Despite everything thrown into it, including its privatisation, the power sector remains a challenge. Nigeria can only generate 4000megawatt (Mw), which are inadequate for its huge population and industrial concerns. To the Group Chief Executive Officer of Oilserv, Mr Emeka Okwuosa, power generation, transmission and distribution must align to get the sector running. In this interview with EMEKA UGWUANYI, he says there is need for a robust local content to boost indigenous capacity and skills development to move the sector forward.
What are the opportunities in the oil and gas industry?
The opportunities are immense. Although there are challenges, the challenges go with opportunities as opportunities go with challenges. The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, has enumerated all of these opportunities. He mentioned the Seven-big wins, which was launched a couple of months ago. So, you can see that huge opportunities exist across the value chain – from the upstream, to midstream and to downstream. If you take the midstream, particularly gas development, the opportunities are immense – from gas processing facilities to production and distribution of liquefied petroleum gas (LPG); production of lean gas and pushing it out for power generation and industries. That is a huge industry on its own. You can go on and on. The Minister had also talked about modular refineries. These are opportunities are meant to address known challenges.
How did your firm key into these opportunities? What is the update on the East-West pipeline; that is, the Obiafu, Obrikom and Oben (OB3) gas pipeline project in which your company is involved?
Oilserv has always been proactive. That’s why we moved from being just a construction company in 1995 to being one that has activities across the value chain. Today, it is a group of companies comprising six different companies, which addresses pipeline construction, engineering construction commissioning and maintenance, down to full engineering from feasibility study, front end engineering, detail engineering. We have a different company called Frazimex Engineering Limited, which addresses engineering. We have Fraz Power Limited for gas and power development, Fraz Oil Exploration and Production (E&P) Limited, for oil and gas exploration. I am mentioning these firms to address your question that we have been proactive in looking out for these opportunities and taking advantage of them. Today, when you talk of refining, we are positioned to take advantage of that because we have already moved ahead of that.You may wish to know that one thing that goes for us clearly is that we did not set up bearing in mind that there will be local content law. Oilserv has built capacity prior to that purely by continuing to invest and develop resources including human resource base. So, the point is that we are very well prepared to take advantage across the value chain.
The OB3 project is nearing completion. What we are doing now is terminal station. For the pipeline construction, we have finished pipeline, we are going through pre-commissioning of the pipeline. Now terminal stations pose their own challenge because we have to realise that these stations are huge. For you to build a gas metering system for a 48-inch diametre pipeline, a lot of people don’t understand what it means. This is a pipeline that will have a throughput of two billion standard cubic feet of gas per day (bscf/d). That means for you to build a metering system to take this, in engineering parlance, you cannot build a single system. We are to have four streams of 500 million standard cubic feet per day (mmscf/d) each.That pipeline will have four different streams that will have all the gamut of metering and conditioning systems to take and utilise it. That’s what we are doing. We believe that by end of this year, that will be finished.
The Federal Government adopted some incentives for prospective investors in the sector. What incentives do you think should be given to those interested in modular refineries?
It depends on the model. From what I have heard so far, the model is not yet out. It is only when they come up with a model that we will see what that model says. Will the model help in the financing? How will it guarantee feedstock (crude oil)? How do you make sure that off-take is also guaranteed? All these will come into the model we are expecting to hear from the government. What we have heard so far is a policy statement, so when they come up with that blueprint, we will be able to comment. For now, it is premature to comment.
At what point will Oilserv participate in the gas-to-power project? Will you build a power plant or do you intend to go into distribution?
We have a company called Fraz Power Limited. It’s a gas-to-power company, partly for gas development and for power generation. But the power we are talking about is not the power system, the huge system that is connected to the mains (the grid). We are involved in the distributed off-grid power systems where we develop the gas transportation system.Where there is no pipeline, we do a virtual pipeline system where we can use compressed natural gas (CNG) or we use micro-ornano liquefied natural gas (LNG) system. The clear thing is that we target end-users. We install the power plant, run it and supply the gas. That’s our model. Our model is not that one that will be embedded in a grid system because that is not what we see to be our business.
Has your company done any project in the power business?
We are at a stage where we are developing and working with operators in the oil mining lease (OML) 56, which include about five companies. We are at a stage where we are trying to collect the gas, process and utilise, that’s the first step. We already have Nano technology system, which we are working on with an Argentine company. This is a process, from the day you have your strategy and you decide and sign in, it takes you at least two years to put it on the ground. Let’s be clear, this is real work and not talk. First you have to sign a gas-purchase agreement with gas owner – an exploration and production company; you build the processing system. From the processing system you take the lean gas and install the Nano energy and then you now deliver. The power plant is the simplest thing because you buy the power plant, and you install but the process of getting the gas there is the most difficult in terms of time. So, we are working on it. It is not plug and play. It is like building a gas pipeline that takes years – from the day you conceptualised it, design and build it. It is not off the shelf, so it is a process.
What’s the prospect of this technology?
It is huge. For example, if you go to Anambra State, you have various industries but no access to power. You cannot even imagine the number of industries you have in Onitsha, Anambra State and they have no access to power. Their cost of power production is so huge that it becomes impossible to run their business profitably. If you go there, you see several diesel generators scattered all over the place, some leaking oil and others breaking down. They are not able to operate profitably because the power from the grid is not accessible. If you see what is going on today in Eastern Nigeria, it is a disaster from power supply point of view. The distribution company there is a disaster. They are not able to give power to anybody, so industries are dying and the only way to bridge that gap is to make sure that power is available because power changes everything. If you go to Nnewi in Anambra State, it’s the same story. These two clusters alone can take more than 10mmscf/d.
Which is more expensive, the CNG or LNG power plant?
It depends on the model. The model is determined by distance. At the end of it all LNG is more feasible because CNG is compressed, put into a bottle under high pressure. The problem here is, with our weather, you cannot transport for more than a maximum of two hours on the road, otherwise, it starts to lose the pressure and by the time you get to your destination, you have lost most of the gas. It has to bleed off as it heats up. But LNG is liquid because you liquefy it, so you can actually keep it in a liquid form for the next one year. You can transport it to 300-500km. The only problem we had originally was that there was no technology to put it in micro form, but we call it ‘nano’ because we can now actually make it small enough to be able put it in a small truck-mounted system and move it. Normally before, LNG systems are huge in nature so that’s technology innovation and change.
At last year’s Offshore Technology Conference, there were complaints by Petroleum Technology Association of Nigeria (PETAN) about lack of access to Nigeria Content Fund (NCF). One year after, what has changed?
What has changed is that we have an Executive Secretary, Simbi Wabote, an engineer, who took over that position, and who is very interested and keen in addressing that issue. He has said it, and he’s doing something about it because every day, the fund keeps building up. The primary aim of that fund should be capacity building. So, how do you deploy that capacity building? It can be done in many ways. You can take part of it to provide funding at affordable rate for Nigerian companies that are investing. This is not money to be thrown away, it has to be repaid. You can also have the Nigerian Content Development Monitoring Board (NCDMB) decide that it can be involved in key investments. Wabote also talked about the development of a pipe and steel mills. The money is there and if you look at the gamut of investments that will cost you say $100 million, all you need is a counterpart funding from there of about 20 percent and investors will bring the remaining. The point here is that it can be deployed smartly in a way that can build capacity. What Wabote has said, he meant it because I can see him walking the talk.
Are you comfortable with the fund’s lack of transparency?
We have to bear something in mind that we should not over criticise. I believe there are records and these are available because this money accumulates based on records. Do not forget that NCDMB is also a young entity that is learning and developing its system. We have to give them time to do that. What is important is that NCDMB is managed by very competent and educated people with experience. Wabote for example spent all his working life with Shell before coming to NCDMB, so he has good knowledge of international practice and the same thing with people around him. Of course, you cannot compare NCDMB with NNPC. NNPC has been there for many years and NCDMB is only seven years. I believe that we need to give them time because I believe they are doing the right things.
The Federal Government said it is establishing Project 100, where it will help companies that have capacity to source for fund abroad. What are PETAN members doing to key into this project?
Project 100 was mentioned by the Minister of State for Petroleum Resources. I can give it to him. He is a visionary person and knows issues that plague the industry. Project 100 is a very good idea because some of us have been saying this in different ways in the past years. Some of us that have built capacity over the years have to be sure that the capacity will be utilised. If I have equipment of $100 million lying there that I maintain, and I’m employing people and don’t have jobs for them, how does it work? There has to be a process of guaranteeing jobs for companies that have invested. It is not only Oilserv, there are quite a few other companies in PETAN and outside PETAN who have invested and taken the risks. It is important that going forward, there would be guaranteed jobs, instead of trying to give contracts or opportunity to briefcase contractors. Project 100 concept will help address that because they will look at few companies with capacity and help them raise funds for business and this will enable us employ more people. But don’t forget, as we get the details, we know how to move into them.
Power supply hasn’t improved. What do you think are the major problems confronting the power sector and what’s the way out?
Anywhere in the world, power issue isn’t an easy situation to deal with but it requires proper strategy, execution and management. All these come with discipline. We lack discipline in Nigeria. We also lack continuity. This government comes, says a thing, another government comes says another thing. You have to be ahead of the curve, and you have to keep developing. When the U.S. started its power industry, it was just like Nigeria. It was owned by big government entities but overtime, they have a way to privatise in a way that it works. The problem we have in Nigeria is that we say it but we don’t do it. The capacity to improve power means you have to align the generation to transmission to distribution. But all you hear is that distribution companies collect money but they don’t remit. If you do not remit it to the aggregator, how do you have the transmission company to get paid? The whole system breaks down. If you are able to generate power and you are not able to transmit it through the transmission system, then you are constrained. My issue is that this is still being run in a government way to regulate and control. If these issues are not addressed, it will be discouraging. The biggest problem in any business idea is execution. Talk is easy, but execution is key. If we don’t execute properly, it’s not going to work and we have that problem with power sector.
The Local Content policy is seven years old. Assess it?
A lot has been achieved. The first is the setting up of an agency to manage the policy and this is the NCDMB. You will agree with me that it takes time to build. But I believe that with time they will settle very well. They have the capacity to certify companies to ensure they comply with the law. They have resources in place to encourage companies to be compliant with the local content policy. They have many other processes in place to encourage training. My assessment is that they have achieved quite well, but there is enough room for development. That’s why I mentioned that I’m one of those that believe that NCDMB has come a long way and they are moving, not gotten to their target, but still have a long way to go. It makes a difference to have strong leadership who will make a difference. Listening to the executive secretary, not just what he says but what he does, I will say I’m encouraged. The Local content management is going in the right direction.
There have been concerns about Nigeria’s lengthy tendering. What do you think the government can do to ensure we are at par with other countries of the world?
I’m not sure that it is the government. I think it has to do with owners of the projects. Whether it is the NNPC or the IOCs, which in this case you have NAPIMS being the major partner that controls things, it’s about making a conscious effort to put up a process that fits for purpose. When you start a tender and the process goes beyond six months, you are in a different territory. You have a situation where inflation may have changed, prices may have changed. Some tendering take up to 18 months. That should end, it requires concerted efforts. You have heard NAPIMS saying that they will look at that and correct it. You have also heard clearly the Minister of State saying that it has to end. There should be a need to fashion out concerted efforts to streamline the tendering to make sure that it is within a shorter time and that requires directive from the minister, then drives it down, but it is a process.
Low oil price has exceeded two years in a stretch. What has been the impact?
On low crude oil price, what is important is that oil price never remains the same. It goes up and down and driven by market forces, which is basically demand and supply and in some cases, geopolitical forces come in. What is most important is cost of production. In Nigeria, when cost of production goes beyond $20 per barrel, it becomes a problem. Compare this with Saudi Arabia where in some of their engagements is about $8 per barrel. When crude oil price is $15 per barrel, they are still making profit. In Nigeria, at that price you cannot but to shut down. You can’t spend more than you are getting. The main problem is cost of production. Oil price at $40 per barrel depending on how your industry works, can still manage well. If it is at $80 per barrel, it is a plus but it comes with a caveat because the higher the cost of crude, the higher the cost of production because there is this tendency that when oil price is $100 per barrel, exploration and production (E&P) companies will take more risks. Embark on expensive projects because there is money.
How is the delay in passing the Petroleum Industry Bill (PIB) affecting the sector?
Our distinguished Senators say they will pass the entire Bill very soon. I’m not a politician but a businessman. I made it clear that without the passage of PIB, Nigeria oil and gas industry will remain stagnant. We have no control over that; it has to come from legislature. There must be deliberate efforts that will integrate our Senate and House of Representatives and come down to the Executives. For it to be passed, it depends on the Senate and I believe they are patriotic enough to know that this is important. But so far that we have not passed the PIB, there have been deferred investment and Nigeria will continue to lose values because some of the tax regimes, especially for offshore production, it is no more representative. If you hear we are producing one billion barrels offshore today, Nigeria is making little or no money from it. Because that was the regime that was set up in the 1970s to encourage offshore production and we have since gone from there to a stage where we should be getting something but we cannot get something because most of the laws governing the production sharing contracts (PSCs) are outdated.
Another marginal bid will soon commence. Will your firm participate?
Once the opportunity is there, we shall participate definitively. We have the capacity not only to acquire that block but the capacity to develop it. Developing that also, we are talking about going the value chain from the E&P activity to the mainstream of setting up the refinery to use the crude. Or if it makes sense, we will develop the gas facility. There can never be a better company than Oilserv Group today because all it takes is within the group to utilise.
