RAW hydrocarbon export is hampering the Federal Government’s diversification programme, the Vice Chairman/Chief Executive Officer, Emerald Energy Resources Limited, Dr Jude O. Amaefule has said.
He said refining crude and utilisation of gas in-country would create huge value and jobs. He noted that taking crude overseas for refinning was uneconomical.
He cited some member-countries of the Organisation of Petroleum Exporting Countries (OPEC) that own refineries overseas and the importance of policies and environment that would drive the diversification goals.
In a paper he delivered at the conference of the Society of Petroleum Engineers (SPE), Nigeria Council held in Lagos, Amaefule stated that there is a linkage between the oil and non-oil sectors.
Nigeria needs to develop a broader-based economy, diversifying its exports to ensure its growth is not affected by global price or demand shock, he added.
In his paper entitled: “Emerging economic diversification era in Nigeria: Implications on oil and gas supply value chain and investors,” he said: “On oil and gas supply value chain, threats to petroleum export market create opportunities for refining, gas utilisation and other spin-off sectors.
“Nigeria, as the largest market in in Africa, offers unique opportunities for investment in in the petroleum downstream sub-sector. However, the government needs to create the required investment climate to spur economic diversification through price liberalisation, strengthened macroeconomic stability, improved independent regulatory and institutional frameworks, which encompasses governance, host communities, fiscal reforms and downstream bills, among other forward and backward linkages.”
He noted that as the oil and gas sector prepares for gas to overtake oil as the world’s primary energy source in the mid-2030s, nearly two-thirds, about 64 per cent of the industry’s senior professionals expect to increase or sustain spending on gas projects in the year.
He listed areas gas can be utilised to include liquefied natural gas (LNG) for export, power, petrochemicals, natural gas liquids (NGLs), liquefied petroleum gas (LPG), urea, fertiliser, pharmaceuticals, and methanol, among others.
He continued: “In today’s globalised economy with very complex industry interactions, the global value chain (GVC) methodology is a useful tool to trace the shifting patterns of global production, link geographically dispersed activities and actors within the oil and gas industry, and determine the roles they play in developed and developing countries alike. The GVC framework focuses on the sequences of value-added activities from conception to production and end use; thereby examining and engaging the job descriptions, technologies, standards, regulations, products, processes, and markets in specific industries and places competitive advantages.”
On the global value chain approach, he noted some OPEC countries that have refineries in foreign countries.
He said Abu Dhabi has refineries in Austria/Germany through the participation of OMV, where it refines 282,000 barrels per day (bpd) and also in Spain through CESPA with 360,000 bpd output.
Saudi Arabia has refining stakes in United States, through Star Enterprise refining 625,000 bpd in conjunction with Texaco, which owns 50 per cent of the output. In Korea, it operates through Ssangyong refining 146,000 bpd and in Philippines through Petron refining 147,000 bpd as well as in Europe through Motor Oil Hellas refining 100,000 bpd.
Kuwait refines Denmark, Netherlands and Italy through KPC and KPC/Eni in Italy with refining capacities of 56,000 bpd, 75,000 bpd and 300,000 bpd with Eni responsible for 50 per cent.
Libya has refineries in Italy, Germany and Switzerland through Tamoil, Holborn and Collombey with refining capacities of 95,000 bpd, 78,000 bpd and 72,000 bpd. Also, Venezuela has refining stakes in the United States, Germany and Belgium/Sweden/UK, through Citgo, Ruhr Oel and Nynas with daily outputs of 725,000 bpd, 716,000 bpd with 50 per cent from VEBA and 62,000 bpd with 50 per cent from Neste. It also refines 260,000 bpd from other sources with 65 per cent from Lyon dell.’’
He commended the operation of the Nigerian National Petroleum Corporation (NNPC) as an Incorporated Joint Venture (IJV), noting that it would allow the Corporation and operators raise money for their operations outside of the government’s budgets and controls.
“It will allow NNPC to run as a private company and take decision privately rather than awaiting the approval of the National Assembly before it can make counterpart funding available to its partners. Under the IJV arrangements, NNPC JVs will be turned into a firm that control its own budgets, similar to gas firms, such as the Nigeria Liquefied Natural Gas (NLNG), which sources for its own funding, pays taxes and royalties and also pays dividends to the government from its operations,” he said.
He cited Indonesia’s diversification method. He said: “Indonesia highlights the importance of using active policies to encourage agriculture in the face of a booming oil sector. Large investments of oil income were used to develop natural gas resources, both for export to Japan and as an input to fertiliser production. Fertiliser was then distributed at subsidised prices, greatly boosting yields. Agriculture and the rural economy were strengthened by a series of successful community-based programmes that absorbed large quantities of labour and produced local infrastructure, including schools, roads and local construction. Indonesia is the 16th largest economy in the world.
To Amaefule, in achieving diversification, there was need to look beyond the traditional approach adopted by oil and gas firms such as cost-cutting, vertical integration, mergers and acquisition. Oil and gas firms recognising the evolution of Nigeria to a diversified economy, should develop strategies for local technological capability, retool revenue generation via further processing of hydrocarbon resources, integration into supply and global value chains to encompass higher value-added activities.
He said the petroleum industry drives the economy as it is responsible for 10 per cent the Gross Domestic Ptroduct (GDP), 83 per cent of government revenue and 90 per cent of foreign exchange revenue.
“Diversification within the petroleum sector is key to harnessing the linkages to the non-oil economy. This implies Investments across the various downstream sectors to develop Industries relevant in both industrial and consumer products, which Nigeria import.
“The need to improve the climate for investment in non-oil industry may involve lowering entry requirements, streamlining tax structures and creating investment promotion intermediaries. Nigeria should develop its institutions and infrastructure towards achieving this goal,” he said.
