Having failed to build local capacity in the over 50 years of oil exploration and to save for the raining day during the oil boom, Nigeria’s economy is now struggling for survival in the face of oil price downturn. In view of this unfortunate development, stakeholders at the just concluded Practical Nigerian Content (PNC) Conference in Yenagoa, Bayelsa State, barred their minds on how Nigeria can begin to reposition its oil and gas industry for the next oil boom, if it will ever come. Juliet Alohan was there and reports
The discovery of shale gas in the United States and China marked the beginning of turbulence in the global oil market, as it later saw oil prices plummeting to a record all-time low.
As the falling oil price continues to have serious implications for government revenue and adversely affecting Nigerian citizens and every facet of the economy, experts have been speaking on how the country can prevent a repeat of mistakes made decades ago from reoccurring in the future.
The country, they say, has been caught completely unprepared by the downturn in global oil market after falling to prepare for the price shock, despite many years of favourable oil prices.
For Nigeria, the consequences of failing to plan ahead are far -reaching. It has resulted in cash squeeze; inability to fund capital projects or even pay workers salary in some cases, even as the Central Bank of Nigeria (CBN) continues to struggle to defend the Naira due to the country’s dependence on oil for foreign exchange and revenue from it, as the mainstay of the economy.
Experts at various fora have stated that for an economy such as Nigeria, which is 95 per cent dependent on oil for its foreign exchange earnings and 85 per cent dependent on it for revenue, the present scenario in the oil industry is definitely one to worry over.
They posit that the dilemma the economy faces today is as a result of mistakes made in the past when oil was first discovered in Nigeria, and to correct those mistakes and to reposition the country to optimally benefit from future oil boom, stakeholders have advocated various strategic measures, which include reasonable local content interventions.
As indigenous participation in the Nigerian oil and gas continue to evolve, stakeholders harp on the need for the federal government to further support local players with a view to ensuring that they continue to successfully expand their frontiers and gain dominance of the sector.
They note that improved indigenous participation is critical for the sector. The chairman of the Petroleum Technology Association of Nigeria (PETAN), Emeka Ene, maintained that the solution in the industry does not rest with only the International Oil Companies (IOCs).
He explained that there are many ways in which Nigerian companies are doing a lot to grow the sector, adding that they can offer more with the right support.
He said: “We can achieve quick wins, for example in the area of gas supply, Nigeria companies are helping to decentralize the process, contributing to gas supply and planning increased production, but this will only work if we work together as an industry.
“We shouldn’t lose sight of the fact that the industry is long term, although we are barrel oil, we have to face the reality that we are stock with $40 and $50 a barrel oil,” he said.
To this end, he stressed the need for investing in existing capacity, pointing out that reserves and production levels are best established during a tight oil market. “The basic street sense is buy low and sell high, the time to increase reserves is now not when oil price is at $100, so we need to focus on growing our reserves during a tight oil market,” Ene stated.
In terms of reserves and production, he regretted that we had a situation where as a country, we failed to save money during the time of very high oil prices, even as very few contracts were approved.
“The result is that today during the downturn in oil prices, they are drilling cheap wells in the Middle-east and their rig count is going up, but the rig count in Nigeria is dropping drastically. The result is that we now have a decline in exploration activity and a decline in our reserves, that’s not good for the next oil boom that will come.
“Therefore as an industry, we need to reduce the turn-around time of our contracts. You have contracts that take three to four years to gestate, if we are going to move forward to the next phase, we need to promote real local content. Companies which have invested money in capacity need to be supported, companies that have no intention of doing that need to take their position on the queue,” Ene said.
He stated that small and medium independent indigenous companies can branch out to modular refineries, adding that exploration successes will be rewarding for the country’s economy.
But to achieve this, he said, more investment is needed to boost local capacity, adding that while there is a growth in the number of companies and people engaged in the oil industry today, there still exists a gap between the actual registrations and those that are pre-qualified for jobs.
Funding Local firms
For the chairman, Oil Producers’ Trade Section (OPTS) Clay Neff, funding of local oil firms and joint venture projects is key to positioning Nigeria for future benefits in the oil market.
Neff who is also the managing director of Chevron Nigeria Ltd, said despite successes recorded so far in the industry, the decline in oil prices have significantly impacted viability of new projects, thereby forcing operators to review every aspect of their operation.
He pointed out that lack of funding has limited the progress of capacity development, noting that the industry would need more funding for strategic and operational capacity development issues.
“Today it is imperative that every dollar we spend delivers significant and commensurable value. We have lack of access to funding by local businesses, we have inadequate funding for further assets development including joint venture,” he said.
According to him, issues of adequate funding for local businesses, security, closing gaps in supply chain and infrastructural development, particularly power, which supports industrial development, should be addressed for short and long term gains.
Some of these challenges, he said, require collaboration to come up with more tenable solution for the future. “We need to continually push for holistic solution for addressing these challenges as they constitute major bottlenecks in unlocking the sector’s potential in every direction including Nigerian content. There is a need to focus on what works, refining areas of inadequacy,” Neff said.
“I will like to mention two key areas where there is still more we can do together collaboratively and that’s in the area of capacity development and stakeholder collaboration,” he added.
Growing indigenous participation
According to the executive secretary of the Nigerian Content Development and Monitoring Board (NCDMB) Denzil Kentebe, five years into the implementation of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act, has created a national consciousness on the socio-economic benefits of promoting Nigerian content as a national development agenda.
He maintained that having successfully established indigenous oil and gas companies of the future with capacity to deliver high-end services, Nigerian jobs and money are no longer being exported.
The board’s interventions on compliance, he said, have increased participation of Nigerians in oil and gas contracts from less than 10 per cent to over 80 per cent presently.
However, there still exists capacity gaps towards which the board is implementing flagship programmes, especially in the areas of infrastructure, equipment, assets and facilities, Kentebe disclosed.
Some of the interventions and their intended socio-economic impact include manufacturing intervention to maximise utilisation of Nigerian made goods such as pipemill, and Liquefied Petroleum Gas (LPG) cylinder.
He added that the board is also intervening in the area of asset ownership to transform ownership profile of marine assets to Nigerians, a development he said, has resulted to a growing number of indigenous owners of marine assets, servicing the oil and gas industry.
“We are now well positioned to galvanise the industry towards local construction, repairs and maintenance of marine vessels and rigs. From 2016 we will be insisting that Nigerian built vessel be given first consideration in tenders along with Nigerian owned vessels.
“Our intervention will see to the development of a thriving ship-building industry with all the benefits in job creation, retention of revenue and technology acquisition,” he said.
Against the foregoing, Kentebe stated that the federal government’s aspiration for the oil and gas industry, include promoting the participation of Nigerians in the industry activities and enhancement of multiplier effect of oil and gas on the economy, is on course.
Meanwhile, prior to the enactment of the NOGICD Act, Nigerian indigenous companies were producing a meagre three per cent of Nigeria’s oil and gas, but today they produce close to 10 per cent of total production output, with potentials for growth given the right support.
With recent divestments and deliberate local content requirements, indigenous producers are set to achieve the target of 30 per cent contribution to production output by 2020.
Data obtained from rigzone.com shows that there are 31 rigs in operation in the Nigerian oil and gas industry out of which 12 operate in swamp terrain. Out of these 12, nine has over 50 per cent Nigerian ownership, an indication that Nigerians are coming of age in rig acquisition which was previously dominated by the IOCs.
In this regard, the board stated its intention to further promote ownership of oil rigs by Nigerians, stimulate investment in facilities associated with deployment of rigs, maximize indigenous manning at all levels in oil rig drilling and domicile sourcing of all third party contracts and services associated with deployment of oil drilling rigs.
Source : Leadership