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From the Editor-in-Chief

Ibeneche

Egbogah

Talking tough on oil and gas In June 1956, the first oil well drilled 12, 008 feet beneath the earth in Oloibiri, a small town in the delta region of Nigeria, marked the birth of the oil and gas industry in Nigeria. Since then, the industry has grown to contribute over 90 per cent of Nigeria’s GDP. In recent times, we have seen the emergence of indigenous companies in the industry with growing technological capacity and competence. We have also seen the country’s successful entry into the world’s liquefied natural gas (LNG) market with Nigeria LNG Limited. Nigeria LNG has grown to a major world class, reliable and safe supplier of LNG to the world. Two more LNG companies, Brass LNG Limited and Olokola LNG (OKLNG) are coming on the heels of Nigeria LNG Limited. These are developments we are very proud of. Combined production capacity will put Nigeria in the top echelon of LNG producing countries. The flip side of these developments is the many social issues that have sprung up as the industry grew. Words like “unrest”, “agitation”, “militant”, and “amnesty” have become commonplace in Nigeria’s everyday conversation. Corporate Social Responsibility has also found new meanings here. But, in spite of these, and the challenging operating environment, there are lots of growth initiatives in the industry that keep our hopes high about the future. New policies and operating laws are being worked out to support this planned growth in the industry. In this special edition of NLNG The Magazine, as we take stock of activities in the nation’s oil and gas industry, there are many questions on our minds. And where else to go for answers than to the best minds in the industry. We bring the decision makers in the Nigerian oil and gas industry closer to you as they proffer answers to these questions, and speak confidently on the state and the future of the industry. Have a pleasant read. Siene ALLWELL-BROWN

CONTEN NLNG - The Magazine is the corporate magazine of Nigeria LNG Limited. The views and opinions within the magazine however do not neessarily reflect those of the Nigeria LNG Limited or its management. Editor-in-Chief: Siene Allwell-Brown Managing Editor: Ifeanyi Mbanefo Deputy Managing Editor: Mohammed Al-Sharji Editor: Yemi Adeyemi Deputy Editor: Elkanah Chawai Writers: Eva Ben-Wari, Ophilia-Tammy Aduura, Anne-Marie Palmer-Ikuku, Dan Daniel All Correspondence to: Yemi Adeyemi, Editor, NLNG The Magazine, Nigeria Limited, C & C Building, Plot 1684, Sanusi Fafunwa Street, Victoria Island, PMB 12774, Lagos, Nigeria. Phones 234 1 2624190-4, 2624556-60. e-mail: yemi.adeyemi@nlng.com, www.nigerialng.com Editorial consultancy, design and production: Magenta Consulting Limited, 1 Joel Ogunnaike Str., GRA, Ikeja, Lagos. Tel: 234 1 7360830, 234 1 07023236001. e-mail: info@magentaconsult.com, web http: //www.magentaconsult.com

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Sunmonu

NTS

Coker

Molinard

Cover Oil & gas in 55 years ............................................................................ 4 The next level: Nigerianisation ............................................................ 5 Changing the game plan ...................................................................... 12 Growth = good climate+ investments ..........................................

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OKLNG: Still on course......................................................................... 24 Gas, vector of development ................................................................. 26

Photos The die is cast

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Repositioning for prestige .................................................................. 31 NLNG - The Magazine

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FOREWORD

Oil & gas

in 55 years

BY YEMI ADEYEMI & ELKANAH CHAWAI

By many standards, Nigeria is a rich nation. From the oil and gas perspective, the country could be described as extremely wealthy. Estimates by the United States Energy Information Administration (EIA), put the country’s proven oil reserves at 16-22 billion barrels (3.5×109 m3). However, unverified sources claim there could be as much as 35.3 billion barrels (5.61×109 m3). Currently, with a daily output of about 2.6 million barrels, Nigeria, in addition to being Africa’s most affluent country, is rated as the world’s 10th oil-richest nation. Nigeria is also blessed with massive reserves of associated and non-associated gas, estimated in excess of 170 trillion cubic feet. The country is ranked among the 10th largest producers of proven natural gas reserves in the world with a production capacity estimate of 109 years. Geological estimates indicate that the untapped natural gas reserves in the country are enormous. It is generally believed in many circles that, put together, Nigeria’s natural gas reserves exceed 187 trillion ft³ (2,800 km³) - three times more substantial than crude oil reserves. Sadly, the bulk of these reserves is flared off and conservative estimates indicate that the nation loses US$18.2 million daily from gas flaring. Unarguably, the nation’s biggest natural gas initiative is the Nigerian LNG Limited (NLNG), jointly owned by NNPC, Shell, Eni and Total. It began production in 1999. Other LNG projects expected to come up soon include the Brass LNG Project and OKLNG project. Meanwhile, Chevron is creating the Escravos Gas Utilization Project with an expected production capacity of 160 million standard cubic feet of gas per day. Also in the works is the West African Gas Pipeline, which unfortunately, has encountered numerous setbacks. When it comes on stream, the pipeline would allow for transportation of natural gas to Benin, Ghana, Togo, and Cote d’Ivoire. Oil and gas exports account for more than 98 percent of Nigeria’s export earnings, forming at least 83 percent of the federal government revenue, and generaing more than 40 percent

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of the country’s GDP. Oil and gas exports also provide 95 percent of the nation’s foreign exchange earnings, and about 65 percent of total government budgetary revenues. These, among other factors, account for the reference to the nation’s oil and gas industry as the nation’s cash cow. However, records show that the potential of gas exploration would be even more attractive if only the exploration companies operating in the country would dedicate their activities fully on gas exploration, rather than the current practice of tapping gas as a by-product of crude oil exploration.

Birth of the industry

The discovery of oil in commercial quantity in 1956 by Shell-BP heralded the birth of the Nigerian oil and gas industry. However, a German company, the Nigerian Bitumen Corp. had begun oil exploration activities way back in 1908. The company operated in the Araromi area of the present day Ondo State, 200 km east of Lagos, commercial capital of Nigeria. The beginning of World War I in 1914 forced the company to abandon its dry, shallow wells. In 1936, Shell D’Arcy was granted sole rights for exploration of hydrocarbons across the country. Prospecting began in 1937 but Shell’s activities were interrupted by World War II. In 1947, less than two years after World War II ended, Shell teamed up with British Petroleum to form the Shell-BP unit of Nigeria. This group discovered oil in 1956 at Oloibiri in the Niger Delta and production began in 1958 at the rate of 5,100 b/d, the bulk of which was exported. Later, the group realised that pay zones lay below 1,500 metres. In 1960 when Nigeria gained independence, a new government in Lagos limited the group’s concession area. Other companies were invited to participate in the oil exploration process. These companies were offered onshore and offshore blocks. By 1961, Mobil, Agip, Gulf Oil (now Chevron), Safrap (now Elf), Amoseas (now Texaco/Chevron), Tenneco and others had begun exploration activities onshore and offshore. Most of these companies subsequently emerged to be very successful in offshore areas. Shell Group, in particular, had the best onshore fields. Overall, the pace of oil discoveries picked up in subsequent years. Shell continued to team up with other companies. BP left the country but returned in 1993, 15 years later to signed an agreement with Statoil for PSAs to explore deepwater prospects.

Operations and Regulations

Until 1960, government’s participation in the oil industry was limited to regulation and administration of fiscal policies. In 1971, Nigeria joined OPEC and in line with OPEC resolutions, the Nigerian National Oil Corporation (NNOC) was established. In 1977, NNOC metamorphosed into the Nigerian National Petroleum Corporation (NNPC). As a parastatal, NNPC and its subsidiary companies controls and dominates all sectors of the oil industry, upstream and downstream. In certain OPEC member countries, the national oil companies (NOCs) took direct control of production operations, but in Nigeria, the Multinational Oil Companies (MNOCs) were allowed to continue with such operations under the Joint Operating Agreements (JOAs) which clearly specified the respective stakes of the companies and the Government of Nigeria in the ventures. Today, the JOAs account for over 90% total oil and gas production in Nigeria. The emergence of offshore oil and gas operations and the granting of deep water acreages to the oil producing companies have, however, witnessed a shift from JOA regimes to Production Sharing Contracts (PSCs), with implications for the operation and regulation of the oil industry in Nigeria. This shift is attributable to a number of factors ranging from the complexity of operations in the offshore terrain, (which makes regulation under a JOA more difficult), to dwindling resources (which makes funding under the JOAs precarious for the government).

Reforms

Over the years, major reforms in the Nigerian oil and gas industry have been hinged on the much-awaited Petroleum Industry Bill (PIB). This Bill is expected to reform the oil & gas sector, especially the gas sector encapsulated in the Gas Master Plan, the downstream sector and creating several new institutions and taxes. Ultimately, the objective is the transformation of the country into the membership of the elite group of oil & gas-producing nations. Though some industry watchers describe this objective as ambitions, there is staunch belief within federal government circles that passage of the PIB is panacea to ensuring the industry yields dividends for the benefit of all Nigerians. In this special edition of NLNG: The Magazine, we present, through the best voices, different perspectives on our 55-year-old oil and gas industry.


The next level: Nigerianisation NLNG - The Magazine

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INTERVIEW WITH IBENECHE Analytical, insightful and competent. That is Chima Ibeneche, Managing Director of Nigeria LNG Limited. With over two years at the helms of affairs, he has become a house hold name in matters of oil and gas in Nigeria. And for good reasons too. He has shone like a star in ground-breaking ventures in the upstream industry which include an leadership at Shell Nigeria Exploration and Production Company (SNEPCo) where he pioneered offshore deepwater exploration in Nigeria. As Managing Director of Nigeria LNG Limited, he successfully led a management team that kept the $13 billion company, known as the single largest private investment in sub-Saharan Africa, profitable during the economic recession. Ibeneche realises that the biggest challenge is not achieving success but sustaining it. His vision is to provide the kind of leadership that ensures that NLNG’s string of success does not dry up. In this interview with Yemi Adeyemi and Dan Daniel, he gives an assessment of Nigeria’s 55 years of oil and gas production and identifies the path for further growth. It’s been 55 years of commercial oil and gas production in Nigeria and during this time, you have managed two companies in the industry. What is your assessment of development so far in the industry especially in comparison with others around the world? Nigeria is in a very unique position that we haven’t grown out of. The oil industry is where it is because it is driven by foreign miners and it is still an “island economy.” The oil and gas industry is not a “Nigerian,” it’s a foreigner operating here and, at this stage, it is a sad situation. The good story is that during the period, there has been a lot of Nigerianisation of the workforce in the industry. For instance, my position as CEO in Nigeria LNG has been Nigerianised. Many top management positions in major oil and gas companies are now occupied by Nigerians, and many competencies are going the same way too. That is a positive thing. But there hasn’t been significant indigenization of the business itself. Although, in the last few years, we have begun to see Nigerian independents become a little more visible. One would expect this to have happened 10 or 15 years ago. Companies like Oando, SEPLAT and a few others are buying acreage from Shell and other companies but this is too little and a bit too late. Even more painful is the fact that in the oil service sector, there are not a lot of significant Nigerian players, even down to things as simple as catering. So, the landscape is not great. It is not like we don’t appreciate the foreign investment, but when an economy grows, foreign investment migrates to the more difficult, high risk, high rewarding opportunities while the emerging locals companies deal with the less risk, low rewarding investments as their pathway to growth. So there should be room for both. I haven’t seen enough maturity amongst the local companies in the sector filling up the space and making the ecology of the industry balanced. I think that will be the challenge in the next 50 years. We need to grow up.

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So how do we get there? Well, things don’t just happen! There has to be a direction. I think the development of policies in the country has been haphazard in figuring out what government wants the oil industry to be. One possibility is that it could just be an extractive industry that allows government take to rent; that’s one model. Another approach to this is creating an industry that can be used to develop the rest of the economy. The biggest value from local companies doing actual work by themselves is that they acquire competence. As an illustration, I can tell you how to ride a bicycle but you would never ride a bicycle until you ride a bicycle. We have been watching foreign miners extract oil while we take the rent but it has left us with no capacity because we have not been practicing. The second biggest value is that competencies in one industry can easily be transferred to another. Shell, Total, Exxon Mobil and Chevron will not transfer these competencies to other sectors of the economy for us. Our people need to learn how to swim and then go swim in other parts of the economy. That requires a focused policy of government and we are beginning to see signs of that with the Nigerian Content Development policy that is now law. I feel that in the next five to six years, we will feel the full impact of that law. Beyond that, the industry will require a policy like what has been muted in the Petroleum Industry Bill (PIB), which will make sure that Nigerians take a stronger ownership of the industry across the board. The weakness of the Joint Venture (JV) structure we have today is that the Nigerian National Petroleum Corporation (NNPC) looks over the shoulders of international oil companies (IOCs) and the IOCs do the job. You would agree with me that NNPC has not learnt a great deal of how the job is done. They can describe how to ride bicycle but can’t ride it. There is need for change in the structure so that the bulk of the people who represent Nigeria ride bicycles by themselves and acquire competencies. We should be able to operate refineries and drive policies that will be make them efficient. These, and the commercialisation

of NNPC, are those things I think are being addressed in the PIB. The commercialisation of NNPC will give it a little more room to act as a commercial entity and, therefore, be able to do the job. If the Incorporated Joint Venture structure comes into play, it will mean that the industry will be governed by boards that are resident in country, boards that would be more in tune with the requirements of the larger economy. That way, the impact would be better for everybody. If the PIB is passed into law, it would totally change the game in the industry. How do you envisage that post-PIB environment? Well, the impact of the PIB will actually depend on what gets passed into law. The key advantage of the law is the commercialisation of NNPC. That is not something you achieve purely by writing a law, it also requires political will for the government to actually allow this to happen. The second plan that was proposed in the draft law was the incorporation of the JVs, and as the Managing Director of the only incorporated JV in the industry today, I know it will have a very positive effect. I believe that our shareholders are happy with the way Nigeria LNG is working and returning value through dividends. That could also happen in the Exploration & Production (E & P) sector. But there are dangers in achieving it because the JVs and the partnership we have today have been premised on a certain fiscal formula. There is a need to have proper re-negotiation of this formula to reach agreement with the stakeholders involved before those assets are transferred to a new incorporated entity. Because this will not be a new venture, it will require a careful restructuring of existing arrangements. Another element of the PIB is the huge effort to redefine the fiscal terms under which oil is explored. That again requires very strong negotiation to get fiscal terms that are attractive for the government. Alternatively, the fiscal terms can be left out of the PIB law and dealt with through a more flexible arrangement between government and investors. The last major


INTERVIEW WITH IBENECHE

plank is to separate the roles of government as a regulator from its role as an active participant in the industry by clarifying who the regulating agencies are and making sure that they are distinct from the commercial NNPC. If these are done properly, the PIB will have a huge and positive impact on the industry. If the negotiations with the current investors, IOCs, on the restructuring of the joint ventures and agreements on a balanced fiscal regime are done effectively, the industry will grow very smoothly. This, however, will require very strong and disciplined political will from government to allow NNPC to move away from routine control to playing its part as an investment and commercial entity like other national companies around the world. Some commentators suggest government’s gas policy shift from export gas to domestic supply has slowed down development in the sector. Assess this policy shift vis-à-vis what has been achieved so far? You are referring to all the work that is being done under the gas master plan. It is a great and valuable work. It is indeed correct that while this work is ongoing that gas development has slowed down a bit. I don’t think that is too much of a scrifice compared to the potential benefits. You cannot have a gas industry without a clear view of how it will benefit the economy. There has to be a clear articulation of how the gas industry will serve the economy. I think the government is taking the right step with the gas master plan. We cannot continue to export gas for liquid cash that slips away easily. What government is doing is connecting the gas to infrastructure and power generation and making the price of gas attractive so that people can come and invest in petrochemical industries. The key to success would be finding the balance between export and domestic supply. For instance, we in NLNG have made at least some 20 years commitment to LNG customers. You cannot reverse that and when Brass LNG comes on stream, they will have to make long term commitment too. The exports will have to live side by side with gas supply to the domestic sector. So what do you think government should do to balance this? Government has actually done most of what needs to be done. The whole point of the gas master plan and the emphasis in the last couple of years on re-balancing and making IOCs commit to domestic gas obligations is to state clearly that it wants to achieve a balance. I think that has really been accepted. By altering the pricing for gas (increasing it to about $2 per million btu to domestic buyers) and aiming to achieve market parity in the medium to long term demonstrates government’s intention to make domestic gas supply compete effectively with export gas. The government has expressed this in its policy and in the gas master plan but it has to implement it effectively because policies and strategies

can be good on paper, but they’re no good to anybody when they are not properly implemented. It is the implementation of the gas master plan and gas pricing policy that will actually strike the balance. I don’t see government authorising the construction of additional export plants without making sure that the reserves required to meet domestic demand is protected. What is your take on government’s plan to fix a special price for natural gas consumers like the Manufacturing Association of Nigeria and other industrial concerns? The prices stated in connection with the gas pricing policy and the gas master plan are reasonable and balanced. What will distort the market is granting special pricing to lobby groups. The tendency of this kind of deals is that you may risk subsidising inefficiency and incompetence. The whole idea of the gas pricing policy is to have a good gas price locally to encourage industrial investments in Nigeria. People who will invest upstream to bring the gas to the surface will expect to see a good return. And people who will have to use it have to use it in a business that will pay a return and still make profit. So if you subsidise any business that cannot on its own pay a commercial rate, you may be subsidising inefficiency and incompetence. That’s a risk but every country has a right to gauge the right price to encourage activities in its economy and that’s what the gas master plan is trying to do. If government wants to grant a special price for, say the manufacturers association, it should be time-bound and there should be an exit plan because unnecessary protection always leads to inefficiency. The best test of your ability in an economy is to be able to compete with others. So what would be ideal is to have a general pricing for domestic gas use. To give a specific price to a specific sector excludes others from competing with it. This means that you deny other parts of the economy that could put that gas to better use the opportunity to utilise it while people who are not able to use it effectively are protected.

by the oil and gas industry to develop the economy cannot be pinned down on the operators alone. So if you, for instance, manage to stop the oil exports, poverty will not disappear from Nigeria overnight. In that sense, lowering the focus on the industry has brought some improvements in productivity. But there is an urgent need to carry through with the logical intentions of the amnesty through massive infrastructural construction, job creation and to make sure that those things translate to cheaper availability of products in the economy. Part of the problem that brings agitation in the Niger Delta is lack of opportunities for employment and self improvement. It’s a very intractable problem because thousands of graduates are leaving schools without there being a commensurate growth of capacity to employ them. Where are these people going to find jobs? One can easily see that if the government’s electrical power programme works, it would make the creation of jobs more feasible because a lot of people who today would have created jobs just simply can’t because of the cost of power. That is something that needs to be coordinated and thought through. So, we have seen some improvements in the Niger Delta; we have seen some reduction in violence targeted at the industry but we see a general increase of violence across board on innocent people and we still see a continued persistence of unemployment. Nigeria LNG recently established another subsidiary, NLNG Ship Manning Limited, that will provide ship manning services and is currently on a ship knowledge transfer programme with fleet managers. What is your game plan in these? Nigeria LNG is following the eventual course

How would you rate government’s efforts in managing the Niger-Delta situation and how has it affected Nigeria LNG and indeed the industry at large? It is still a bit violent in Nigeria, but less so. We have seen two bomb blasts in recent months. The kidnappings and hijackings are still going on and I get worried when I hear the news. What has changed is that the violence doesn’t seem to be primarily targeted at the industry, which was the case three years ago. We now see this violence across the country. It looks to me that the shape of the problem has changed and that this change is significantly influenced by the amnesty that the government engineered. I think it is good that the shape of the problem has changed because ultimately it did not make sense to vilify the industry that was doing what it needed to do. The failure of Nigeria to utilise the resources created

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I N T E R V I E W W I T H I B E N E C HE

of growth. As I earlier mentioned, this company is dedicated to Nigerianisation in the interest of the business. Until now, we have been using foreign companies to manage our ships which carry our gas across the globe. We reached an agreement to begin to learn how to manage the ships ourselves; so Nigeria LNG will, starting from this year, begin to manage some of its ships. The best thing that any natural resource can do for you is to give you competence, and competence learned in one area can be applied in another. I think it is a natural progression that will follow through. You get other people to do the work, you learn from them and you take over doing the work. Regarding the ship manning company, it’s a business requirement for us. We employ quite a significant number of seafaring officers and people who actually belong to a different industry than the oil and gas industry. We discovered that the best way to manage the seafaring officers is to have an independent manning company that employs seafaring officers, supply them to us to work on our ships. That makes those people acquire the culture that is necessary for seafaring rather than acquire the culture that is necessary for office work. It allows them to be managed under the rules that govern that trade and we believe that it will be good for our operations, our ships and also the seafarers because it gives them the total flexibility to be seen as professionals in that field. In that sense, it may be a small contribution to the Nigerian shipping industry but primarily it is a business requirement that will improve our operations. Let us take a look at the economy. A lot of people believe that the global recession is likely over. Do you agree with this and how is NLNG performing now? The economy of the world is beginning to show signs of recovery but there are still problems out there. Over Christmas, people were debating the employment numbers in the US. You see signals all over but I think the strongest indication so far is that the oil price is lurking around $90 per barrel, something that is now a new high. Whether it will disappear when the winter disappears, we have to watch and see. What we know is the fact that India will continue to grow; China will continue to grow, albeit at a slightly slower pace. Brazil is ambitious to grow. If they grow, and Europe and the US are not in decline, then you would see the world economy growing and with it the demand for our gas. Some of these growths will have a pull on the Nigerian economy. But as you know, our market has been challenged by something different. The discovery of non-traditional gas in shale formations in the US and in tight sands means that you may not expect a direct correlation between the oil price increase and the price of gas. If the fortune of the US is repeated in other places, that

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may put a ceiling on the gas price. I think the economic price for developing shale gas would have to determine what sort of price we can charge, especially in a place like the US. The Far East will have a different price pattern because of the rapid growth in China but the US which used to be a market of last resort has had a ceiling on pricing. That is some challenge for us. There has been a lot of talk about IOCs divesting from major oil and LNG projects. Also Nigeria LNG recently went to the market to source for credit. Do any of these affect the way the market is assessed? Shell is not divesting from Nigeria, Shell is just doing what is called portfolio optimization and in my view, it is long overdue. Shell started out in Nigeria, owning hundred percent of all Nigeria’s exploration and production acreage in the country, before they became about fifty percent if the industry and then went off shore. At some stage, you need to take stock and ask yourself where would it make sense to invest or where would it make sense to extract value by transferring assets to other people. I think Shell has come to that and identified pockets of assets which can be better operated by other operators allowing them to take value now rather than waiting another 30 years. I think when Shell said they are not divesting from Nigeria, they meant it. Companies just have to decide, considering their global asset portfolio and on their capital investment ranking criteria. companies have to allocate their resources where they get the maximum benefit within the time window. With the delays in investments in Nigerian projects, it is possible for companies to re-assign capital expenditures to other regions. Overall, people haven’t indicated that they have lost interest or hope in this economy. But there is definitely an uncertainty and you don’t make investment decisions effectively in an uncertain situation. You’ve made an assessment of what is on ground and the direction. What would you like to see in the next 55 years in the industry? For me, the primary desire would be the oil and gas industry becoming a footnote for the Nigerian economy. It is too dominant today and everyone is talking about the industry, but really if this economy is properly balanced, it should be a footnote; it should be in the background powering the rest of the economy. The industry should be stable, doing what it is doing, but the activities in the economy should go into other areas of production and technologies. Agriculture should take its place. It is a bit frustrating that everything in Nigeria seems to be oil and gas after 55 years. It should have become background noise. That is really the kind of change I would like to see.

I think it is good that the shape has changed because ultimately it did not make sense to vilify the industry that was doing what it needed to do. The failure of Nigeria to utilise the resources created by the oil and gas industry to develop the economy cannot be pinned down on the operators alone. As CEO of Nigeria LNG, what will you say has been your biggest challenge? It is difficult to pick one thing as my biggest challenge. There have been several challenges but things have gone rather well for me in my time here. We have been profitable throughout the period. We had a big scare when Soku got shut-in and it coincided with the global financial meltdown. So our revenue in 2009 was very low in comparison with 2008 and we were just climbing out of that in 2010. That was a big shock for us but we understood what was happening. It can be anticipated within the environment in which we work. For me, one disappointment is that we haven’t been able to progress the Final Investment Decision for Train 7 which would have helped us move our production capacity from 22 to 30 million tonnes per annum. We have tried very hard on that but one has to be realistic with the environment in which we work and accept that, perhaps, this is not the time for it. So in the interim, we have tried to build a company that is well controlled, focused on the bottom-line, realising that when we are not growing, we must protect our value, ensure our profitability is assured and the risks minimised. We’ve also tried to make sure we maintain good relationships with the society in which we work because if you don’t, profitability will be lost. We have tried to play our part as a responsible corporate citizen which is why we do things like The Nigeria Prize for Literature and The Nigeria Prize for Science. Basically, we’ve tried to keep this company in a good condition ready for growth by making sure we have competent people, and that our system management framework is world class. We have to retain the confidence of our shareholders and the market by making sure that our operations are safe and our plant integrity is world-class. That helps us to be ready when opportunities for growth come up.


As the industry meets

Nigeria LNG Limited recently participated in the Nigeria Oil and Gas Conference and Exhibition 2011 which took place between 21st and 24th February 2011 at Abuja. Here are some colourful moments at the NLNG exhibition stand.

General Manager for External Relations, NLNG, Siene AllwellBrown, welcomes SA to the President on Petroleum Matters, Dr Emmanuel Egbogah to NLNG stand

Siene Allwell-Brown presenting NLNG publications to Dr Egbogah, next to Ms Allwell-Brown is GM commercial at NLNG, Mr. Patrick Olinma

Guests at the stand

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Visitors flip through pages of NLNG publications at stand

Business begins


The exhibition stand

More visitors at the stand

NLNG staff, from right, Mohammed Al Sharji and Ayodeji Awoleke (left) attend to guests

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INTERVIEW WITH EGBOGAH

Changing the

game plan

A legend in the Nigerian oil and gas Industry, Emmanuel Egbogah is also a world-renowned reformer of the business. His eight-year stint in the Malaysian national oil company, PETRONAS, as Technical Advisor and Technology Custodian, has become a reference point on how to grow a government owned establishment into a world-class corporation. Under his watch, Egbogah ensured PETRONAS was not just confined to national oil business, but was transformed into an international oil company with interests in many countries in the world. An internationally recognised authority in the fields of petroleum policy and strategy, Egbogah is well versed in improving oil recovery process, stimulation and multi-disciplinary team approach to field development planning and reservoir management. He spent time in Libya doing what he loves best: planning and supervising the enhanced oil recovery programmes of 34 Libyan reservoirs. He was also responsible for the Reservoir Management of 159 reservoirs containing about 40 billion barrels of oil reserves. Prior to this feat, he worked in Canada as Petroleum Engineering Manager and Enhanced Oil Recovery Specialist for Amerigo International in Calgary; Vice-President, International Production, Niko Resources and Senior Vice-President, Engineering with Applied Geosciences and Technology Consultants in Calgary, Canada. Such solid credentials no doubt contributed to his appointment as Special Adviser to the President on Petroleum Matters. Besides advising the President on policies that shape the industry, Egbogah serves as the arrowhead of the oil and gas Industry reforms in the country. In this interview with Yemi Adeyemi and Elkanah Chawai, Dr Egbogah, takes a critical look at the Nigerian oil and gas industry while unveiling current efforts by federal government to promote development in the industry. Excerpts. It has been 55 years of commercial oil and gas production in Nigeria. How has the industry fared when compared to others around the world? One of the most remarkable achievements of Nigeria’s oil industry is the pace at which it grew in production capacity. From a modest 5,000 barrels per day in 1958, Nigeria’s oil production capacity has been on a steady increase, reaching the current rate of about 2.6 million barrels per day. Currently, Nigeria is the 12th largest oil producer in the world, 8th largest exporter and the 6th amongst OPEC member countries. Nigeria’s membership of OPEC together with the increasing oil production capacity has provided the opportunity for the country to play a key role in the global oil demand and supply balance. As with other hydrocarbon resource-rich developing countries, the oil and gas industry is the backbone of Nigeria’s economic and social development, accounting for 20 – 30 percent of gross domestic product, 80 percent of government revenues and 95 percent of foreign exchange earnings. Nigeria’s aspiration of becoming one of the top twenty economies by the year 2020 is anchored on the oil and gas industry and its efficient management. Another remarkable achievement is the

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growth and rapid expansion of the export gas sector. Following several years of very low gas utilisation, the gas sector has witnessed tremendous growth in the last few years thereby allowing Nigeria to take advantage of the rapidly growing international and regional gas markets. The facts are there for all to see. The Nigerian LNG (NLNG) is one of the world’s fastest growing LNG facilities, expanding rapidly to six trains since the first train came into operation in 1999. The 7th train is awaiting Final Investment Decision. The Brass and OKLNG facilities, when completed, will add additional LNG capacity for export. Nigeria is, therefore, on track to becoming the 2nd fastest growing LNG supplier in the world, next to Qatar. On a regional front, Nigeria is well positioned and ready to supply gas to the West African sub-region up to Ghana. The West African Gas Pipeline project which was conceived with the objective of delivering Nigerian gas to the West African sub-region has since been completed. At full capacity, the pipeline will deliver up to 470 million standard cubic feet per day. Nigeria’s successful entry into the deepwater arena marked a watershed in the history of the oil industry. Today, a number of deepwater projects are in production, currently

contributing about 30 percent of Nigeria’s crude oil production. Many more deepwater projects are awaiting investment decisions. Shell’s Bonga and Chevron’s Agbami FPSOs are among the largest of their kind in the world employing the latest in deepwater production technology. However, despite this growth of the oil and gas industry in Nigeria, it has not developed as much as others around the world which started about the same time, for example, Malaysia whose oil and gas industry is currently among the best in the world. The reasons for this slow pace include, first and fore most, lack of funding. Over the years, government has had difficulty meeting its cash call obligations to the joint venture companies, in the face of increasing cost of operating the industry. This has consequently negatively impacted on capital expenditure requirements for increasing production levels from the existing joint venture fields. Secondly, the governance structure of the public sector and the regulatory framework for the industry have not allowed for clarity of roles and transparency in the operation of the industry. This is perhaps the biggest challenge facing the industry today and for which reason the government is seeking to reform it.


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INTERVIEW WITH EGBOGAH

However, some of the more developed national oil companies such as PETRONAS, STATOIL AND PETROBRAS have successfully transformed their operations and activities and are more likely to follow a commercially oriented strategies. Therefore, unless the NNPC and the public sector of the industry are transformed, we will never achieve the desired efficiency and effectiveness expected of Nigeria’s oil and gas industry. Security of lives and properties in the oil producing areas has continued to be a major challenge for the development of the industry. This is currently being addressed by the present government. Lack of deregulation of the downstream market is another factor why Nigeria’s oil and gas industry has not been effective compared to others. Deregulation will provide a level-playing field and ensure that investors are motivated to invest in a market that is associated with very tight margins. Despite the achievements made in the export LNG business, the domestic gas sector remains largely undeveloped, with the result that Nigeria’s domestic economy has not benefited from the multiplier effect of gas. The greatest challenges which the domestic gas sector have faced, and which have had the strongest impact on the ability of the sector to develop and grow as rapidly as the market opportunities dictated, are those of inadequate infrastructure and a lack of commercial framework which is now being addressed through the Gas Master Plan. From an investment point of view, how promising or competitive is the Nigerian oil and gas industry? There are still significant opportunities for growth of the industry. These opportunities come either in the form of the resource potentials yet to be exploited or the specific government interventions to ensure better performance and efficiency in the face of ever changing operating and business environment. With about 38 billion barrels of oil reserves, Nigeria has the second largest reserves in Africa (after Libya) and the 10th World’s proven oil reserves. The reserves are contained mainly in the onshore Niger Delta, the continental shelf and the offshore deepwater basins of Nigeria. However, significant upsides still exist in deeper geological plays and in Nigeria’s ultra deepwater. Oil production level, though currently about 2.6 million barrels per day, has capacity to produce more than 3.5 million barrels per day. Nigeria is also endowed with huge natural gas reserves. It is believed that Nigeria has more natural gas than oil. Current estimate of proven natural gas reserves is about 187 trillion cubic feet, which makes Nigeria the 7th largest gas reserves holder in the world. Most important is the fact that most of this gas reserves is incidental to oil exploration; hence, there is significant potential for the gas reserves to grow much higher. The United States Geological Society (USGS) has indicated that Nigeria’s gas reserves could reach about 600 trillion cubic feet with dedicated gas exploration activities. Also the quality of the gas is very high as it is particularly very rich in liquids and low in sulphur.

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This large resource base has positioned Nigeria as one of the key players in the global energy supply and demand mix for now and in the future. The extent to which these resources can be efficiently managed will determine the extent to which Nigeria’s long term development aspirations will be realised. Despite these opportunities, the industry has not been as competitive as it should due to the reasons already discussed. However, the ongoing initiatives of the government including the Petroleum Industry Bill (PIB), Gas Master Plan, Local Content Act, security improvement in the Niger Delta when fully implemented would enhance the competitiveness of the industry.

Globally, there are fears about the ability of the industry to continue to meet its commitments due to the constant unrest in the Niger Delta region and changes in government’s policies and high overhead costs in running business in the country, which has affected inflow of investments. How can all these be managed? Security and unrest in the Niger Delta has significantly reduced through the Amnesty Programme of the Federal government and there are plans to enable communities benefit through dividend payouts from the oil and gas produced from their land. As a result, the national oil production which was less than 1.5 million barrels per day during the peak periods of the militant activities is currently about 2.6 million barrels per day. Therefore, I can confidently say that the programme is working. The Amnesty Programme includes training and rehabilitation of the beneficiaries. Currently, I serve as the chairman of the oil and gas industry committee on the post-Amnesty. The committee is open to all participants in the

industry and is aimed at harnessing efforts towards supporting and collaborating with the federal government’s Presidential Committee on Amnesty. The proposed dividend payout to the oil and gas industry communities involves a stake in the ownership of petroleum assets in Nigeria to impacted communities through payment of dividends directly to community trusts or cooperatives. This will enhance sustainable social, cultural and economic well-being of communities impacted by the industry activities. The proposal is based on the payment of 10 percent of the impact value of the acreage and assets used for petroleum operations in Nigeria as dividends to the host and impacted communities by licensees, lessees and commercial licenses. The dividends are expected to provide a guaranteed rate of return of 10 percent per year on the 10 percent of the impact value and as a consequence, the community shall receive 1 percent of the impact value per year. This proposal does not take away government’s responsibility for infrastructural development within the communities. It also does not take away the corporate social responsibility activities of the oil companies operating in the communities. It is often the anticipation that if the PIB is passed into law it would totally change the game in the industry. How do you envisage the post-PIB environment? The Petroleum Industry Bill (PIB) presents the greatest opportunity for development of Nigeria’s oil and gas industry to perform at the levels of efficiency and effectiveness expected of a 21st century oil and gas industry. The Bill takes into account achievements and challenges of the last 50 years in charting a new direction for the industry. To achieve these objectives, the industry will require legal, structural, regulatory and fiscal changes; hence, the need for an all encompassing piece of legislation such as the PIB. Government believes that these changes will not only encourage investment, but will also protect and safeguard investment in one of the most prolific hydrocarbon provinces in the world today. Some of the major problems it would solve include consolidation of all existing laws and transparency in issuing Petroleum Prospecting Licenses (PPLs) and Petroleum Mining Leases (PMLs). So the processes will be open and accessible to all qualified companies. It is therefore the expectation of government that the new law will transform the industry from “the most opaque” to “one of the most open and transparent in the world”. Another key feature of the reforms is separation of policy, regulatory and commercial roles of the public sector entities and a modern acreage management system with strict relinquishment guidelines that will provide a platform for new investors, both local and foreign, to enter and contribute to the growth of the industry. Companies currently operating in Nigeria will be required to give back acreage from existing oil prospecting licenses and oil mining leases, except acreages from which


INTERVIEW WITH EGBOGAH

there are production, or acreages with clear evidence of development in the near future. This will prevent companies from just sitting on acreages that otherwise will be available to new investors. The major challenge it would throw up would be not having adequate, well trained manpower to administer and manage the reforms. It is one that we are grappling with, and exploring possible solutions that will serve us both in the short-term and the long term. So how can this manpower issue be resolved, especially with the new laws on local content? With the size of the industry we run and considering the changes we are driving, we do not have sufficient expertise amongst our people to actually run it. So if we are to fully implement the Nigerianisation programme which requires all companies in the industry to have about 90 percent of their management cadre composed of Nigerians, with the parent company supplying only about 10 percent, we will find it tough as we do not currently have this kind of manpower. You might find Nigerians scattered across the globe working in other countries’ oil and gas industries. It therefore becomes expedient to develop people locally and also find ways of attracting these competent hands from abroad. I am a good example: after 44 years abroad, I am back here to make my own contribution. If you look at the charge on transfer of technology, for instance, the onus is on Nigerians to also take advantage of this programme. The truth is no one will be very willing to transfer his technology because once he does, his business shrinks. So the responsibility is on the person trying to acquire the technology to ensure that it is obtained. And this has been done in other parts of the world. I presided over the Malaysian situation and today, they are very successful. The Malaysian national oil company, PETRONAS, for example, is now the world’s best managed operating and profitable national oil corporation. That is incontrovertible. It is now in position 93 in the table of 500 fortune companies in the world. While I was there, the capital base of the company was about $5.7 billion; today it is well over $150 billion. During the collapse of the Asian economies in the 1990s, PETRONAS came to the aid of the Government of Malaysia with $20 billion to shore up the economy. This is the kind of thing we should grow Nigerian National Petroleum Corporation to do. This kind of success can only be built on good plans and development of both human and material resources. Some industry stakeholders say the Nigerian oil and gas industry is overregulated by the government. What is your take on this? The industry especially the downstream sector needs deregulation in order to open it more to competition and encourage investment. The proposed Petroleum Industry Bill (PIB) will streamline the regulation of the industry. What are the plans on ground to revive the ailing refineries and probably expand their

capacities or even build more? There are many challenges bedevilling the performance of our refineries. One is management. It takes such a long way to get things approved, but government’s plan to increase the approval limits of the NNPC Managers will go a long way in reducing the time it takes to get approval for the funds required for the maintenance of the refineries. In addition, Government has recently announced a plan to establish three more refineries in Lagos, Kogi and Bayelsa states. There is lamentation over the exportation of crude oil and importation of finished products by Nigeria. When will Nigerians witness the local production of all essential petroleum products? The main reason for not achieving 100 percent production of domestic consumption locally is because the petroleum products market is regulated. Deregulation of the market will usher in new investors due to availability of competitive prices. When this happens, I believe most of the petroleum products domestic market needs will be produced locally. At some point, the federal government’s shifted focus from exploiting the export potential of gas to ensuring domestic supply. How would you assess the success of this policy shift in terms of its achievement? Natural gas and, in particular, Nigerian gas, will remain a dominant source of energy both for the developed economies that have developed infrastructure with fewer opportunities for energy switching, and for our domestic, regional and developing markets with significant opportunities for further infrastructure development and growth. Due to deliberate policy of government, the Nigerian domestic gas market is today witnessing one of the most significant transformations. From a very low level of utilisation a few years ago, the domestic market is expected to see an unprecedented growth . One of the key drivers for this growth is the rising gas prices in the Western countries resulting in a relocation of gas based industries to low gas-priced regions such as Nigeria. As a result, we see an increasing proposal from investors in fertilizer, methanol and Gas-to-Liquids (GTL) plants to Nigeria. This is fuelling about 30 percent of the growth in the Nigerian domestic market. Another crucial driver is the power sector which has witnessed a rapid growth in demand for natural gas in the last few years. In addition, industrial consumers such as the manufacturing sector are also expanding their capacities and increasing demand significantly. The Gas Master Plan presents a unique opportunity for Nigeria to effectively exploit the huge natural gas potential in such a manner that the domestic economy will benefit from the multiplier effect of gas. The plan aims to address the two main challenges of inadequate infrastructure and lack of commercial framework. The master plan provides for an Infrastructure blueprint for the development of an extensive backbone for the Nigerian gas grid to allow for domestic supply as well as develop

more flexibility for regional and international supplies. Resolution of commercial framework is also encouraging upstream investors to invest in gas supply projects both for the domestic and export markets. A gas pricing framework which introduces a sector based pricing and the gradual movement towards export parity in domestic gas pricing has been approved. The Gas Master Plan policy of government is gradually transforming the gas industry in Nigeria to play key roles in domestic, regional and international supply of gas. It can therefore be concluded that this policy of government is rather encouraging investment in the gas sector than discouraging it. An issue in the media recently was views expressed about the government structure being highly padded. Could you shed more light on the specific roles of the Special Adviser to the President on Petroleum Matters and how this position adds value to the industry? Currently, there is only one Minister in the Ministry of Petroleum Resources. Concerning my role as the Special Adviser to the President on Petroleum Matters, I utilise world class experience in the oil and gas industry acquired for many years and from many countries to advise Mr. President holistically on matters of oil and gas resources planning, exploration, development, exploitation, processing, transportation, management, assets valuation, economics, policy regulation, strategy, governance, legal and regulatory framework, environment, safety, fiscal regimes and petroleum arrangements, financing and all issues pertaining to orderly development of the nation’s petroleum resources. What is your biggest challenge as Special Adviser to the President on Petroleum Matters? The greatest challenge is making Nigerians understand the need to pay more attention to the development of this mono-product economy on which the life and wellbeing of this country depends. The good news is that the ongoing initiatives of government when fully implemented will go a long way in achieving the required development. How would you like to see the oil and gas in the next 10 years? My vision for the oil and gas industry in the next 10 years is an industry that has been reformed such that it would match 21st century modernity and be able to deliver benefit and economic wellbeing to the people of Nigeria. My vision for the public sector of the oil and gas industry is a restructured industry that ensures that NNPC evolves into an integrated, international, commercial oil and gas corporation driven by revenue generation and profit oriented motives. A company that is divorced of some of its current roles of policy regulation and national assets management.

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Prof. Akaehomen O. Akii Ibhadode (4th from left) poses with Atlantic Hall students. With him is the NLNG Managing Director, Chima Ibeneche

Prof. Ayo Banjo; President of Nigerian Academy of Letters, Prof. Ben Elugbe; and Prof Theo Vincent

Prof. Ibhadode and Lagoon Secondary School students

President of Nigerian Academy of Science, Prof. Oye Ibidapo-Obe, presents the science winner

Mr Ibeneche, Prof Ibhadode and Prof. Yetunde Olumide

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Mr Ibeneche exchanging

Ben Tomoloju, Prof. Theo Vincent and Prof Ibhadode

Prof. Ibhadode speaks on his work

Prof. Ibhadode mentorin


THE DIE IS CAST On 8th of February, 2011, the 2010 winner of The Nigeria Prize for Science, Professor Akaehomen O. Akii Ibhadode, got a chance to explain to the world his winning work, Development of New Method in Die Design, which was adjudged the best entry in 2010. His new methods die design and moulding will be a key element in the Nigeria’s efforts towards regaining industrial might. Here are moments captured at the Public Presentation of The Winner of The Nigeria Prize for Science 2010. pleasantries after the event

General Manager, External Relations at NLNG, Siene Allwell-Brown

ng students

(L-R) Manager, Communication at NLNG, Ifeanyi Mbanefo; Prof. Ben Elugbe; Mr. Ibeneche; and Prof. Ayo Banjo

Prof. Ibhadode, Mr. Ibeneche and students of Federal Government College, Lagos

Mr. Chima Ibeneche and Prof. Ibhadode with students of Kings College, Lagos

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INTERVIEW WITH SUNMONU

Growth= good climate + investments Several years ago, as an intelligent young man, Mutiu Sunmonu received two attractive career offers from different organizations at the same time. One was an employment offer from Shell, the other, a commonwealth scholarship offer. Mutiu, who held a first-class degree in Mathematics and Computer Sciences obtained from the University of Lagos, in August 1978, had a hard time making up his mind which career path to follow. After much deliberation, he joined the IT department of Shell in Nigeria as a Computer Programmer/Business Analyst. Thus, he began his career in the oil and gas industry. Mutiu held various roles in the IT department before proceeding to Shell Expro Aberdeen in 1990, on the first lap of two overseas assignments. In Aberdeen, he did a three-year stint as Information Planner/Portfolio Consultant. Afterwards, he returned to Nigeria in 1993 as Head, IT Infrastructure Services. Two years later in 1995, he rose to the position of IT Manager of the Shell Petroleum and Development Company. The year 1997 was to mark a turning point in Mutiu’s career in the SPDC. He moved from IT function to core production. At the outset, he was Area Production Manager, overseeing some 10 producing fields, and two years later, was appointed Asset Manager, Southern Swamp Area, with responsibility for 12 producing fields. In 2001, Mutiu proceeded on a second overseas assignment as Regional Business Adviser at the Shell Headquarters at The Hague. In this role, he was part of the team that developed the initial investment proposal for the China West-to-East Integrated Pipeline and Gas Supply Project. On returning to Nigeria in 2003, he was appointed General Manager Production for the SPDC Eastern operations. Two years later, he joined the Board of SPDC following his appointment as Executive Director Corporate Affairs and then Executive Director Production in 2006 with overall accountability for the company’s oil and gas production activities and delivery. Against the backdrop of the volatility in SPDC’s operating environment, Mutiu was responsible for managing the company’s commitment to its key customers, including NLNG, domestic gas customers, and the refineries. On January 1, 2008, he was appointed Managing Director of SPDC and Vice President Production. Exactly two years later on January 1, 2010, he became the Country Chair, Shell Companies in Nigeria. He combines this portfolio with his current role as Managing Director of the Shell Petroleum Development Company (SPDC) and Vice President, Production, Sub-Saharan Africa. Yemi Adeyemi and Elkanah Chawai spoke with Shell’s Country Chair and he took the team on a tour of Shell’s operations in Nigeria. Excerpts:

With the discovery of oil in commercial quantity 55 years ago by Shell-BP, the Nigerian oil and gas industry was born. Today, Shell is the biggest operator in the industry. What is your assessment of the level of development in the industry so far, compared to other industries around the world that started out at just about the same time? I’m very careful in making comparisons

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because, to be fair, you have to compare apples with apples. It is true that Shell basically created the oil and gas industry that is now the backbone of the economy and we are still at the forefront. Without doubt, the industry can point to some achievements – increased production onshore, in swamp and deepwater and an emerging gas sector. Shell has played key roles in these areas, and we hope to continue doing so for

many years to come. But there have been serious challenges – security, funding and technology application. To assess the state of the oil and gas industry in Nigeria, I would say we have achieved quite a lot, but we still have a long way to go. As the head of the biggest operator in the industry, could you shed light on the specific roles of the Country


Chair? Essentially, what value does your position add to Shell and the industry as a whole? What is your biggest challenge as Country Chair? I took up the position of Country Chair in January 2010 and I’m the second Nigerian to be in the postion. The Country Chair is a relationship builder. He directs the interface between the different Shell companies and the government especially at the Federal level. So, this aspect of my job sees me holding engagements with NNPC and the different arms of government, NGOs and other stakeholders. And this is very important because it enables all sides to understand the dynamics of the business. The job comes with its challenges every day. Some industry watchers have described oil as the bane of our national development. Do you see oil as a curse to the nation? No. Oil and gas account for about 80% of government income and there is still a great future for the industry which continues to develop truly world class projects – such as NLNG, Gbaran Ubie and Bonga. While people like to concentrate on the negatives, I have a positive view. We are not yet there, but we are making progress- economic, social and political progress. The belief among some stakeholders in the industry is that the Nigerian oil and gas industry is over-regulated by the government. This is often cited as reason for the slow pace of the industry’s growth. What is your take on this? When you are dealing with a resource that accounts for a great proportion of the national income, government will always try to determine what happens in the sector through regulation. The hope is that, having come this far, the government will begin to see the merit of providing the enabling environment for the business to thrive. So much seems to be happening in the industry: the Gas Master Plan, the PIB etc. If you had the responsibility for initiating policies to guide this industry, what would be your focus?

In my view, the focus should be on striking the right balance between the revenues that accrue to government from the sector and incentives for investors to bring in their money and expertise. Any country that is serious about developing its economy must attract investments. In fact, I would go so far as to say that the right level of investment determines the right level of social and economic growth. How would you rate the current economic balance? The whole economic balance of investment is an evolution. Every government has to determine what kind of incentives it wants to give its investors and when it wants to give the incentives. And I must say that at some stage in the past, especially in the deep offshore when the technology was not very well understood and the risk was high, it was proper and appropriate to give a lot of incentives to investors. Today, it is believed that technology has reached a stage where some of those incentives should be cut back. I will have no problem with that at all, but the challenge will be how far you go in cutting back on those incentives. So I believe the position in respect to deep offshore is such that it will not be unrealistic for government to increase from what it used to be 10-15 years ago. But in making these adjustments, we need to be careful. I will give you an example. The government tried to change the Product Sharing Contract (PSC) regime some years back. And since that change, there has not been any new investment and that in itself is an indication that the pendulum has probably moved too far. All that needs to be done is for both government and investors to have a meeting of minds and agree what will be a happy medium, and I believe that can be achieved. Recently, Nigeria was described as a gas nation with some oil. Do you see the industry developing to where revenue from gas exceeds that from oil? There is a lot of gas out there waiting to be developed and it requires the right level of investment to bring it up for export and

use by manufacturers. Shell has led efforts in gas development in Nigeria. In 1998, Shell became the only international oil and gas company to set up a wholly-owned company - Shell Nigeria Gas - that supplies gas to industrial consumers. SPDC was the first energy company in Nigeria to have a domestic gas business and contributes over 70% of the domestic gas supply to industry for electricity generation. Shell was a pioneer in developing Nigeria’s first liquefied natural gas plant in Bonny, in which it is a shareholder (25.6%). This started operations in 1999 and now takes significant quantities of gas that would otherwise be flared. So, with the right investments, the future of the gas business is bright. Economically, investment in refineries is not viable as government regulates the price of products. How do you feel when Nigerians lament the situation where the country exports crude and imports finished products? As a Nigerian, I can understand this pain, but here again: we need the right climate to bring in investors to work up our refineries. Could you paint a picture of the right climate? First thing for me is that the whole industry needs to be deregulated and unless you do that, investors will not have the confidence that they will be in a position to secure their investments. That is key. It is really about deregulation; making it a level playing field for both multinationals and local investors. Industry stakeholders have continuously advocated that the Incorporated Joint Venture (IJV) model, adopted for the Nigeria LNG Project, is the most practical model to accelerate growth of the industry. What is your take on IJV? That is a subject that brings life to me. Frankly speaking, I like that model. It may not be perfect, and I doubt if there are perfect models, but it is a model that allows a company to operate as a normal business anywhere in the world with very minimal interference from regulatory agencies or government. The model allows the Board

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Every government has to determine what kind of incentives it wants to give its investors and when it wants to give the investment. before, we will continue to invest in Nigeria given the right incentives and environment. Globally, there are fears the Nigerian oil and gas industry may not be able to continue to meet its commitments, due to the constant unrest in the Niger Delta, changes in government’s policies and high overhead costs in running business in the country. The general belief by industry watchers is that these factors have affected inflow of investments into the industry. How can all these be managed? I believe the industry will continue its growth pattern if the incentives are right. For example, the proposed PIB is a good opportunity to take the Nigerian oil and gas industry to a higher notch. This is why we fully support government’s intention to reform the industry, and have suggested how we think this important goal can be achieved. Also, we, along with the other oil companies, are actively supporting the efforts by the federal government of Nigeria to achieve lasting peace and development in the Niger Delta. Shell looks forward to a future of peace and prosperity for the people of the Niger Delta and Nigeria as a whole.

of the company to make decisions and once decisions are made, execution follows. That for me is the right model for our industry, if we are going to achieve the growth that we desire. That model places power in the hands of the shareholders and the private partners have a lot of say in how the business is run. As an investor in the industry, what would encourage you to expand your investments? It comes down to good governance, peace, an end to corruption and the elimination of crime. We have to respect the sanctity of contracts; there must be rule of law which encourages disputants to resolve issues through the courts or arbitration as the case may be; and, of course, continuous funding, security and consistency of policies.

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A good investment area in the future is the gas to power initiative by the government. Shell has already invested in Afam VI. How is this faring? Are there more projects in the offing? Afam V1 integrated power plant project is a world-class development which is supplying 450MW of power to the national grid. This project is a good example of Shell’s commitment to the development of Nigeria. We also have the Gbaran-Ubie project which is boosting Nigeria’s oil and gas resources significantly. Shell will continue to invest in Nigeria with the right incentives and environment. There has been a lot of talk about the IOCs divesting from the country. How is Shell doing in terms of investments in this industry? I can only speak for Shell, and as I have said

What is your expectation of the oil and gas industry in the next 10 years? What role do you see Shell playing? I would like to see a lot more competition in the industry. I believe that is essential for growth and productivity. I would also like to see a lot more indigenous participation in the industry. There is need for the Nigerian Oil and Gas Industry Content Development Act to come to reality and Nigerian companies providing sophisticated technical services, so that in a few years, we can really say Nigeria has joined the oil producing countries. As for Shell, it is simply to build on what we have achieved so far. There is still a lot to do in this country. If we are to fulfill our potential, we have got to work together – every sector of society, use our resources well, develop the huge reservoir of human talent in Nigeria, sort out some of the endemic problems and build on what’s best here. Shell stands shoulder to shoulder with the people of Nigeria and we look


INTERVIEW WITH SUNMONU

forward to playing a key role in the future development of the industry and Nigeria.

community content drive is key for me and Shell.

On Nigerian content, do we run the risk of some companies getting Nigerians to front for them rather than developing the personnel… That is where the regulatory agencies come in. They have to ensure proper monitoring and reporting. If they do their job very well, it will not happen. Also, as stakeholders in the industry, we all have to play our part and ensure that this does not happen. When we are awarding contracts or services, we must undertake due diligence to ensure such fronting does not take place. So, if you say this is a partly foreign and partly Nigerian company, the Nigerian participation must be in accordance with the Nigerian Content laws.

If you were not wearing a Shell cap, what would you be doing? My dream was to be a medical doctor, but I had problems with Biology because I couldn’t draw. So in the university, I settled for Mathematics and Computer Science. If I didn’t work in the corporate world, I would probably have been a teacher.

In recent times, Shell has attracted a lot of negative comments on allegations of not being as sensitive as it used to be. Is this the case? I disagree with that. I think we are even more sensitive and this is easily verifiable. If you check what we used to do and how much we used to spend compared to what we are doing and spending now, that erroneous impression will be corrected. I think what has happened is that the host communities have also become more aware of their right to self determination and their right to have basic services and amenities. The negative comments will be there because of the high level of poverty and lack of basic amenities. And because we are the closest to them, they vent their anger on us. So if you check what our budget and activities were in corporate social responsibility efforts—let’s say 10 years ago compared to that of subsequent years–you would see that we are even more sensitive. I am proud of our partnerships with the host communities. Shell is not in a position to solve all problems but we will continue to play our part in improving this society and hope government will continue to play a leading role.

What informed the choice of Mathematics and Computer Science? Like I said, my dream was to be a medical doctor, but I had problems with Biology because I couldn’t draw. I could label correctly all parts of any organ we were asked to draw, but the drawing itself was always something else. But no one ever told me that drawing wasn’t important to becoming a doctor. My first realization of the fact that drawing was immaterial was during the school certificate examination. Our Biology teacher went around and when he saw what I drew as the human heart, he pronounced it the worst drawing he ever saw. The drawing was awful and even I could see it. I was therefore pleasantly surprised when the examination results were released and I had the best result in Biology in the school. But I was already

discouraged about studying Medicine, so I opted for Mathematics after my preliminary year at the university. The truth was that I was better in Mathematics than Chemistry or Biology. So I just decided to focus on my Mathematics. It was in the course of studying Mathematics that I developed interest in Computer Science as an addition. The truth was that we lacked good counseling in those days; nobody could explain to me what Computer Science was all about. All they could say was that it was used by big companies and the army. That was how I added it to Mathematics. What advice do you have for young people who also look forward to a career in this industry? Whenever I have to talk to young people, my advice to them is usually this: be yourself, know yourself and believe in yourself. Trust in your abilities and stop looking at what the next person is doing. One thing that is a big problem for young people in the industry today is that they are always looking for where the grass is greener, not caring if they have the necessary skills to play on that field. So the key to success in this industry is to be focused, know yourself, work on yourself and continue to persevere.

What is your vision for Shell and what would be your legacy? As I told you, I’m the second Nigerian to be MD of SPDC and Country Chair of Shell Nigeria, so my first task is to ensure I’m not the last Nigerian to hold these positions. That means developing the pool of indigenous manpower that we have. But there will be no leaders if there is no business. So I would also like to be remembered as one who helped to grow the Shell business in Nigeria. I’m a product of the oil industry; I work and live in the Niger Delta. These people occupy a special place in my heart and a strong Nigerian and

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INTERVIEW WITH COKER

OKLNG: Still on course Funmi Coker is the Managing Director of Olokola LNG (OKLNG) Mr. Coker has over 30 years experience in the oil and gas business. He began his career with Nigerian National Petroleum Corporation (NNPC) in 1979. He was seconded to Shell International Gas Limited in London as Business Development Adviser for three years and was later seconded to Nigeria LNG Limited, where he was responsible for the expansion projects. After his tenure in NLNG, he was appointed Executive Director, Joint Venture Operations of the Nigerian Petroleum Development Company (NPDC), a wholly owned subsidiary of NNPC before his appointment at OKLNG where he oversees the project to actualisation. OKLNG is a two-train project owned by NNPC, Chevron, Shell, BG and strategic investors. Yemi Adeyemi and Anne-Maria Palmer-Ikuku spoke with him. OKLNG project had placed great emphasis on Nigerian content and achieved a lot. All aspects of our business are done with an emphasis on Nigerian Content and there is hardly anything that has been done in which Nigerian enterprises have not been involved. In the development stage of the project, we had Nigerian Content involved in the FEED activities and activities of the project. We have conducted Nigerian Content surveys and workshops across the country, making use of consultants and professional organisations in Nigeria. So we have an excellent record on Nigerian Content and we expect to move forward on that basis.

What’s the role of OKLNG projects in the gas master plan and the domestic gas obligation? The OKLNG project is central to government objectives on domestic gas supply. Government envisages that the project in addition to being an LNG project will also have substantial facilities for processing gas and supplying gas to the domestic market, so that will make it central to government’s obligation on domestic gas supply and government’s obligations on the facilities as expressed in the gas master plan The Nigerian content is very important to government, in fact a cornerstone in its plans for the industry. The Nigerian Content Act was recently passed into law but even before that act,

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Can you give an idea of the timeline of the project in terms of the construction and delivery? The president recently visited our facilities and he said that he wanted this project to fit in with Nigeria’s Vision 20:20 objectives; that means that within that period between now and 2020, this project should be up and running, producing LNG for export and LPG for the local market. So that is one important component of our timeline. To do that, we need to get to the point of awarding contracts and then construction. In LNG projects, these things take a long time, so we have to start to move quickly so that we can have all of those things completed within that timeframe. We are now trying to firm up our timetable and schedule to see how best we fit into that timeframe. Communities usually hold the social license to operate for companies. What are OKLNG’s plans to ensure that the host communities continue to let it operate? We do not look at our relationship with

our host communities as one of license to operate; our relationship with the host communities is based on what we consider to be our responsibilities and good practice. We have gone to great lengths to cultivate good relationships with the communities and to be a good form of assistance to them. We are in a very rural community which has hardly anything by way of amenities and infrastructure. We are assisting the community actively through educational programme because we believe that this is one area where our knowledge as a professional technical organisation can assist and we are also doing infrastructural works. What we are doing at the moment is to the extent to which our limited scale of activities permits us, but as we move up, the scale of that assistance will increase. Are there major milestones achieved in the project? We have achieved certain major milestones and there are more important milestones ahead of us. We had the milestone of the signature of the shareholders agreement putting this venture together in March 2007. We have also completed technical design work for the project and moved activities further. As I mentioned to you earlier, our site is at a remote location with no amenities and no infrastructure. We have built a pioneer camp in that remote location with all those facilities as a launch pad for us to move forward. Those are key points that we have reached.


INTERVIEW WITH MOLINARD

Gas, vector

of development Jean-Eric Molinard is passionate about Nigeria. The French man is quick to tell you that though he loved his stay in the Sultanate of Oman, Nigeria offers unique experiences that might just be difficult to get anywhere else in the world. His dream for a developed Nigerian oil and gas industry that will compete favourably with peers globally has seen him being part of national advisory committees for the industry. A graduate of the Ecole Nationale Supérieure de la Métallurgie et de l’Industrie des Mines de Nancy (School of Mines), Mr. Molinard is one expert on gas that can hold his own anywhere and at anytime. Currently he is the General Manager, Export Gas, Total Exploration and Production Nigeria Limited (TEPNG) and a member of the Board of Nigeria LNG Limited. For three years, 2007-2010, he was seconded from Total to the World Bank in Washington, D.C., as Advisor to the Global Gas Flaring Reduction (GGFR) partnership. The job entailed developing roadmaps with governments, NOCs, IOCs, legislators, regulators and all potential major natural gas users in the Middle East and Sub-Saharan Africa. The overall objective was to reduce or eliminate flaring of associated gas in upstream operations. Before that time, Jean-Eric had already had an idea of the Nigerian experience, both as Project Manager for development of an Independent Power Project to be carried out by Total JV, and as Gas Business Manager, that involved looking at the new Nigerian gas legislation (Downstream Gas Act, Gas Flaring Bill, Fiscal Bill, Gas Pricing, Gas Master Plan, etc) and also developing gas terms for deepwater gas. With a rich working experience and a long line of professional qualifications, it would be apt to describe Jean-Eric as being synonymous with gas, In this interview with the seasoned expert, our publication crew, Mohammed Al Sharji, Yemi Adeyemi and Elkanah Chawai, gets to see another perspective of the Nigerian oil and gas Industry.

What is your assessment of the Nigerian oil and gas Industry when compared to other markets you have been exposed to in your career? The oil and gas Industry is growing and there is still so much room for growth. If we look at the gas sector and how it has been in relation to other countries, in many instances, the key driver for gas utilisation to take off has either been the environment because of gas flaring - which is part of

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what happens in Nigeria - or economical gas reserves which then prompts LNG projects. So Nigeria is not really different from any other country. There are countries ahead of Nigeria and there are countries Nigeria is ahead of. So all in all, I will say that the development and monetisation is not different in terms of timing as compared to other countries; I will say it is average, it is not lagging behind or way advanced.

Just recently, the federal government decided to shift focus to encourage domestic use. How does this move affect the development of long term plans that have been on the drawing board for other LNG products in the pipeline? I was very lucky that I attended the fist meeting on gas master plan that took place in 2005. In my own understanding, gas-to-power was the main driver of the shift and encouragement to send gas to the


INTERVIEW WITH MOLINARD

domestic market. Under President Olusegun Obasanjo’s tenure, there was a clear statement on the need to focus and improve the power industry. I think the decision from Abuja was made based on the fact that the power infrastructure in the country is not adequate, especially the transmission network. There were power and gas plants that did not have enough gas and the gas suppliers were not rewarded as they should have been, so people, all over the country, suffered power cuts. It was very clear to President Obasanjo that this needed to be changed and there were two avenues: the infrastructure needed to be modernised and the power sector needed to be privatised. And in parallel because of the ambition to produce much more power than was done at that time, there was need to feed the power plants. Since coal was not an option, gas ought to have been the alternative. Natural gas is a vector of economic development in any country. The Federal Government of Nigeria used the need to provide gas-to-power to reach higher goals, which is primarily to develop the gas industry of this country in making gas available to industrial customers. So what the government did, which was very ambitious, was to try to have a holistic plan that will encompass the privatisation, gas to power, gas to domestic market for industrial purposes, attracting investors in these industrial areas. The plan was laid with Dr. Bola Ige’s guidance and with the green light from NNPC, and of course Aso Rock.

on this? My opinion is just the common opinion. Everybody is carefully monitoring what is going on. The final draft and implementation of the PIB is expected soon and after that IOCs will have to monitor and redraft their respective investments. There is nothing the industries can do to oppose the PIB. It is the right and obligation of the government of Nigeria vis-à-vis the Nigerian people. So the next question is how this fits in

with domestic gas supply obligations and large developments of gas which are expected, like Brass LNG, Trans Saharan Pipeline and others. There are many gas projects in Nigeria. So how will PIB affect these projects? Today, it’s not fair to give a prejudiced opinion on this. IOCs will need to face the reality. They may have to sit down and discuss in the cases where projects may show uneconomic.

As a key stakeholder, what improvements to the plan would you suggest? First of all, it must be said that the plan was extremely ambitious because it covered most aspects of the industry. So, the industry in a sense, the government wanted to move rapidly to a fully liberalised-regulated market. The International Oil Companies (IOCs) said it will be difficult to implement in a short time period, but they agreed to participate and gave advice and necessary support for the development of the plan. Despite the apparent difficulty to move rapidly to a fully mature gas industry, a few milestones have been achieved, such as the creation of the strategic aggregator, the creation of a regulatory framework and a pricing framework. Those points must be ticked in the government’s scorecard. The government has the assurance that IOCs are supporting this plan. With the Petroleum Industry Bill (PIB), the belief in industry circles is that it will change the entire landscape once it comes into effect. What is your opinion

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INTERVIEW WITH MOLINARD

There has been some buzz in the industry about IOCs allegedly reassessing their portfolios with the intent to divest. What plans does Total have for the Nigerian gas industry? Total is well known as you have clearly identified. Total obviously monitors and continues to monitor its investment in NLNG and I am a proud director of this company because it is a company worth being proud of. In addition to this investment already made, the key export project that Total has in-house is Brass LNG of which Total owns 17 percent and is keen to go all the way to fully develop the project with its partners. Total will supply gas to Brass LNG. The gas industry is different from the oil industry and you actually maximize your value when you master the chain from the wellhead to the customer. Total has this position and is a potential off-taker of LNG from the project. Brass, as a grassroot project, is a lot of work, hurdles and difficulties. We know it’s a project close to the heart of President Goodluck Jonathan and we will work accordingly. Total is active on three aspects of the domestic sector. One, Total is currently working on the development of an Independent Power Plant project, which is located in the Niger Delta. It will be

How would you say the restiveness in the Niger Delta has impacted on Total’s business? Well there has been obviously some destruction, sabotage and violence. I will put things probably in an optimistic light by saying that stopping gas flaring and bringing economic development to the Niger Delta will be a key factor to reducing violence. Total will work with the government. We want to be a successful investor contributing positively to the welfare and stability of the Delta region. I know it’s going to be a long process but we are ready to take part in it. To me, it will generate revenue and stability and investment potential. How satisfied are you with government efforts to manage the unrest in the Delta region and what tangible contribution is your company making to manage the situation? Once again I think the unrest started from the frustration of people living in the Delta, because there is lot of wealth reserve under their feet that is not returning directly to them; not to mention visible pollution and gas flaring. The government wants to promote and develop the natural gas industry that will facilitate cessation of the unrest. I may be optimistic but

If the government does what it has to do in order to liberalise the market and if the liberalisation and development process goes all the way, it is comon sense to think that investment opportunities will still be there. integrated with our upstream facilities. This project is under development and we are getting closer to the final stage of development before making final investment decision. Two, because we will be a partner in the plant through the Total E & P Nigeria JV which is 40 percent Total and 60 percent NNPC, we will provide gas to this power plant. Total is also committed to supply gas to Omuku which is a power plant located near NAOC’s Ob/Ob. Three, Total will fulfil its domestic gas supply obligation and will be a proactive player of the Nigerian domestic market.

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the commitment of the IOCs in reducing gas flaring, in putting gas-to-power and developing the natural gas industry will stabilise the region. For instance, there are several small and medium size industries already being supplied by natural gas in Port Harcourt. In contributing to the supply of these industries, Total can be a facilitator and positive actor in sustainable development. What is the biggest challenge for Total as a business in Nigeria? Well for Total, as well as others in the industry, I think the difficulty and one of the challenges is the uncertainty of the projects development costs. There are two effects:

there is the general trend that happened after the oil crisis that moved prices up amazingly high at which time, contractors providing services aligned their contract prices to the oil prices, but the same contractors were very slow in following the trend downwards. If you look at the balance sheet of these companies after the oil crisis, it is interesting to see how much dividends they have distributed. So they have followed the trend upwards but we haven’t actually seen the trend downwards. The development cost for all gas projects today is a critical issue. It is particularly true for grassroots projects such as Brass for which the commercial offers relating to the plant development are not known yet. It is generally believed that the global recession is over and that we are on the path to recovery. What is your take on this? I try to be pragmatic in assessing the impact on the Nigerian gas industry. For me, there’s a double impact on the Atlantic gas market, especially the North American gas market. LNG prices have gone down tremendously as compared to European markets. There’s double impact, obviously the recession took place and affected the US, but there is this potential in the US of the development of tight shale gas and why would America pay higher prices to Nigeria or Oman for gas if they have gas reserves that could be made available now? Is it going to be long term or short term? My feeling is that the American gas market will catch up, not today, not tomorrow but in 5-10 years. What’s your prediction for the gas industry in Nigeria in the next 5-10 years? If the government does what it has to do in order to liberalise the market and if the liberalisation and development process goes all the way, it is common sense to think that investment opportunities will still be there. Nigeria has substantial gas reserves and should be able to monetise them after a proper transition period. In this respect, the gas master plan is the most legitimate course, in a country that has the human resource and manpower to develop its industry. At the end of the day, the development of what the government is putting in place will be appraised by the amount of investments that will actually be decided in the industry and in the power sector as well.


INTERVIEW WITH MOLINARD

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The Brass LNG Project Brass LNG is a company incorporated under the laws of the Federal Republic of Nigeria. The Shareholders are Nigerian National Petroleum Corporation (NNPC) (49%), eni International (17%), Phillips (Brass) Limited (an affiliate of Conoco Phillips) (17%) and Brass Holdings Company Limited (an affiliate of Total (17%). The Company was formed to construct and operate a Liquified Natural Gas Plant to be sited on the Island of Brass, Bayelsa State, in Nigeria's Central Niger Delta following a Heads of Agreement signed in 2003 by the Shareholders. The contract for the Front End Engineering Design (FEED) of the proposed LNG was awarded to San Francisco-based Bechtel Corporation in late 2004. This followed the completion of conceptual studies that assessed the viability of building an onshore LNG facility in the region of Brass Oil Terminal operated by Nigerian Agip Oil Company (NAOC). The FEED is for two LNG trains, each nominally seized at 5 million metric tons per year. The primary FEED studies were conducted in 2005 with further optimization in 2006. This paved the way for the competitive Engineering Procurement and Construction (EPC) tendering process, launched in April, 2010. Natural gas supplies for the facility will come from the substantial gas reserves within oil and gas fields already operated by existing Joint Ventures. This will be a world-class LNG facility and an important and strategic opportunity to reduce gas flaring in Nigeria. Furthermore, it will be an additional opportunity for Nigeria to monetize part of its vast natural gas reserves. The project enables partner companies to be important players in helping to meet the growing worldwide demand for clean energy, and strengthens their long-term relationship with NNPC and the Federal Republic of Nigeria. Support from the Community has been overwhelming as the Land Lease Agreement for the Plant site has been signed between the Company and Bayelsa State Government and Communities in January, 2008 In May 2007, at Brass LNG's third Annual General Meeting which took place in Abuja, Bechtel was appointed Project Management Contractor for the Brass LNG Project. The Nigerian Westminster Dredging and Marine Company was awarded the contract for early site works which was completed in 2009. Currently, the Invitations To Tender (ITT) for the Engineering, Procurement and Construction (EPC) is being analysed, preparatory to FID Brass LNG limited is positioned to utilize best industry practices to conduct its business. The Company seeks to be the most successful LNG producer in West Africa.


Repositioning for Prestige As the Nigeria Prize for Literature entered its 8th year, key stakeholders in the literature world in Nigeria gathered together in Lagos on February 7, 2011 to appraise and forge new directions for the Prize sponsored by Nigeria LNG Limited. Here are photographs of proceedings.

Participants at the Stakeholders Forum on the Nigeria Prize for Literature

(L-R) Sunny Ododo of the Association of Nigerian Authors (ANA); past winner of literature prize, Ahmed Yerima; and Prof. Emman Dan Daura

(L-R) Deji Olatoye; past winner of literature prize, Gabriel Okara and Manager; Government Relations at NLNG, Dr. Kudo Eresia-Eke

(L-R) Chairman of the forum, Prof. Ayo Banjo, the vice-chairman, Dr. Jerry Agada and the Nigerian Academy for Letters President, Prof. Ben Elugbe

(R-L) Odia Ofeimun, Emman Usman of the Abuja Writers Forum and a guest

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NLNG The Magazine, 2011 2nd Edition