Surviving Changing Global Energy Landscape

Timipre Sylva

Industry players have continued searching for workable solutions to the many challenges now besetting the oil and gas sector writes Emmanuel Addeh.

Unlike in the past, when major ‘tsunamis’ that impinge on the smooth working of the oil and gas sector could be accurately predicted, the coronavirus pandemic took the industry by surprise and has since then sent shock waves through the global oil market.
In a country whose foreign earnings and budgetary revenues come from oil exports, the impact has been even more devastating, leaving corporate concerns reeling and government agencies looking for ways to subdue the headwinds.

With oil accounting for 60 per cent of government revenue and 90 per cent of foreign exchange and Nigeria’s break-even oil price at about $133, the highest in the world due to high refining costs and inefficiencies within the system, according to Fitch Ratings, the country was at a time generating losses for every barrel it produced.

Generally, the most prominent of the measures taken to quell the storm, have been to cut costs, renegotiate contracts and at the national level, award of some assets, including marginal fields, which is being handled by the Department of Petroleum Resources (DPR) and re-tweaking the laws governing the industry.

In one of the meetings to brainstorm on ways to check the challenges, petroleum engineers last week gathered decision makers in the industry to talk about the way forward and how those decisions would impact the long-term sustainability of the oil business.

During the event which drew participants from the public space and corporate organisations, representatives of the federal government enunciated what was being done and what needed to be done to surmount the unexpected storm that has confounded the entire globe.

For instance, it noted that rejigging the laws would be a win-win for the government, the International Oil Companies (IOCs), host oil communities and the generality of Nigerians

The federal government said when passed, the Petroleum Industry Bill (PIB) will change Nigerians from being mere spectators to active participants in the country’s oil and gas industry.

It said that the bill which is expected to be presented before the national assembly any time from now, will also address most of the issues that cause restiveness and anger in the Niger Delta, where Nigeria’s oil and gas reserves are mostly found.

Speaking during the opening ceremony of the Society of Petroleum Engineers (SPE) Nigeria Energy Industry Transformation Summit (NEITS) , Minister of State, Petroleum, Chief Timipre Sylva, noted that the Covid-19 pandemic has made indigenous participation in the oil and gas business imperative.

The theme of the programme was “Changing Global Energy Landscape: Repositioning for Industry Sustainability”.
Sylva noted that given that the end of the precarious situation is not in sight, Nigeria must deliberately pursue a policy of being largely self-sufficient in activities in the oil and gas industry.

“Before the NOGICD Act 2010, Nigerians were mostly spectators in this industry. The last 10 years saw an exponential growth in the number of Nigerian service providers.

“With the pandemic, encouragement of local Industry participation is now an element of national strategy and sustainability. The proposed PIB will further encourage the participation of Nigerians in various oil and gas activities” he said.

He added that the declaration of 2020 as the year of gas is now being pursued through the national gas expansion programme to deepen gas penetration and avail Nigerians options for alternative fuels and cleaner environment.

Sylva posited that the onus now lies on experts to take advantage of the opportunities created by the pandemic to use cleaner energy, noting that it is a wake-up for Nigeria to reduce its dependence on oil.

“Therefore, we must rejig the petroleum industry and energy framework to chart a new course. In the ministry, all efforts are being made to sustain the current relative peace in the Niger Delta for sustained investment.
“The proposed PIB takes care of the foregoing to put Nigeria among the list of investment havens. It’s our belief that the future is bright and attractive for the Nigerian petroleum industry” he stressed.
The minister opined that Nigeria’s yearning for stable power supply cannot be achieved without greater focus on gas, saying that the growth of the Nigerian economy is hinged on constant power supply.

“Nigeria has favourable conditions to bring electricity to its citizenry at modest cost compared to many other countries. In collaboration with stakeholders, the ministry of petroleum resources wishes to ensure that we convert the massive amount of gas being flared at the moment to energy for Nigerians at affordable rates.

“A significant network of our additional gas pipelines is a priority. The AKK is part of the important steps in this direction. An optimal framework for electricity generation based on natural gas will provide a strong basis for providing electricity to Nigerians.

“Based on increased gas production, stable electricity and gas framework , Nigerians will be able to attract further investment. A gas pricing committee is currently at work and the PIB will provide a wide variety of features to ensure that natural gas is provided in the medium and long term.

Sylva explained that with the national gas expansion programme, existing policies, legal and regulatory framework and commercial instruments that hinder the development of the local gas sector were being reviewed.

“Strategies that will promote cost-effective distribution of the various gas streams by marine , rail and road for achieving most accessible and affordable are being formulated while deepening of Liquefied Petroleum Gas (LPG) penetration, auto-gas, Compressed Natural Gas (CNG) is on, he noted.

In his remarks, the Group Managing Director, Nigerian National Petroleum Corporation (NNPC) Mallam Mele Kyari, said despite all the arguments, oil will still add 70 per cent to the energy mix by 2040.

He opined that Nigeria must seek sustainability, while businesses must focus on people and survival, maintaining that what the industry is going through is simply a a transition, not extinction.

Kyari said the coronavirus pandemic has, more than ever, reinforced the need to upscale the human capacity within the industry for the next phase, and develop the capacity to attract, train and retain people in the sector.

“There must be collaboration across different dimensions; government, industry, academia and, particularly, with the communities where we carry out our operations.

“The social license to operate is critical to the industry’s long term survival. Also, partnership among industry peers to chart new ways of resolving industry challenges and preparing for tomorrow cannot be over emphasised” the GMD submitted.

Kyari said that for the Nigerian petroleum industry to move forward in the face of the covid-19 pandemic, stakeholders will have to evolve innovative ways to reposition the sector for sustainability.

He stated that industry players needed to train their eyes on a strategy that focuses on people, partnerships, profit and posterity, explaining that the new normal era brought about by the coronavirus pandemic has, more than ever, reinforced the need to up skill the human capacity within the industry for the next phase and develop the capacity to attract, train and retain people in the sector.

He disclosed that for sustainability, industry players must learn to manage cost, improve efficiency and deliver required cash flow (margins) for reinvestment and expansion, stressing that without creating profit today, “we wouldn’t be in a position to take advantage of the opportunities that keeps us viable and ready for tomorrow”.

Another key to reposition the Industry for sustainability, according to the GMD, is for industry players to always act and take decisions with posterity in mind.

“We must bequeath to the next generation a world worthy to live in. Our operations must therefore be carried out in a safe manner without adversely impacting the environment.

“As you know, most discussions around energy substitution or green economy stem from looking at the industry as ‘dirty’ and ‘unconscionable’.

“It must be reiterated that our Industry remains the bedrock of modern human existence. We must therefore work to create a positive view if we are to remain relevant in the long run,” he declared.

Delivering the keynote address, the President, SPE International, Shauna Noonan, clarified that the concept of energy transition was not to wipe out fossil fuel but rather an aspiration for cleaner energy.

She said the SPE, Nigeria Council, has a great role to play in reducing energy poverty, noting that energy transition was important for greater value in the global oil and gas industry.

Earlier in his welcome remark, the Chairman, SPE Nigeria Council, Mr. Joseph Nwakwue, said the society was ready to offer professional services and work with all stakeholders to move the industry forward.

He informed that part of the society was focused on capacity building to develop the required skill set for the oil and industry operations, stressing that it was what informed the choice of the theme of the conference.

Managing Director, Total E&P, Mr Mike Sangster, in his intervention, said the world will still need oil and gas for decades to come, noting that the company would like to be part of the transition, while working towards zero emission and efficient use of energy, reduce carbon intensity by 60 per cent and increase use of biogas and invest in biofuels.

Director, Department of Petroleum Resources (DPR), Mr Sarki Auwalu said the industry must adapt to survive, arguing that the industry must adopt cost control measures and optimise business processes.

He also urged the industry to embark upon strategic partnerships, cut unnecessary expenditure, and engage in vertical integration as well as diversification, portfolio rationalisation and asset optimisation.