06 Jul 2020

‘We must do things differently to turn COVID-19 to opportunities in oil industry’

The Director, Department of Petroleum Resources (DPR), Engr. Sarki Auwalu, in this interview speaks on the current volatility in the global oil market and the ongoing bidding rounds for marginal oilfields, the Gas Network Transportation Code and other initiatives being undertaken by the department to grow nation’s oil and gas industry.

The oil industry is going through some turbulence over the past few months. Do you foresee any immediate return to normalcy in the industry?

The global oil and gas industry is, indeed, facing challenging times.  However, the industry is noted for its resilience and ability to navigate tough times. Like the saying goes, tough times don’t last; tough people do’.  Oil has proved tough in the course of its many decades of exploitation. The industry has emerged through a series of global political and economic turmoil that characterises modern history of the industry since the 19th century – from the great depression of the 1930s, oil gluts, recessions, energy crises, and, more recently, the global financial crisis of the 2000s. The survival of oil is connected with its unique combination of attributes – sufficiency, accessibility, versatility, ease of transport and, in some cases, low cost of development. Prior to onset of the raging turbulence caused by the coronavirus pandemic, the industry has been challenged recently by the global financial crisis and recessions, crude oil oversupply accelerated by shale revolution, oil price war and drive to control market share, to mention a few. These challenges are compounded by the already pervasive impact of alternative energies and climate change campaign in the oil and gas industry.

In simple terms therefore, Nigeria’s oil and gas industry will emerge from the COVID-19 era stronger. However, we must do things differently. The pandemic has brought up ‘new normal’ and indications are that the virus may be with us for some time to come. We thus must prepare to live and work around COVID-19. For a fact, there is reason for confidence that the industry will survive through COVID-19. Today, we see the gradual pick-up of economic activities. Many indicators suggest that the worst may be over as global energy demand grows with economies gradually reopening.  Oil and gas prices are also pointing northwards following the price shock of the April 2020 at the heat of the lockdown.  The industry is adapting to new ways and methods for doing business. Innovative work methods and processes have also emerged. Use of online resources, work tools and media have gained grounds over face-to-face meeting.  Thus, we can say that the challenges of COVID-19 have created new opportunities. This is an era for strategic partnership and collaboration.

The Nigerian industry is bedevilled with lack of non-functional synergies and legal tussles which is militating against the development of many assets.  For example, a number of the marginal fields awarded in 2003 and Oil Prospecting Licences issued in 2005, 2006 and 2007 have underperformed due to legal encumbrances, among other reasons.

What would you say are the benefits of the Gas Transportation Network Code to Nigeria’s economy?

Let me first give you an overview of the Nigeria Gas Transportation Network Code, or simply Network Code. The Network Code is a set of rules that guide the operation and use of the gas transportation system in Nigeria. The Code will ensure fair and non-discriminatory open access to the gas transmission network systems in order to promote competitiveness and drive economic growth in line with the aspirations of government for the sector. All network players, including gas suppliers, transporters, shippers and agents, are being licensed to operate in line with the code. As you may be aware, following the declaration of the 2020 as ‘Year-of-Gas’, the Network Code was launched by the Hon. Minister of State, Petroleum Resources on February 19, 2020 and the minister issued directives for full implementation of the Code within six months of launch.

So, we are working to meet the Ministerial target and I recently inaugurated Industry committees to fine-tune our modality in readiness for implementation. Now to answer your question: The Code will promote investment in midstream gas infrastructure which is an essential missing piece in our drive to grow domestic supply of gas and the development of Gas Based Industries (GBIs). GBIs are very critical to job creation, economic growth and revenue generation.  You will recall that Mr. President, in his January 1st 2020 speech addressed the critical need for GBIs as part of measures to lift 100 million Nigerians out of poverty. The president in that message also highlighted the need for critical gas infrastructure which the current drive to complete the Escravos-Lagos Pipeline System (ELPS) expansion, Obiafu-Obirikom to Oben (OB3) Pipeline and the Ajaokuta-Kaduna-Kano (AKK) Pipeline will help address.  The implementation of the Network Code will help us achieve critical imperatives of gas development and thus promote the Gas-To-People Agenda, to ensure that the benefit of Nigeria’s abundant gas resources (203 Trillion Cubic Feet (TCF) in proven reserves) is felt by 200 million Nigerian shareholders.

 

Where are we exactly on the marginal oilfields bid? Could you give us the latest information on it and the guidelines to participate in the bidding round etc.?

The marginal fields bid round exercise started on 1st June 2020 when the Department of Petroleum Resources, on behalf of the Federal Government, announced the commencement of the process which was well-publicized. So, the process is live and progressing according to schedule. We are currently at the Expression/Registration of Interest stage which is billed to end 21st June 2020 following three weeks of opportunity we availed to potential investors to register for the program. Thereafter, all pre-qualified companies, who will continue in the process, will be availed the list of the marginal fields on offer across land, swamp and shallow offshore terrains. The next phases of the process include data prying, leasing, purchase of reports, payment of applicable fees and submission of Technical and Commercial Bids. The entire process is managed electronically via an online portal to ensure service delivery and efficiency. In addition, there is a dedicated response centre through DPR Enquiry Management System and 24hrs call centre to assist potential investors get through the application process seamlessly.

How can Nigeria implement the oil production cut agreement without affecting its economy?

The falling global oil demand has led to a slowdown in most economies around the globe. In response, OPEC (and Non-OPEC participating countries) agreed to production cuts to stabilise the oil market at the 10th (Extraordinary) Ministerial Meeting. Nigeria has accepted its volume reduction and implementing same accordingly. However, the question arises whether the production cut is based on commercial volume or on underground withdrawal from producing wells extracted.  DPR issues the bi-annual Technical Allowable Rate (TAR) for all producing wells in the country.  And this is the instrument used to assign underground withdrawal rate from producing wells and thus allocate production ceilings to crude streams and scheduling liftings accordingly, subject to technical and commercial considerations. We implemented the production cuts strategically to ensure that impact on the revenue accruable is cushioned. For example, we decided to reduce production in areas with higher costs and maintain our production volume in fields that produce at relatively lower costs. This approach has allowed the country’s production to establish an equilibrium with respect to income and optimise Government take as opposed to applying the reduction equally across board. This is addition to other technical considerations provided in the relevant Petroleum Laws and Statutes.  As a responsible member country of OPEC, Nigeria is committed to honour the agreed cuts in order to stabilise prices and attract much needed investments in the industry to assure security of global energy supply in the long run.

This can be seen in our national production figures starting in May 2020. However, I want to point out that condensate production is not impacted by the OPEC restrictions.

What do you think Nigeria could do to attract new investments into the oil industry?

Government is committed to guarantee that Nigeria remains one of the top destinations for investments in the Industry. The nation is therefore working to improve investment climate, entrench transparency, respect sanctity of contracts, and providing clarity on legislative and regulatory matters. Oil and gas is the engine of the Nigerian economy similar to what obtains in many countries; hence the need for Foreign Direct Investment s (FDIs) inflows to stimulate growth.

As a country, I believe that the giant in Nigeria will be awakened when we open up new opportunities for investors. Investors should come to Nigeria now because the DPR has incentivised participation in the industry. We authorised a great deal of projects that fell through in recent years some of which include expansion of the Indorama Eleme and Notore fertilizer plants to support Government’s diversification agenda. Also, the Dangote Refinery, Fertilizer and Petrochemical Plants and other major capital projects are at various stages of construction. We further authorised projects such as Bonga South-West Aparo, Assa North-Ohaji South Gas development project, NLNG Train 7 project as well as several Modular Refinery projects, some of which are about to be commissioned to further guarantee domestic product supply. In addition to the NGTNC, the Department has provided other opportunities for investments such as the ongoing Nigerian Gas Flare Commercialisation Programme (NGFCP) whereby third-party investors will be granted access to flare sites for monetisation. The ongoing Marginal field programme is another game- changing opportunity opened up to indigenous companies who will in turn partner with other investors to develop the assets.