The Nigeria National Petroleum Company (NNPC) Limited has, in over three months after its re-branding, activated new investments and partnerships for the growth of the domestic economy and sustenance of its industry leadership. The anticipated investment in the $25 billion Nigeria-Morocco gas pipeline projects, engagement of local security firm to secure gas pipelines, among other steps, show the corporation’s commitment to industrial and economic growth. NNPC Ltd’s plan to restart activities on the Shell Plc-operated Forcados export terminal and Trans Niger pipeline is expected to add 500,000 barrels a day to its output by the end of November in line with its commitment to improve domestic oil production, writes AMBROSE NNAJI
Not many companies hit the ground running in the quarter of operation as a limited liability company. For the Nigeria National Petroleum Corporation (NNPC), an institution that represents hope and prosperity of Nigerians and the global oil industry, getting the work done from day one was a remarkable priority.
The unveiling of NNPC Limited by President Muhammadu Buhari in July was the highpoint of years of planning and decision-making to make the corporation a more commercially-viable private entity with greater transparency and impact on the lives of the people. In the face of rising criticisms over its activities, NNPC Limited is strengthening the capacity and market relevance of the oil industry and gas industry to align with global best practices through investments and infrastructure security.
For instance, the NNPC Ltd is considering a Final Investment Decision (FID) on the $25 billion Nigeria-Morocco gas pipeline in 2023. The 5,600-kilometer (3,840-mile) pipeline is meant to supply the fuel to Europe, with the NNPC and the Office National des Hydrocarbures et des Mines of Morocco, signing a Memorandum of Understanding (MoU) on the deal last month.
It traverses 13 African countries and is aimed at monetising Nigeria’s abundant natural gas resources, diversify the country’s gas export routes and eliminate gas flaring across Nigeria. The pipeline will originate from Brass Island (Nigeria) and terminate in the North of Morocco, where it will be connected to the existing Maghreb European Pipeline that originates from Algeria (via Morocco), all the way to Spain, according to the sponsors.
Group Chief Executive Officer of the NNPC, Mallam Mele Kyari, assured that the project was on course and remains one of the most critical for the company. “We will take a final investment decision next year,” he said. The 15-nation Economic Community of West African States (ECOWAS) is also a signatory to the MoU. The project will cost $20-25 billion to build and will be constructed in phases, according to Kyari, who anticipates the first segment would take three years to finish and the others five years.
Nigeria’s gas exports are currently limited to shipments from Nigeria LNG Ltd, a joint venture between NNPC and international energy companies including Shell Plc and Eni SpA. Nigeria possesses Africa’s largest proven gas reserves at over 200 trillion cubic feet, most of which is untapped, flared or re-injected into oil wells. While the government says it wants to monetise much more of the resource, for domestic use and export, to replace crude as the country’s key commodity, Kyari stated that quadrupling gas production in the next four years was “very realisable.”
The NNPC has also revived a longstanding proposal for a separate transcontinental gas pipeline that would travel about 4,400 kilometres through the Sahara Desert to Algeria for onward transport to Europe.
“We have seen the opportunity to bring back every gas pipeline project that you can think of,” Kyari said, noting that “It is a matter of who needs it and who’s ready to pay for it.”
The NNPC GCEO also said that the country can add an additional 500,000 barrels a day before the end of November by reopening the Shell-operated Trans-Niger Pipeline and Forcados terminal and introducing new evacuation routes. The NNPC also hired new private security contractors in August to protect the pipelines, some of which are connected to militant leaders that once waged a war against the oil companies before accepting a government amnesty in 2009.
Also, the NNPC Ltd recently entered into ‘cash for crude’ deals worth about $5.6 billion with some of its business partners as it forages for cash to revamp the country’s beleaguered oil sector. The capital commitments agreements seek to raise quick cash for investments and meet cash-call obligations and highlight the fragile financial state of the company, despite its claim of making record profits.
Other prominent interest of NNPC include the acquisition of 20 percent interest in Dangote Petroleum Refinery and Petrochemicals Free Zone Enterprise worth $2.76 billion. This investment is held by NNPC Greenfield, a special-purpose vehicle that is 100 percent owned by the NNPC. This acquisition was financed by $1.036 billion funding from Lekki Refinery Funding Limited, of which $1 billion was paid to Dangote Refinery and $36 million accounting for transaction costs.
“The balance of the cost of equity investments made in Dangote Refinery, which is $1.76 billion will be paid upon completion of the refinery project starting April 1, 2023 or any other date agreed between the parties (NNPC and Dangote Oil Refining Company Limited) via a combination of a $2.5/bbl discount (on the official selling price) per barrel on 300,000 barrels per day to Dangote Refinery, and 100percent of NNPC’s portion of any dividend declared by Dangote refinery, throughout the repayment period,” NNPC said.
The NNPC entered into a forward sale agreement with Lekki Refinery Funding Limited to supply 35,000 barrels of crude oil per day for the settlement of the $1.036 billion (N426.2 billion) funding received for the financing of investment in Dangote Refinery. “The interest rate for the facility is 3-month LIBOR plus 6.125 percent. The arrangement has been scheduled to commence from August 30, 2023,” NNPC said.
Also, the NNPC disclosed it expects Nigeria to add 500,000 barrels a day to its output by the end of November, mainly by restarting activities on the Shell Plc-operated Forcados export terminal and Trans Niger pipeline.
Security of oil pipelines
Nigeria’s main source of revenue and foreign exchange earnings has been undermined by low oil production due to rising oil theft, pipeline vandalism and underinvestment by International Oil Companies (IOCs). The NNPC Ltd has therefore taken major steps to secure the oil industry, especially gas pipelines.
The NNPC said the award of multi-billion naira pipeline surveillance contract to a privately contracted oil pipeline surveillance company, Tantita Security Services Nigeria Limited, led by Government Ekpemupolo, popularly known as Tompolo is a right decision. The NNPC said the decision was necessitated by the need for Nigeria to hire private contractors to man its oil pipeline network nationwide due to massive oil theft.
According to Kyari, the decision was aimed at achieving three broad objectives. He said: “First, to ensure the government’s security agencies play their part, we have our Navy, the Army and they are doing an excellent job of containing this, but as you do this sustenance is everything and therefore we also decided that we need private contractors to man the right of way and also operate outside the right of way so that they can also join us to manage members of the community.”
Since the contract was awarded, the Tompolo team has recorded several success stories. The team discovered more massive illegal crude oil pipelines attached to Trans Forcados Export Trunkline. The latest discovery comes a few days after an illegal four-kilometre crude oil pipeline belonging to Shell Petroleum Development Company (SPDC) was exposed.
The discovered illegal pipeline revealed that the illegal line was connected to the 48-inch Trans Forcados Export Trunkline in Burutu Local Government Area. Chairman of Centre for Human Rights and Anti-Corruption Crusade (CHURAC) board of trustees, Alaowei Cleric noted that Tompolo has shown he is able to stop crude oil theft in the Niger Delta.
“This is just one of the many syndicates all over the region, milking our economy dry. We can’t dispute the NNPC’s claim that Nigeria is losing about 600,000 barrels of crude oil per day to economic saboteurs. Our consolation, however, is that with Tompolo given the contract to secure the oil pipelines, oil thieves are already having a bad day,” he said.
He pointed out that NNPC Limited has achieved a feat it hasn’t been able to accomplish for the past 22 years, fighting crude oil theft, within few weeks of taking action to stop the illegal business. While urging Nigerians to assist in the task in order to achieve the desired results, he claimed that Tompolo’s initiatives are already having a positive impact on the economy.
Managing Director, Financial Derivatives company Limited, Bismarck Rewane, said the government is tackling oil theft as seen in the engagement of private security company to secure pipelines, which suggests a possible boost in production in the near term.
“This is in addition to the re-opening of the Trans-Niger pipeline, which transports about 180,000bpd of crude oil. The pipeline, which is known to transport the nation’s high grade crude oil was formally closed due to vandalism and oil theft on the export facility,” he said.
According to Rewane, the government lost 400,000 barrels of oil daily to oil theft, which is equivalent to a revenue loss of N1.2 billion monthly. Possible increase in oil production coupled with high oil prices will bolster the country’s export earnings and aid reserves accretion,” he added.
He said the possible increase in oil production coupled with high oil prices will bolster the country’s export earnings and aid reserves accretion. “Oil prices are expected to increase further towards $100pb in the coming weeks supported by OPEC+’s production cut as well as the impact of the lingering Russia-Ukraine war. Higher oil prices are positive for the Federal Government revenue and external reserves accretion,” he stated.
For the Minister of State for Petroleum Resources Timipre Sylva, the unveiling of NNPC Limited is a new dawn in the quest for the growth and development of the oil and gas industry, opening new vistas for partnerships. “While the country was waiting for the PIA, Nigeria’s oil and gas industry lost about $50 billion worth of investments. In fact, between 2015 and 2019, KPMG states that “only four per cent of the $70 billion investment inflows into Africa’s oil and gas industry came to Nigeria even though the country is the continent’s biggest producer and the largest reserves,” Sylva said.
“We are setting all these woes behind us, and a clear path for the survival and growth of our petroleum industry is now before us. With the PIA assuring international and local oil companies of adequate protection for their investments, the nation’s petroleum industry is no longer rudderless.
“The PIA avails us with the golden opportunity to strengthen our institutions, improve our regulatory and fiscal frameworks and attract the much-needed investments. Some of the golden opportunities presented by the reforms are coming at a time when the global energy conversation is moving towards gas as a cleaner energy fuel,” he added.