use of Liquefied Petroleum Gas, LPG cylinders/burners and emplace cost recovery mechanism from gas purchase.
In 2017, the objectives are to significantly progress initiatives to: Continue seismic interpretation of all processed Chad Basin data and Benue; Commence purchase of long lead items; Acquire and firm up Rig contract; Significantly progress project execution and firm up all gas supply activities; Conclude FEED, all Pre-EPC activities and award EPC Contracts; Revamp additional 4 depots and encourage private sector participation for expansion and significantly progress Retail expansion; Launch domestic fuel switch program involving the replacement of kerosene and firewood with LPG and deliver high volume LPG throughout to crash price of LPG in the region, and ensuring affordability.
In 2018, the objective is to keep growing and adding high value opportunities by: Identifying mature prospects into drillable plays; Developing OPL 809 and 810 for gas to power monetisation, continue purchase of long lead items and site mobilisation; Implementing EPC to mechanical completion; Significantly progress execution towards completion in Power; Rehabilitating 3 additional depots and ensure full availability of all assets; Spearheading the local manufacturing of cylinders-steel or composite, and burners in the region.
Developing the economy of Southern Nigeria – a 3-year action plan
Beginning from 2016, the administration intends to implement initiatives to develop the southern region of the country.
In exploration and production – commence production from drilled and completed wells in Dahomey Basin, and encourage production from fallow marginal fields; Gas Pipelines and Processing Facilities – conclude several gas pipeline projects, Odidi-Escravos-Lagos Pipeline System, ELPS and ELPS II; Conclude Non Associated Gas-II, NAG-II Utorogu Gas plant and liquid extraction plant; Refineries, Oil Pipelines and Depots- invest in security along critical pipelines, re-stream WRPC and PHRC refineries post rehabilitation works, and revamp 4 critical depots and associated pipelines in the region; Invest in construction, lease and outright purchase of retail fuel stations; Fast-track implementation of the United Nations Environmental Programme, UNEP report on the Ogoni clean-up; and Subsidise LPG cylinders/burners and emplace cost recovery mechanism from gas purchase.
In 2017, we intend to significantly progress initiatives through the following steps:
Continue further exploration and appraisal work on the Dahomey Basin and encourage participation of International Oil Companies, IOCs and independents; Conclude Obiafu-Obrikon-Oben, OB-3 gas pipeline project and significantly progress additional gas monetisation project, e.g Trans Nigeria Gas pipeline; Invest in security along critical gas pipelines, revamp 4 critical depots and associated pipelines in the region; Continue investment in construction, lease and outright purchase of retail fuel stations; Institutionalise a sustainable framework for environmental clean-up and remediation; Deliver high volume LPG throughout to crash the price of LPG in the region, and ensuring affordability.
In 2018, we intend to keep growing and add high value opportunities by ensuring the following:
Continued support for domestic gas supply and elimination of routine flaring; Execute Central Processing Facilities, CPFs, Gas Industrial Parks, etc; Rehabilitate 3 additional depots and ensure full availability and functionality of all assets; Continue investment in construction, lease and outright purchase of retail fuel stations; Promote youth empowerment programmes in host communities; and Spearhead the local manufacturing of cylinders/burners in the region.
In summary, I will focus on these areas in developing Nigeria’s oil and gas sectors: Running production acreages. As market conditions become more challenging, transparent and profitable partnerships with globally recognised and experienced partners will bridge capability and funding gaps as needed; Encouraging investment inflow to Nigeria’s oil and gas industry. Investment is needed in Nigeria’s oil sector. Upstream Capital Expenditure, CAPEX spending has increased only 2% since 2010; Engaging with local communities – all oil and gas companies should engage with communities to align objectives; Driving regulation to develop the sector income. Encouraging a fast-tracked PIB, to clarify direction and encourage long-term investment in the industry.
Our Successes so far
- Enhanced commercial value.
$420million is due for recovery from legacy swap contracts; $2b amount to recover from restructured JV funding; 20 Fixes war room launched to fast-track implementation; Power, JVs, Independent Power Producers, IPPs have been incorporated.
- Increased productivity, staff morale and efficiency.
231mmscfd increase in gas supply to power plants; 10-20kbpd increase in NPDCs daily production; Weekly podcasts to communicate NNPC’s plans, challenges and successes.
- Improved governance.
A weekly executive performance dialogues to improve performance; A monthly steering committee to ensure 20 Fixes success; Bi-weekly performance dialogues at NPDC to improve production; and A monthly publication of NNPC’s financial performance to promote transparency and accountability.
Published in the Business Eye’s print version, Jan 2016 edition.