‘We are executing the energy transition that is right for Nigeria’
Roger Brown is the Chief Executive Officer of Seplat Energy Plc. In this interview, he talks about the company executing the energy transition that is right for Nigeria. According to him, a strong step forward will be when the ANOH project becomes operational next year, delivering more transition gas to an energy poor market that is over-reliant on expensive, high carbon-emitting electricity generated from small-scale diesel and PMS generators. FEMI ADEKOYA writes.
You recently spoke at the Africa Oil Week (AOW) 2021 where SEPLAT led the conversation around Energy Transition from the Nigerian perspective. Can you share with us how important you consider energy transition for the country?
The world’s energy shows that the world’s investment is now driven by environmental, social, and governance (ESG). Also, look at the COP26 of the Paris Agreement; there is a heavy focus on the E-environment.
The world is driving towards a low carbon future, and Nigeria signed up to the Paris Accord and has committed to a lower-carbon future. Nigeria, rightly so, and many emerging economies and consumers say it has to make sense to the emerging economies. The developing nations need to be allowed to create what we call a just transition. There has to be a transition. Nigeria is rightly signing up for that transition, but it must be on a just basis. Nigeria must be allowed to grow as a nation. We must balance the environment and the social aspect. Hydrocarbons are a significant source of development income in communities. They rely heavily on it, and we have got to make sure that we address that.
The way we see it is, gas is the perfect transition fuel. The government is going through its decade of gas, rightly so. If you look at it, in reality, gas is just the transition fuel in the world. What makes up the majority of the UK grid today is gas. In Nigeria, 80 per cent of the energy usage in the country is biomass. Many people use charcoal or wood, which is one of the most significant energy sources in the country, creating deforestation. So if you bring in LPG, one of the areas Seplat Energy is looking at, LPG will then displace that need to use firewood and charcoal, which reduces deforestation, which has a huge benefit to the planet.
When people say hydrocarbons are bad, actually hydrocarbons have a role to play in this transition. Let’s take a look at the rest of the energy used in the country. Let’s take a look at electricity today; the grid system in Nigeria is 12 gigawatts. The system is one where three gigawatts is hydro, nine gigawatts is gas. Of that gas, very little, probably about somewhere between a third to half of that is effective on a daily basis. And what happens today with power is of interest to everyone in Nigeria because we have diesel generators everywhere. And for the generators, we are importing diesel from overseas, until the refineries work here. Diesel is being imported at an incredible cost. And there are carbon emissions from diesel generators that make up about 80 per cent of electricity in the country. Diesel generation is very high in CO2 emissions and greenhouse gas emissions, and there are health disadvantages to having generators everywhere. By bringing gas to the market and displacing the diesel generated power from diesel generators, we today, not tomorrow, are reducing carbon. We are improving the health benefits today, and we’re laying the path of the future, which allows a bigger scale transition onto the gas, which is cleaner and more efficient. And that gas transition then allows us to do bigger scale renewable energy. So, Nigeria will address the world’s environmental problems, but it will do it in order. As a result, what we have done as a business is, we’ve laid out a three-pronged strategy. Our strategy is deliberately laid out. The first prong, the upstream oil and gas, really is about let’s be efficient, reduce the cost of extraction of oil and gas, and regenerate the profits we make from it into the communities and grow the communities. We have a number of our programmes we can talk more about. Let’s use that gas for the displacement of deforestation and everything else.
Pillar two is then the gas processing business and really, what we want to do is continue to increase that. We are probably the second biggest in the country at the minute. And when ANOH comes on stream, we’re going to be one of the biggest next to the government, the biggest gas processor in the country. So we want to do more gas processing business.
We are looking to go down the gas value chain. What we want to do is to look at gas to power opportunities. For us, we want to be a willing buyer and willing seller. It fits our model better. Also, do LPG, CNG – Compressed Natural Gas, LNG at some point. We want to be able to do that. It’s all part of our second pillar energy business.
And then, we move into our pillar three business, doing renewable energy on a bigger scale. And I think, in this country, that’s going to be Solar predominately. There will be some wind opportunities and other renewable opportunities, and geothermal potentially. But in reality, I think it’s going to be Solar. What we would like to be able to do is to look at a bigger scale solar. Nigeria will deliver an energy transition that addresses carbon reduction but must focus on addressing the social aspect of a fast-growing population. That’s the message we’ve got to tell you.
You are moving slowly, gradually from full-time upstream operation to newer, cleaner energy to the future. How sustainable are your gas fields and how are you trying to plug into operations that would sustain gas feed into your future business and operations?
Yes, you need the Upstream feed. There are two prongs to what we are doing. One is what we call our own equity–gas business, and that with the government where we have our working interest and equity gas supply from upstream; so you look at the ANOH gas plant, which we’re going to bring on stream middle of next year. We own a stake in OML 53, which is unitized with OML 21, a Shell-operated field. It’s one of the biggest onshore gas fields in the country. Now, that gas will supply the ANOH gas plant for 20,30, 40 years, and maybe more. So that’s an equity gas feed, but of course, you have to keep investing and getting more and more upstream gas.
We are drilling what we call non-associated gas wells. With that, we are actually drilling more non-associated gas into our gas reserves. That’s one prong that we’re doing, and we will add more and more gas assets as we build our gas expansion.
The other prong is what we call tolling to set up a gas plant facility with additional capacity in that gas plant, allowing other people from neighbouring fields to drill and then pipe that gas to our gas plant and then process gas for them. We either buy that gas from them as wet gas or charge them a tolling charge to process that.
So it’s a two-pronged approach. And one thing about Nigeria is that Nigeria is a gas province, so there’s more gas here, more than oil. And I think everyone in the last 50, 60 years there has been a big focus on oil. So you’re going to have oil still, but you’re going to see a much bigger investment into gas.
Is there a plan to link this programme with the government’s flare privatization programme, which provides an opportunity to harness gas from other people’s assets into the future? Are you trying to relate with the regulators to access gas that would otherwise have been wasted?
Yes, there is a link there where people or other operators who do not have the capacity to build a gas plant but are currently flaring can put their gas through our gas plants, which will take down the flares accordingly. That’s a direct link from us. We have a flare out programme ourselves. Today we have a planned programme by 2024; we will be flared out in our operations. That’s six years in advance of what the government’s targets are by 2030. So, the flaring is a very good link. I think, probably about if you look at the gas processing or gas in the country, half of it gets exported. I think something like 25 to 30 per cent is either flared or re-injected by other operators. So, that flare is an excellent way to capture the value and a way to take down emissions and obviously, you can process it through the gas plant. So, yes, there is a direct link. In the last number of years, we have said to the government that we’ve got spare capacity in our gas plants, we would like to have all the people processing through us, and the government is working through this, and that’s a good thing.
With the IOCs divesting, do you see opportunities to step in? Going by the success you have recorded with marginal fields, do you see acquisition of more fields? And also, are you on track as regards your 50,000 barrels per day targets?
There are a lot of growth opportunities happening. At Seplat, we strive to balance organic growth and an excellent organic portfolio and then look at the right opportunities. Nigeria, probably one of the vast subsurfaces, has the best quality, and there are a lot of opportunities here. I think it’s fair to say that the market is shifting from a seller’s market to a buyer’s market, which will benefit indigenous companies. But it’s certainly always been part of our strategy, and in terms of growth opportunities. As regards the
50,000 barrels a day, when ANOH comes on stream, the condensate from gas is going to take us there. That is why we’re excited to get that project up and running next year.
What’s the outlook for this year? Do you see a further rise in oil prices?
I think everyone’s got their own view here. If you talk to the market participants, the traders, the financers, the users of hydrocarbons, I’ve not heard one person say the oil price will fall. OPEC is having a big impact, at this level. It looks like it’s going to continue. It could come down a little bit. I think what worries us more than anything else is that you have to invest in this sector. So, if you are in the oil sector, you have to invest in mitigating the average 10 to 15 per cent decline in oil every year. And so, if you got 100 billion barrels, you get a 10 per cent decline, you lose some 10 million barrels a year. You’ve got to invest money to come back up and replace 10 million barrels. If the oil demand is growing, you can invest more. And we lost 2020. Very few people invested in 2020.
You have the compounding effect. Sitting at this end of it, you can see that if we don’t get investment back into the sector, you can see much, much higher oil prices as a result. That’s not so good for us as producers because it is good short term, but long term, it’s not. It’s not good for the consumer. And so, you really want oil to be a stabilized commodity. But I can see an element next year going up, not because I have a crystal ball. I just look at the metrics of how you run an oil business, and investments are critical.
Can you give insights into strategies deployed in sustaining the results recorded in your nine-month results that trend full year and should investors worry about the recent resignation of the Chairman as well as the future of Seplat?
In the nine-month scorecard put out in our Q3 results, the trans-forcados terminal wasn’t just there and impacted our August/September results, but we still maintained our guidance for the year. We will come back and recover from that. And that is why we are looking into an alternative pipeline, alternative export route so that doesn’t happen again in the future. That makes our business a lot more robust. We spend a lot of time in our business to ensure we deliver on the scorecard. We plan at a much lower oil price than what we have today. In terms of the chairman and the director, you use the word worry, no the word should be celebrated. And the reason is that right from inception, Seplat sets itself up to the highest level of governance and even goes higher than its regulations. So part of the governance and highest level of corporate governance is an independent chairman.
And that’s not a requirement for a standard listed company; that’s a requirement for a premium listed company in the UK. We said from day one that we will always go above what the regulations say and which regulation is more stringent in the markets we operate, we will adopt that regulation.
So having an Independent chairman has always been the plan and therefore, the chairman notifying us that in May 2022, he will step down as chairman of the board and that will be replaced by an independent chairman is an even stronger ESG, even stronger governance. And it’s quite a statement to make into the market that Seplat is now lifting it up to a higher level. And I think that rather than being worried or scared about it, it actually should be embraced as a very big positive. The strategy is clear. There is a board system with directors and changing directors. We had an orderly CEO succession, and now we have a new CEO in place. These are attributes that companies have to survive and thrive and grow. And this is what Seplat wants; it’s not an issue. The other director that stepped down last week, the statement is clear that he did this for his own personal reasons. That’s why he stepped down.
The board will always refresh and bring on new directors; this is what a living, breathing, striving company with the highest level of corporate governance would do. And then the future, I think certainly for us, I would say, our strategy is absolutely correct. And I think for the future of the indigenous sector within Nigeria, it is a bright future. I think you’re going to see assets changing hands from international oil companies. I think that’s, in my view, a positive. This is where Nigeria companies should own assets and important assets in Nigeria. And I think the future is very, very good. For companies like Seplat, we’re alone; we are the only one listed in London and premium board Lagos, Nigeria, but I think you’re going to see more companies like us over time.