The issue of gas flaring has remained a major for years as different measures to stem the tide seem to have failed. In this report, Charles Okonji examines the clamour by indigenous players in the up and downstream sector of the oil and gas industry to address this challenge frontally.
For decades, most of the companies operating in the nation’s lucrative oil sector have continued to flare gas in the course of their exploration and production activities. This is not only a waste of the country’s resources as the flared gas could earn Nigeria huge revenue. Besides, this menace has also contributed to the degradation of nation’s flora and fauna with greater implication on the environment, health, wellbeing of the citizenry.
For a country that sometimes suffers acute supply of gas, it is however an irony much of her natural gas is being wasted thus losing revenue that comes with it because the industry thrives on the whims and caprices of foreign operators.
The Nigerian oil industry was originally the exclusive domain of the International Oil Companies (IOCs) in areas ranging from exploration to production, refining and trading. Even the downstream operations were initially controlled by expatriate companies such as Shell, Esso and BP. But the intervention by the federal government resulted in the nationalisation of assets of the major oil players.
However, despite the 1991 federal government demystifying of the oil industry by awarding onshore and offshore oil blocks to Nigerian entrepreneurs through competitive bidding, experts maintain that the “Nigerianisation” process in the lucrative upstream has been comparatively negligible and most importantly, the much gas flaring problem persists.
The problem, experts say, can only be solved through full participation of indigenous companies in both the upstream and downstream sectors of the oil industry in line with the spirit and letter of the Nigeria Local Content Policy.
A clarion call obey
This is a clarion call that Dangote Petroleum Refinery has heeded with the expectation that more of such local entrepreneurs will follow suit.
According to President of Dangote Group, Aliko Dangote, gas flaring problem can only be solved through full participation of local companies in the sector just as his company has done. Dangote spoke during a tour of the refinery, fertilizer and subsea gas pipeline project by the Governor of Central Bank of Nigeria, Godwin Emefiele, in Lagos recently.
He expressed confidence that Dangote Petroleum Refinery can meet 100 per cent of the Nigerian requirement of all liquid products; be it gasoline, diesel, kerosene or aviation fuel and also would have surplus of each of these products for export.
According to him, the company’s investment in the project will stand in excess of $12 billion while the refinery will create market for 11 billion USD per annum of Nigerian crude as the refinery is designed for 100 per cent Nigerian crude with flexibility to process others, and strategically located marine infrastructure for crude receipts and product trade.
Also, the EWOGGS pipeline project will unlock significant gas supply for industry and will considerably reduce flaring problem in the country. Power plants, fertilizer, refinery and petrochemical projects in the country and others will benefit from this gas.
The building of EWOGGS facilities, subsea pipeline and processing facilities is based on the following parameters: as short a time as possible, as cost-effective as possible, ensure facility is capable of achieving operating objectives, ensure that the built facility can be operated economically over its entire life span.
The benefits from EWOGGS gas supply of up to 12,000 MW worth of power (projected) are enormous. Gas will be readily available for commercial use. Nullify the need for future gas import which in turn leads to diversification of Nigeria’s economy.
The project is expected to increase government revenue and meet demand for domestic petrochemical products, increase in forex from exports and creation of direct and indirect jobs.
This project has become necessary due to insufficient investment focus to grow the required supply capacity. Investment requirement in this direction, experts say, is in excess of $10billion per annum.
Majority of IOC gas development in the last 10-15 years has been for export market, the huge gas resources are not being developed to meet the demand and government has been unable to attract investors and its execution model is flawed.
Again, majority of gas development and infrastructure Joint Venture plans lack good delivery and execution time table.
In view of the above, Dangote is calling for business entrepreneurs and private sector willing to invest in gas field development and gas infrastructure.
Experts say the gas demand of the country by the end of the decade will be in excess of 10BCF/d, unable to reliably deliver 1.7 BCF/d installed capacity. Even at this capacity, growth in power, manufacturing and gas-based industries are constrained
“Gas is key fuel to FGN’s transformation agenda and Nigeria’s economic growth,” says a business analyst, Anochirionye Onyekachi.
According to Onyekachi, a research done in 2008 concluded that although the oil and gas industry accounts for 90% of Nigeria’s revenue, it contributes less than 38% to the nation’s GDP. In real terms, the upstream industry has for decades functioned as an enclave economy with minimal impact on the wider economy.
The business analyst stated that the Local Content Development Act 2010, among other things, envisaged tackling the problem of insufficient value addition to the Nigerian economy arising from the near lack of local capacity/capability in the industrial sector especially in the petroleum industry. The Nigerian Oil and Gas Development Law 2010 defines local content as “the quantum of composite value added to or created in Nigeria through utilisation of Nigerian resources and services in the petroleum industry resulting in the development of indigenous capability without compromising quality, health, safety and environmental standards. It is framed within the context of growth of Nigerian entrepreneurship and the domestication of assets to fully realise Nigeria’s strategic developmental goals.
The scheme, which has the potential to create over 30,000 jobs in the next five years, is geared to increase the domestic share of the $18 billion annual spending on oil and gas from 45% to 70%, in addition to enhancing the multiplier effects on the economy, through refining and petrochemicals. The Local Content Policy action started in 1971 through the establishment of the Nigerian National Oil Corporation, (NNOC).
NNOC was established as a vehicle for the promotion of Nigeria’s indigenisation policy in the petroleum sector. It later became Nigerian National Petroleum Corporation (NNPC) in 1977 through NNOC’s merger with the petroleum ministry. NNPC flagged off the actual local content initiative through acquisition of interests in the operations of the Indigenous Oil Companies (IOCs). These interests grew to about 70%, with the responsibility of controlling all acreages and other activities. Although conscious efforts were made in the past through Regulation 26 of the 1969 Petroleum Act, enforcement of local content policy, the springboard for sustainable economic transformation of Nigeria, was mere paper work. For an industry that contributes 80% of Nigerian government revenues and 95% of its foreign exchange, this is entirely unacceptable to the Nigerian government hence the clamour for change.
Government’s objectives for the local content policy initiative are quite noble but have remained unrealised. These objectives include the expansion of the upstream and downstream sectors of the oil and gas industry, the diversification of the sources of investment into the sector such that some of the funds would begin to come from local sources, the promotion of indigenous participation and the fostering of technological transfer. Other objectives are the increase in oil and gas reserves through aggressive exploration; employment generation for all categories of Nigerians; increased production capacity, and perhaps most importantly, the integration of the oil and gas industry into the mainstream economy through local refineries and petrochemicals
The Local Content policy was primarily aimed at enhancing increased participation of local indigenous firms in the oil and gas industry. The policy was targeted at transforming the industry through the development of in-country capacity and indigenous capabilities in the area of manpower development, facilities and infrastructure towards ensuring that a higher representation of local indigenous companies participate actively in the industry
Onyekachi concluded that for Nigerian operating companies, the Act offers a great opportunity for growth and expansion. A Nigerian company is defined under the Act, as a company registered under the Companies and Allied Matters Act and having not less than 51% Nigerian shareholding. Such a company is to be given first consideration in the award of oil blocks, oil field licences, oil lifting licences and in all project awards in the Nigerian oil and gas industry. These provisions should ensure a steady growth in Nigerian participation in the industry as well as increase local capacity and industry knowledge and expertise.
In the view of the CEO, Nispo Porcelain Ltd, Mallinson Ukatu, the participation of indigenous companies would help eliminate the loss that the country has been incurring through gas flaring since independence.
According to Ukatu, more private participation and more modular refineries would not only help in the reduction of gas flaring, but will also help in crashing the price of natural gas. For instance, the manufacturers that have their own independent power plant are being supplied natural gas in US Dollar, while we are in Nigeria.
Again, with IPP of 850KVA being supplied natural gas and we pay in dollars to generate the power that we need for manufacturing, how do you think we can produce at a cheap rate? This coupled with other factors increases our cost of production and worsens the woes of manufacturers. Five years ago, when there was an increase in the price of gas due to the increase in the rate of foreign exchange, the price of natural gas doubled with the same margin when the naira lost its value to the dollar. We sell goods that the prices have gone up by over 250% because of the exchange rate.
“We have been crying for long, on the cost of natural gas, as it is killing business, but the government has shown indications that they would lower the price and revisit the issue of gas being supplied to us in US dollars,” Ukatu stressed.
According him, the Local Content Act has been quite effective. “It has been very useful; you cannot compare the situation now for local players with what it was before this policy was introduced. Also implementation has been quite good; but it should be better enforced.
“The point remains that the policy, the law, is well cut out; it is a step in the right direction. The good news is that it has come to stay and the IOCs are implementing it,” he stated.
Experts generally agreed that the local content law in the oil and gas sector has greatly brought a change to the business landscape with more local firms acquiring assets in the oil and gas industry, raising funds to buy assets, getting involved with the legal work, acquiring the technical know-how and managing the resources. They add that more Nigerians are now participating in the exploration and production of fuel, as well as fabrication, engineering, and marine transportation.
Leave a Reply