Why Nigeria’s oil sector’s not growing – Abazie, Strides Energy and Maritime boss

Mr. Moritz Abazie is the Manag­ing Director Strides Energy and Maritime Limited, an indig­enous petroleum engineering services company.

He recently spoke on wide ranging issues bothering on Nigeria’s oil and gas industry that accounts for over 80 percent of the coun­try’s foreign exchange earning but regret­ted that the sector is really not growing as expected.

Abazie cited delay in the passage of the PIB, lack of investment in critical segments of the industry by government and the rising incidence of oil theft and van­dalism of key infrastructures as the bane of this growth.



Impact of US, China’s exploita­tion of shale gas on oil producing countries in Africa.

exploita­tion of shale gas on oil producing countries in Africa.

The global oil and gas system is undergoing dramatic changes as a result of the development of shale gas by US and China. Beyond these two countries, there have been discoveries of oil and gas in one form or the other in some non-tradi­tional oil and gas countries. In fact Nigeria also has shale gas that is yet to be explored.

The imminent attainment of en­ergy security by the US particularly via exploitation of shale oil and gas should not surprise anybody with more than a passive interest in global political economics; it has been a long time in coming. Energy security has been the goal of every US Fed­eral Administration for the past three to four decades.

This scenario is clearly detrimen­tal to the economic health of oil and gas dependent African countries if not well managed. I have mentioned in my previous public statements that further demand for energy will be driven by developing countries, much of this will result from eco­nomic growth in Asia. According to the International Energy Agency, the energy consumption by Asia including China will grow by more than 100percent over the next 15 to 20 years. Evaluating this against the backdrop of reports of declin­ing production in many existing oil and gas fields in the North Sea and Gulf of Mexico, we expect a good market price for oil and gas over the projected time window of 20 to 25 years. What these oil and gas dependent African countries will do with their hydrocarbon resources over this period will determine their future economic stability.

It is also worthy of note that the world will inevitably witness a shift from the present dependence on hydrocarbon whether shale or conventional to renewable energy for a sustainable future. However, conventional oil and gas will remain integral to the global energy mix for the next two decades at least.

How your acquisition of built-in-Nigeria pipe lay and business expansion can support the coun­try’s local content objective.

The Nigerian content vision of the Federal Government is to transform the oil and gas industry into the economic engine for job creation and national growth by developing in-country capacity and indigenous capabilities. In this way, a greater portion of the work will be done in Nigeria with active participation of all sectors of the economy and ultimately Nigeria will be positioned as the hub for service delivery within the west African sub region and beyond. To optimize the envisaged economic benefits, it is not enough for Nigerians to own the assets and equipments for oil and gas play, but it is important to have these facilities built or manufactured in Nigeria. The multiplier effect from the whole supply chain involved in the manufacturing process creates more jobs than that created directly by the industry operators.

We share the Nigerian Content vision and objec­tives of the Federal Govern­ment fully, that is why in our usual nature of surpass­ing expectations we built our latest Pipelay barge in-country. This facility will be commissioned later this month in Port Harcourt. We are adding to the local spend and job creation.

Oil/gas contribution to GDP and value addition to economy

The recent rebasing of Nigeria’s GDP has unveiled the hidden realities in the economy, because before now we were under the illusion that oil and gas sector contributed 32.43 percent to the GDP in 2013 for instance. But we now know that the sector’s con­tribution in that year was only 14.40 percent. This simply collaborates our assertions that the industry is not growing, the gains recorded from the new deep offshore fields were eroded by production losses from the onshore and shallow offshore fields resulting from disturbances in the operating environment. It may interest you to know that some of the fields that were shut in during the militancy era have not been re-entered till date. And as you know, GDP is a measure of value added to the economy.

The point that needs to be made is that the oil and gas sector has great potentials to help the country grow its economy and achieve develop­ment and stability, but we need to remove the structural defects and turbulence hindering it. In the report released by Mckinsey recently, they argued that the Nigerian oil and gas sector has the potential to contribute about US$108 billion yearly by 2030 as against the US$73 billion it recorded in 2013, that confirms what we have been saying.

Why petroleum sector’s contri­bution to GDP, job creation is low

Gross Domestic Product is a different thing from Foreign revenue, GDP as I mentioned earlier is a measure of value addition rather than sales, another way of under­standing it is that it is the difference between cost of production and value of output. Besides, not all goods and services end up in the international market to earn foreign revenue, yet they all contribute to GDP.

Regarding job creation, the oil and gas industry is highly dependent on technology and this limits the size of job it can create directly, but if the technology is domesticated, it can do a lot through the multiplier effect resulting from the supply chain involved in the production and provision of goods and services that supports the industry. This is why the Nigerian Content Act is concerned about this.

Is Nigerian oil and gas industry actually growing?

The Nigerian oil and gas industry is not growing and incidentally the country has an ambi­tious target of achieving 4 million barrels of production per day by 2020. Talking about growing local content, yes we are doing well, but this is however one dimension to it, because the industry as a whole is bugged down by myriads of problems that must be resolved to set it on the growth path.

The PIB is fundamental to the growth question. Presently most investment decisions by major operators are on hold and projects are being delayed. Exploration spend is very low and so reserves are not growing as required. Rig counts are also very low, all pointing at reduced activities in the industry. A lot of these are tied to the non passage of the PIB which creates an atmosphere of uncertainty. The PIB is expected to resolve governance issues for the industry among other things.

We also have the oil theft challenge which has grown to a crisis situation, despite the amnesty programme. Again the PIB provides for equity participation of the host communities which gives them an incentive and responsibility to protect the oil and gas infrastructures in their communities, which is why we think that the PIB should be put to test.

Why passage of PIB is stale­mated at National Assembly

The situation is that there are arguments for and against various aspects of the bill. For in­stance, the areas that seek to review the fiscal terms of engagement is generating lots of controversy for obvious reasons, but there are non controversial and equally important provisions, like the aspect that deals with the establishment of clearer governance structure for the industry. Some people believe that probable the bill should be unbundled so that these non controversial provisions can be passed while we are tinkering with the rest to enable the industry start reaping the benefits of the bill in part. My contribution to this is that we have argued over this bill for too long and there is no perfect law. The PIB needs to be passed and put to test, amendments can be made in future according to lessons to be derived from its implementation.

Possibility of passing PIB before expiration of current legislative year

This question is best answered by the National Assembly, every other opinion belongs to the realm of speculations.

Is Nigerian Content Act being abused?

The Nigerian Content Act is a success story, it is also a work in progress, because there is room for improvement in its implementation. The most widely abused part of the Act is the area of expatriate quota and employment of Nigerian human resources. Some of the multination­als in the industry are still deploying more expatriate personnel than what the Act permits, at the expense of local employment opportunities for Nigerians. What is more worrisome is the fact that in some cases the ex­patriates are employed for jobs that can be carried out by Nigerians, and these expatriates are of course better remunerated than their Nigerian counterparts, who are in some cases better qualified.

Recently some of these multina­tionals have come under the hammer of NCDMB for these abuses. Hyun­dai Heavy Industries (HHI) and Saipem were banned by NCDMB from participating in tendering processes in the industry. If NCDMB can strengthen its investigation and enforcement machinery, it will suc­ceed in this area as well.

Another area that requires improvement is crude oil lifting. It is necessary for the government to support local players in acquiring the vessel capacity to qualify them to transport Nigerian crude, because a lot of capital flight is taking place through this area.

Effect of IOCs divesting on oil, gas industry

Asset portfolio restructuring is part of the industry dynamics. Acquisitions and divestments are business decisions taken for strategic reasons. The big IOCs are better off in the deep offshore because they have the exclusive technical and financial capacity to deal with the higher challenges it entails; the rewards are equally commensurate with the elevated level of challenges and risk. There is zero competition from local players and less com­munity challenges as well. The local content objective also benefits from the opportunity for indigenous firms to acquire and operate assets released by the IOCs. These assets in some cases are better operated by the local firms who are better placed to manage community relations for instance.

You may recall that before now the IOCs were being encouraged to relinquish unused acreages and they were reluctant to do that hence limiting opportunities for new investments. The divestment is not a problem. What we need to deal with is the PIB. If it is properly handled, the IOCs will concentrate in the deep offshore where they have com­petitive advantage while the local players will operate the onshore and swamp assets more profitably.

How to address oil theft menace

The issue of oil theft in Nigerian has no doubt reached a crisis level, and I agree with the Minister for Petroleum Resources who in a re­cent statement described the menace as being multifaceted and complex. The co-operation of all stakeholders including the international communi­ty is required in solving the problem.

Available records indicate that the country loses about US$11 billion annually to oil theft. This is more than the total individual oil revenues of most oil producing countries in the world. There are other consequential costs of this to the nation including environmental degradation arising from pipeline vandalization and oil spill, the illegal refineries constitute environmental health hazards. The money derived from these activities goes into funding illegal activities such as terrorism and other forms of violent crime and arms conflict. The losses discourage investment in exploration and production, even making it more expensive.

The nations security architecture as composed presently has failed in dealing with this challenge. Some people talk about lack of political will to which I disagree, no govern­ment in all rational sense can lack the political will to deal with a problem that constitutes such level of threat to its stability. The right strategic mix should be crafted and correctly executed. This will require the active support of all stakeholders some of which should be incentivized.

Starting from the home front, the host communities should have an in­centive for protecting the oil and gas infrastructure in their communities, there should also be consequences for failure.The PIB covered this much. There have been allega­tions of collaboration between the bunkerers and the security personnel deployed to protect the pipelines, those allegations should be properly looked into.

At the international level, these stolen crude are sold and refined in the international community by established institutions that are traceable and fund is moved around international banks. This is criminal and it is possible to disrupt the flow with the co-operation of the interna­tional community. The vessels that transport stolen crude are registered vessels and should be impounded wherever they are found. Crude oil has identity so the refineries can easily confirm or trace the source of every consignment delivered to them, not doing that should be criminalized. The G8 made a pledge since 2000 to help Nigeria fight this menace by disrupting the trade at the international level, it is in the interest of the global community to stand up to this because the resources derived from it could be funding terrorism.

Meeting Nigeria’s oil sector manpower challenges

The oil and gas industry has been active in Nigeria for over 50 years, and with that level of expo­sure I should think we should be ex­porting skilled manpower in this area to other countries of the world by now given the size of our population. So yes, we have the manpower and we have high level of unemployed youths who are trainable to make up for any shortfall that might exist. That is why the Nigerian Content Act is a welcome development be­cause it encourages the training and use of local personnel. We cannot leave our youths in the labour market and go about importing expatriates to the detriment of our economic and social stability. Unemployment in itself is a national security risk.

Major challenges confronting players in oil, gas industry

The three key factors critical to the oil and gas industry play are finance, technology and expertise. To be competitive, players need unhindered access to finance at the right cost, there have been some improvement in the Nigerian Finan­cial market over time in providing financial support, but the cost is as­tronomical and the capacity for high stake funding is also very limited. Technology and expertise are things that are continuously evolving and never enough, so training, collabora­tion or partnership with international players are key to success.

Leveraging new technology to boost hydrocarbon production

The oil and gas industry is heav­ily dependent on high technol­ogy, that is why it is not a massive employer of labour. Over time the industry has been moving into more challenging, harsh and difficult en­vironments to find the hydrocarbon requirement for meeting the growing global appetite for energy. Technol­ogy is continuously being evolved to deal with this situation and to improve recovery even in the older fields. Investment in research and development need to be emphasized, besides that we recognize the need to partner with players from the more advanced countries with advanced technology which can be leveraged upon to optimized our performance.

How Strides Oil and Gas intends to impact the petroleum industry against enormous expec­tations of Nigerians

The vision of Strides is to be the leading asset solutions provider acknowl­edged by all stakeholders in the African offshore oil and gas construction market. We are specialized in the offshore sector so we own and operate offshore construction assets ranging from pipelay barges to dredging vessels and other support assets.

Our medium term goal is asset expansion, in an attempt to grow capacity according to the objectives of the local con­tent Act. In doing this, training and development of local expertise for the management and operation of these assets is critical, and we are address­ing that.

Our mandate in petro­leum sector

Strides Energy and Maritime Limited is an offshore oil and gas construc­tion company. We provide offshore construction services to the oil and gas industry, supporting hydrocarbon explora­tion and production, what you all call the upstream oil and gas sector. Our basket of services range from the provision of off-shore construc­tion, installation and commissioning of oil and gas facilities to laying of pipelines and the provision of capital and maintenance as well as dredging services. We are specialized in off-shore because we own and operate marine assets for offshore construc­tion. The challenges in the off-shore sector are more complex than those of on-shore oil and gas exploration and production.

In Nigeria, the onshore and the shallow offshore sector have been extensively explored. But the bulk of the oil and gas lies in the deep off-shore, and this presently has been an uncharted area for indigenous play­ers here. The Gulf of Mexico and the North Sea oil fields are examples of deep offshore fields that have been extensively explored before now, and production in these areas are on the decline.

The world is looking up to new areas such as the African deep offshore hydrocarbon reserves to provide the oil and gas required for sustaining globaleconomic growth.

Despite the information we have about shale gas being expected to cause a decline in the price of oil and gas, the International Energy Agency has projected an 18 percent increase in oil and gas demand globally in the next 25years which implies increase in price rather than a decline. Nigeria has the challenge to make use of these window of op­portunity by leveraging on its oil and gas resources which is abundantly lying in the bowels of the deep sea, to grow the industrial sector and, of course, diversify its economic base . Whether we are doing that now effectively, or not, is an issue that is open for debate.

However, as a company, we have been playing and are positioned to continue to play in the offshore sec­tor. We plan to develop capacity and leverage the local content policy. We are still expecting that the Petroleum Industry Bill (PIB) will be passed as quickly as possible to encour­age investors to take investment decisionsand explore the resources for the benefit of

Criticism against PIB

My view is that the PIB seeks to integrate all existing laws in the country relating to the oil and gas industry while introduc­ing dramatic changes in areas like the deepwater fiscal regime. Some of these laws are as old as when oil was first discovered in Nigeria in the early 1960’s. Over time, a lot of learning experiences have taken place. It is only reasonable that these laws are reviewed. Besides, govern­ment has realized that they are not deriving optimal benefit from oil and gas exploration and production that is going on. Government has also observed how these things are done in other countries of the world such as Brazil and Norway .

Taking cognizance of these experiences, people have sat down to articulate an integrated legal position to manage the industry dynamics, in such a way that government, as well as the local industry, can derive benefits from the sector. What the PIB basically addresses are govern­ment income from the oil and gas sector and economic retention; how to grow local content, encouraging local players to be able to leverage on these to grow and expand; create employment and have retention power, develop access and capacity. It is actually an ambitious and wide ranging piece of legislation. The controversy is in the areas that seek to increase government revenue and make the business more expensive for the International oil companies.

It is normal and expected that the International Oil Companies will want to have it easier, but what we are looking at is a middle ground, what is obtainable in other coun­tries, what is reasonable, what can benefit the country and also benefit investors. Overall, we think that the passing of PIB has been over dragged and this is injurious to the industry and the economy, the bill should be passed for the industry to move forward.

Why gas flaring persists

Well, it is easier to flare gas than to harness it. It is easier to produce oil and flare the associated gas. This has been the strategy from the beginning when the infrastructures were built; the line of little resistance was toed. It is natural in business that when you want to start, you toe the line of least resistance to get going, and having done that, the consequences of gas flaring have been felt, it is obvious and everybody can see it. Govern­ment has come up to say, look, gas flaring has to be stopped. But it requires capital investment to put the infrastructurerequired to harness this gas. The time frame has been given and it has to be monitored to ensure compliance.

Source : SunOnline

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