Stakeholders bemoan 2017 challenges, hope for better 2018
At the outset of 2017, the Federal Government had raised a lot of expectations regarding the future of Nigeria’s petroleum sector, upon which the entire economy revolves.
But as the year ended, things did not turn out quite the way they were envisioned. Indeed Nigerians celebrated the year end with acute fuel shortages, even as many of the targets set for the industry were not realised.Analysts attribute the development to disconnect in set objectives between the Ministry and its supervisory units especially the Nigerian National Petroleum Corporation (NNPC), and other parastals and agencies under it.
Although the country recorded some progress in helping to foster peace and reduce militancy in the oil producing areas as well as the implementation of a new funding model for Joint Venture operations, however, stakeholders still await the execution of the many promises made during the last financial year.
Nation’s refineries remain idle
One of such promises that elicited high hopes among Nigerians was the Federal Government’s plan to make the four refineries in Port Harcourt, Warri, and Kaduna fully functional within three months to guarantee uninterrupted fuel supply in the country.Besides, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, spoke about building strategic reserves for petroleum products to guarantee the self-sufficiency and boost export drives, which have not seen the light of day.
Unfortunately, the refineries are still operating below capacity. Besides, rather than ramping up, capacity utilisation in the refineries continues to slip. For the month of May 2017, the three refineries recorded a combined capacity utilisation of 23.09 per cent compared to 24.59 per cent achieved in April.
Acute fuel scarcity
Although, there was free flow of Premium Motor Spirit (PMS) also called petrol, from January to October, the pains witnessed by consumers of petrol within the last two months of 2017 is something, stakeholders want the Federal Government to find permanent solution to in 2018.Also, most other white products including household kerosene (HHK), and aviation turbine kerosene (ATK) or Jet A1, remained scarce for the greater part of the year. Neither the Ministry nor the NNPC could effectively explain the cause(s) of the scarcity, with attendant blame games.However, industry sources attributed the scarcity to the failure of crude swap programme, as companies contracted for the deal in exchange for refined petroleum products could not deliver as scheduled.
Besides, many of the firms engaged for the programme were merely contracted for political patronage rather than expertise or capacity to deliver, a development critics insist must be eschewed to avert continued scarcity in the current year.
The Director General, Lagos Chambers of Commerce and Industry (LCCI), Muda Yusuf, frowned at the monopolistic right given to the NNPC to import fuel, saying the model is fraught with inefficiency, transparency issues, perpetuation of culture of patronage, and imposes a huge burden on the treasury of government.He said a fundamental policy review is imperative and urgently needed to correct the anomaly.
Crude oil production still below 2 million barrels per day
During the year, Kachikwu had promised to ensure that Nigeria’s crude oil production capacity would hit three million barrels per day (mbpd) by the end of 2017, but output fluctuated between 1.5mbpd and 1.7mbpd, according to latest data from the Organisation of the Petroleum Exporting Countries (OPEC).
Furthermore, the expected investments needed to boost crude oil production were not coming due to the prolonged approval cycle, often criticised as a disincentive.A contracting cycle is the duration from the initiation of a bidding process through registration of contractors, and actual award of contracts for projects to be executed in the petroleum industry.
But Kachikwu had also promised to slash the contracting cycle from the current average of between two and four years, to just six months, he blamed the long contracting cycle on the high cost per barrel of oil produced by Nigeria, compared to other OPEC member countries.
Decrying the long tendering process in Nigeria, the Chairman/Chief Executive Officer, Oilserv Limited, Emeka Okwuosa, called for an end to such practice, saying: “When you start a tender and the tendering process goes beyond six months, you are in a different territory.“You have a situation where inflation may have changed, prices may have changed. Some tendering processes take up to 18 months. That should end. It requires concerted efforts. There should be a way to streamline the process of tendering to make sure that it is within a shorter time.”
Tackling inherent challenges
The Managing Director, Oil and Gas Soft Skills Limited, Emmanuel Emielu, said the Federal Government has done well in creating a framework to offset the cashcall arrears with the International Oil Companies (IOCs).But he noted that the government is yet to resolve the Niger Delta crisis, adding that the newly launched oil and gas policy document need to be fully implemented. “Government should be able to translate the policy into actual actions. The policy is only offering an element of hope in the industry, but when the hope is differed, there will be problems.”
Emielu stressed the need to fight corruption in the country’s oil sector. “Corruption is the reason why Nigeria’s contractual circle is long. The efficiency on the contracting process can also lead to high cost of executing a project and high cost of production in the oil and gas sector.“When there are inefficiencies in the system, investors will begin to move their investments to other countries, like Ghana, Angola, and South Africa,” he added.
The Chairman, Society of Petroleum Engineers (SPE), Saka Matemilola, said the history of poor commercial performance in the domestic gas sector makes gas production unattractive and discourages investments. According to him, the regulation of gas prices particularly gas supplied to the domestic power sector under the Gas Pricing Policy is perceived as a disincentive to investment in the upstream sub-sector.
On the feasibility of Nigeria becoming self-sufficient in petroleum refining, the Chairman, LCCI Petroleum Downstream Group, Ken Abazie, said there is nothing on ground to show that Nigeria will become self-sufficient by 2019.According to Abazie, the possibility of Dangote Refinery meeting the 2019 target is not certain. “The Minister is relying on the completion of the Dangote Refinery, which he believes will contribute to Nigeria attaining self-sufficiency in petroleum refining. But the company is not close to producing petroleum products; it is still building storage facilities. Unless there are other refining capacities, which we don’t know about, it is not just possible to become self-sufficient by 2019,” he added.
For the Pioneer Director, Centre for Gas, Refining & Petrochemicals, Institute of Petroleum Studies, University of Port Harcourt, Godwin J. Igwe, achieving success with Kachikwu’s proclamations is more about walking the talk.He said: “I will suggest we encourage self-reliance and diversification to maximise our production of petroleum products through modular refineries. We need more doers, not talkers; more hands-on professionals; more manufacturers to support consumers. I believe we have been able to ignite interest by creating innovative ways to bring awareness through modular refineries to end fuel scarcity in Nigeria.”
Notwithstanding the existing challenges, Kachikwu is convinced that the sector made some significant strides, especially with the ongoing reforms to reposition the sector to be more transparent and less opaque.He noted that the launch and implementation of the “7BigWins” laid the foundation for a new approach aimed at entrenching transparency, integrity and probity in Nigeria’s Petroleum industry thereby making it more result-oriented and profit-driven.
Indeed, he literally forced the NNPC to audit and publish its accounts and financial transactions on monthly basis.In line with these reforms, he noted that the Ministry and NNPC are aggressively driving the effort for private sector-led refineries rehabilitation and expansion programme. “This is aimed at repositioning the country for petroleum products self-sufficiency, which will minimise the pressure on demand for foreign exchange for the importation of products.
He also said the Appropriate Pricing Framework Policy has successfully reignited the commercial vibrancy of the downstream sector with a landmark move from a fully subsidy-based sector to a liberalised sector.The minister identified another key milestone in the area of the commencement of settlement of outstanding joint venture cashcall debts owed the IOCs.
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