2. October 2014 Falcon

‘Nigeria will not get the full benefits of gas without investment”

Joseph Eziegbo, chief operating officer, Falcon Corporation Limited, in this recent interview with Olusola Bello, talks about the potentials of the company, it future plans, as the company has in the last 20 years been contributing to the growth of the Nigerian economy through the supply of gas to major industrial concerns in Ikorodu, Lagos State.

How can you describe Falcon Petroleum early beginning?

In the first instance, Falcon was birthed out of a realisation that we both shared some very key attributes which over time we came to realise had the potential to create something truly exceptional. Though we were in different streams of academia, we both had strong entrepreneurial aspirations and had been involved in one form of venture or the other on a small scale in our individual capacities at the time.

We were and are both committed and determined people who are driven by excellence and creativity. Indeed, the choice of the name Falcon is a reflection of our innate strength, resilience, dexterity and focus; characteristics the Falcon bird embodies and more. The name Falcon spoke then and still speaks to the heights to which our company soars, and the much more robust future we are both confident Falcon will achieve.

Take off was tough. We had very little resources at hand, and our initial investment was very quickly exhausted. Initially, the company was set up with the intention of producing and marketing an array of lubricants out of petroleum bi-products. However, circumstances playing out within the industry at that time did not allow that aspiration to be birthed. We built and leveraged on goodwill that allowed Falcon initial registrations and small projects within and outside of the petroleum industry that sustained the operations of the company through those early years.

We understood that building a reputation of service excellence from the start was the foundation that would allow us grow into executing larger projects in and out of the oil and gas sector.

What is your position on the current pricing regime for gas?

The pricing regimes have historically been designed more to ease customers – be they industries or the individual consumers of power into gas utilisation, without giving adequate consideration to the private sector investors who are expected to provide the enabling infrastructure to make the gas available in readily usable form. This is a legacy issue from the days of government dominance in infrastructure development projects.

We should remember that so far, the about 187 trillion cubic feet of natural gas that is so much talked about is Associated Gas (AG), which is discovered in the search for or production of crude oil. We can barely make boast of active search for and development of our non-Associated Gas (NAG) reserves, which are estimated to be in the region of about 600 Trillion Cubic Feet (TCF). Our gas reserves are believed to be higher than our oil reserves, yes; however, we will not get the full benefit of this if beyond eliminating flares, and we do not invest in aggregating our NAG resources into usable forms for the overall benefit of the nation’s economy.

Already, when you do an analysis of the available AG resources as compared with the current and future gas demand arising from the many gas-based projects and initiatives proposed for deployment, it becomes clear that there is going to be a huge future supply gap that we need to begin to address today. Appropriate pricing, effective laws and specific regulations guiding investments in the gas subsector are an imperative to make such investments in NAG development a reality, with the attendant huge benefits to the entire nation.

What contribution do you think gas will make to the Nigerian economy?

Power and fuel costs traditionally constitute one of the highest single components of the overheads of the industrial sector worldwide, and this is why there is so much global focus on looking for the best and most cost-effective alternative sources, as well as looking at how to increase efficiencies out of whatever energy sources are being utilised. This situation is somewhat compounded in the Nigerian case considering the years of erratic, unstable and expensive fuel and power generation options our country as a whole has had to contend with.

The truth is that the cheapest and largest volume of resource we need for industrialisation is underneath this country. There are proven economic and environmental benefits that accrue to nations that drive their industrial, commercial, residential, transportation and power sectors on natural gas and Nigeria needs not be an exception in this regard. From huge savings in fuel costs, to smooth process flows arising out of stability of supply, to reduced maintenance costs and increased operational efficiencies, to increased capacity production, employment and human capital development, natural gas has the potential to engender rapid positive growth and enormous impact in the overall economy of our nation. This is our reality. It is then up to us to run with it.

What was your first breakthrough?

As we said, it was very difficult in the beginning. We registered with a few of the IOCs and we were ready to take the market, but it was difficult getting a head start. Everyone wanted you to have experience, but no one was willing to give you a project that would allow you gain exactly that experience. It was the proverbial chicken-and-egg type of conflict that start-up entrepreneurs face everywhere.

Initially, we were not even given the opportunity to tender for any projects, and then eventually we found ourselves tendering for an uncountable number of projects without success. We submitted all manner of proposals and made all sorts of presentations to no avail. Those were really hard days and there were days we couldn’t put food on the table but we survived and continued to look into the future with optimism. We understood that we needed to make personal sacrifices, and make even more of an investment of time, hard work and effort in order to attain that future.

Our big break actually began with a very small project. We had done extensive work towards carrying out a gas distribution project in the Eastern part of Nigeria years ago. We made several presentations to the authorities and the gas owners, but surprisingly had the rug pulled out from beneath us just when we thought it was all agreed upon. We bounced back very quickly and proactively found a way to remain involved and to support the system by offering our services in pipeline construction, equipment modification, installation and commissioning, and training which we did for several years. We got a small break with an opportunity to construct the gas distribution pipeline for the first company to use natural gas in the greater Lagos area, as this then paved the way for our constructing at least 80 percent of the internal industrial gas utilisation projects within Lagos and Ogun states today.

Aside Ikorodu, is Falcon operating from any other area?

Not at the moment, but certainly not for lack of interest or effort on our part. The challenge has been because the award of franchises is the exclusive preserve of the FGN through its agency NNPC, specifically the Nigerian Gas Company (NGC ). Over six years ago, we had put in a bid for the Abeokuta franchise following an advertisement by NGC of about seven gas franchises available for development. To date, none of those franchises has been awarded.

We have also severally sent in proposals to develop gas distribution infrastructure within Ogijo and Shagamu, which are yet to come through. We attribute this to the uncertainties around the PIB and the proposed unbundling of the NGC that would result from there. That notwithstanding, we are positioned to replicate the success of our operations in Lagos State across the entire nation, be it in the any region North, South East or West, which has a lot of industries and manufacturing companies requiring our services. When the franchise system is deregulated, we are positioned to replicate success and impact across all regions wherever the opportunities portend.

How does the difference between the price for gas used in power and that for manufacturing impact business in your sector?

For Falcon, as a franchise operator, our transactions are directly with end customers in the industrial sector. Our customers utilise our gas as fuel or feedstock for their various applications and processes, power generation including in some cases. Some occasional conflicts do arise in particular cases where industrial customers need gas for power purposes but are being supplied gas under the existing commercial pricing framework for the industrial sector.

However, the terms guiding the application of the gas-to-power pricing takes care of this conflict to a large degree and the impact on our business for today is minimal. Looking at it from this perspective would however be shortsighted. The challenge that looms in the medium term is such that as the investment in and deployment of infrastructure by the GENCOS, DISCOS and transmission companies begin to impact by way of efficiency and regularity of supply, and coupled with the existing price differential between gas to power and gas to manufacturing, the franchise operators can expect loss of business as more industries switch to buying the more cost-effective power directly.

We must get to the point as a nation where we allow for market-determined pricing parity across related sectors.

However, the present reality is that Nigeria as a country must come to the point where we are ready to pay appropriate prices for the infrastructure and the quality of lives that we want to live. The truth is that we have got so used to the subsidisation of everything that we expect to get good services practically for free.

What are the milestones recorded in the last 20 years, and your projections for the future?

Our company marked its 20th anniversary on June 4, 2014. It’s amazing to know that we have been in existence for 20 long years, playing in the oil and gas sector through a diverse portfolio of services that cut across engineering, procurement and construction (EPC) as well as natural gas distribution. We however remember each day and each year with nostalgia as every aspect of this journey was challenging, remarkable and also inspiring.

There have been several milestones as we made the journey to where we are today. The most significant however which we remain very excited about and reference often is our Ikorodu Gas franchise. For two reasons: first, Falcon was a young indigenous company going head-to-head with multinationals to bid for a project we knew we were highly capable of and strongly positioned to deliver. Secondly, beyond being able to win the franchise, Falcon has consistently continued to deliver on the projects in a timely manner. Our unwavering commitment to excellence saw us through and today remains a key driver of our business, and we have several industry recognitions and awards that attest to this.

PZ Ikorodu had the first gas delivered by NGC about eight years earlier and everything had thereafter stagnated. By the time Falcon won the franchise a few of the industries had actually shutdown and relocated their operations to other franchise areas where natural gas was already being delivered, and there was apathy among the existing industries within Ikorodu who did not believe gas supply to them was still a possibility. But with our record of performance our organisation is known for, we threw all that was required into the project and we delivered and commissioned our first gas in November, 2006.

Still talking milestones, in line with our value of quality, Falcon attained our certification to the ISO 9001: 2008 Standard three years ago. We have maintained that certification all these years, which is an endorsement of our passion for quality, international best practice, customer satisfaction, and continual improvement in all facets of our operations.

What expansion plans do you have in Ikorodu and what can hinder it?

There is still a lot of ground to be covered in Ikorodu now and into the future. As you know, Ikorodu has areas dedicated for development of industrial parks several years ago by the Lagos State government. The several huge expanses of land available, coupled with the ongoing access road expansion project, and the closeness of Ikorodu to the sea positions it as a choice location for industries, many of whom are already strategically taking position within Ikorodu. In recognition of this, as well as in order to meet the current growing demand from our existing customers, we undertook the expansion of the four inch pipeline delivering gas into the zone and are about to commission gas supply on the 12-inch pipeline which we constructed to replace this, and which would immediately increase the capacity, pressure and volume of gas into our station.

What we are looking to do is to optimise the potentials of the franchise by ensuring natural gas is more widely in use across the zone. The key challenge is really the national gas supply constraint which is slowly being addressed at various levels. Other than this, Falcon is making investments to ensure adequate infrastructure is on ground to distribute the available gas to end-users.

In what way can the Nigerian Local Content Monitoring Board be of assistance in your sector?

While we don’t knock the advances that have been made from a policy and implementation point of view, what we see is that there is still too much lip service being paid to Local Content with most projects being awarded to indigenous players who then have foreign partners prosecute the project on their behalf. For us, this is not local content. There must be a focused redefinition and commitment to Local Content whereby we are seeking more to create knowledge and growth opportunities for indigenous corporations who get a chance to locally source the resources, fabricate/manufacture where need be, and provide top level services directly to the end users.

These corporations would deepen their knowledge base and technical know-how, drive corporate growth and make meaningful contribution to the economy of our nation. The Nigerian Local Content Monitoring Board needs to work with government and the private sector to drive huge investments in manpower training, development and skills acquisition to support in particular the oil and gas, and Energy sectors. There are many laudable initiatives under the Gas Master Plan and Power Sector reform but what is lacking is an appropriate and concerted focus on developing the local skills that will sustain the sector and ensure full transfer of technology to indigenous firms. To achieve these, there has to be a level playing ground and true commitment to the objectives of the Local Content policy.

Can we actually know the quantity of gas you sell or utilize in a year?

Right now, we supply between 10-12.5 Million Standard Cubic Feet (MMscf) per day although our current City Gate Station supply capacity is 25 MMScf per day. The constraint on the four-inch pipeline has actually limited our potential to deliver at capacity. A lot of customers who are now operating below their optimal capacity had to step back on their expansion plans because the gas volume and pressure has been very low for about a year plus. The frequent cases of vadalizations on the main supply line from the Niger Delta in the last couple of years also did not help issues. As we commission our 12 inch expansion project, our gas supply volume should be increased by 50 per cent in the near term.

What is the future outlook for Falcon?

Falcon’s strategic growth initiatives are robust and we look into the future with so much optimism. We would continuously seek opportunities were they exist. One of our core objectives is to remain the local distribution company of choice meeting and contributing to the nation’s energy need. Falcon is assiduously forging towards an entry into upstream Gas supply side, while working to deploy other innovative delivery alternatives in downstream Gas – including the deployment of mini-LNG plants, Compressed Natural Gas technology, and replication of our distribution franchise to other areas of Nigeria.

We are expanding our EPC competencies through the acquisition of additional highly specialized technical equipment and more technical skills training. Our end objective is to become a major player in the upstream sector of Nigeria’s Oil and Gas industry. As a group, we have evolved into a full business conglomerate with strength and competencies in providing services in not just EPC and Gas distribution, but also in the Energy and Real Estate sectors of the economy. We would continuously create value, contributing further to local skills and technological development through strategic partnerships. A critical element of Falcon’s future expansion drive is our upcoming Private Placement, and 3year target to take the company public.

Culled from: http://businessdayonline.com/2014/10/nigeria-will-not-get-the-full-benefits-of-gas-without-investment/

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