A Review of the Nigerian Energy Industry

Gas projects take a long time to mature – Chukwueke

03 December 2012, Sweetcrude, Lagos – TONY CHUKWUEKE, former chief executive Department of Petroleum Resources brought a lot of innovations during his tenure at the Petroleum Ministry. However his ouster from the ministry facilitated by the President Umaru Yar’dua administration truncated some of his ambitious dreams of transforming the department. Chukwueke is not tired yet and he has found an opportunity in Transcorp Energy where he is a director, to continue his foray into the oil and gas business. For the first time since he left office, Chukwueke is talking to the press in this high profile interview anchored by PAUL NNANWOBU, EMEKA OKAFOR & OLUBUNMI MARTINS in his Ikoyi residence, Lagos.


Experience in the petroleum industry
Although I was born in Kaduna, Northern Nigeria, my parents came back with us as children to Port Harcourt and my childhood had been mainly around Port Harcourt until the war started in 1967. During my days as a young child, I would say that I wasn’t familiar with the phrase ‘Oil and Gas’ because I didn’t really know what the phrase meant but I could see the flares as a young child, particularly around Obigbo in Rivers State and Imo River and the areas that we used to go through from Port Harcourt to my village in Owerri. In those days we used to go through Imo River and Obigbo and each time we passed there, I would see the flares, so from that time of my youth I started to become aware that there’s something called ‘Oil and Gas’, and when the civil war started in 1967, in fact, my real experience was in 1968 when the Biafran news had it that a couple of white people were captured while trying to take oil away from the Niger Delta at that time, and they put them on radio and said they were going to make them drink the crude oil , that’s to see how crude oil was in those days and that’s what I still remember as a young boy.

Of course, I went to the University of Nigeria, Nsukka after the war and studied physics. Towards my graduation, one of my uncles who used to work for Schlumberger talked to us about Schlumberger and I thought that working for Schlumberger was a way to make a good living because he lived very well based on the standards of those days. So when I went to university, he told me that if I wanted to do the kind of job that he was doing that I would have to study physics and actually that was what took me to studying physics though I had wanted to be a medical doctor. When I graduated in 1977, I found my way into the oil industry and started working for Shell. I felt working for Shell was a very good opportunity so I found my way through the system and stayed there for 27 years. During that time, I rose to senior levels in Shell.

However I got attracted to the Obasanjo regime and I had to leave Shell to join the government in 2004, first as adviser in the Ministry of Petroleum Resources, also don’t forget that during my time in Shell I had become the Business Development Manager Africa at Shell International Gas Limited in London that was my last job in Shell. President Olusegun Obasanjo wanted to do something about the gas business and I think that was why he asked me to join the government, we started to work at it, among other critical issues facing the oil and gas industry at that time and consequently, he decided to put me at the Department for Petroleum Resources (DPR) but when he left office the people who took over felt that change was necessary.

Compared to USA and Russia are there peculiar issues with Nigeria about gas flaring?
It is not exactly true that the US flares gas, the US is a consumer of gas. All the time I have been in the US you find it very difficult to spot refineries where you have gas vented. I visited some of their refineries and I couldn’t find outlets where they are vented. Most of the gas flaring in the USA occurs in the Alaska region in the northernmost tip of the continent, far away from the continental USA. But still gas flaring in Alaska is small compared to Nigeria, amounting to only about 10% on Nigeria’s. In the whole of Continental USA, gas flared volumes amount to less than 3% of Nigeria’s. Gas flaring happens elsewhere in the world where the population is less environmentally conscious or more tolerant of pollution. The government in the USA does not own refineries and whoever own the refineries cannot pollute the environment in the US and get away with it and of course if you understand that the US is a huge market for gas, they are looking for gas and wouldn’t be flaring it as we do here.

Indeed Russia does flare gas in substantial volumes. I think in the far desert part of the country but at the same time the percentage of flared gas is quite low compared to Nigeria in proportion to their land mass and volumes that they export. It’s a very vast country and they are the main suppliers of gas to the EU, most of the gas used in Germany and Italy, in particular, the industrialized part of Europe is from Russia. If you listen to the media often you find that they sometimes hold Europe to ransom because of some dispute regarding gas, so they produce an enormous amount of gas but most of it goes to the market. In some cases in the far part of Siberia we have substantial gas flaring which is similar to the case of Nigeria, so our biggest problem has been that we are far away from the gas markets of the EU and US, just as Siberia is and our ability to utilize the gas domestically is limited. If the market for gas was close to the Niger Delta then it would have been better and more commercially feasible to develop gas.

The big issue is transportation, how do you move gas from the source where it is produced to the market where it is needed? You either build a pipeline if you are reasonably close to the market then utilize it there. But if you are far away from the market you have to send it to the market by ship and that would be done by cooling the gas to become liquid and while the gas is in the ship, you still have to keep it cold else it evaporates, so these are two serious challenges affecting gas development in Nigeria. A sizable amount of gas is produced with the oil, when the first idea about putting gas to the market via Liquefied Natural Gas (LNG) was muted in the early 80’s or so, there had been issues around how to collect flared gas commercially because when gas comes with oil it loses pressure. At the same time gas contains impurities (heavy minerals, water etc) which are not needed in the gas and to move the gas to a point where it is needed, it has to be pressurized using compression equipment.

The process of purification and sending the gas to a collection point before thinking of how to ship it to the market is a very expensive project. If you compare the period of time and capital required to develop a gas project relative to oil, the price of gas is so low in the market that in order to find sufficient money to do it, you have to make investment for a long time, and so a gas project does not pay like oil, oil is in a liquid state if you take it today you sell it tomorrow. Gas projects take a long time to mature; therefore you have to be a a long term investor because it will take a long time for your money to mature and this is why we have been flaring in Nigeria for a long time.

But the good thing is that it works. When we were trying to do the LNG project it took about 21 years because of the amount of money and time it takes but thank God we do have one Nigeria LNG that supplies to the market. It faced the challenges of maturation and that was why it took us 21 years, it still faces the challenges of the market because the demand for gas in the major market of America has fallen because of what is called Shale gas. Shale gas abounds in clay or shale rock, which abound in the USA and possibly several parts of the world and the industry in America has found a way of getting the residual gas out of the shale by what is called fracking. This development contributes to why the price of gas has fallen to about three dollars and fifty cents per a million BTU while oil is selling at over a hundred.

Is it practically impossible to harness the so many oil wells in Nigeria?
From what we are saying, gas is difficult to harness commercially compared to oil but at this stage in our development we have the opportunity to utilize gas domestically more and more., I think the trick is site more and more gas utilization projects closer to the source of gas in the Niger Delta thereby reducing the need to transport the gas to further distances. In the Niger Delta we can site very good projects that take gas in commercial quantities on individual bases. Thank God that Transcorp managed to get the Ugheli power plant in the recent bidding exercise by the BPE and the Ughelli Plant is next to the source gas. It is a good example of a project that can become commercially buoyant and st the same time strategic to meeting Government aspirations for poer. What we would have to do is to boost the power coming out of the Ugheli Power Station from the gas that is at Ughelli and send the energy to other parts of the country. If you can find projects like that, not just in power, but in fertilizer, petrochemicals including ethanol etc and localize them in the area in the vicinity of the feedstock, it quickens development. That is why development of the infrastructure in the Niger Delta is critical. If we follow the ideals of the Ministry of the Niger Delta to really put infrastructural development in the Niger Delta we would have done something that our children will look up to us and say that we did well. There is no way you can keep industrial development too far from the source of energy, if we do not have these concepts in our mind knowing that it is the energy industry that drives development, we would never get out of where we are, so I think the government will have to sit up to the challenges.

Will you recommend that as a major road map?
It has to be. When I was in government we got those with the know-how from India, Korea and China, President Obasanjo was passionate about those people and we brought them to see how we could ‘use what we have to get what we need’ which was a common phrase used by President Obasanjo. That brought about some synergies; we have oil and gas so we could give it while in return they could bring in infrastructure that we needed to develop. That has always been President Obasanjo’s idea and then we got worried about how we were going to make it work, do we give them oil that we have produced or force them to invest their money in producing the oil; and that was what led us to the concept of the ‘right of first refusal’ which we used to allocate oil blocks to these Asian companies. Those concepts were already in place, we were already talking about actualising the east-west railway line by the Indians, the Lagos-Kano railway line, Mambilla Power, a host of refinery and power projects as well as the famous South – North Gas pipeline to be built by the Koreans. It is a pity that these projects were derailed by succeeding Governments and the Asian companies allowed to carry on exploration activities without meeting their downstream obligations and of course when the exploration work is not as successful as they intended, then the companies tend to default in their obligations. It was a matter of the inconsistency of government policy to nurture them and put them in place that has been Nigeria’s problem.

How did you fair as DPR chief executive in abating flared gas during your tenure?
I think DPR is still standing today basically on the tripods that we had instituted when we were in government; I had a mission to transform the DPR when I came in, and it was always my concept to structure the organization along the segments of the oil and gas value chain. I tried to see how I could get young people come out of the wood works because people perform well in their 30’s and 40’s not when they are in their 50’s and 60’s. Younger people have the drive to work and so I tried to do that and also see how DPR could be the proper regulator that it was desired to be. I tried to convert the DPR from a paper company to an electronic driven company by making it a point that all senior staff used laptops to meet up with the wireless world, but some of these were truncated by the exit of President Obasanjo but I think some of the things are still there. It is a department of government that has a lot of responsibilities.

Do you think the DPR is living up to its responsibilities?

Some of the things we tried to do are still being practiced while some are not and for me, it’s a mixed bag. Some of the departments are still there- the upstream, the downstream, the technical services, the zones and so on, as I tried to define them. I look at other areas; the development of the inland basins where if we find any hydrocarbon, no matter how small, can make a huge impact on our industrial and political development; I am not too pleased, it should be looked at. If you had followed what our target was those days, we wanted to get to 40million barrels of oil reserves by the year 2010 and we had a programme for that which included principally the deeper part of the Delta and the deep offshore. It takes a conscious effort to focus and find where the hydro carbon is.

We need to bring industry experts around the the table to see where the next oil pay zone is. Again the Inland Basins can make a huge impact on the industrial development of Nigeria. If you find a small amount of gas in Anambra, in the vicinity of Onitsha for instance which is in the eastern part of Nigeria, that gas will be ten times as important to industrial development as it is in the Niger Delta.

The same thing will happen in Chad Basin or Benue Trough for critical industrial areas of Northern Nigeria, in this case we made a conscious effort to see that we put the Chad and Benue blocks in the hands of people who are desperate to find oil and gas and that accounted for why we went for the Chinese and they made some success in the neighboring countries on the other side of the Chad Basin. However the change of government truncated that. I think the biggest problem we face as a country is inconsistency in Government policy.

Should we just conclude that Nigeria’s side of the Lake Chad basin is in a state of in action?
I don’t know if that is the right thing to say, because I recently heard that NNPC is planning to invest a reasonable amount of money in exploration in that part. To find oil and gas in an area like that, you do not give it to somebody who is half full, you give it to someone who is hungry as he knows his life depends on that, and the Chinese have made success in that area, but if we find hydrocarbon in that part of the country, it would help in the industrial development of the country. We do not have to move hydrocarbon all the way to the far part of the north, that’s why it is strategic.

Efforts of the government to address gas flaring in Nigeria
Of course, even the current administration is facing gas in a way it knows best. In 2010 or early 2011, the Ministry of Petroleum Resources launched the central processing unit project with Agip and Oando and that’s the way they try to face it, trying to integrate the country with chains of gas pipelines. That’s an effort to develop gas domestically. However, you have to do it with the right people and deploy the right resources so that the gas flaring can continue to reduce from the levels that we left it. Of course you know that in this industry, nobody spends money unless he sees how to get the money back, to get it right we need a lot of collective effort not just of government but of industry. I think as an industry we have not been able to do what the sector needs, government cannot do it alone and the industry also cannot do it alone, it has to be a collective effort and we need to get that to happen.

What’s your take on the communities where these gases are flared?
I think that Nigeria is an enduring country, right from the early days of oil production in 1956, the Niger Delta and its environs have been enduring the consequences of oil and gas activities. It has become even worse in recent years with all the vandalism, associated pollution and militancy which have disrupted the management of oil and gas in the Niger Delta. The people have endured, there is no doubt that with the turnaround in militancy we are beginning to see quietness in the Niger Delta but more importantly we need to see real development begin to come in particularly in this area. I think with the activity going on in the Niger Delta, the people need to see real benefits for them in order to endure the consequences. They would think less of the global concerns about pollution when they see economic and social benefits coming to them. But as a Government and as a people, we cannot take our eyes away from this major issue, especially with the global warming and its global consequences.

But we need to deal with our people issues first. We need to find that link to the communities especially with education. If you look at the way that militancy rose in the Niger Delta, it means that if you have something people like and see value in, they would glue into it in spite of its dangers and such other challenges as they have done lately. I think these are the reasons why the government created NDDC to make sure that they put resources to the Niger Delta and convert them to benefits in form of jobs, infrastructure and better living and even tourism. Therefore it is a big challenge for the Ministry of the Niger Delta.

What can you say is your achievement as an oil executive?
Firstly, I didn’t think that the government would ask us to go after all we were doing and I thought that they appreciated work that we were doing, but then I realized that politics is a different ball game , when they make political decisions they do not look at any other considerations. I quite understand that now but I haven’t put my hands down. I believe that being a private person, as I am now and working with the private sector, some of the ideals that I visualized can still be achieved. I love agriculture and when I found a large rice farm in my wife’s place, Bida in Niger State, went for it. I have built a rice mill there and that occupied me after I left the government. After a while, Tony Elumelu, Chairman of Transcorp, dragged me out of that and asked me to help him reform Transcorp Energy, so I decided to go into it; revive its oil and gas activities, go into power and some of the projects that I dream about. Transcorp is providing me the platform to try to achieve some of these and I think I am happy with it.

Do you have anyone that inspires you in the oil and gas industry?
My number one mentor is Dr. Edmond Daukoru who was minister of energy at that time and he is one of the “gurus” of the oil and gas sector. Eric Vollebregt, a white man is another who inspires me, he is one man who knows very well, to the best of my knowledge, how to convert oil to money, he was my boss at Shell and I think I cherish the years I worked with him (1997-2000) and those were the years when I converted from an oil and gas explorer to an oil and gas economist.

Let’s talk about your family briefly, who have contributed to your success in the oil and gas industry?
I have an adorable wife whom I met during my service year in 1977 at Ibadan, Oyo State. She was a young girl from the north and she excited me with her quietness (you know the northerners are not loud people), but it was a very difficult thing for me to tell my family members at that time that I wanted to marry someone from the north and for her to tell her parents that she wanted to marry from the east, but we pulled it through. My wife is a big supporter and a prayer warrior for me. We have five children and God has blessed them. I don’t know what I would have been without them.

*This interview was culled from Research Intelligence.

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  • Mr. Tony Chukwueke is an oil technocrat of repute. The Nigerian oil industry can use input from intellectuals of his repute and standing.