Deepening Local Participation in Oil and Gas

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President Muhammadu Buhari’s Petroleum Industry Roadmap has raised expectations of stakeholders desirous of eliminating the existing bottlenecks against local participation in the industry. Ejiofor Alike reports

A major challenge facing the Nigerian economy is that the huge revenue and huge industry spend in the oil and gas sector is not effectively linked to the economy, apparently due to low participation of indigenous manpower and facilities in the oil and gas business.

With the low participation of the local manpower and facilities, a greater chunk of the industry spend is not domiciled in-country to create an attendant multiplier effects on the Nigerian economy.
Before the federal government made a bold attempt to domicile a large scope of the industry jobs in-country through the enactment of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act of 2010, only less than 10 per cent of the then about $12 billion spent yearly in the industry was domiciled in Nigeria.

However, the implementation of the NOGICD Act, better known as the Nigerian Content Act, has become a game changer as it has incentivised many indigenous players to invest heavily in capacity development to compete with foreign yards in certain scope of engineering and fabrication jobs.

Speaking in Abuja recently on ‘Promoting Investment and in-country Value Addition through Nigerian Content,’ at the Sixth Practical Nigerian Content Conference, the new Executive Secretary of Nigerian Content Development and Monitoring Board (NCDMB), Mr. Simbi Wabote clarified that the focus of Nigerian Content is not ‘Nigerianisation’ of the oil and gas sector, but rather ‘domiciliation’ of value-adding activities

Landmark achievements
Though the NOGICD Act is not “Nigerianisation” of the oil and gas sector, it stipulates that certain scopes of jobs in the industry must be performed in Nigeria and by Nigerian facilities and manpower, thus ensuring the retention of the industry spend in the country to boost the economy.

By domiciling certain scopes of jobs in-country, the Act has incentivised indigenous providers of services to invest heavily to build capacity to be able to meet the expected demand in more challenging jobs.
Enumerating the successes recorded in the past six years, the immediate past Executive Secretary of NCDMB, Mr. Denzil Amagbe Kentebe had noted that the agency’s interventions on compliance had increased participation of Nigerians in oil and gas contracts from less than 10 per cent to over 80 per cent, stressing that the country now has a new class of indigenous entrepreneurs carrying out businesses that were hitherto done abroad.

He said prior to the enactment of the NOGICD Act, Nigerian indigenous companies were producing three per cent of Nigeria’s oil and gas but are now producing close to 10 per cent with a target to achieve 30 per cent by 2020.
In the area of manufacturing intervention, to maximise utilisation of Nigerian-made goods, the Nigeria Oil and Gas Park Scheme (NOGaPS) is being implemented to establish specialised parks for manufacturing variety of equipment, components, accessories and chemicals for the oil and gas industry.
Already three sites have been secured in Imo, Cross River and Bayelsa States.
Through NOGaPS, the country plans to develop Small and Medium Entrepreneurs (SMEs) to become Original Equipment Manufacturers (OEMs) of the future.

Also the Liquefied Petroleum Gas (LPG) cylinder manufacturing initiative is being implemented to promote local manufacturing of LPG cylinders. Pipe Mill project was also conceived to address current gap in supply of Linepipes in the oil and gas industry by promoting establishment of at least four pipe mills by 2018.
In the area of asset ownership, NCDMB’s Marine Services Strategy and Offshore Rig Acquisition Strategy has created a new wave of indigenous owners of marine assets servicing the oil and gas industry.
With the heavy investment made in the development, indigenous facilities are now able to handle fabrication of production platforms; testing of Hyperbaric Chamber for Subsea Control Modules and testing of Landing Strings; in-house bending of Hydraulic Tubes for Trees; advance insulation technology; and Wireline Pipe-Recovery.
Also for the first time in the history of Nigeria’s oil and gas sector, Offshore Living Quarters was built in a Nigerian yard for Total’s Ofon 2 Project.

Shell Nigeria Exploration and Production Company (SNEPCo) has also successfully used Nigerian engineers to refurbish five Subsea Trees in-country, thus consolidating its leadership role in pioneering local content initiatives and also setting a new record in Nigerian Content among the international oil companies (IOCs).
While many Nigerian yards – Aveon Offshore, Dorman Long, and Nigerdock, among others, have recorded landmark achievements in Nigerian Content development within the past six years, LADOL’s integration facility in Lagos is reputed in the oil and gas industry as a game changer in Nigerian Content.
Nigeria’s over 50-year- old oil and gas industry has more than 14 Floating, Production, Storage and Offloading (FPSOs) all built in foreign yards.

After the main FPSO was built in the Korean yards, some of the structures such as the modules, platforms, bridges (gangway), helipad, among others, were fabricated in Nigerian yards and shipped to Korea for integration into the main FPSO before the FPSO sailed to Nigeria.

But LADOL, in partnership with Samsung Heavy Industries (SHI) of South Korea, is now constructing an FPSO integration yard, a legacy investment that will be completed in 2017.
The project will be used for the integration of Egina FPSO and indeed, all future FPSO built for the West African sub-region, as well as ensuring that over 50,000 Nigerians are gainfully employed directly and indirectly.
The integration facility, which is expected to gulp $300 million, will first be used to integrate the $3.3 billion Total Upstream’s FPSO being built by SHI for the $16 billion Egina deepwater field.

Speaking recently on the progress of work at the facility, the Managing Director of LADOL, Dr. Amy Jadesimi said the construction of the fabrication and integration yard, which is the largest of its kind in West Africa, had been completed.

“We have the capacity for the largest crane in the world really, but definitely the largest in West Africa. We have now completed the erection of our shore crane, which is over 100 metres tall and it is the second tallest of its kind in the world. So, we have really come a long way. We are now busy in the yard fabricating modules for Egina FPSO. This is a complete game changer. By enabling the FPSO to berth in Nigeria, you are focusing the entire world attention on the ability of the country to now do the largest project in the world in-country. It changes the way local content is done,” she explained.

Jadesimi said the local demand for fabrication and engineering would increase four-fold, adding that human capital development and building additional capacity throughout the country would be the next challenge.
“Right now, we don’t have the capacity to meet the increasing demand the yard is going to bring into the country. The reason you have so many yards in countries like South Korea is that when the FPSO arrives, you actually have 10 or 20 companies all working in that project. So, we need capacity development across the country and we are looking forward to the FPSO arriving so that our President can be the first president in Africa to stand on the deck of an FPSO in his own country, surrounded by other world leaders,” she added.

Expected impact of Buhari’s ‘7 Big Wins’
Despite the gains of the local content, indigenous operators who have invested heavily to build capacity are still badly hit with lack of jobs, due to continued outsourcing of jobs for which there is local capacity and capability, thus leading to empty yards.

According to the pioneer Executive Secretary of the NCDMB and President of Global Local Content Council (GLCC), Mr. Ernest Nwapa, with oil prices falling more than 70 per cent, E&P sector has also cut capital expenditure and deferred major capital projects.
These challenges have left indigenous services providers with few jobs to compensate for the heavy investment in capacity development.

However, the Petroleum Industry Roadmap, better known as ‘7 Big Wins,’ developed by the Minister of State for Petroleum, Dr. Ibe Kachikwu, is an ambitious attempt to address the plethora of challenges.
Speaking in Abuja recently at the Sixth Practical Nigerian Content Conference, Nwapa said the ‘7 Big Wins’ was an indication of a renewed focus on key areas such as security, policy and regulation, business environment and investment drive, and gas revolution.

“Therefore, despite continuing volatility and challenges, it is imperative that National Content be re-energised for today’s operating environment,” Nwapa added.
For LADOL, the ‘7 Big Wins’ should address the issue of lack of level-playing field in the industry.
Jadesimi said having developed an investment that would provide 50,000 direct and indirect jobs, her company had demonstrated that it can transform the country by transforming the industry through long term investment in strategic infrastructure.

“In order to do more of that and in order to make it easier for the next person than it has been for LADOL, the main thing to make easier is to have level-playing field. Everybody should be treated equally; contracts should be tendered fairly; tenders have to be started and finished on time and people who subvert the tendering process and people who get contracts and then inflate the prices have to be excluded from the market to show that it is no longer business-as-usual,” She said.
Nwapa on his part, added that the next step should also include extending local content to the other sectors of the economy.

“Local content will enhance domiciliation of industry spend, improved training, funding and development of our agro technology. A thriving gas industry will also ensure that key input such as fertilisers are locally produced at competitive prices,” he added.

Job outsourcing, absence of level-playing field and non-linkages of local content to other sectors are some of the challenges the ‘7 Big Wins’ should address.
In the words of Nwapa, “National Content should remain a priority in the oil and gas industry, at the minimum, to ensure that significant gains made by the NOGICD Act of 2010 are not reversed.”