How Nigerian and West African oil can better compete in a weak and disruptive oil market
By Ndubuisi Micheal Obineme
West Africa is the westernmost subregion of Africa that comprises of 18 countries: Benin, Burkina Faso, the island nation of Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, the island of Saint Helena, Senegal, Sierra Leone, São Tomé and Príncipe and Togo. In West Africa, petroleum products are used across the entire economy in the region. Gasoline and diesel are the primary fuels used in road transport. Oil is used in power generation.
Adequate and reliable supply of transport services and electricity in turn are essential for economic development in the West African region. Households use a variety of petroleum products: kerosene for lighting, cooking, and heating; liquefied petroleum gas (LPG) for cooking and heating; and gasoline and diesel for private vehicles as well as power generation.
Industry leaders involved in the oil and gas industry in Nigeria gathered at the West African International Petroleum Exhibition and Conference (WAIPEC) 2017 to discuss, provide valuable information to harness the challenges currently facing the sector. WAIPEC invited speakers from various government institutions, indigenous and multinational oil companies such as
National Petroleum Investment Management Services (NAPIMS)
Nigerian Content Development and Monitoring Board
PETAN
Marine Platforms
Shell Nigeria Exploration and Production Company (SNEPCo)
Nigeria LNG Limited
SEPLAT
Frontier Oil Limited
FIRST Exploration & Petroleum Development Company
Midwestern
Oildata Energy Group
Niger Delta Exploration & Production Plc
Waltersmith Petroman Oil Limited
TOTAL Exploration and Production
Schlumberger
Shell Nigeria Exploration & Production Company Limited (SNEPCo)
Chevron Nigeria
Brittania and much more…
During the conference sessions, the speakers highlighted the key factors of getting out of the low oil price environment, best practices and technological solutions to grow West Africa’s energy industry.
Challenges in the Nigeria and West African Petroleum Industry:
The major challenges highlighted at the event is explained below:
1. Refineries:
Currently, Nigeria have five refineries of which four plants are owned by the Nigerian Government through the Nigerian National Petroleum Corporation (NNPC), while the fifth is owned and operated by Niger Delta Petroleum Resources (NDPR). Apart from the single fully-fledged petrochemical plant, two of the refining plants, KRPC and WRPC, have petrochemical complexes that utilize their refinery intermediates to produce petrochemical precursors.
The refineries are located in Port Harcourt (RiversState), Warri (DeltaState), Kaduna State, Ogbelle (RiversState) in the Niger Delta and Eleme (Rivers State).
Unfortunately, some of these refineries are outdated in terms of the technologies been used in the production capacities. Though the currently Nigerian Government is working hard to making sure the refineries in the country are been upgraded to meet up to the standard of production.
Furthermore, licensees of building refineries should be given to companies/investors that has a good track record in the oil and gas industry.
2. Access to Foreign Exchange (FOREX):
The foreign exchange market (FOREX MARKET) is a global international market for the trading of currencies. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of volume of trading, it is by far the largest market in the world, followed by the Credit market. The foreign exchange market works through financial institutions, and it operates on several levels. Most foreign exchange dealers are banks and the foreign exchange market assists international trade and investments by enabling currency conversion.
For instance, it permits a business in Nigeria to import goods from European Union member states, especially Eurozone members, and pay Euros, even though its income is in Naira. In Nigeria, the FX market is another challenge to manufacturers and companies importing goods from other country. In order to enable these companies to get through these challenges, the Central Bank of Nigeria and the Ministry of Finance should establish a framework that will assist these companies to get funds for their business operations.
3. Pipeline Vandalism:
Pipeline vandalism is a deliberate act of damaging petroleum pipelines with the sole aim of stealing crude oil and associated petroleum products. These pipelines are however poorly secured thereby making them targets of repetitive attacks by vandals.
In Nigeria, the Nigerian National Petroleum Corporation, NNPC, has provided graphic details of how the activities of pipeline vandals have complicated the free flow of petroleum products and crude supply in its pipeline system leading to a colossal cost of over N174.57 billion in product losses and repairs of products pipelines within the last 10 years.
To resolve the issues surrounding the pipeline vandalism, Government should liaise with the communities and provide incentives for them in order to resolve the issues behind the pipeline vandalism. That is to say, the Nigerian Government should meet the right people in the particular communities where all these illegal activities are carried out so as to fully understand their motives of the massive attacks on the nation’s pipeline.
4. Taxation of petroleum products:
The aim of the establishment of the Petroleum Industry is to open up the Nigerian Oil and Gas Sector to new local and international investors for competitive growth and sustainable development in line with international best practices.
The major issues with the all important petroleum sector have been corruption, poor institutions, weak regulations, and lack of transparency. In order to address these issues the Petroleum Industry Bill (PIB) should create a conducive business environment for petroleum operations to enhance exploration and exploitation of petroleum resources in Nigeria for the benefit of the Nigerian people, optimize domestic gas supplies particularly for power generation and industrial development
Solutions:
Nigeria and West Africa can better compete with a weak and disruptive oil market through the following:
1. Collaboration:
In order to grow the Nigerian and West Africa Petroleum sector, oil operators within the region should create the mindset of collaboration between indigenous companies and IOCs. The collaboration should cover a wide range of oil and gas activities including engineering, maintenance, fabrication and support services etc…
Recently, Shell Nigeria Exploration and Production Company (SNEPCo) and the Petroleum Technology Association of Nigeria (PETAN) have resolved to develop effective collaboration to promote Nigerian Content in the oil and gas sector. Shell companies in Nigeria make a major contribution to developing the country’s human capital and contracting capacity. Some 93 per cent of contracts were awarded to Nigerian companies in 2015. Shell companies in Nigeria won PETAN’s Local Content Operator of the Year awards in 2013 and 2015.
Other companies should also copy Shell’s courage of collaborating with indigenous companies in Nigeria in order to experience growth and development across the west African region.
2. Creating Commercial Awareness:
The oil and gas industry remains one of the most important industries in West Africa and the international community. The industry consists of a series of stages, which collectively create the industry’s ability to add value. Each stage has its own technology and engineering, its own economic dimensions and its own current issues of importance. Understanding all the elements of these stages is crucial to making effective and robust commercial decisions.
3. Latest Technological Solutions:
Oil companies should tap new technologies in order to lower production costs. Companies should look for new techniques that will allow them to produce more crude from both new and old wells.
In regards to pipeline vandalism, there should be technology installed on the areas where these pipeline are been installed in order to detect any illegal activities carried out in that region. Using latest technologies will also help in reducing and detecting any leaks on the pipelines.
4. Savings for the Future:
The Government should have a savings for the future it shouldn’t just focus on the profit they are getting from the oil and gas business and forget that things might change from good to bad in the future. The low oil price is a very good case study for the industry, when a barrel of oil fetched $100 or more, energy companies were focused on drilling wells and producing crude just as fast as they could. But now that prices have settled around $50 a barrel, companies are forced to reduce their expenses and manage cost. If there is a savings for the future, when challenging issues comes out just as the low oil price it will not be a big deal for energy companies as there is already a savings for incidents that may occur.
5. Blueprint for the Petroleum Sector:
The Government should establish a blueprint for the oil and gas industry as we all know that the oil and gas industry is a long-term business activities that needs proper management to avoid the economy melt down of the nation. The Blueprint should be a long-term and sustainable program that will be continued irrespective of the government currently on power.
As we all know in Nigeria, there are several political parties and whenever a new Government is been elected from a particular party (APC, PDP etc..) they come up with their own policy & objectives. But if a BLUEPRINT has been established for the industry, the new Government will definitely continue from it despite their own agenda and policies.
The above issues was discussed at the just concluded West African International Petroleum Exhibition and Conference 2017 held in Lagos – Nigeria. Oil and Gas Republic was among the invited media organization to do an exclusive coverage of the event.
