25 September 2016, Abuja – Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, within the week disclosed that there were certain actions Nigeria would have to take to reclaim the competitive edge she once had in the global oil and gas industry. Chineme Okafor in this report takes a look at the options he proffered
A report from the News Agency of Nigeria (NAN) had during the week quoted Nigeria’s Minister of State for Petroleum, Ibe Kachikwu, to have identified seven key strategies the country would need to adopt and undertake to boost the fading competitive edge of her petroleum industry by 2019.
According to the report, Kachikwu indicated that Nigeria was undergoing a very difficult time in her oil and gas industry, and would have to be proactive to rebuild her competitiveness in the global oil industry, as well as become a net exporter of refined petroleum products as planned by 2019.
Represented by his Senior Technical Adviser, Johnson Awoyemi, the minister said at the quarterly presidential meeting between Nigeria’s private sector operators and the government’s Economic Management Team (EMT) in Abuja that sustaining peace and security in the oil-rich Niger Delta region was crucial to helping Nigeria’s oil industry regain her competitiveness.
He mentioned policy and regulation, business environment and investment drive, transparency and efficiency, stakeholder management and international coordination as crucial to this, and which his ministry was concerned about.
He also stated that pivoting into gas through a gas revolution plan as well as increasing the country’s refineries capacity and local production was important in this plan.
Kachikwu explained that the country’s unstable production levels were going to be an impediment to her plans to grow the industry.
He said: “Oil and gas will drive diversification but the drop in oil production to 1.56 billion barrels per day from the annual estimate of 2.2 billion barrels per day will negatively affect growth.”
While underscoring the need to improve socio-economic investments in the Niger Delta region, ensure peace in the region by stopping militancy, and enhance the country’s oil and gas production levels, Kachikwu said that a lot of companies in the sector were indebted to Nigeria in payment of royalties.
He disclosed that companies operating in the region were in default of about $4 billion royalties’ payment to the country owing more to downtown in production from their oil fields.
According to him, Nigeria needs to urgently move things around for policies on oil, gas, downstream and fiscal reform to take root.
He added that the proposed petroleum industry bill (PIB) had become very imperative and the country should hasten its passage.
In retrospect, the Senate President Bukola Saraki had recently opined when the senate resumed from their vacation that the seeming foot-dragging of the country’s ruling class in the passage of the PIB was hurting the oil industry in a very great way.
Kachikwu also pointed out that such challenges in the country’s oil and gas sector had contributed to the recent drop in the nation’s Gross Domestic Product (GDP) growth from six per cent to four per cent. He noted that this had led to shortage of funds to build critical infrastructure.
While current analysis suggests that across the globe, oilfield decline rates range from 4.5 per cent to 6.7 per cent per year, Kachikwu reportedly explained that Nigeria has a 29 per cent decline rate in oil production, amounting to the loss of an average of 700,000 million barrels per day (mbpd) of oil.
He noted also that the country had a 32 per cent decline rate in gas production from 8,000 million cubic feet per day (mscuf/d) to 5,500mscuf/d.
Usually, production decline and disruption are either caused by socioeconomic events or reserve depletion. In cases of a socioeconomic induced production decline which is also termed ‘above-ground’ constraints, parties may, with proper measures, resolve it. However, a depletion-driven decline which is often intrinsic and involves ‘below-ground’ physical constraints, may be difficult to alleviate.
Kachikwu in this regard said that up to 3,000 pipeline vandalism incidents were recorded from 2010 to 2015 – a space of five years, while 643 million litres of petroleum products amounting to N51.28 billion was lost in 2015 alone.
He explained that between January and June 2016, his ministry recorded 1,600 vandalism incidents despite efforts to boost local production and refining of products by the country’s refineries in Kaduna, Warri and Port Harcourt.
“Until we are able to locally refine what we produce, we won’t be able to go forward.
“It is the plan of the ministry that by 2019 the country has to export Premium Motor Spirit (PMS),” Kachikwu stated while requesting investors to embrace the government’s policy to create modular refineries.
He equally noted that some successes were recorded in the oil and gas sector since November 2015. These, he said, included the elimination of subsidy payments and savings of N15.4 billion monthly for the government.
According to him, plans were on to increase Nigeria’s oil production to 1.8 million barrels per day by October and to two million barrels by December. That way, the country may begin to regain parts of the competitive edge it has lost to countries like Angola which has effectively overtaken it as Africa’s top oil producer.
But responding to this, energy and business re-engineering expert, Dan Kunle, told THISDAY that the minister’s proposals were quite ambitious but would need government to take the right steps to move them from the drawing boards to reality.
Pointing to the refineries and their near-dead status, Kunle said governments of serious economies across the globe had really moved away from being managers of businesses to becoming facilitators of economy-changing ventures.
He noted that the Nigerian government should cease from being a clog in the progress wheels of the petroleum industry, adding that its chronic failure to meet cash-call obligations in its joint venture businesses with international oil companies had proven its inefficiency in being in businesses.
Kunle also said that the government had done very badly in regulating the country’s downstream oil industry, as well as its gas market. He asked that deliberate policies to move the country’s critical sectors away from government’s unfavourable controls should be pursued for an inclusive economic to take place in the country.
“Just consider the fact that Dangote, who the government refused to allow refurbishing the country’s refineries some years back when it was privatised, is now building his own refinery. When that refinery is completed, it’s capacity will surpass that of the three refineries we have in the country, meaning that he will most likely meet all of our daily demand for refined petroleum products,” said Kunle.
- This Day