Tuesday, December 13, 2011

Oil trudges on as PIB stalls new investments



2011 was an eventful year for the oil and gas sector, writes DANIEL ESSIET

As the Nigerian economy continues to grow – peaking at 7.72 per cent in the second quarter of 2011 and projected to hit 7.98 per cent by the end of this year energy demands have equally continued to rise.

The demands stemmed from increase in economic activity, population and the epileptic nature of power in the country that has required industries and homes to generate their energy needs. This has helped the sector to witness active performance. International companies also made efforts to acquire stakes in oil and gas blocks, form joint ventures and source natural gas to meet rising fuel demand. They consider Nigeria’s good source of hydrocarbon potential and new gas discoveries.

It is a good year for the oil majors as profit margins was aided by high oil prices. Demand for oil was comparatively robust.

On the balance, the government’s energy plan placed emphasis on natural gas. This followed the government‘s commitment to use gas as part of a broader emphasis on renewable sources of energy and economic growth. The year saw little closures on account of militant attacks but new investments were stalled owing to non-passage of the Petroleum Industry Bill (PIB).

PIB stalls operations

Major upstream development projects in Nigeria accruing to billions of naira have been stalled as a result of lingering delay in the passage of the PIB.

The situation has become a growing concern as most service providers who incidentally are responsible for oil industry workforce have confirmed the lull in contract awards owing to refusal of International Oil Companies, IOC, from investing in upstream development projects in the country.

The IOC, on their part, has continually stated that they cannot afford to invest without a clear fiscal and regulatory terms to work with. That, according to them, can only be made available if the PIB is passed.

Some oil service providers said the situation is threatening to wipe out the gains recorded so far in the implementation of the Nigerian content policy as most of the firms have started massive lay-off of staff due to long period of redundancy.

They also argued that the situation may have put the key targets and objectives of the Nigerian Content law on reverse course.
Managing Director of DeltaAfrik, an indigenous Engineering Company, Akin Odumakinde, while speaking on the evolution of local content policies among African governments, noted that the delay in the passage of the PIB has stalled key development projects expected to yield significant patronage for the local firms.

He emphasised that local firms providing services in the oil industry have been constrained to lay off over 80 per cent of their staff to cut overhead costs and keep afloat in a period of acute business lull.
Odumakinde said following long period of inactivity, the petroleum industry has remained stagnant in the past five years when the crisis about the contents of the bill raged.

Besides, the development of Shells operated Bonga Southwest field and Total operated Egina field - two key deepwater projects have been stalled due to disputes over the PIB.

Reports that the PIB, which prescribed a comprehensive fiscal overhaul of the Nigerian petroleum laws, has been the subject of heated debate in the industry since its introduction to the National Assembly last five years.
The disputes have led to innumerable reviews and interventions in the law, resulting in protracted delays that have become difficult resolve given the new composition of the National Assembly.

Shell oil block sale

Two local firms - First Hydrocarbon Nigeria (FHN) owned by Afren and Neconde Energy - a consortium including Nigerian firms Nestoil, Aries and VP Global and Poland’s Kulczk Oil Ventures have completed the purchase of 45 per cent stakes in two onshore oil blocks, previously owned by Shell, Total and Eni .
First Hydrocarbon Nigeria (FHN) bought a 45 per cent stake in OML 26 owned jointly by Shell, Total and Eni, the Nigeria National Petroleum Corporation (NNPC) said. The block has target production of 50,000 barrels of oil per day by 2015.
The corporation also said the foreign oil majors sold 45 per cent of OML 42 to Neconde Energy. These blocks are among several ones put up for sale this year by Shell Petroleum Development Company (SPDC), a joint venture between Shell (30 per cent), Total (10 per cent), Eni (5 per cent) and NNPC (55 per cent).
NNPC is transferring its stake in the former SPDC blocks to Nigerian Petroleum Development Company (NPDC), the exploration and production arm. NPDC and FHN will jointly operate production from OML 26.

Blocking leakages

The government and the oil sector are struggling to find a compromise deal that could PIB from collapse. Several measures were taken to block revenue leakages in the oil and gas sector. One of such was audit of Nigerian National Petroleum Corporation (NNPC). Directive was given to the NNPC to submit its budget to the National Assembly, in line with the provision of the Constitution and the Fiscal Responsibility Act.

Shell accepts spills

Shell Nigeria also accepted liability for oil spills at Bodo in Ogoniland following a class action suit in London. Proceedings against Royal Dutch Shell and Shell Petroleum Development Company (SPDC) Nigeria began in the high court on April 6, 2011.
Shell Nigeria accepted responsibility for the 2008 double rupture of the Bodo-Bonny trans-Niger pipeline that pumps 120,000 barrels of oil a day though the community.

The crude oil that gushed unchecked from the two Bodo spills, which occurred within months of each other, in 2008 has clearly devastated the 20 sq km network of creeks and inlets on which Bodo and as many as 30 other smaller settlements depend for food, water and fuel.
To boost power supply, the Federal Government signed two gas supply agreements with Power Holding Company of Nigeria (PHCN) and other stakeholders.

The deals were signed by the Petroleum Resources Minister Deziani Alison-Madueke and representatives of oil and gas operators Shell, Chevron, Agip, Total and Power Holding Corporation of Nigeria (PHCN).

Investment Plan

The Federal Government unveiled a massive $130 billion investment plan for sustainable growth and development in the oil and gas sector within the next five years.

Also, plans are in top gear for the construction of additional 2,000km of oil and gas pipelines across the country.
Mrs. Alison-Madueke said the five-year investment plan was designed to promote rapid inflow of foreign investments into the Nigerian oil and gas industry as well as develop in-country capacity.

She said part of the money would be used for the gas utilisation projects, which include the construction of world class petrochemical plant at Koko in Delta State, fertiliser manufacturing plants and three Greenfield refineries in Lagos, Bayelsa and Kogi States.

The minister listed some of the areas that required foreign investment intervention to include Engineering design and related services, petroleum engineering services, fabrication and construction, pipe mills and equipment leasing. others include civil works, logistics and haulage, financial services, as well as in the areas of hospitality services for construction workers.

The minister stated that the 2,000km pipeline would transport gas to the thermal power generation plants to ensure availability of adequate gas for stable electricity supply.

She added that numerous contractual agreements would soon be signed in this regard.
The minster stated that the government was committed more than ever before to end gas flares, stressing that the focus on gas projects was part of the government's concerted effort to stop flaring of associated gas.

Mrs Alison-Madueke said the government's plan to increase domestic gas consumption from the current one billion cubic feet per day to five billion cubic feet within the next five as provided for in the massive gas infrastructure development projects.
Investments in oil and gas exploration before the end of the year is also expected to reach $45 billion (N67 trillion) according to the Nigerian Association of Petroleum Explorationists (NAPE).

NAPE President, Mr Jide Ojo, stated that investment would be about $35 billion (N5.25 trillion) higher than that of 2010, adding that the industry was able to recover from the economic depression of 2009.
He said: “The projected increase in spending will provide opportunities for sustainable growth in the oil and gas sector.
“It will also lead to increase in the gas base supply as well as investment in infrastructure that will facilitate increase in the domestic consumption.”

No comments:

Post a Comment