Kachikwu gives oil and gas mid-term report; highlights goals

Minister of State for Petroleum Resources, Ibe Kachikwu

In two years, the federal government has halted the crisis in the oil and gas sector and set it on the path of sustained growth and development, Minister of State for Petroleum Resources, Ibe Kachikwu has said.

The minister said this in the mid-term review of the activities of the Ministry between August 2015 and August 2017 presented through his social media platforms on Thursday.

Key challenges identified include ineffective regulation, concentration and control of petroleum resources within limited set of license holders, JV funding issues, high operating costs, unsustainable importation of petroleum products, limited refining capacity, insecurity in the Niger Delta and dilapidated midstream oil network as a result of systemic inefficiencies and vandalism.

Apart from the crisis in the oil and gas sector characterised by massive subsidy scams and fraud allegations that was the order of the day when the present administration came to power in May 2015, Mr. Kachikwu said public perception of the state oil company, the Nigerian National Petroleum Corporation, NNPC, was critically abysmal, with its credibility at its lowest level.

Also, at the time, he said, the country was facing challenges posed by crashing global crude oil prices, which dropped from about $120 per barrels to as low as less than $30 per barrel.

He said the country’s situation was worsened by the spate of militant attacks and pipeline vandalism in the Niger Delta, resulting the country losing over 54 per cent of its daily oil production, from about 2.2 million barrels to about 1.2 million barrels.

Other challenges the industry was facing included an unstructured and unprofitable NNPC that was in dire need of understanding of its purpose; huge subsidy and foreign exchange distortions arising from the cut in oil production and reduction in crude oil prices as well as shrinking national oil reserves.

“Shortage of petroleum products supply was a regular occurrence, resulting in long queues of anxious motorists at filling stations as a result of uncertainty in products availability,” the Minister recalled.

He said to resolve the crisis, the government had to start with creating ‘NNPC’s 20 fixes’, to create initiatives around issues of costs of business, restructuring, business focus, departmental independence, and low morale of staff.

Besides, he said the ‘7 Big Wins’ initiative was to point at the direction the oil industry was to go in the next three to four years, setting the benchmark for the administration’s expectations.

During the period Mr. Kachikwu said the National Petroleum Policy was established, to set the medium to long-term parameters and targets for industry strategies and policies on oil resources, including oil reserves growth and utilization.

Other achievements included the approval of the National Gas policy, to define the strategies for harnessing and development of the country’s gas resources, elevate gas from being a subsidiary of oil, and giving it the practical expression of Nigeria as a gas territory.

Also, he said a new joint venture arrangement was approved by Executive Council of the Federation, FEC, to modulate how the operating companies pay cash calls, to promote new investment while freeing government from Joint Venture funding obligations.

To deal with the crisis of fuel queues, Mr. Kachikwu said appropriate fuel pricing framework was created, which facilitated the immediate disappearance of fuel queues at filling stations across the country.

“Since then, refined petroleum products consumption has dropped from over 50 million litres per day to average of 28 million litres, creating certainty and peace in the operating environment,” he said.

On the business environment, the minister said the resolution to encourage the involvement of private investors in massive in infrastructure development has helped resolve the crisis, although he said it was still inadequate.

He identified some of those private initiates, namely the Dangote Group effort to build one of the world’s largest refineries and the development of fuel receptor terminals by MRS Petroleum.

In addition, he said the National Petroleum Development Company, NPDC, was investing in growing its production capacity, from 30,000 barrels to over 200,000 barrels per day, bpd, with a projection to reach 500,000 bpd.

To resolve the perennial Niger Delta crisis, he said the government adopted collaboration, intervention and partnership strategies to calm the restive community people in the region, saying this has since paid off, with oil production increasing from 1.2 million bpd to 2.2-2.3 mbpd, including condensate.

Over the period, he said government benchmarked transparency, by ensuring NNPC published its monthly Financial and operational report, to enable the public know what they were doing, in line with the key performance indicators, KPIs, set for them.

Before 2015, he said Nigeria was not finding its feet in the Organisation of Petroleum Countries, OPEC, as “we have been very distant from what they were doing for a long time.”

However, he said in the last two years, through a purposeful and constructive engagement of members, the country had moved from being the OPEC president in 2015 to producing the OPEC Secretary General.

“We have continued to play leading roles on issues stabilizing the oil market and bringing price elevation, from $38 per barrel to $50,” he said.

Other strategic interventions include the establishment of the National Council on Hydrocarbons, the multi-purpose body for policy makers on exploitation of hydrocarbons in Nigeria and the Nigerian gas flares commercialization programme, to stop gas flares and take flaring to a commercial sector to earn money and remove environmental hazards.

The NNPC restructuring, the minister explained, not only created five to six independent and semi-independent divisions, to run the corporation on a profit-based policies, but for company to understanding its mandate.

For the future, the minister said government’s focus would be on how to increase the speed approvals in the sector would be processed.

From an average of 18 months that was in practice prior to 2015, he said the benchmark approval process has improved today to an average of nine and 12 months.

“We would like to see that process further come down substantially. There is no reason why approvals, from conception to contract awards, should not happen between 90 to 120 days,” he said.

Other goals set for the industry includes removal of government monopoly and freeing the private sector to grow; focusing on making the business profitable, by encouraging competition with its peers around the world in terms of profitability index.

He said government wants to automate the licensing process, to check people going around the Department of Petroleum Resources, DPR and other regulatory agencies, while growing human capacity, through on the job training.

“How do we stop gas flaring as a global environmental concern? Our target of 2020 has been set to stop gas flaring, ten years ahead of the 2030 target set by the United Nations.

“How do we reduce business costs? Today, offshore oil production costs are in excess of $32 per barrel, while on-shore fields cost are about $23 per barrel. We must target a cost of about $15 per barrel, where most members of OPEC are at the moment.

“We must review existing operational contracts to create models that reduce costs substantially and bring more benefits to the country better than what is happening,” he said.

On local content, the minister said the government was determined to identify about 100 projects in the industry, from infrastructure, investment, finance, technology, to field development, to help transform the country.

Apart from prioritising refining, to end the importation of petroleum products in 2019, Mr. Kachikwu said the government priority going forward would cover investments in the search for oil in the Benue Trough and Lake Chad Basin.


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