$163b oil, gas projects abandoned over investor apathy
Nigeria’s oil and gas sector is facing a dismal future as projects worth over $163 billion remain in limbo amid worsening investment drought.
The development, which has already created a booming market for other smaller and emerging oil and gas countries in Africa might not only quash Nigeria’s leading role in hydrocarbon on the continent, but also undermine its oil reserves, production projection and create job losses.
President Muhammadu Buhari, meanwhile, declared yesterday that had Nigeria followed its own programme for exploiting gas reserves, the country would have been earning more money from the product than it does from petroleum.
He disclosed this when he hosted the Special Envoy to the President of Equatorial Guinea, Teodoro Obiang Nguema Mbasogo, at State House, Abuja.
The Envoy and Minister of Mines and Hydrocarbons, Gabriel Mbega Obiang Lima, had brought a message from his principal on the forthcoming meeting of Heads of State of gas exporting nations, which Equatorial Guinea would be hosting.
“We share a lot of things in common with Equatorial Guinea. These include geographical neighbourliness and neighbourliness in terms of resources. Nigeria is more of a gas-producing, rather than oil-producing country. That fact had long been established. If we had followed our own plans, laid out in the 1970s, for the gas sector, we should have had 12 trains by early 1980s, instead of being on just six trains now.”
But the recent signing of the Production Sharing Contract (PSC) bill into law by Buhari jolted many International Oil Companies (IOCs) who felt their concerns were not considered before the bill was signed.
Indeed, the Nigerian National Petroleum Corporation (NNPC), which has stakes in most of the projects alongside IOCs, seemed unclear on their current state. It has been unable to ascertain the future of the investments, which would have increased the nation’s oil reserve to about 40 billion barrels; daily production to around three million barrels and fast-track domestic utilisation of gas-to-power in households and industries.
Minister of State for Petroleum Resources Timipreye Sylva had said Final Investment Decisions (FIDs) on at least four key projects within the nation’s oil and gas industry would be delivered before the end of this year. Similar promises by his predecessors however yielded no meaningful results.
Stakeholders, who raised concern over the inability of the current administration to reach FIDs on a single critical project five years after taking office, raised the alarm over the failing investment climate, which is already forcing oil firms to divest their interests.
With the volatility in the industry, the concern for most stakeholders is that changes to the global economy, oil and gas prices, capital expenditure and other germane factors could undermine the projected economic value of the projects.
Many projects, for instance, are still at the planning stage or bogged down by legal hurdles years after initiation. They include Shell’s Bonga South-West and Aparo, which is expected to add about 225,000 barrel per day (bpd); Bonga North (100,000bpd); Eni’s Zabazaba-Etan (120,000bpd); Chevron’s Nsiko (100,000bpd); ExxonMobil’s Bosi (140,000bpd); Satellite Field Development Phase Two (80,000bpd) and Ude (110,000bpd).
These projects are estimated to cost around $100 billion, boosting the nation’s production by as high as 875,000 bpd and revenue by about $1.5 billion.
The Ajaokuta-Kaduna-Kano (AKK) pipeline, a 614 km-long natural gas stretch developed by NNPC at $2.8 billion and scheduled for commissioning in 2020 is yet to commerce, though NNPC originally announced tenders for its development as far back as July 2013.
Also mired in obscurity are the $20 billion Brass LNG project in Bayelsa State; the $9.8 billion Olokola LNG in Ogun; the 5000 km Nigeria-Morocco offshore gas pipeline which in current market price would cost an estimated $20 billion; and the expansion of LNG Train-7 plant, a Nigerian Liquefied Natural Gas project, expected to attract $10 billion in FDI.
With new discoveries and investor-friendly policies in neighbouring countries like Mozambique, Ghana, Niger, Uganda, Kenya, Senegal, Mauritania and South Africa, Nigeria is fast losing its attraction.
For instance, while most gas projects are idle in Nigeria, Mozambique with its Coral Floating LNG project is at the verge of becoming the world’s largest gas producer with an estimated $128 billion flowing into the country’s gas sector alone before 2025.
While the Federal Government is looking to recover as much as $62 billion from IOCs due to a 2018 Supreme Court ruling on PSCs, which was amended few weeks ago, Total is reportedly seeking to sell its 12.5 per cent stake in a deep-water oilfield over attempt to expand into other Africa countries. Received with mixed prospects by some stakeholders, there have been indications that ExxonMobil, Shell and Chevron might divest upstream assets in the country.
One of the oil majors, in an interview with The Guardian, said the firm was yet to take a final investment decision on the over 200,000bpd project because it was concerned about Nigeria’s regulatory environment. According to the operator, fiscal stability is key to attracting investments in the country and the investment climate needs to be able to magnetise capital.
Principal and Executive Director, Kaptepia Capital, Tosan Omatsola, said the identified projects were capable of spurring the economy and generating employment for Nigeria’s teeming youths. He urged the Federal Government and regulatory agencies to address drawbacks to the growth of investments in the country and unveil incentives to encourage investors to the sector.
The Chief Executive Officer of an indigenous oil-servicing firm, Mudiame International Limited, Sunny Eromosele, said: “Most of the investment package that this administration met has not taken off for the past five years. The attitude of government is irresponsible, especially pushing companies away in the name of revenue generation.”
He regretted that investors’ confidence has been lost in the oil sector as a result of uncertainties, insecurity and unfriendly business environment. According to him, the current administration might cripple the sector before realising the implications of its inaction.
But Dr. Adeoye Adefulu, Partner and Head of Odujinrin & Adefulu’s Energy Practice, Real Estate, and Mining Teams, is optimistic that the recently amended PSC Act could reinvigorate the projects, particularly in exploration and production. He said a lot of factors that could have propelled private sector players to take quick decisions on some of the project are yet to be addressed, adding that the government must muster political will.
The chairman, International Energy Services (IES) Ltd., Diran Fawibe, said: “I am not saying government could not do much, government needs to wake up especially in engaging the oil companies. Government needs to draw the companies closer. There is the need for government to continuously have dialogue with the oil companies, especially now that there is competition. There are other places of opportunity for investment.”
A former top management member of the NNPC, Fawibe said it was worrisome that the companies were divesting because of the challenges they were facing in the country. He complained that government, rather than finding ways to deal with the problems, was compounding them.
He insisted that the Federal Government must strike a proper balance to curb its excesses and that such development would force the companies to divest.
On his part, Habeeb Jaiyeola, PricewaterhouseCoopers’s Associate Director, Energy, Utilities and Resources, said: “It is very important that government’s decisions are executed in a time frame that can bring needed economic value because when they are not done, the changes to the global economy, prices and capital expenditure and other things required on each project will affect the commissioning of the projects.”
Efforts to get reactions from NNPC were unsuccessful, as email, phone calls and messages sent to the spokesperson, Samson Makoji, were not replied to.