The Nation Newspaper

Category: Energy

  • Fuel scarcity: The refinery challenge

    Fuel scarcity: The refinery challenge

    Experts say fuel scarcity will continue until the nation has the capacity to refine its crude oil domestically. While efforts are being made in this direction, it may still be a long wait for Godot, given the volume of refined crude needed, the available capacity and other factor. MUYIWA LUCAS writes.

    For the second time this year, the fuel scarcity returned to some parts of the country this week. Known to be a 100 per cent importer of refined petroleum products, the country is not immuned to scarcity of the commodities at the slightest dislocation in the chain of importation and distribution.

    This is why stakeholders and experts in the sector are calling for a return to the pre-early 1990s, when the country had the refining capacity to produce enough petroleum products to cater to its domestic needs and exported the excess, earning foreign exchange in the process. Sadly, this is a sharp contrast from what obtains now, as the country now imports all its petroleum products needs even though she exports large volumes of crude oil.

    For instance, a foreign trade data published by the National Bureau of Statistics (NBS),  in 2021, the country spent a total of N4.56 trillion on the importation of Premium Motor Spirit (PMS), or petrol, connoting a 128 percent increase over the N2 trillion spent on fuel importation in 2020. Total spend on fuels and lubricants imports  last year stood at N6.3 trillion, surpassing the N2.83 trillion, N2.5 trillion, and N3.8 trillion spent on same in 2020, 2019, and 2018.

    Capacity comatose

    Nigeria has five refineries – four of which are owned by government. In its prime, these four refineries owned by government- two in Port Harcourt, one in Kaduna and one in Warri, had a combined capacity to process 445,000 barrels of crude oil daily. But unfortunately, for several years they operated at less than half of their capacity before the NNPC shut them down, saying this was no longer sustainable. The fifth refinery is managed by the Niger Delta Petroleum Resources, a subsidiary of Niger Delta Exploration and Production Plc

    Last Tuesday, the Group Managing Director, Nigeria National Petroleum Company (NNPC) Limited, Mallam Mele Kyari, did not mince words in his assessment of how the country’s refineries descended to their present comatose state.

    “We recognise that today, none of our refineries is operating for the very obvious reason. It is needless to say that the refineries were essentially not properly managed overtime. Not just today, but in the last 25 years. The Turn Around Maintenance (TAM) were mismanaged overtime. Those TAM were not properly done in the past, leading to where we are. Bad management of the nation’s refineries for the past 25 years was responsible for the state of the refineries,” Kyari said at the House of Representatives Adhoc Committee set up to investigate the state of the refineries last Tuesday.

    He explained that “the situation of the refineries was so appalling such that when they take $100 crude, they will produce $70 and it did not make business to continue like that because of the rate of degradation they had gone through. There is no refinery anywhere that works this way.” But for stakeholders in the industry, such disclosure is no news. For several years, the country’s refineries have constituted a drainpipe on the finances of government. According to a report published by AfricaCheck, N276 billion was spent on the refineries repairs from 2015 to 2018.

    Still, it noted that despite not processing any crude oil, some $211 million was used to operate the refineries for nine months in 2020, NNPC data showed. In 2019, $486.7 million was spent  on wage settlement.

    In March, last year, the National Assembly moved to probe the alleged $25 billion the NNPC claimed it had spent on maintenance of the refineries over 25 years; a venture that has not had any corresponding effect.

    Efforts

    Not many Nigerians are convinced that the government, through the NNPC, has made any concerted effort to reverse the fortunes of the refineries and by extension, importation of fuel. On March 18, last year, the Federal Executive Council (FEC) okayed $1.5 billion of spending on the modernisation of the Port Harcourt oil refinery and awarded the contract to Italy’s Tecnimont. The project is to be completed in three phases- the first within 18 months taking the refinery to 90 percent production capacity; second and final phases carried out between 24 months and 44 months.

    In considering the option of rehabilitation of the Port Harcourt refinery, Kyari explained that proceeding with further TAM of the facilities would amount a waste of public resources. This perhaps explains why in April 2020, they were all shut pending rehabilitation and the refineries lost some N167 billion a year earlier.

    The GMD said further that the rehabilitation of the refineries is to be carried out purely as a business venture to be financed by the banks, adding that to get funds from the banks, an operation and management agreement has to be out in place to which will guarantee proper management of the facilities.

    He disclosed that work is currently ongoing in the Port Harcourt Refinery, while Warri and Kaduna Refineries will follow later, assuring that at the end of the exercise, Nigerians will be assured of steady supply of PMS as the refineries will be able to operate at a minimum of 90 percent installed capacity.

    Will importation stop?

    But does the rehabilitation of the refineries guarantee the stoppage of fuel importation? Certainly not given the production capacity and the volume of the products required in the country. While no exact figure has been put on the daily petrol consumption in the country, it is, however, estimated to be in the region of between 50 and 70 million litres daily.

    Still, there will be the need to equally rehabilitate the network of pipelines across the country. Clement Isong, Executive Secretary, Major Oil Marketers Association of Nigeria (MOMAN), at the peak of last February’s fuel scarcity, said the state of the country’s oil pipelines needed rehabilitation as most had been damaged by vandals. And Kyari agreed on this.

    “The pipeline that carries crude from Escravos to Warri and from Warri to Kaduna cannot carry crude at the moment. The pipeline network has to be replaced before the refineries can fully come on stream,” he said.

  • Why Nigeria is exposed to import parity prices

    Why Nigeria is exposed to import parity prices

    Vice President, Crude and African Markets, Argus Media, James Gooder, has explained that the price of diesel and aviation fuel are higher than those of petrol globally because the supply of diesel and aviation fuel (middle distillates) was mainly from Russian refineries which are under sanctions, noting petrol is from Northwestern Europe refineries.

    Gooder spoke during a virtual Major Oil Marketers Association of Nigeria (MOMAM) Energy Correspondents Workshop Series with the theme ‘’Current market dynamics: Crude and refined products’’.

    “The market is in an unusual state of turmoil and uncertainty, fuel prices are high everywhere, Nigeria is an integral part of the world market and thus exposed to the same trends,” he noted.

    He observed the Russia-Ukraine conflict had supercharged existing upward market momentum, recovering global demand and constrained Organisation of Petroleum Exporting Countries (OPEC) output, low stocks and high refining costs had all played a part.

    Russia is one of the three largest oil producers along with the United States and Saudi Arabia. Market unwillingness to buy Russia oil in the spot market means there is greater competition for alternatives, hence higher prices.

    Diesel is driving the oil complex. Russia is a major exporter of diesel as well as crude. Crude is expensive but diesel is at a strong premium, he explained, adding prices are highly volatile and unpredictable.

    Gooder who noted that West Africa relied on imported products, attributed it to lack of sufficient regional refining capacity. Hence, European surplus of PMS/gasoline finding a natural home in Nigeria.

    In a global market, product flows is directed by price, Nigeria is competing with other destinations for products. Even if Nigeria has sufficient refining capacity, it would still be in a competitive market and exposed to import parity prices. Gooder added regulated PMS prices were out of step with market reality.

    Capped retail prices for PMS may be popular, or even expected, among those that can afford to own a car. But current delivered prices for PMS are around three times as high as the pump price, he noted.

    Gooder noted an unfortunate but clear incentive to smuggle subsidised fuel out of Nigeria to neighbouring countries where retail prices were higher.

    Argus, he said, was the first agency to publish independent, market based daily assessments of the price of key products delivered to Nigeria including PMS/gasoline, AGO/diesel and Jet/Kerosine. It also publishes prices for the source markets Europe, US, Mideast, Asia, Russia, among others.

    Gooder explained methodologies were designed to reflect market activity and were based on data-gathering and discussion with many market actors.

    Argus, he said, was headquartered in London and had bureaux and representatives throughout the world, including in Lagos.

    President, MOMAN, Mr. Clement Isong said the backbone of distribution was based on diesel, from transport (vessels and trucks) to energy costs (depots and stations). This, he said, affected not just petrol distribution but also the distribution of aviation fuel.

    According to him, total distribution margin under the PMS pricing template accounts for 11.5 per cent of the PMS pump price despite significant increase in costs.

    Isong noted that operators were struggling along the supply chain to get petrol out of nuzzles into the cars which according to him, is difficult to sustain.

  • FAMFA boss hails reforms

    FAMFA boss hails reforms

    The Vice-Chairman, FAMFA Oil Limited, Apostle Folorunso Alakija, has stated that the reforms in the oil and gas sector are expected to revitalise the economy.

    Alakija, who made this known  on a television programme monitored in Lagos, noted that as part of the structural adjustments to ramp up oil production, the government has introduced reforms such as the marginal field rounds, the Petroleum Industry Act (PIA) and the transformation of the Nigerian National Petroleum Corporation (NNPC) into a limited liability company.

    According to her, the last marginal field rounds, which was held because the International Oil Companies (IOCs), were divesting from some of their assets, has brought about the participation of more indigenous players, a development she said, would help  economy.

    She argued that once operations fully commenced at the Dangote Petroleum Refinery, it would bring a positive change to the regime of subsidy and refining such that the country would not have to import as much as it currently does.

    Alakija urged the country to also focus on its mining sector because of its huge potential. “Our mining is an area that we need to pay more attention to. I think the area and others have all suffered because we have relied solely on oil over the years,” she added.

  • Ondo community demands N20b compensation, relief materials

    Ondo community demands N20b compensation, relief materials

    Barely two months after Aiteo Eastern Exploration and Production Company (AEEPC) had completed the cleaning of the oil spill at its Santa Barbara (OML 29) oil field in Nembe, Bayelsa State, Abereke community in Ondo State is demanding a N20 billion compensation as well as demand for relief materials.

    The money, the community said, would serve as repayment for damages done to their environment, for the disruption and destruction of their means of livelihood and for relocation of those badly affected.

    The community in a “Save Our Soul” petition to the Senate President, Ahmed Lawan and made available to The Nation, claimed that the oil spill at the Santa Barbara Christmas Tree, belonging to oil company, was washed down to the community by waves and tides, thereby destroying aquatic lives and fuana which are the mainstay of the people.

    It stated that the spilled crude oil, which measured over one million barrels, had rendered about 3000 persons, who belonged to cooperative fishing society, jobless while rendering   farms useless.

    They further claimed that the community, which comprised Abereke and Abereke seaside that had a population of about 200,000 persons, witnessed the pollution of their environment, which lasted for over 30 days, belching smokes that destroyed fuana and farm lands while the crude destroyed the aquatic lives.

    They informed that the spilled crude was driven by the waves and tides all the way from the Nembe creeks through the Atlantic Ocean to their area where it was further forced in to the estuaries and rivers in the community.

    Other things on the community’s demand list include the dispatch of experts to stop its further spread and clean up the spill; the commencement of the cleanup to stem further damage to the environment and the people; provision of relief materials to the already displaced people.

    Aiteo’s Group Head, Media and Strategy, Mathew Indiana-Abasi, refuted the claims. He said the community had no claim to make since the incident was actuated by a third party through  vandalism. He added that petroleum industry regulators signed off on Aiteo SBAR 01 a result of third party interference.

  • Why Should Startups Start Use Editable QR Codes To Markup Their Marketing Strategies?

    Why Should Startups Start Use Editable QR Codes To Markup Their Marketing Strategies?

    The business sector can unleash new prospects and improve revenues as the year 2020 is distinguished by most tech experts’ resuscitation of QR code usage. However, as more businesses utilize QR codes, some are adopting the type of QR code that restricts their ability to track and control the data they wish to collect.

    As a result, many companies are missing out on more advantages, such as understanding their consumer demographics, refocusing their target clients, etc.

    With results being such a crucial element of determining whether or not your firm is growing at a specific rate, companies like startups must aim to include the use of an editable QR code into their processes and marketing means.

    Editable QR code: A Quick Description

    An editable QR code is a newer QR code that can simply and efficiently store complex data such as files and HTML programs. Businesses commonly use this sort of QR code in marketing campaigns. It provides essential tech that develops and maintains, such as the number of scans broken down by date, location, and scanning device.

    Aside from that, this sort of QR code allows the user to modify or amend their QR code content without creating new ones using the QR code generator software that supports its make online.

    How can you modify a QR code’s content?

    Now that you know why you should implement editable QR codes in your business, you may be asking how you may update or alter the information stored in those codes.

    You’ll need an account to store your editable QR codes before you can begin modifying your information. With thousands of QR code generators available on the web, it’s critical to pick one that produces professional, editable QR codes at a reasonable cost.

    After securing your QR code subscription, you may create your editable QR code and edit it using the procedures below.

    1. In the QR code generator website you use, go to the My Account Tab.
    2. Choose the Dashboard tab and find the editable QR code you want to edit.
    3. Change the data by clicking the edit icon beside the types of images to save your QR code.

    Remember that the type of data you can update should always be the same as the type of data you used to create your editable QR code.

    Why Should Startups Use Editable QR Codes In Their Marketing Strategies?

    Because marketers commonly employ editable QR codes in their marketing campaigns, their use in startups might provide the following advantages.

    Convenient Regulation with QR codes

    Unlike static QR codes, editable QR codes allow you to control necessary QR code capabilities like changing data and monitoring scan results at any time and from any location.

    Printing Costs are Reduced

    Because the main benefit of using editable QR codes is that they allow data updating within the same QR code layout, companies that use them are less likely to spend more money printing new QR codes for their promos and other purposes. They save funds and resources by not having to print new QR code promotional materials.

    They can track marketing relevant data

    Because most organizations today value seeing results from their initiatives, keeping track of relevant data is essential. Startups may track their QR code data’s scan results and see which areas of their operations flourish the most by using this type of QR code.

    Aesthetically Pleasing

    People often think of QR codes as complicated wireless tools because they contain intricately patterned elements on the inside. Companies should employ customizable QR codes for their marketing efforts to reduce module crowding and other activities to alleviate this problem.

    Conclusion:

    Startups must choose which type of technical equipment can be used for a long time because they tend to concentrate on tools that provide them with quality and long-term use. As a result, entrepreneurs are conflicted about which device is ideal for their business.

    They regard QR codes as one of the instruments for their business, and investing in QR codes made for companies, such as editable QR codes, is terrific because they represent the potential of sustainable marketing and business processes.

  • Accugas boosts gas supply to FIPL

    Accugas boosts gas supply to FIPL

    Accugas Limited (Accugas), a subsidiary of Savannah Energy PLC, has announced the signing of an addendum to its interruptible gas sales agreement (IGSA) with First Independent Power Limited (FIPL), signed on January 28, 2020. Savannah Energy Plc is a British independent energy company.

    Accugas supplies up to 35 MMscfpd of gas to FIPL’s Afam power plant. Under the terms of the addendum, FIPL will increase the quantity of gas purchased from Accugas to up to 65 MMscfpd  to also supply the Trans Amadi and Eleme power plants, in addition to its Afam power plant. FIPL’s power plants have a total generation capacity of 391 MW, with the Trans Amadi and Eleme plants having generation capacities of 136MW and 75 MW. All three plants are in Rivers State.

    FIPL is an affiliate company of the Sahara Group, a leading international energy and infrastructure conglomerate with operations in over 42 countries across Africa, the Middle East, Europe and Asia.

    Andrew Knott, CEO of Savannah Energy, said: “Accugas has recorded growth in total revenues from gas sales for each of the last five years, with a realised CAGR of 15 percent. New contracts, such as this provide the basis for us to continue this growth into the future and we look forward to continue working with the Sahara Group on this and potentially other projects in the future.”

    Kola Adesina, Group Managing Director, Sahara Power Group, said: “At Sahara, we believe that with Savannah we have a partnership that works and we are delighted to see that our beliefs are becoming a reality.

    Through this Addendum, we aim to secure the reliable supply of gas to FIPL power plants, thereby improving the health of the Nigerian Electricity Supply Industry (NESI) and as always, bringing energy to life for the everyday person whose interest we serve intentionally.”

  • Electricity: An unending circus

    Electricity: An unending circus

    The electricity situation in the country has remained a huge source of concern for consumers and by extension, the economy. Irrespective of the investments made in the sector so far, the level of generation, transmission and distribution of the commodity remains worrisome, MUYIWA LUCAS writes.

    The electricity sector in the country generates, transmits and distributes megawatts (MW) of electric power that is significantly less than what is needed to meet basic household and industrial needs. Nigeria has 23 power generating plants connected to the national grid with the capacity to generate 11,165.4 MW of electricity.

    In generating this commodity, the country relies mainly on thermal and hydropower sources; while the exercise of generation comes from fossil fuels especially gas which accounts for 86 percent of the capacity and the remaining generated from hydropower sources. These plants are managed by generating companies (Gencos), independent power providers, and Niger Delta Holding Company. In 2012, the industry laboured to distribute 5,000 MW, very much less than the 40,000 MW needed to sustain the basic needs of the population. This deficit is also exacerbated by unannounced load shedding, partial and total system collapse and power failure.

    Until the power reforms which started in 2005, power generation was mainly the Federal Government’s responsibility through the now defunct National Electric Power Authority (NEPA). The 2005 Electric Power Sector Reform Act signing opened up the industry to private investors. In 2O10, the Nigerian Bulk Electricity Trading Plc (NBET) was established as an off-taker of electric power from generation companies. In 2014, the sector was privatised with three groups- Generating Companies (GenCos), Transmission Commpany of Nigeria (TCN and Distribution Companies (DisCos) having the responsibility of providing power. By November 2013, the privatisation of all generation and 10 distribution companies was completed with the Federal Government retaining the ownership of the transmission company.

    With 23 power generating plants connected to the national grid, a combined capacity of 11,165.4 MW of electricity should have been guaranteed. These plants are managed by generating companies (Gencos), independent power providers and Niger Delta Holding Company. The primary independent power plants before the power sector reforms were Shell-owned Afam VI (642MW), Agip-built Okpai plant (480 MW), and AES (270 MW). The third sector is the Nigerian National Integrated Power Project (NIPP), a project that was initiated in 2004 to fast-track the development of new power plants in the country. The majority of the new proposed plants are gas-powered plants. In 2014, the proposed capacity of NIPP plants was 5,455 MW.

    Power Africa, a United States Agency for International Development (USAID) initiative to support electricity generation in Africa, noted that Nigeria though the largest economy in sub-Saharan Africa,  limitations in the power sector has continued to limit its growth. Nigeria, the initiative argued, is endowed with large oil, gas, hydro and solar resources and it has the potential to generate 12,522 MW of electric power from existing plants. It regretted that on most days, however, it is only able to dispatch around 4,000 MW, which is insufficient for a country of over 195 million people.

         Fluctuating capacity

    USAID’s submission is right! The current electricity generated in the country has remained inadequate to meet the demand needs of households and businesses. This has been marred by the fluctuating power generation, transmission and distribution in the country. For instance, last March, the average available power generation was put at 3,522.80 mw. This was a sharp drop from the 4,823.60 mw generated in last July.

    In 2019, government announced a plan with German tech giant Siemens AG to improve electricity. The plan was in three phases, targeting 25,000 megawatts (MW) of operational capacity in the long term; 7,000 mw and 11,000 mw were to be achieved by 2021 and 2023, respectively through the first two phases.

    Sadly, the country’s plan to deliver 40,000 MW by 2020 has failed. This year, the country’s installed electricity generation capacity, according to the System Operator, was 12,910 MW, but less than 8,000 MW was available and less than 4,000 MW reached the final consumers on average. The Economic Growth and Recovery Plan (EGRP) to deliver at least 10,000 MW of operational capacity by 2020 also fell short.

    TCN’s capacity remains insufficient, despite increments from 5,000 in 2016 to 7,124MW in 2017 and 8,100MW in 2018, presently, the electricity transmission network’s manager aims for a meagre 20,000MW by the end of 2023, a far cry from its 40,000 MW target two decades ago.

    Also, grid stability has also remained a challenge. A look at the nation’s power grid stability shows that from 2013, when the electricity privatisation process was completed, to 2021, the country has witnessed 131 grid collapses. A breakdown shows that the nation witnessed 72 total system collapses and 52 partial collapses. So far this year alone, the national grid has collapsed four times.

    A Power Sector Recovery Programme (PSRP) report sighted last week indicated that the Federal Government is yet to meet its minimum of 4,500mw (Mw) distribution target this year. The target is the minimum level of supply needed for grid stability and the reduction of system outages. It is interesting to note that while power supply has not hit 4,500mw this year, yet the national grid has collapsed several times. Equally, checks on the Nigerian Electricity System Operator (SO) daily production report indicated that the only 3,839.3mw was sent out to the distribution companies on April 19, 2022. Despite this, low generation and distribution data remains a far cry from the target, even as the national grid is easily prone to collapse.

     

         Wasted investment?

    Experts and stakeholders in the power sector are convinced that the sector has not lacked quality investment or funding across all its value chain. It is believed that former President Olusegun Obasanjo’s government spent over $16 billion trying to revive electricity in the country. However, a breakdown of investments in the sector since 2010 shows that the World Bank, in 2010, advanced a loan of $300 million to the country, for the Nigeria Electricity and Gas Improvement Project (NEGIP), which ended in December 2018.

    Still, the Japanese Agency for International Cooperation (JICA), gave 1.317 billion Japanese Yen or $12.4 million as grant for the Transmission Company of Nigeria (TCN), to install capacitors and switch gears at the Apo (Abuja) and Keffi (Nasarawa State) substations in April 2018 and these were inaugurated. The TCN also raised another $1.661 billion multilateral loan to increase capacity through the Transmission Rehabilitation and Expansion Programme (TREP).

    Findings by The Nation  also revealed that the USAID, under its “Power Africa” initiative, the country has also received support by way of the development of 3,043 mw of electricity generation projects. A look at Power Africa’s website shows the initiative’s involvement including the financially closed transactions it undertook in the country.

    According to information available on Power Africa website, technical support to Distribution Companies (DisCos) in Nigeria helped them increase revenue by over $250 million – money that can be reinvested into the distribution network, improving service and expanding access. The Nigerian power sector experiences many broad challenges related to electricity policy enforcement, regulatory uncertainty, gas supply, transmission system constraints, and major power sector planning shortfalls that have kept the sector from reaching commercial viability.

    Earlier this month, the Federal Executive Council (FEC) approved N1.4 billion for the supply of more equipment for the Transmission Company of Nigeria (TCN) to boost electricity supply across the country.

    The Minister of Power, Mr. Abubakar Aliyu, while making this known said: “The first one was a variation of the sum of a contract for 132/33 KV substation at Kafanchan, Kaduna State, with a KV line base extension at Jos substation, in Plateau State. This is in the sum of N132, 705, 861.42. The second approval was for the supply of handling equipment and operational vehicles also for the TCN at N1,338,159,080.88. They are heavy lifting equipment that the TCN requires for doing its work in the store and on the field while changing equipment and moving transformers.”

     

         Forging ahead

    Presently, the Central Bank of Nigeria (CBN) is providing $250 million to expand electricity distribution and transmission infrastructure as part of an emergency approach to ensure the stability of the country’s grid and power system. The implementation of the emergency plan by the Federal Government follows the collapse of the national grid twice this month. The project, which will strengthen the interface between the Transmission Company of Nigeria (TCN) and the electricity distribution companies (DISCOs) is expected to gulp about N103 billion and spread across critical locations in the country.

    Aliyu explained that the CBN funding would ensure the rehabilitation of critical interface infrastructure between Transmission and Distribution to increase and stabilise power delivery. He explained the project is in addition to the Siemens Presidential Power Initiative (PPI) that will bring in additional $2 billion or more to the Transmission Grid from the government.

    According to him, the interface projects along with others already being embarked upon by TCN brings ongoing projects in the transmission segment alone to 135 ongoing projects with 30 completed key Substation Projects and 12 transmission Lines.

     

         Bickering

    The blame game between the three arms responsible for electricity in the country has not seized to amaze consumers of the commodity. While the GenCos insist that they have capacity to generate more than 4,500 mw of electricity, but they claim to have been handicapped because the DisCos have been rejecting load allocation. But to the DisCos, the GenCos have been economical with the truth; while the TCN directed the GenCoS not to operate at capacity because stranded power could trigger system damage (grid collapse).

    Though the GenCos were constrained to 2,561mw earlier this week (Monday), representing the lowest generation, the TCN on its part is said cannot absorb more than the DisCos are ready to take. It is imperative to note that the rejection of load allocations by the DisCos places the grid to high and harmful frequency. According to the Nigerian Electricity System Operator (SO), the technical arm of the TCN, last Monday, for instance, the Nigerian Electricity Supply Industry (NESI) recorded 3,650.03mw total energy generated; 3,602.11mw as total energy sent out and 2,561.30mw as lowest generation.

    A source within the Association of Power Generation Companies (APGC) said over 4,500mw was available but the TCN only allowed lower production because the DisCos were rejecting power. But APGC’ Executive Secretary Joy Ogaji said: “There is more than 4500 available. The grid cannot take power. Too much frequency means DisCos are not taking power. Ask TCN why they are not letting GenCos generate.”

  • ‘Take advantage of energy transition to attract investment’

    ‘Take advantage of energy transition to attract investment’

    The ongoing disruptions in the international energy industry present a unique opportunity for the Nigerian oil and gas industry to attract investments and serve as one of the leading hubs to meet global energy needs.

    The Executive Secretary, Nigeria Content Development and Monitoring Board (NCDMB), Simbi Kesiye Wabote stated this at a lecture at the Society of Petroleum Engineers – Oloibiri Lecture Series and Energy Forum (SPE – OLEF) 2022 in Abuja.

    Speaking on the theme: “Global energy transition: Implications on future investments in the Nigerian oil and gas industry”, he maintained that the clamour by developed countries to reduce carbon emissions through cutting the utilisation of fossil fuels is because those nations have run out of hydrocarbon reserves.

    Wabote outlined his perspectives on global energy transition, its implications on global energy security and investments and the opportunities for the oil and gas industry in Nigeria, pointing out that the outcome of energy transitions has always been the redistribution of the constituents in the energy mix rather than the outright swap of one form of energy for another.

    According to him, the rush to move the world away from fossil fuels has resulted in first world countries shifting funding away from the development of hydrocarbons towards renewable energy and energy shortage, causing a decline in the supply of hydrocarbons due to lack of investments, because the pace of the shift to renewable energies is unable to meet world energy demand.

    Bearing in mind the technological capability and natural endowments as key drivers to the energy mix, the NCDMB boss observed that divestments have resulted in the emergence of indigenous companies playing major roles in exploration and production activities such that companies like Aiteo, First E&P, Eroton and others have acquired assets and are now responsible for the production of about 15 percent of the nation’s oil and more than 60 percent of domestic gas.

    He decried the divestment of the IOCs and their reluctance to make further investment in oil and gas which has resulted in the repatriation of capital out of the country. He lamented that this has stifled the nation’s economy of the much-needed foreign exchange and funds used as loans to acquire oil and gas assets instead of developing new production assets. He also hinted that energy shortage has provided a huge opportunity for the Nigerian oil and gas industry by diversifying oil and gas energy hubs even as it works on adding renewables to the global energy mix to ensure energy security.

    Wabote canvassed for a balance between the drive for renewables and new investments in fossil fuels, warning that a misalignment in the transition strategy will result in supply and demand disruptions as witnessed in the current situation in Europe.

    He further suggested that as the world continues to expand the options of sources of energy available for use, it should be open to welcome new additions without discarding existing ones. He however, bemoaned the demonising or de-marketing of other energy sources and setting unrealistic deadlines for countries to abandon fossil fuels. He expressed hope that nations will jealously guard their local sources of energy to ensure it remains in their energy mix for the benefit of its people.

  • Crude oil: Nigeria’s production quota challenge

    Crude oil: Nigeria’s production quota challenge

    At a critical time like this, the Organisation of Petroleum Exporting Countries (OPEC) is experiencing drop in production quotas from member-nations. Unfortunately, Nigeria, in almost one year, has consistently fallen short of meeting her allocated quota, especially when the commodity has become bullish with its price hitting the rooftop. What are the implications for the country and OPEC? MUYIWA LUCAS asks.

    Going by the current bullish trend in the international crude oil market, propelled by the increasing demand for the commodity, it is safe to say that oil producing countries like Nigeria should be smiling to the bank now. Again, since the last quarter of 2021, oil price has remained on the rising side and now further buoyed by the ongoing Russia/Ukraine war.

    The Organisation of Petroleum Exporting Countries (OPEC), acting as regulator in the international oil domain and aware of the likely situation that may arise from the unfolding development, has tried to steady the production quota, not only to avoid a glut in the market but also to prevent a shortfall even as sanction against the world’s second largest producer and supplier of the commodity, Russia, gets tougher.

    For instance, amidst fears of a possible seven million barrels loss of oil from the Russian pipes, OPEC may have moved decisively by increasing production quota allocation to member countries.

    At its last meeting earlier in the week, the organisation approved a production quota of 1.753 million barrels per day (mb/d) for Nigeria for the month of May. Angola got mandate to produce 1.465mb/d; Saudi Arabia and Russia are to produce the highest volume of 10.549mb/d each; Iraq and Kuwait got 4.461mb/d and 2.695mb/d respectively.  In a similar vein, the body approved that OPEC 10 are to produce 25.589mb/d; Non OPEC member countries are to produce 16.537mb/d and OPEC+ are to produce 4.2126mb/d all in the month of May.

    For Nigeria, this is not the first time OPEC will be granting an enhanced production output for the country. Earlier in the year, allocated output to Nigeria stood at 1.7mb/d; 1.8mb/d; 1.718mb/d and 1.735 for January, February, March and April respectively.

    Shortfall

    This year, notwithstanding the enhanced production output granted the country, it has remained impossible to meet up with the allocation. For instance, available reports from OPEC showed that the country has fallen short of all its production allocations for this year. In its report, OPEC captured the country’s output at 1.399mb/d in January; 1.25mb/d in February and 1.354mb/d in March. The report added that Nigeria maintained an average daily oil production of 1.424mb in 2021, while so far this year, it is producing below 1.4 mb/d failing to meet its OPEC quota.

    But failing to meet production output capacity is not strange to Nigeria. Last August, the country managed a paltry 1.23mbpd, which was a major drop from the 1.32mbpd it produced a month earlier, while it  produced 1.246mbpd in September and 1.227mb/d in October. This was at a time when the country had 1.6mbpd as its production output target.

    A report by Cordros Capital indicated that Nigeria’s oil sector contracted for the seventh consecutive quarter with a negative growth print of 8.1 per cent in fourth quarter 2021, bringing 2021 full year oil sector negative growth to 8.3 per cent. However, providing some comfort was the trend of slowing contraction in the oil sector as the negative growth of 8.1 per cent in fourth quarter 2021 was 4.6 percentage points and 2.7 percentage points slower than the 12.7 per cent and 10.7 per cent contraction in second quarter 2021 and third quarter 2021.

    Causes

    The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has also confirmed the various shortfalls this year. NUPRC noted Nigeria lost more than 115,000 barrels per day (bpd), valued at $3.27 billion worth of crude oil to oil theft and vandalism between January 2021 and February 2022.

    According to analysts, the steady decline in oil production is directly associated with operational and maintenance issues, supported by incessant pipeline vandalism, which has prevented Nigeria from meeting its OPEC+ production quota, despite upward adjustment that has seen Nigeria’s production quota rise to 1.72mb/d (excluding condensates). In addition, capital expenditure investment in the oil and gas sector continues to lag below pre-pandemic levels, despite the passage of the Petroleum Industry Act (PIA).

    For the Minister of State for Petroleum Resources, Timipre Sylva, poor investment and the exit of oil majors are major issues affecting the country’s inability to meet the oil production quota. The minister added that the drive towards renewable energy by climate enthusiasts had discouraged funding for the sector.

    Speaking at a ministerial plenary session at the Ceraweek, in Houston, Texas, United States of America, Sylva, according to a statement by his Senior Adviser (Media and Communications) Horatius Egua, he noted that the speed with which international oil companies and other investors were withdrawing investments in hydrocarbon exploitation had contributed significantly to Nigeria’s inability to meet OPEC targets.

    “Lack of investment in the oil and gas sector contributed to Nigeria’s inability to meet OPEC quota. We are not able to get the needed investments to develop the sector and that affected us. The rate at which investments were taken away was too fast,” he added. He also cited security challenges as another major factor that contributed to the lack of significant growth of the sector.

    The Group Managing Director, Nigerian National Petroleum Company (NNPC) Limited, Mele Kyari, blames the country’s inability to meet its OPEC quota on lack of funding. He said financing was badly needed to improve the country’s production capacity.

    According to him, following the decision to allow more oil in the market, Nigeria and other members of OPEC would face challenges to quickly pump more oil. “Even if OPEC members decide to pump more oil, it may not be very, very realisable as the financing needed for more development is lacking,” Kyari said in an interview with Bloomberg.

    Far from the position of Sylva and Kyari, several other factors are said to be mitigating against the ability to meet the production target. One of such is the huge cost of restarting fields and pipeline vandalism in the country. An economist and oil market analyst, Mayowa Sodipo, noted that the level of vandalism is very high such that oil firms like Agip, Shell and some other companies have suffered serious damages to their facilities, thereby limiting their ability to contribute to production as a result of the shutdowns that usually followed such attacks.

    “Unfortunately, when you experience a shutdown in your operation, restarting them is not straight forward, as restarting a facility cost money,” he explained.

    Last year, for instance, a combined shortage of 1.62 million barrels was recorded at Qua Iboe terminal, with 200,000 barrels due to production shut-in arising from flare management and low well head pressure. Another  530,000 barrels were lost to shut-ins following tank top concerns, 650,000 barrels as a result of production cut-back as directed by the then Department of Petroleum Resources (DPR) as well as a loss of 240,000 barrels due to a gas leak on one of the assets.

    This was followed by losses from the Forcados facility, which shed 200,000 barrels, 84,000 barrels, 30, 000 barrels and 80,000 barrels respectively on different days, with reasons ranging from leak repairs, tank top issues, a fire incident and declaration of a force majeure.

    Still, Forcados continued its shut-ins, shedding an additional 405,000 barrels of crude oil at the Uzere/Afisere/Kokori axis following a shutdown as a result of protests by community workers as well as a loss of 80, 000 barrels due to a fire incident.

    In the same vein, Anyala Madu shed 105,000 barrels, Bonny suffered total shut-ins of 335,000 barrels, Ugo Ocha lost 30,000, Okono’s shutdown led to loss of 96,000 barrels, while Sea Eagle lost 750,000 barrels.

     Implication

    The decline in oil output also depleted revenue accrued to the Federation Account amid zero remittances from the Nigerian National Petroleum Company (NNPC) Limited despite soaring oil prices.

    Besides, with the inability to meet these allocated quotas, an increasingly huge gap between production increase on paper and actual growth in output now exist, which has made the market tighter than stakeholders had anticipated a few months ago.

    Challenge

    This is why stakeholders are worried that for a country that has failed to meet its production quota in more than one year, the new allocation may also be a squandered opportunity to make the critical revenue needed to finance this year’s budget and other critical infrastructural needs in the country.

    Yet, stakeholders like Kayode Oyedele, a public analyst, warned that if the trend of declaration of force majure by some of the International Oil Companies (IoCs) persists this year as experienced previously, then the 1.753mbpd allocation by OPEC+ to the country for the month of May will remain a charade. The issue of divestment by the IOCs remains a sore point against the march to meeting production capacity, with some of the multinational oil companies discreetly withdrawing their investment in the industry.

  • ‘$1.9tr needed to fund African energy infrastructure’

    ‘$1.9tr needed to fund African energy infrastructure’

    There is a huge gap between supply and demand for electricity in Nigeria and other African countries, and also a significant funding gap, underscoring what appears to be bleak future for African power markets.

    According to  the ‘Middle East and Africa Market Outlook Report’ released this week, about $1.9 trillion is needed to fund investment in African energy infrastructure between 2018 and 2040.

    The report, which was exclusively obtained by The Nation, said based on financing trends, of the amount $1.6 trillion is likely to be forthcoming, leaving a gap of some $244 billion.

    The Middle East and Africa Market Outlook Report highlights the power sector with a focus on  developed regions, as well as emerging markets.

    It explore core findings about the business opportunities, regulatory environment in the Middle East’s power market and more about the planned projects and investments in Africa’s emerging utilities markets.

    The report, which described Africa as “chronically underpowered part of the world,” said across the continent, about 844 Terawatt-hour (TWh) of electricity was generated in 2020.

    This was just 3.1 per cent of the global total, even though Africa is home to around a fifth of the world’s population.

    It noted that more than half the total was generated in just two countries:South Africa with 240TWh and Egypt with 199TWh.

    According to the report, that leaves most countries with relatively little power, particularly in sub-Saharan Africa where fewer than 47 per cent of people had access to electricity in 2019, according to the most recent data from the World Bank.

    It, however, noted: “The situation is far worse in rural areas, where just 27 per cent had access, compared to 83 per cent in urban areas.”

    The report also said North African markets and a few of the more developed, smaller economies are better placed, as Mauritius, Seychelles, Egypt and Tunisia had 100 per cent access to electricity, and Morocco and Algeria were not far behind.

    It,  however, said among the continent’s biggest economies, South Africa had 85 per cent access to electricity, while Kenya was at 70 per cent and Nigeria was at just 55 per cent.

    At the bottom of the league table, according to the report, is South Sudan, with an access rate of just 6.7 per cent and Chad with 8.4 per cent.

    The report noted that the shortage of electricity in many African markets provides plenty of opportunities, but they tend to be accompanied by numerous difficulties too, from political instability and other governance issues to economic ones such as unreliable access to hard currency to pay for imports of vital equipment.

    “These challenges mean that private sector capital is often in short supply and, as a result, funding for power projects in Africa often relies on public sector sources,” it said.

    The report said, for instance, that from 2000 to 2019, Africa received $109 billion in public commitments in the energy sector, $50 billion of which came in 2010-2019, according to the International Renewable Energy Agency (IRENA).

    It added that of the total, almost $64 billion was for renewable energy projects, including large hydropower schemes.

    “Most of the capital was provided by international donors, including other governments and Development Finance Institutions (DFIs), using a combination of debt and grants,” the report said.

    It listed the ranks of regular supporters to include China, France, Germany and the UK; multilateral development banks are the World Bank and African Development Bank (AfDB); and DFIs such as FMO of the Netherlands and KfW of Germany.