2019 as Nigeria’s year of gas, uncompleted FIDs

For Nigeria and many other African countries, 2019 was a year of gas and other key discoveries. In the same year, per capita consumption of cooking gas and LNG in the manufacturing sector equally increased with targets set for the next five years. Despite the growth in gas exploration and utilisation, final investment decisions (FIDs) for several oil projects remain in limbo. Will 2020 witness the commencement of these projects? FEMI ADEKOYA writes.

Global discoveries of conventional oil and gas continue to show promising growth, despite competition from shale and other alternative sources.

Different statistics put new discoveries this year to nearly 8 billion barrels of oil equivalent, compared to 10 billion barrels of oil equivalent discovered last year.

According to data from Rystad Energy, the current resource replacement ratio for conventional resources is only 16 percent. In other words, only one barrel out of every six consumed is being replaced with new resources.

So, not only has the pace of discovery declined, but discoveries are also in much more challenging geological venues and typically offshore, which means it could take many years just to bring new resources online.

Last year, the African oil and gas sector moved from a cycle of stagnation in exploration, capital expenditure spend and production between 2014-2018 in the wake of the oil price crash, to a more dynamic growth phase.

During the downturn, the industry restructured itself for improved efficiency and performance and is fitter for this new future.

PwC in its latest report stated that rising investor interest in Africa’s oil and gas resources, renewed investment in exploration after the downturn, and major new finds offshore the continent are expected to shift African oil and gas development into a growth phase after years of stagnation.

For instance, an Italian oil major, Eni, in August 2019, said that it has made a huge gas and condensate discovery onshore Niger Delta.

Eni said that through its affiliate, Nigerian Agip Oil Company, it made a significant gas and condensate find in the deeper sequences of the Obiafu-Obrikom fields, in Oil Mining Lease 61.

It said the Obiafu-41 deep well had reached a total depth of 4.374 m, encountering an important gas and condensate accumulation within the deltaic sequence of Oligocene age comprising more than 130m of high-quality hydrocarbon-bearing sands.

“The find amounts to about one trillion cubic feet of gas and 60 million barrels of associated condensate in the deep drilled sequences,” Eni said in a statement.

Investors linger in taking investment decisions
Last year, over $163 billion projects initiated across the value chain of the industry remained in limbo as investment drought takes a new turn in the country.

With the exception of the NLNG that took the Final Investment Decision (FID) for its Train 7 Project, which will increase its production by 35 per cent and its competitiveness in the global LNG market, other projects are still waiting to be sanctioned.

The decision allows the expansion to increase the capacity of NLNG’s six-train plant from the extant 22 Million Tonnes Per Annum (MTPA) to 30 MTPA, with the award of contracts for the engineering, procurement and construction activities to follow the closure of bank and Export Credit Agency (ECA) financing, and the finalisation of some key supporting commercial agreements expected in early 2020.

Other projects in limbo, have already created a booming market for other smaller and emerging oil and gas countries in Africa who may not only quash Nigeria’s lead role in hydrocarbon development on the continent but undermine nation’s oil reserves and production projection as well as create job losses.

Similarly, the recent signing of the Production Sharing Contract bill into law by President Muhammadu Buhari has also jolted many of the international oil companies who felt that their concerns were not taken into consideration before the bill was signed.

Indeed, the Nigerian National Petroleum Corporation (NNPC), which has stakes in most of the projects along with International Oil Companies (IOCs) appeared to be unclear on the state of the projects as the corporation has been unable to ascertain the future of the investments, which would have increased the nation’s oil reserve to about 40 billion barrels; daily production to around 3 million barrels and fast track domestic utilization of gas-to-power in households and industries.

Though Minister of State for Petroleum Resources, Timipreye Sylva, had said Final Investment Decisions (FIDs) on at least four key projects within the nation’s oil and gas industry by would be delivered before end of 2019, similarly promises made by his processors did not yield meaningful result.

Stakeholders, who raised concern over the inability of the current administration to reach Final Investment Decisions (FIDs) on a single critical project five years after taking over office, raised alarm over heightening poor investment climate, which is already forcing oil firms to divest their interests.

In the face of the volatility in the industry, the concern for most stakeholders is that changes to the global economy, oil and gas prices, capital expenditure and other germane factors may undermine projected economic value from the projects.

For instance, many projects are still at the planning stage or under some legal hurdles years after initiation, and they include Shell’s Bonga South-West and Aparo, which is expected to add about 225,000 barrel per day (bpd) oil production, Bonga North (100,000bpd), Eni’s Zabazaba-Etan (120,000bpd), Chevron’s Nsiko (100,000bpd), ExxonMobil’s Bosi (140,000bpd), Satellite Field Development Phase two (80,000bpd) and Ude (110,000bpd).

These projects are estimated to cost around $100bilion, boosting the nation’s production by as high as 875,000 bpd and nation’s revenue by about $1.5 billion.

The Ajaokuta-Kaduna-Kano (AKK) pipeline, a 614km-long natural gas pipeline developed by NNPC at a cost of $2.8bn and scheduled for commissioning in 2020 is yet to commerce though NNPC originally announced tenders for the development of the AKK pipeline as far back as July 2013.

Similarly, the $20bn Brass LNG project in Bayelsa State and the $9.8bn Olokola LNG in Ogun as well as the 5000 km Nigeria-Morocco offshore gas pipeline which at today’s prices will cost an estimated $20 billion, are awaiting key decisions.

With new discoveries and investor-friendly policies in neighbouring countries like Mozambique, Ghana, Niger, Uganda, Kenya, Senegal, Mauritania, and South Africa, Nigeria is fast losing its attraction as operators are increasing their stakes in the new environments.

For instance, while most gas projects are idle in Nigeria, Mozambique with its Coral Floating LNG project is on the verge of becoming the world’s largest gas producers with an estimated $128 billion flowing into the country’s gas sector alone before 2025.

Similarly, while the Federal Government is looking to recover as much as $62 billion from IOCs due to a 2018 Supreme Court regarding the production-sharing contracts (PSCs), which was amended a few weeks ago, Total is reportedly seeking to sell its 12.5 per cent stake in a deep-water oilfield over attempt to expand into other Africa countries.

Received with mixed prospects by some stakeholders, there have been indications that ExxonMobil, Shell, and Chevron may divest upstream assets in the country.

One of the oil majors in a chat with The Guardian said the firm was yet to take a final investment decision on the over 200,000bpd project because it was concerned about the regulatory environment in the country.

According to the operator, fiscal stability is key to attracting investments in the country, noting that the investment climate needs to be able to attract capital.

Principal and Executive Director, Kaptepia Capital, Tosan Omatsola noted that the identified projects were capable of spurring the economy and generating employment for Nigeria’s teeming youths.

Omatsola urged the Federal Government and regulatory agencies to address drawbacks to the growth of investments in the country and also unveil incentives to encourage investors to the sector.

The Nigerian Association Petroleum Explorationists (NAPE) also urged the Federal Government to address concerns bordering on the long contracting cycle in the oil and gas industry, adding that such practice continues to hamper investments and development.

According to the body, the long contracting cycle results in high levels of uncertainties in costing and planning thereby creating a sluggish business climate.

Chief Executive Officer of an indigenous oil servicing firm, Mudiame International Limited, Sunny Eromosele insisted that the current administration is living in the part by undermining the looming challenges for the nation’s oil sector, especially the competition from another country.

He said: “Most of the investment package that this administration met has not taken off for the past five years. The attitude of government is irresponsible, especially pushing companies away in the name of revenue generation.”

Eromosele decried that investors’ confidence has been lost in the nation’s oil sector due to the growing level of uncertainties amid rising insecurity and business environment.

According to him, while it takes as much as 10 years to some of the current projects to yield results even if they are sanctioned, the current administration may have crippled the sector before realizing the depth of the implications of their inaction.

While fiscal uncertainties had remained due to the delay in regulations like the Petroleum Industry Bill (PIB) and Production Sharing Contract (PSC), experts including, Partner and Head of Odujinrin & Adefulu’s Energy Practice, Real Estate, and Mining Teams, Dr. Adeoye Adefulu is optimistic that the recently amended PSC Act could spark the projects live, particularly the exploration and production projects.

Noting that a lot of factors which would have propelled private sector players to make quick decisions on some of the projects are yet to be addressed to guarantee security of those investments, Adefulu said that the needed political will on the part of the government remained a key factor that must be considered.

The Chairman, International Energy Services (IES) Ltd., Diran Fawibe, who noted that the reasons affecting some of the projects were not only government related, said cost estimations, litigations and inability to reach consensus among the parties involved in the projects were other underlining challenges.

“I am not saying the government could not do much, the government needs to wake up especially in engaging the oil companies. Government needs to draw the companies closer. There is need for the government to continuously have a dialogue with the oil companies, especially now that is competition. There are other places for the opportunity for investment,” Fawibe, who was former top management of the NNPC stated.

According to him, it is worrisome that the companies are divesting because of the challenges they are facing in the country, adding that while there are various challenges the companies are dealing with, government, which should find a way to deal with the challenges is adding to the issues.

Fawibe insisted that the Federal Government must strike a proper balance to curb its excesses, stressing that such development would force the companies to divest.

The need to sanction projects on time and deliver the right economic value and well as job creation if not checked would continue to impede the nation’s oil and gas sector, PricewaterhouseCoopers’s Associate Director, Energy, Utilities and Resources, Habeeb Jaiyeola said in his contribution.

“It is very important that government’s decisions are being executed to time frame that can bring needed economic value because when they are not done, the changes to the global economy, prices and capital expenditure and other things required on each project will affect the commissioning of the projects,” he said.