1. October 2014 Falcon

Nigeria@54: Paradox of reliance on hydrocarbon resources

THE quantum contributions of the nation’s petroleum sector clearly indicate that the industry holds the ace for Nigeria’s economic survival.

For the past 54 years of independence, the nation has survived mainly on the input of the hydrocarbon resources, which is responsible for about 80 per cent of the national earnings.

Considering the fact that discovery of oil in 1956, (about 58 years ago) prior to Nigeria’s independence, the nation was privy to enjoy the benefits of the richly-endowed resources, which in fact positioned Nigeria among the richest countries of the world in the early 70s.

The wealth was well showcased to the extent that the nation successfully hosted about 17,000 participants from 50 countries at the continent’s heritage festival “FESTAC ‘77” which was a great art and cultural assembly of Africans and African-Americans held for one month.

From 1977 till date, the nation has waved through the turbulence of economic mixed fortunes. It recently had some respite with the recent report on the rebased economy, which placed Nigeria’s economy the highest in Africa. This had also elicited several reactions.

However, industry experts believed that the nation’s petroleum sector has significantly enhanced national growth, hence they clamoured for improved exploitation and exploration of the resources to further grow the country’s hydrocarbon reserve.

The Managing Director, Danvic Petroleum, Afe Mayowa, said although the industry has continued to tackle the same challenges since the celebration of 50th to 54th anniversary, which has had effects on the overall economy, considering the fact that the petroleum sector is the mainstay of the economy.

According to him, the industry has made substantial progresss in the past years, but he still believed that much more can be achieved if proper mercineries are put in place.

Mayowa, who is also the immediate past Presedent of the National Association of Petroleum Explorationinsts (NAPE), said: “We have made sustantial progress, particularly in the area of local content. If you look at what government has achieved through local content in the last four years it has been tremendous.

“Indigenous companies have achieved great feats and these have multiplier effects on the economy. For example, Globacom is now coming into the petroluem sector. They have employed so many Nigerians. Danvic Petroleum, Seplat, and Oando, among others, have made significant progress in view of the local content agenda. So, its not bad new all the way. I beleive the oil and gas industry has performed well, but we can do better.

“All that we are now looking forward to, is an improvement in the operating environment, so that we can further grow the reserves. The communities should be well taken care of, in order to curtail militancy in the oil producing region. This will give room for development.

“We should pursue the agenda to explore oil from the Chad basin vigorously, so as to reduce reliance on the Niger Delta region. We have seven basins in Nigeria. There are other inland basins that we can also explore. The oil industry has done well, but we can do better,” he Mayowa said.

The Managing Director, Falcon Corporation Limited, Joseph Ezigbo, also believed that the industry has improved, but tasked the Federal Goverment to put in place an “enabling environment”, as well as resolve the controvercial issues in the Petroleum Industry Bill (PIB), for steady growth.

Ezigbo, in a recent interview with The Guardian said: “The economic turnaround of this country is hinged not only on the government but on the private sector. All our grand aspirations proposed to be achieved by the year 2020 will not be driven by the Federal Government but by the private sector. So, all that the private sector needs is an enabling environment which comes through policies and dynamic regulations. With the different sectors focused on growth, expansion, quality and excellence, a lot would be achieved.”

Nigeria is the eight biggest oil exporting country in the world and the biggest in Africa, but the nation spends huge part of its budget to import petroluem products.

However, all economic indications suggests that Nigerians are still suffering in the midst of plenty, due to huge product importation, crude swap activities, the menace of crude theft and vandalism that have characterised the oil-dependent economy.

The nation has four refineries in Port Harcout, Warri, and Kaduna with about 450,000 barrels per day combined capacity, but the refineries are now at their lowest capacity due to some technical itches identified by the Nigerian National Petroleum Corporation (NNPC).

The Africa’s most populous country, with more than 160 million inhabitants, therefore relies on foreign fuel supplies for 80 per cent of its requirements because of inadequate refining capacity.

Indeed, another major challenge is the advent of shale oil, which has continued to shrink the nation’s export market. This, according to experts now highlights the need for great innovations and policy directives that would foster steady growth of the industry.

The Former Minister for Petroluem Resources, Odein Ajumogobia, raised concern about the likely impact of global energy changer, shale oil on Nigeria’s economy, alerting that the shale oil would pose direct competition between Nigeria and the United States (U.S.).

He said that with today’s tracking technology and the advent of shale oil, Nigeria as a country is vulnerable especially with 80 percent of its revenue coming from crude oil.

The former petroleum minister explained that with over 70 per cent of Nigeria’s budget going to recurrent expenditure, it would be catastrophic to imagine an oil crash that will send prices to below $50 per barrel.

The former petroleum minister however noted that the oil industry has witnessed some cheering news especially with indigenous production in recent times.

According to him, over the past few years, indigenous oil production has moved from less than five per cent to around 10 per cent. He therefore predicted that indigenous production will move up to 20 – 25 percent of Nigeria’s oil production in the next five years.

He is also optimistic that Nigeria can do more exploration and production and move up the reserves from 35 billion barrels to 40 billion barrels and also move production from around 2 million barrels per day to 4 million barrels per day in no distant future.

Meanwhile, the long delay in passage of the PIB has been widely described as a clog in the wheels of the desired growth in sector with its attendant effect on the overall economy. In fact, the International Oil Companies (IOCs), which holds larger stake in the sector have suspended most of their major projects, citing the uncertainties around the fiscal framework.

The Managing Director, Total Upstream Companies in Nigeria, Elisabeth Proust, told The Guardian, that Nigeria may loose some major oil firms, if the current controversies in the PIB are not urgently addressed.

She said: “Among the major things we seek in the PIB, apart from stable fiscal conditions that promote investment, is reduced bureaucracy. Today, getting approvals is very complex. The duration of getting approvals in Nigeria is the longest globally with the complexity in the number of agencies that we have to face. This is one of the areas we expected that the PIB will address. The other is on gas terms. The PIB should address both fiscal and non-fiscal policy that will accelerate the development of Gas. And this is our expectation.”

Obviously aware of the immense role the sector plays in the nation’s economy, the Federal Government has assured of some strategic pragrammes aimed at restoring hope in the oil and gas sector.

The Minister of Petrolem Resources, Mrs Diezani Alison-Madueke, stated in Lagos recently that the gas utilisation and infrastructure development mechanisms deployed by the government have helped to grow domestic supply.

According to her, these intervention have grown supply to an all-time high of 1500 million cubic feet per day (mmcfpd), of which about 70 per cent was channeled to the power sector, and the balance to the manufacturing sector.

The minister was however fret about the lingering security challenges, pipeline vandalism and crude theft as they negatively impacted on the nation’s ability to meet national crude oil production targets, loss of revenue, environmental degradation and sometimes loss of lives.

She stated that the option of crude transportation by marine vessels has increased operating cost of refining by additional $7.52 per barrel.

The NNPC with relevant stakeholders have recommended some solution and combinations of strategies that could be adopted to combat the menace, which the minister said is with the presidency for ratification.

She said: “Nigeria needs to recognise and declare the pipelines as national assets. The next step is to organise and harmonise its institutions reponsible for pipeline infrastructure protection and invest appropriately in this light for effectiveness,”

Speaking further on the gas infrastructure, Alison-Madueke, said 150 kilometer (km) Escravos -Lagos expansion project has been completed and commissioned, while the remaining 250 km section is at advanced stage of completion.

According to her, work has also commenced on the 120km East-West OB3 gas pipeline, intended to boost supply to the power industry.

She also rolled out government’s strategic focus for the industry towards achieving the next level of development, to include; sustaining crude oil and condensate production at 2.388 million barrels per day and grow natural gas production to 80 billion cubic feet per day.

She said the government is also determined to reduce gas flare from current level of about 12 per cent to seven per cent with implementation of key gas monetisation projects.

Also critical to the industry, according to her, is the expansion of gas supply with additional 500 mcfpd to support about 2000MW of power generation.

It could be recalled that oil was discovered in Nigeria in 1956 at Oloibiri in the Niger Delta after half a century of exploration. The discovery was made by Shell-BP, at the time the sole concessionaire. Nigeria became an oil producers in 1958 when its first oil field came on stream producing 5,100 bpd. After 1960, exploration rights in onshore and offshore areas adjoining the Niger Delta were extended to other foreign companies. Nigeria joined the Organisation of Petroleum Exporting Countries (OPEC) in 1971 and established the Nigerian National Petroleum Company (NNPC) in 1977.

However, the Nigerian Content law 2010 has largely enthrench the participation of Nigerian companies in the sector, while many of them are even going upstream today.

Written by Solomon Salau – Culled from: http://www.ngrguardiannews.com/business/energy-report/181152-nigeria-54-paradox-of-reliance-on-hydrocarbon-resources

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