Category: Energy

The continuing implementation of the Petroleum Industry Act (PIA), decisive decisions around petroleum subsidy, deregulations, a defining restart of crude refining, further privatisation and reforms set the energy sector on a year that promises much challenges. John Ofikhenua and Ambrose Nnaji report.

Domestic refining of crude oil is the greatest expectation that will redefine the Nigerian downstream petroleum sector in 2023.

With the completion of 650,000 barrels per day Dangote Oil Refinery and a few new modular refiniries that are expected to come on stream in 2023, the petrol market will no doubt record a very drastic change.

There is however some degree of uncertainty about how the market would thrive amid partial regulation. In as much as the Federal Government is still adamant over the removal of the Premium Motor Spirit (PMS) petrol, there are doubts about the pricing of the emerging markets.

Would Dangote consent to selling under a regulated price regime? Although the government has pegged this year for the removal of the subsidy, it is still hazy whether the refineries will delay their take off till the phase out of the subsidy. Thus, the government has to come out clear on the terms of engaging the private refineries before subsidy removal.

There will be a change of government administration this year. Interestingly, most of the presidential candidates have vowed to remove the subsidy. Should the next government stop the subsidy, Nigerians shall live to tell new tales of a liberalised market.

Meanwhile, this year will confirm how far the gains from pipeline surveillance recorded last year can endure. With accusation and counter accusation among the military and the cabal in the industry, 2023 shall tell whether the next administration will have the political will to sustain the battle against crude oil theft.

From the upstream, it is still very unclear what the multinationals have up their sleeves in terms of investments in 2023. Had COVID-19 pandemic and Russian Ukraine war not altered their plans, their energy transition plans would have brought the hydrocarbon industry to its kneels last year.

Therefore, it is uncertain how willing they would be about oiling oil and gas investments. The next few weeks would however tell a lot about their thinking or rethinking of the industry as their indication of interest in the seven offshore blocks of the Nigerian Upstream Petroleum Regulatory Commission (NURPC) is on course.

Besides, more tales about the Kolmani milestone will shape the industry this year as it is to spur oil find and prospecting in other basins in the country.

Electricity reforms

There may be a renewed electricity market this year as the next administration is likely to come up with its reforms aside the expected assent to the 2021 Electricity Sector Bill. Already a candidate to beat in the February election has vowed to stop estimated billings in the Nigerian Electricity Supply Industry (NESI).

Metering which remains a major challenge in the industry may determine the 2023 market. Would the Nigerian Electricity Regulatory Commission (NERC) compel the electricity Distribution Companies to meter their customers from the poll that the National Mass Metering Programme would provide? If the commission succeeds in doing so, it will go along way to shape the industry. In addition, DisCos have been reluctant about energizing most of the trasfomers NDPHC has provided them. Regulation and demand for power may compel them to do so this year.

A major outlook of the industry is the privatization of the five National Integrated Power Projects (NIPPs) plants. The Niger Delta Power Holding Company Limited which manages the firms, has been in charge of the plants in Ihovbor, Geregu, Olorunsogo, Calabar and Omotosho.

Should the Bureau of Public Enterprises (BPE) succeed in privatising them, the industry stakeholders will look forward to seeing whether the mere change of ownership structure will be any different from the previous ones in 2013.

There are several completed  power projects that the Transmission Company of Nigeria (TCN) has completed which are awaiting inauguration. Among them is the Dawaki substation, which is part of the Abuja ring projects.

Again, with the arrival of Siemens 10 mobile transformers which NEMSA has indicated interest in inspecting and certifying before they are energised will be a major boost to the industry this year.

Safety remains an issue in the industry that the Nigeria Electricity Management Services Agency (NEMSA) needs to step up its enforcement this year. Last year ended with a high tension line snapping on a lower line, resulting in a power surge that killed over 10 people in Zaria. It was the same time that the agency was already clamouring for the political will to demolish over 5,000 houses from the right of way. Precious lives and property must be spared of that hazard this year. 

Kicking in the reforms

Until the passage of the Petroleum Industry Act (PIA), investors were undecided where to move their investments. Those indecisions led to a lot of divestments to other jurisdictions that were certain in their legal framework. But now that the law is in place those fears and uncertainties have been laid to rest, things are now being done in such a way that investments would be coming.

Executive Secretary, Nigerian Extractive Industries Transparency Initiative (NEITI), Orji Ogbonnaya Orji envisaged there are a lot of prospects in the oil and gas industry expressing the confidence the PIA would provide a wider opportunities for the industry going forward.

Orji said this year the agency would be focusing more attention on the development of the solid minerals sector as well as how NEITI reports in the sector and public disclosure could improve governance and aid revenues generation. Other areas are implementing of a framework for strategic implementation of the Petroleum Industry Act, curbing oil theft, environment and gender reporting, policy advisory support to government as well how NEITI data can support the federal government Energy Transition plan.

The executive secretary said the agency would also pay greater attention to broadening the base of the stakeholder’s engagements through deliberate investments on capacity building especially for the civil society and the media among others.

Again, it would be releasing three independent industry reports in the first quarter of this year. These are in the oil and gas, solid minerals and fiscal allocation and statutory disbursements. He said the reports commissioned in the past year were at advanced stage of completion. “Indeed, NEITI has huge plans for this year under a 5-year strategic plan approved by our Board to cover the period 2021-2026” adding the strategic plan defines the annual country work plans.

On its plans for the year, the executive secretary noted Nigeria was undergoing a global assessment by the Extractive Industries Transparency Initiative. According to him, the process called Validation seeks to ascertain the country’s implementation and compliance to the standards as an implementing country. He disclosed the validation exercise commenced January 1st, 2023. According to him, Nigeria will be assessed on three thematic areas.

These are Transparency applications compliant mechanisms in the reforms of the oil and gas industries, the level of stakeholder’s relations and engagements. The EITI validations will also examine the outcomes and impacts. He said the NEITI National Stakeholder’s Working Group had made comprehensive submissions on behalf of Nigeria for the international assessment which he informed began on New Year’s Day, January 1. The submissions, he added were based on the contents of NEITI reports, its findings and recommendations and how the information and data had helped to shape public debate and the ongoing reforms in the sector.

“We are working so hard to meet the target to release the report early in the year. We adjusted the date to accommodate important issues like alignment of the scope, content, depth and needs of the report to Extractive Industries Transparency Initiative (EITI) requirements and key policy developments. But we remain on track and the progress of work quite encouraging, he highlighted.

On the recoveries from N2.6trillion, the NEITI secretary said they were yet to publish the 2021 industry reports on the oil and gas sector. It’s hoped the report would be published on or by the first quarter of the year, Ogbonnaya Orji assured adding the report will provide a progress report. NEITI is also in close talks with the Oil Producing Trade Section (OPTS) of the Lagos Chamber of Commerce, Industries, Mines and Agriculture to define new rules of engagements with companies to establish clarity on both sides on the liabilities.

“We welcome the OPTS interests in NEITI reports and our public disclosure. OPTS with over 29 oil companies as members have legitimate interest in NEITI and an institutional member of NEITI National Stakeholder’s Working Group requires all the confidence and trust that the process can possibly build”,   

 Orji expressed, and we are working together along that line, he added.

He said the agency was challenged to make sure that report of the implementation committee comes out very fast, expressing the certainty with the presidential committee on implementation of the PIA.

“So we need to move fast to unveil the implementation strategy, not just the transition of the Nigerian National Petroleum Corporation (NNPC) that had taken place”, he added.

There are a lot of other provisions that needed to happen, the indecision about whether or not to remove subsidy are some of the issues that we needed to lay rest to, the executive secretary agreed these are very key strategic to moving forward with the implementation of the law.

The executive secretary however expressed the concern over the decisions investors may need to make with regards to how Nigeria will manage the upcoming electoral process.

According to him, those in the industry believe that the outcome of the elections would help stabilise those kinds of thinking of the private sector. He expressed the hope if the elections were conducted peacefully, free and fair and the transition goes well as it’s hoped it would further deepen investment confidence.

Orji, who recalled that during election year, people are usually afraid that elections would bring crisis, however, noted that the technology that INEC had embraced, and the government decision to allow a level playing field were clear signals that the elections would be free and fair.

This, he upheld, would help build investors’ confidence, adding that peaceful transition is very key to driving investment confidence, because nobody wants to invest in an atmosphere of political crisis or acrimony adding already we are seeing clear signals that elections will hopefully be free and fair.

Chief Executive Officer, ND Western Limited, Eberechukwu Oji, said 2023 would be a defining year with the dominance of Nigeria’s indigenous oil and gas companies in the onshore and shallow waters as the international oil companies (IOC’s) divestment from these areas continue.

According to him, in first half of 2023, we look forward to a complete improvement in the country’s oil and gas production as we put a complete stop to oil theft and pipeline vandalism with initiatives already being put in place as well as the introduction of technology in monitoring these pipelines.

Oji said a collective support and deliberate collaboration between the federal government, regulatory agencies, financial institutions and the oil and gas companies was needed to optimize the growth opportunities with the decade of gas and also meeting Nigeria’s commitment to 2060 net-zero aspirations.

He said the PIA implementation would be in full swing. He argued how the government would drive the implementation as a nation would be defining for the oil and gas industry.

According to him, with proper implementation of the Petroleum Industry Act (PIA) it is envisaged there would be long-term investment growth in the oil and gas sector. He said the clarity and certainty that the law brings were the major ingredients in investment decision making.

Oji believed as the country progresses in the implementation of these laws certain areas would be amended as issues arise.

Oji maintained Deregulation of the downstream sector was inevitable, however, the Government must properly manage the implementation to minimise the shock on the economy, especially on the vulnerable masses. He said with the rehabilitation exercise of the Nigerian National Petroleum Corporation (NNPC) refineries, and other private refinery developmental projects coming up, including the ND Western/NPDC OML34 JV 10,000bpd mini-refinery project which is in FID stage, the Dangote refinery and many other mini-refineries coming up, Nigeria should as a country be able to drastically reduce its petroleum products importation within the next five to ten years.

“With the amount spent on subsidising the PMS from 2015 to 2022 totaling about $15billion it is unsustainable to keep importing petroleum products and continuation of subsidy payment,” Oji argued.

Vice President, Crude and African Markets James Gooder said the continued state of disrepair of the Nigerian National Petroleum Corporation’s (NNPC) owned refineries, depots and pipelines characterised by long-term low-capacity utilisation of the refineries and closures of important sections of the storage and distribution chain which created a large downstream infrastructure gap was a shortfall to deregulation.

Gooder noted the situation had made Nigeria fully dependent on imported petroleum products subsequently heightening social and environmental risks associated with trucking of products across the country.

According to him, the Operating Model of NNPC’s downstream businesses arguably had contributed to a difficult investment climate for the private sector and made NNPC the single importer of PMS, thereby limiting the space for competitive market.

Gooder therefore maintained that full deregulation of downstream petroleum sector was a critical national economic and strategic endeavour necessitating the support and cooperation of all stakeholders to implement. He proposed that all hands must therefore be on deck to ensure the attainment of transparent, competitive, efficient and sustainable liberalised downstream petroleum sector in Nigeria.

Crude oil price in the international market had a steady rise last year. Many factors were responsible for this, including the ongoing Russia/Ukraine war. MUYIWA LUCAS examines the implication for Nigeria, its revenue drive and the economy.

The climate for the global oil and natural gas markets can best be described as one of extreme nervousness, uncertainty, and volatility.

  A plethora of factors are fuelling it, including concerns about supply, rising COVID cases in China, and low global inventory levels. Geopolitical events, which are always a factor in oil prices, are probably a well-above-average influence given the crisis in Ukraine.

  In this report, S&P Global Ratings responds to frequently asked questions on the topic.

 Driving force

 Before addressing this question, it’s important to understand the state of oil markets before the Ukrainian invasion. Prior to the invasion, oil prices had steadily increased owing to global economic reopenings as well as continued supply discipline from OPEC and North American producers. The latter, seemingly having found fiscal religion at the hands of investors, remained disciplined with regards to capital expenditures and focused on improving the balance sheets and distributing cash flow to shareholders. Many of them targeted a total debt/EBITDA of under twice at a mid-cycle price that was somewhere around $50/barrel. Moreover, OPEC was measured in bringing back the 10 million barrels of production it removed from the market during the pandemic to stabilise falling oil prices.

 According to the EIA, oil consumption since mid-2020 has persistently outstripped oil production, contributing to a decline in global oil inventories in all but one month from June 2020 through February 2022. As a result, total commercial oil inventories in the OECD have fallen to their lowest levels since mid-2014.

  U.S. sanction of Russian crude

 The Energy Information Agency reports that the U.S. imported approximately eight percent of its total imported oil and petroleum products from Russia, which includes three percdent of total U.S. imported crude oil last year. Russian Ural crude is a heavy sour crude and the U.S. can replace these barrels rather easily. The U.S., U.K., Canada, and Australia have all banned Russian oil, impacting approximately 13 percent of Russia’s exports.

 Possible EU sanctions

 A European sanction on Russian oil and gas is a far more complicated matter. Unlike the U.S., Europe has a heavy reliance on imported oil and natural gas. Dependency on Russian oil varies by each EU country, but overall, EU reliance on imported oil and gas has grown over the last decade as a result of declining investment and production of hydrocarbons. The EU imports 90 percent of its natural gas demand. In addition, according to Eurostat, its net import dependency for imported oil and petroleum products reached 96 percent in 2020. Moreover, according to the International Energy Agency, 40 percent of the EU’s natural gas consumption and approximately 26 percent of its crude oil needs are supplied from Russia, and approximately two-thirds of its petroleum product imports came from Russia. Russia exports approximately five million bpd of crude, with approximately half finding its way to Europe.   Over the longer term, it’s likely easier for Europe to wean itself off Russian oil versus Russian gas. Most of the natural gas supplied from Russia comes into Europe through pipelines. Replacing that infrastructure would mean importing LNG into coastal facilities and require significant build-out of new pipelines that reach deep into Europe, whereas the oil markets are more liquid and would not require such expenditures. Moreover, according to Platts Analytics, the U.S. is already supplying roughly two-thirds of its LNG exports to Europe and, despite the potential of U.S. producers drilling for more natural gas, its export facilities are operating near full capacity. Expanding those facilities would take years and billions of dollars of investment.

 Additional supply

Typically in periods of supply shortages the market has looked to OPEC to make up the deficit, primarily Saudi Arabia, which we believe has approximately 2.5 million barrels of spare capacity. So far, OPEC has been reluctant to produce more oil, preferring to stick to its targets to sustain high prices. OPEC also prefers to have spare capacity as a safety cushion in case of a serious crisis. To complicate matters, several OPEC members have been unable to increase production in line with previously agreed-on targets.

However, oil field service (OFS) companies may not be able to respond so quickly this time around due to severe logistical hurdles. These include labour and drilling equipment shortages. The previous downturns in the industry led to broad retirement of pressure pumping and other OFS equipment, with much of this equipment being utilised for spare parts. Also, many OFS workers who were let go in the previous downturn have found other employment and it will take time to bring any new employees up to speed. Lastly, there continues to be supply chain issues that have resulted in shortages of equipment, parts, and pipes.

 Implications due to withdrawal

 For the Nigerian economy, experts agree that a higher oil price will favour oil-producing countries such as Nigeria as this guarantees her higher revenues which can further buoy the country’s income and also increase national reserves as well as budgetary spending. They argued that the development can further strengthen its foreign exchange earnings. These earnings can be used to finance investments in critical sectors of the national economy such as healthcare and education, as well as for infrastructure projects such as roads, rail lines, and ports to facilitate trade. Investment in infrastructure will improve quality of life, create jobs and opportunities, and help build more robust economies. This will also reduce the burden associated with borrowing and financing loans.

Speaking on the rising crude oil prices in an interview with Bloomberg Television earlier, the Minister of  State for Petroleum, Resources, Timipre Sylva, maintained that Nigeria’s comfort zone in terms of oil prices was between $70 and $80 per barrel. By implication, any price above this threshold may not be too good for the country.

Slyva’s unspoken words could centre on the subsidy regime on petrol which the country may have to bear. Recently, the National Assembly approved President Muhammadu Buhari’s request of N4 trillion to service subsidy payment in the current fiscal year. Yet, concerns remain on the country’s inability to meet its allocated oil production quota as approved by the Organisation of Petroleum Exporting Countries (OPEC). These factors have combined to limit the gains from the rising oil price.

 Other limiting factors include the inability of the country to activate the oil wells it shut down when OPEC instructed producing countries to cut production as well as the lack of investment in the upstream sector for the country’s inability to increase production.

 Slyva noted that a lot of additional investments would be needed to ramp up production, but regrets that foreign funding was drying out for the industry. “It’s not very easy these days to get the investments in. We really are not able to meet up our quota now. But I believe that we’re working so very hard to ensure that, because we are not happy at all, I mean, with the kind of prices we are seeing. We are obviously not happy about it. So we would like to definitely be back on track by later this year. It’s not been very easy to get investments. A lot of people can’t get investments into the sector, the minister told Bloomberg in the interview. For now, Nigeria can only hope and pray for a quick turnaround in the circumstance.

The Eko Electricity Distribution Company (EKEDC) has voted N18 billion to be spent on capital projects aimed at improving services across its network area. Some key aspects of the expenditure, the firm said, will help in opening of the Transformer and Equipment Repair Workshop, inauguration of the EKEDP Training Institute, Recruitment of Talent (EDTP) and fencing of all Distribution Substations.

The EKEDC’s Managing Director and chief executive officer, Tinuade Sanda, said the company is planning to expand its engagement with Independent Power Producers (IPP) for embedded generation, as well as mini-grids for improved power supply. This, she explained, would lead to improvement in the customer satisfaction index, while the management will deepen customer metering intervention through Meter Asset Provider (MAP) scheme and the National Mass Meter Programme (NMMP), phases 1 & 2. In addition, the company is planning expanded business development initiatives to make its services more attractive to recapture customers that migrated to alternative power sources

Sanda said the company has projected to achieve Aggregate Technical and Commercial Collection (ATC&C) Losses ranging between 18.92 per cent and 21.55 per cent. The company is also targeting total annual billing and collection above N200 billion as well as full settlement of electricity market invoices in line with Nigeria Electricity Regulatory Commission’s (NERC) Minimum Remittance Order.

Other targets announced by the MD include, enhanced profitability and declaring and payment of dividend to shareholders, zero fatality and injuries, rehabilitation of all frequent tripping feeders to guarantee uninterrupted power supply, among others.

Reviewing the company’s 2022 performance and projections for the new year, Sanda explained that the firm did carry out a minor adjustment of its tariff only for customers in Bands A and B, that is, customers who receive minimum of 20 and 16 hours daily supply of electricity in accordance with regulatory provisions.

The NERC in its Multi-Year Tariff Order (MYTO), provides a 15-year tariff path for the Nigeria Electricity Supply Industry (NESI) with limited minor reviews each year. According to her, the slight reviews are in the light of changes in a limited number of parameters such as inflation, interest rates, exchange rates and generation capacity, and major reviews every five years when all of the inputs were reviewed with the stakeholders.

In a related development, the EKEDC revealed that aside huge debt owed by federal government’s Ministries, Departments and Agencies (MDAs), amounting to about N40 billion, the company has also suffered asset vandalism from third party infringement. She said that the company’s activities are affected by the over N116 billion outstanding debt being owed the company. She also estimated that the company would require about N5 billion to replace vandalised equipments.

However , the MD stated that despite the huge debt, the management developed and presented a Strategic Roadmap Document outlining proposed steps for improving operational efficiencies and infrastructure improvement for implementation which yielded positive results in 2022 as the business achieved its best performance across board. Under the year in review, she said the company retained its position as the leading DisCo in Nigeria in terms of making 100 per cent remittances to the electricity market.

In addition, the firm attained its key performance index as set out by the NERC’s Key Performance Index (KPI) which commenced in October 2022 and maintaining the highest safety levels in the sector. Similarly, the firm avoided various regulatory and corporate actions due to its continuous improvement initiatives and performances.

The aim of the KPI is to monitor the performance of management teams responsible for the operational leadership/management of the utilities.

Going forward, Sanda said the In addition the company is planning expanded business development initiatives to make its services more attractive to recapture customers that migrated to alternative power sources.

The OML 83 and 85 NNPC/FIRST E&P Joint Venture (‘the JV’) has concluded a medical outreach which targeted eight communities in Bayelsa State, including Koluama 1, Koluama 2, Ezetu 1, Ezetu 2, Foropa, Fish Town, Ekeni and Sangana. The JV carried out this activity as part of its corporate social responsibility programmes aimed at improving the socio-economic well-being of people within its host communities.

The outreach, which took place earlier in the month was carried out by 62 medical doctors and other healthcare professionals. The programme provided free preventive, referral and curative medical services to over 2,200 people across the targeted communities.

Beneficiaries received free medication for malaria, diabetes, high blood pressure and various forms of optical ailments. The outreach resulted in the issuance of free deworming medication, 692 pairs of prescription eyeglasses and 1,200 mosquito nets to residents of the eight communities.

The Group General Manager, NNPC Upstream Investment Management Services (NIUMS), a subsidiary of NNPC Limited, Bala Wunti stated: “NNPC Limited is a socially responsible business and for us at NIUMS, while our primary responsibility is to ensure that the government’s investments are protected, we are also driven by partnerships to improve Nigerians’ lives. For social interventions, our vision is to continue to operate in an ethical and sustainable manner, while dealing with any environment and social impacts occasioned by our activities. We believe that this outreach programme will go a long way in addressing health challenges in the community.

“I would like to extend our appreciation to the Bayelsa State Government, and our partner FIRST E&P for driving this programme.”

 The General Manager, Corporate Services at FIRST E&P, Mr. Emmanuel Etomi, said, “As an organisation, we believe that understanding and addressing the needs of communities where we operate is an important part of maintaining a successful and sustainable business. Across Africa, health improvement continues to be a major pillar for driving socio-economic growth. We conducted this programme in support of the United Nations Sustainable Development Goal 3, ‘To ensure healthy lives and promote well-being for all at all ages’, and with this intervention, we seek to ensure that our stakeholder communities benefit from our presence in a meaningful way”.

 The Chairman Council of Chiefs, Koluama II, and a beneficiary of the outreach, Chief Godfrey Goli lauded the JV for the program which he said has benefitted the lives of many in the communities.

 “I’m so grateful to the visionaries of this outreach. The positive impact of the program has been felt amongst members of the communities. The outreach has transformed lives through the provision of quality medical advice, general wellness education, and provision of free medication to treat the ailments of many in the community”.

 One of the beneficiaries, Ebimene Orunimighe who spoke on behalf of the residents and who got a free pair of prescription glasses after his eyes were duly examined by medical experts lauded the outreach, saying that it was of immense benefit to his community. He said, “we thank the JV for its conscious efforts in helping our people”.