Charles Majomi is the Managing Director/CEO, Trajan Energy Ltd, a strategic consulting firm, and also an adviser to the federal government on Gas-based Industrialisation. He had previously worked as an adviser to Xenel Industries of Saudi Arabia, one of Kingdom’s largest petrochemical facilities. Currently providing strategic advice to the highest echelon of the Nigerian government on gas strategies, Majomi speaks extensively with Kunle Aderinokun on how the government industrialise Nigeria with its abundant gas resources, gas master plan, Petroleum Industry Governance Bill (PIGB) and upgrade of refineries as well as the perennial crisis in oil-rich Niger Delta region. Excerpts:
Among oil-producing countries, Nigeria has proven trillions of standard cubic feet of gas in reserves, but nothing much has come out of it. Can you really call Nigeria a gas nation? And talking about gas-based industrialisation, can Nigeria be a gas-based industrialised nation?
Nigeria is indeed more of a gas nation than an oil nation. In fact we have the 9th largest reserves of gas in the world; I think it is close to 6 trillion standard cubic feet of gas. The question is that, why is it that we failed to take our place amongst the great gas nations? To answer that, I will say it is an issue of gas utilisation. If you look at our gas utilisation portfolio, you will see it is 51 per cent export orientated, whereas the needs that we have for gas to power and industries are not fully addressed. Why do we need to rebalance this portfolio? The need is directly related to this spectre of our population exposure.
By many accounts, by the year 2050, we will have close to half a billion people in this country. We need to add value to our resources in order to create jobs. What do I mean by that? We export our gas in form of LNG, it is processed abroad and returned to Nigeria at a high cost to us. Why can’t we take that gas, process it locally and in so doing, add value to the resources, create jobs, create better stability and provide training for our teeming population of youths? I should also add that Nigeria is the only country of its size with this size of gas endowment that does this. Saudi Arabia does not export its gas. It takes all its gas and utilises it locally and as a result, it is able to create employment and give its population the kind of security it deserves. Smaller countries with large gas reserves such as Qatar export gas after it has fully utilised the benefits of its own local population. We are the only country that has the kind of profile and actually operate the way we do.
What do you think the government should do to harness these resources?
It is not that the Nigerian government has not done anything. The gas master plan, which was initiated in 2008 set a specific roadmap for the utilisation of our gas domestically. Even prior to that, we had the infrastructure blueprint that outlined what needs to be done on which the gas master plan was based. What we need is the government’s will. We’ve attempted to do in different places. For example in Ogidigben which is known as the Gas Revolution Industrial Park in Delta State, probably the boldest one, but it has not succeeded yet. Then, you have the Dangote Industrial Complex in Lekki, Lagos. That one is another bold attempt to create gas-based industrialisation through the development of a urea plant and an oil refinery, but again it is moving at a slower pace. What are the reasons for this? If you look at the country as a whole and various enclaves where gas based industrialisation has been attempted, we see recurring dysfunctionalities. Number one, in spite of being a gas-rich country, there is a lack of processed gas feedstock. Number two, there is a lack of pipeline infrastructure to deliver the gas from where it is created to the place where it is needed as a feedstock. Number three, we see a very, very disturbing recurrence of host community agitations, specifically where brownfield projects are being attempted which lead us to believe that what may be happening is that the ugly face of conflict enterprise is actually happening here in Nigeria. That is when you have the government or private sector contemplating a large investment in a particular area, you will find that the conflict is driven as much by genuine grievances as by opportunists within the sector, who see it as an opportunity for state and benefits capture. For example, if you have made considerable investment and feasibility studies and you have clear the ground, and about to start your operation, you are substantially invested, we find out that that point that this so-called conflict entrepreneurs emerge and exacerbate existing conflict in a community in order to stop the project and extort money from the project or the government backers, thereby embarrassing the government politically and extorting money from the investors, who have already gone far. There are varieties of issues. I think these are the issues that are most important.
Do you think the Gas Master Plan was well conceived?
Dr. David Ige is a very good friend of mine; we worked jointly on some aspects of the master plan. I think at the time, it was well-intentioned and as a document, certainly, it was sound. However, it was without bespoke consideration of the peculiarity of the Nigerian State. I think the gas master plan is an evolving concept. I think now the opportunity is to really bring it down to the level of application in the Nigerian context and that is where we are. If the government provides the right will, it will surely succeed, but there is a lot to be done before it can actually happen.
What do you think of the new gas regulatory framework, which raised the penalty for gas flaring from N10 per cubic feet to $ 2.50?
You know gas flare came about as a result of it being associated with gas. Associated gas is gas that is produced at the wellhead by default while oil producers are producing oil. This gas is a kind of a byproduct of oil production, which isn’t injected for an operational benefit, that is, to force out the oil from the ground and is flared. Before the regulation, there was a lot of disincentives to cease the flare, from a flare point of view, it was too low, which means, it was better to pay the fine than to make the necessary optimisation that could lead to the cessation of the flare.
The other issue that needs to be addressed is the fact that the gas flare penalty itself was a tax-deductible expense on the oil companies. So, you can imagine not only was it a very low cost, but it can also be deducted from the tax liability of the company involved in gas flaring. In fact, it reduces their tax burden without impunity from them. So, there was a very little incentive to reduce it. So, this gas flare regulation that has been put in place now is a very significant milestone. If you look at the correlation between its imposition and reduction in flare in the coming months, you will see that it will make a very sizable impact. I know that it has enabled the Nigeria gas flare commercialisation programme, which is ongoing in the Ministry of Petroleum Resources and which seeks to monetise the gas flares through commercialisation and we watch with great interest as this unfolds.
As a gas expert, don’t you think it is better to have incentives for oil companies utilising gas than to say if you flare it, we will penalise you. It should be so incentivised that you will be attracted to use it, rather than flare it.
My answer to that is that a company, which comes to Nigeria to produce oil, has no business doing anything else. It is coming to Nigeria to do oil on a commercial basis, often to export it; so to impose any obligations on it beyond its original mandate, I think is onerous and perhaps unreasonable. But that is not to say that there is no synergy between the gas that is being produced and users of that gas in Nigeria. There has to be a way that associated gas can be commercially viable as well as being beneficial to the operator whose core business is oil production. That synergy, I think the Nigerian gas flare commercialisation programme has pursued very successfully and I am looking forward to a successful outcome.
There is an upgrade of NNPC refineries, whereby new investors are expected to put in money, by way of a contractor financing model. What is your take?
I think that at this time, any kind of innovative format in that context will be welcome. The devil is always in the details. We have tried many approaches towards reviving the refineries. I think that giving the right incentive, there can be the public-private partnership towards doing it, whether it is on forward sale basis, whether it is on product exchange type basis, but I think that the number of different paradigms should be examined and I think we should learn very harsh lessons from what has not happened in the past, because there has been a lot of failures as well.
The $2.8 billion Ajaokuta-Kaduna- Kano (AKK) natural gas pipeline project, a 614-kilometre pipeline infrastructure, which when completed would create a network of pipelines between the eastern, western and northern region of Nigeria, is due to commence this October and be completed in 2020. What do you think of it?
While we have considerable pipelines going into the South-west of the country, talking about the ELPS (Escravos-Lagos Pipeline System(ELPS) in particular and the plan to build the ELPS 2, we cannot leave out the north of the country in our development. There is a large population in the north; certainly, without gas being piped economically to the North, there wouldn’t be the kind of industrialisation that occurs more naturally in the South-west and in the South-south, where the resources are more proximate. I am all for it and I believe when in place and given the large population in the north, and the need for power in that region, you will see a revival of wide-scale industrialisation in the north.
Let us go back to the utilisation of gas, in this case, LPG. As a gas nation, why is it so difficult for most households to have cooking gas used in their homes?
I am glad you asked me about LPG because LPG reflects another paradox of wasted potential. We are the second largest producer of LPG on the African continent, second to Algeria, yet our per capita LPG usage is certainly the lowest in West Africa. The majority of our LPG is imported, while the LPG we produce, we export. We have a dearth of infrastructure when it comes to storage and distribution of LPG, especially into Inter-land. The cylinders are looked upon as beyond the reach of most people to afford as well. So, you have the notion of LPG especially in the rural areas as being a rich man’s fuel. In fact, the impact of that has been that we have the highest mortality rates when it comes to cooking fuel amongst women. There is a number of dysfunctionalities, many of which one might say is deliberate, within the LPG value chain precluding us from taking our place as a major LPG producer in this country. If you are looking at some of the reasons, for example, the importation of components that you will require to make an LPG plant, where we are seeing tariffs as high as 40 per cent while the importation of LPG in other countries is zero tariff. I am not saying that there should be zero tariffs, but 40 per cent on the component part is punitive.
We are also looking at the regulatory point of view, there are multiple regulators in the industry, while the Petroleum Industry Governance Bill (PIGB) outlines the need for a single regulator, you can see that this is all the more needed in the LPG industry where we really should be to reduce cost, we should kind of cut down on the amount of regulation going on right now in the industry.
Talking about PIGB, President Muhammadu Buhari is withholding assent to it and the way it is, it is like it is going to have a serious impact on investment. What kind of impact do you think it will have on investment in the industry?
Looking at the PIGB is a sort of compromised outcome of a very under arduous process under the PIB itself. The final document, PIGB, was in many ways a victory for the National Assembly. They were able to harmonise and come up with a document that works. We in the industry didn’t believe it was going to go forward. Without commenting on the political reasons why it didn’t or the good or bad why it didn’t, certainly, it sends a very negative message to the industry in terms of investment. We don’t consider that it is dead. We believe maybe there is a hiatus right now, but we need the passage of the bill in order to move forward. And I think moving beyond even the PIGB, we are looking at the other bills like the fiscal bill, host community bill, PIAB and others. All these are essential to the development of the country.
What do you think is the fate of the other bills since PIGB is yet to be assented to, a long time after it was passed by the National Assembly?
Well, you cannot extricate the fate of these pieces of legislation from the wellbeing of the industry. Whether it doesn’t happen now, it must happen tomorrow for this industry to move forward. We must take the necessary steps to address the issues from the legislative point of view, in order for us to allow this nation to move forward and in order for us to increase our upstream production and take the industry forward. There is no way out, It has to happen eventually.
Let me add that in this context, Nigeria should understand that other nations that didn’t exist before and are now the darling of the energy industry in Africa. You have countries along the East African seabed that have the greatest proximity to deficit markets in China and India that are moving ahead. You have Angola that overtook us in production, you have Ghana next door with the Jubilee field that has already passed its own version of the PIB. Like somebody said, if we don’t take care, we will drink our oil like Coke. You have Europe now that is talking about clean energy, no gas, no oil by 2025. We have to understand, who we are in the context of the global development, otherwise, by the time we get our act together, there will be no more market for us.
What is your take on this expected coming on stream of Total Egina FPSO with about 200,000-barrel production daily capacity?
Thank God, this is a very welcome development. It shows you that actually, where there is will, met with opportunity, we can actually take this thing forward. I wish that this is a beacon to the industry that despite the challenges, it is possible for us to increase our production and to actually take things forward in the industry. I think it is something we should look at and emulate as much as we can.
Generally, what is your assessment of the oil and gas industry?
My assessment of the oil and gas industry is that there has to be a paradigm shift in the way we view ourselves in as an energy nation. We cannot look at it from a rent-seeking point of view where we take it out of the ground, we put it in the ship and send it abroad, we make the money and we spend it. We have to take a much closer look at our oil and gas and the way we utilise it. We have to add value to these resources. We have to see it as critical to our own internal security, to the security of future generations, to the security of our nation as a whole. We cannot allow anymore this kind of neo-colonial approach to energy development, whereby we take it out of the ground, we don’t even operate, we have an operator to tell us how much we produce, because we don’t have a proper metering system for our oil and gas, the operator send it to their facilities aboard, processes it and sends it back to us as a finished product at high cost. We cannot continue doing that. We are exporting jobs, we are giving value to other people to our own detriment while our population is exploding. It makes very little sense.
Back to gas utilisation. Often times, the excuse that is always being given when it comes to electricity generation, is that there is no gas. Can you give a value proposition for an enduring seamless supply to our gas-fired power plants?
There are a number of things we have to do. Number one, we have to make it profitable for oil producers to sell gas into our national grid. We are talking about fiscal review concerning pricing of gas, the domestic supply obligation: is it feasible in the context of current production?
The issue is that of delivery of the gas. Do we have to have the knowledge, who is going to build these pipelines? In my opinion, there has to be a role government will play and I look at it as a social investment. The government has to finish the preliminary gas network. They should be able to take the gas into the grid so that producers of electricity are able to extract that gas at low cost and feed it into the turbines. There has to be a synergy between government and producers of power that is bankable. What do I mean by that? If I am a producer of gas and you are forcing me to give a portion of that gas into the local for domestic use, there has to be the pipeline for me to do so, that pipeline builder wants to make sure the gas would be there when he finishes building the pipeline. The guy who has the power station wants to make sure that if he wants to upgrade his capacity, there has to be sufficient wheeling capacity of that gas through the pipes that will be there in time for him by the time he makes the upgrade on his facility. There is no point building a facility if there is going to be no gas. So, it is a careful symphonic orchestration between the upstream gas producer, builder of the infrastructure and the off-taker. All these things have to be in place in a manner that is credible to support the bankability of each of this project, otherwise, it is a chicken in the egg and nothing will happen.
Sometimes ago, there was a gas project called West African Gas Pipeline Project done by Nigerian Gas Company. What do you think of the project? Don’t you think the project was a misplaced priority, while Nigeria is trying to do West African gas pipeline, the whole country was not yet networked. Don’t you think it would have been better for Nigeria to have done the national gas pipeline, before that one?
I think it was well-intentioned for a number of reasons. For commercial reasons? Certainly for commercial reasons. But more for a strategic geopolitical reason. The West African Gas Pipeline Project was intended as a component of a larger pipeline system that would have allowed us to take gas to Euro which would have been a competition to gas coming in from Russia. There are geostrategic implications for that. Currently, we are supplying Takoradi Power Station through the West African Gas Pipeline system. That is a credible off-taker. It is a revenue generator for the country. I think at the time it was conceived, we projected that we will be much further along in terms of our national development with respect to gas than we are currently. So, it was well-intentioned, but in retrospect, the reality is that certainly, there is a greater need now than we had anticipated that would be at this time. So, you can retrospectively say that our priority would probably be best served to feed our own needs. But I think having the West African Gas Pipeline will be of strategic long-term benefit to this country.
What is your area of specialisation?
My area of specialisation is gas-based industrialization and devising strategies for nations to best leverage their resources to the benefit of their people and energy security. My training was in the UK and the United States and I have worked across the world, both in the UK, the United States and Kingdom of Saudi Arabia where I worked with a very prominent petrochemical company called Xenel Industry, which was to be one of the anchored investors in the Ogidigben Industrial Park. In fact, I came back to Nigeria with them as their lead business development consultant. That is how I got back here and I worked with NNPC and David Ige as their lead business development consultant. That was how I came back to Nigeria after many years of working abroad. I decided to stay, to do my best to address what I perceived as the obstacles to industrialisation in this country having experienced them firsthand
You kept on talking about Gas-based Industrialization, GBI, how do you think this will impact the economy. What is the multiplying effect?
There is a direct impact on GDP that we have been able to determine. In fact, one of the things we have done in providing our advice to the government in the past is assessing what is the economic impact of the volume of gas it will be if it were exported versus what it will be if it were fed into the local economy and what we see is an exponential difference in the value, if you were to bring it locally and feed it into the domestic value chain. Through the economic multiplier effect, you will be able to contain, for example, let’s say, two billion standard cubic feet of gas, under certain utilisation strategies of gas such as urea or ethane production, could create as much as a million jobs. Whereas if you are to take that value or that same quantity of gas and put it into export, which is what we are doing of more than anything else, it will be several thousands of jobs, not even up to 50, 000 or 20,000 jobs, you can see that this multiplier effects on the domestic market vastly outweigh the impact in export. It is a mere common sense.
Given this problem, how can Nigeria kick-start this thing in the short run?
Let us not obfuscate the challenges ahead. I will not want to simplify the issues such that they will be such that these things could get done in a certain amount of time. However, we have discovered that there are certain optimisations that occur that could bring about gas-based industrialisation in a relatively short period of time. What are those optimisations? What we found is that in the midstream, there are a number of mature assets that already exist. In other words, these are things that pre-exist, they already have all the components required to become alive. What are those things, power, gas processing facilities, road, pipeline, potable water, housing and security etc? The aspect of co-location which is basically leveraging these assets already existing in order to drive more projects is something that the government should look at very carefully. It is an optimisation in the midstream through co-locating facilities. That is how given the challenges we have, this is the way of circumventing this monstrous issues. An example is something that recently happened in Ikot Abasi, where you have an aluminium smelter company, ALSCON, that was moribund. However, you have the Akwa Ibom power plant locally that was supposed to service it, you have a substantial amount of gas going there that was supposed to be the feedstock and you have the Ibom port. The idea that rather than just letting the thing go to waste, you can actually locate the fertiliser plant there. We are gratified that the NNPC has taken the decision to go into a joint agreement with Nagajuna of India to do just that. This kind of innovative mainstream optimisation is exactly what we can do in the short term to kick-start industrialisation in this country, giving the tremendous challenges with funding, host community and the others that we face. Once you have created one viable project, you would have dispelled the myth that GBI is not possible in Nigeria. And that goes a long way to sending a signal to the international community that things can actually happen here in Nigeria despite the challenges we face. And right now, given the massive problems we are facing with our population, the need to create jobs for teeming youths, we must start to thinking seriously about we are going to use our resources and add value to them.