The oil and gas sector can best be described as the bride of the Nigerian economy, thus if it is well nurtured it can be so fruitful that the spin-offs is expected to transform it to the much anticipated, ‘Giant of Africa,’ axiom.
Unfortunately, despite this key role the sector is expected to play, it has over the years failed to meet the yearning of many ordinary Nigerians in terms of playing the pivotal role of economic transformation and development of the country. Perhaps it will be very important to explain why the sector is key to the economy, first, the petroleum industry otherwise referred to as oil and gas sector is a huge foreign exchange earner. This it does by the sales of the raw product crude oil and natural liquidity gas at the international market.
In this aspect, the country in the year 2018 can be said to have done fairly well as data from the National Bureau of Statistics (NBS) indicates that as at the third quarter of the year the sector remains the higher foreign exchange earner, contributing close to 87 per cent in revenue but less than 9 per cent in gross domestic product (GDP). By implication while the sector contributes the bulk of the country’s revenues due to the export of the raw product, the domestic economy is not impacted that much because of its inability convert the commodity locally to finish goods by way of refining or transforming such to energy generating product to drive production in other sectors. Secondly, the failure in terms of local transformation of crude oil and natural gas to value adding products had serious negative impact on the downstream sector of the nation’s petroleum industry during the period under review.
In simple terms, this is basically why the sector was not able to contribute meaningfully to GDP during the year. Review of Midstream & Downstream Nigerians will not forget in a hurry, the unpalatable experience of Yuletide season of 2017 and early 2018 caused by the absence of petroleum products, Premium Motor Spirit, otherwise called petrol to be precise. Confronted with the multiple challenge of none-functional refineries, government regulation of petrol pump prices as well as hike in exchange rate of Naira to the Dollar, by October 2017, the importation of the product became the sole responsibility of the Nigerian National Petroleum Corporation (NNPC).
Not only was the corporation battling the importation of the product which services as a drive to the economic engine of the nation the absence of distribution infrastructure occasioned by vandalism and outright sabotage in the form of product diversion on the part of some nefarious marketers, led to the emergence of long queues in major cities across the country between January and February 2018. Acknowledging the enormity of the fuel queue crisis as at the eve of Christmas last year, the Group Managing Director of NNPC, Dr. Maikanti Baru, said he expressed empathy and strong solidarity with members of the public over the lingering challenge in accessing petroleum products across the country, pointing out that the corporation had reeled out multiple measures to end the unfortunate situation before the end of the year.
Baru who addressing journalists at a media briefing in Abuja, said measures were already in place to bolster the fuel supply and eliminate the extraneous factors that have led to the persistent petrol queues. According to him, prior to the meeting, NNPC had jerked up the national truck capacity to an average of 1,500 trucks, translating to 52 million litres per day which is much higher than the normal consumption of 850 trucks per day across the various depots in the country. He added that the Corporation had also enforced a 24-hour loading and sales operations in all depots and NNPC Mega Stations across the country while marketers have been instructed to do same.
The Corporation also constituted what it called, Fuel War Room comprising of team members from the NNPC, the Department of Petroleum Resources (DPR), Petroleum Products Pricing Regulatory Agency (PPPRA), and Petroleum Equalisation Fund (PEF), with support from the security agencies to ensure effective products penetration across the length and breadth of the country.
These measures did not yield much result as the situation persisted until early March when the queues abated across the country. Meanwhile details of how the Corporation, which to date remains the sole importer of petrol show the deployment of combination of options which includes, changing the structure of product supply, that is the replacement of its offshore processing and crude swap arrangement with direct sales direct purchase scheme, price modulation and provision of FOREX to pre-qualified third party oil marketing companies to import finish products.
However, in trying to resolve the fuel import challenge which is caused by the near absence of local refineries fresh problems has been created due to government’s decision to fix the pump price of petrol at N145 per litre. Does keeping price fix when NNPC imported finished products when the global price of crude is rising led to a situation where there is a difference between the landing cost and the cost of sale. While the different terminology such as subsidy, under recovery is used to classify the gap between landing cost and the retail pump price, the sources of the funds deployed to mitigate the difference remains a controversy. For instance the Petroleum Products Pricing Regulatory Agency (PPPRA), confirmed in one of its reports in May 2018 that without the government subsidy, the price of petrol could have been as high as N205 per litre in the domestic market.
According to PPPRA, the price of the commodity appreciated by 8.47 per cent from N189 per litre recorded in April 25, 2018 to N205 per litre as at May 16, 2018. Currently, the two arms of the national assembly are engaged in the probe of $1.05billion Nigeria Liquefied Natural Gas (NLNG) dividend said to have been used by NNPC to support the importation of petroleum products into the country. Worst still, in what appears to be a recurring decimal, as Nigerians approach the end of 2018, oil marketers under the aegis of Depot and Petroleum Products Marketers Association (DAPPMA) threatened shut down of its facilities due to government’s failure to settle outstanding N800 billion subsidy payment. But what can best be described as a temporary respite midnight Monday 9, December when DAPPMA announced the suspension of shut down order and gave a five day grace notice.
Refineries One of the greatest tragedies that has bedeviled the nation’s downstream sector is the non functional existing four refineries with a combined production capacity of 445,000 barrels per day (bpd). Up until recently, the term ‘turnaround maintenance’ became an annual incident in the lives of these refineries but never worked to 50 per cent capacity after such exercises that usually gulped huge sums of money. For instance according to the NNPC only the Warri Refining and Petrochemical Company (WRPC) Limited, got all its process units running at over 70 per cent unit throughput during the year, this is even as industry experts question the authenticity of this figure.
However, all hope is not lost as the NNPC says plans are near completion on rehabilitation of the four refineries, using a Project Financing Model with private sectors investing in the restoration of the refineries through their Original Refinery Builders (ORBs) to ensure that they operate at optimal capacity. According to recent reports, negotiations for the funding of detail scoping and early works by the ORBs are near progressing significantly and expected to be concluded before the year runs out. To ensure efficient management of these refineries when rehabilitated, NNPC says a blueprint for a new operational and marketing model, that the refineries operate as standalone self-funded profit oriented business entities.
During the year under review, the Ministry of Petroleum Resources and its agencies and parastatals made some frantic efforts towards ensuring that the nation transform from being a net importer of petroleum product. According to reports obtained from the Department of Petroleum Resource (DPR), the industry regulator, the agency granted various stages of approval to five refinery projects during the year. They include, two Approval to Construct (ATC), one License to Establish (LTE), one Detailed Engineering Design Approval (DEDA) and one Approval to Relocate.
As at the last count over 39 modular refinery licenses have been issued and according to the minister of state for petroleum resources, Dr. Ibe Kachikwu, by the first quarter of 2019 two of these refineries are expected to commence operations. As part of efforts to fast-track the process, the Nigerian Content Development and Monitoring Board (NCDMB) in line with its vision of being a catalyst for the industrialisation sector, signed an agreement for 30 per cent equity investment in Waltersmith Refining and Petrochemical Company Limited for the establishment of 5,000 bpd modular refinery in Ibigwe, Imo State. The foundation of project was laid in October by Dr. Kachikwu and a 18 months completion date target was set. During the year, the government also re-launched the construction of a Greenfield refinery and crude oil pipeline from Niger Republic to Nigeria.
Both countries signed a Memorandum of Understanding (MoU) in Abuja on 23rd July, 2018 alongside the inauguration of a Technical Committee and a Steering Committee who are currently working to supervise the conceptualisation and implementation of the project. It is however important to point out that many industry experts are of the opinion that until the downstream sector is fully liberalised the challenges perennial fuel crisis may persist even when the much talked about Dangote Refinery comes into full operation.
Kachikwu further confirmed this position last Thursday when speaking with journalists in Abuja, at the presentation of the key achievements of the Ministry of Petroleum Resources in three years, 2016 to 2018 and award to staff of the ministry. The minister argued that to address fuel supply challenges, the country needed to find a way to satisfy the need to provide products sufficiently for the populace and at the same time to be able to free the sector for growth. Experts say unless the economics are right, investors may be committed to investing in the sector. Therefore Nigerians should not be surprised if the sector is liberalised between now and the mid 2019. Gas The Federal Executive Council during the year approved and gazette the National Gas Policy, the document provides clarity to both investors and government officials with respect to the management and exploitation of nation’s abundant gas resources.
In addition, the Flare Gas (Prevention of Waste and Pollution) Regulation 2018 was signed gazette and implementation is said to have been fully commenced. The regulation emphasises the gas flare commercialisation. However, the sector has two main setbacks that had hitherto hindered its growth and development. These are infrastructure development as well as gas pricing in the local market which is said to have remained the obstacle of the gas to power initiative. But in what appears to be a bold step to turnaround the NNPC successful secured financial assistance from China for the execution of the Ajaokuta-Kaduna-Kano (AKK) gas pipeline project in 2018. The project would enable gas supply and utilisation to commercial centres in the northern corridor of the country.
Similarly, the government initiated a study on gas pricing with the aim of ensuring adequate and steady supply of gas for power generation as well as an update of new gas pricing regulation to support gas industrialisation. In June 2018, the country signed MoU with the Kingdom of Morocco on a regional pipeline that will supply gas to most of West African countries and extend to Morocco and Europe. In addition NNPC, Shell, Total and Eni signed the Front End Engineering Design (FEED) contract of Train 7 of the Nigeria Liquefied Natural Gas Ltd (NLNG) in London in July.