Juliana Taiwo-Obalonye, Abuja
Minister of State for Petroleum Resources, Timipre Sylva, has x-rayed the killing of Iran’s General Qassem Soleimani by the US President, Donald Trump, as it would affect Nigeria.
He also spoke on why 2020 has been declared as year of gas in Nigeria, why oil subsidy cannot be sustained much longer among other issues.
Year of gas
I believe that as a country, we have not really developed our gas resources optimally. Sometimes, Nigeria is described as more of a gas territory with some oil in it, so we have an abundance of gas. Unfortunately, our gas penetration is quite low. The LPG (Liquefied Petroleum Gas) usage, for example, is one of the lowest in Africa not in the world. Even Niger Republic has a higher gas penetration than Nigeria, even Benin Republic has a higher gas penetration than Nigeria. What problems for Nigeria does that pose? Deforestation. It then means that our people use firewood, kerosene and stove to cook than they use gas. Because they have to use firewood, deforestation is quite high in Nigeria.
So what this administration has decided to do is encourage gas usage, gas penetration. So I described the year 2020 as the year of gas because we are really going to drive the process of gas usage in the country. We are expecting that by the end of 2020, we are going to double gas penetration. We are trying to encourage people to move over to gas instead of firewood and stove and kerosene.
We are going to also encourage drivers of vehicles to use CNG, that is compressed natural gas. That will help us in the race towards removal of subsidy. What we are saying is that, today, PMS is a big problem and all of us know that subsidy is unsustainable. Whereas we all know that we cannot remove it now because it will bring untold hardship on the people. So how do we remove subsidy painlessly? We believe one of the ways is to take the people away from PMS. If we get our people to use gas in their vehicles, we will find out that in the long run, they will prefer gas to PMS. Already, there is a pilot project in Benin and it has succeeded very well because drivers on the programme prefer to use gas. Unit for unit gas is cheaper than even the subsidized PMS. A liter of gas equivalent is about N95, N97. So it is a cheaper fuel. In terms of combustion, gas is more effective and, of course, for the environment, it is better. So whichever way you look at it, gas is much better fuelfor cars.
Unfortunately, we have not really encourage the usage for cars. So what we are trying to do as a government is to try and encourage the usage for cars and that programme will start soon. Between LPG penetration that is increase in the use of LPG in Nigeria and increase in the usage of CNG for driving, we believe this year will be very revolutionary that is why we say this year will be the year of gas.
Ogidegbe gas project
It is not abandoned at all, I can tell you. Before now, the Ogidegbe project was affected by security issues. When they tried the project there were some security issues around it and the investors got worried. We must understand as Nigerians and as Niger Deltans the saying that the dollar is a coward, it doesn’t like to go where it is threatened. So if you have insecurity in the Niger Delta, you will have such problems. But we have started discussing the Ogidegbe project again.
If you listen to me while I was in Riyadh last year, the Ogidegbe project was at the front burner and it is one project we really want to achieve. I believe between us and the communities with cooperation from the Niger Delta and peace in the area, Nigeria needs a project like that because we need to drive activities. There is no major thing about creating jobs in the oil industry, the only way to achieve that is to increase activities in the industry.
You can only imagine the number of jobs that will be created if the Ogidegbe project starts, a $16 billion project. As a government, we are very keen in starting it, we are discussing it but what we are asking is cooperation from the communities and peace in the Niger Delta so that we can focus on creating jobs and development of projects.
Crude price surge
You see, when you say we benefit from crisis elsewhere, it is a very sad thing, We shouldn’t think that way.
We don’t want crisis in the world. What we say in the oil industry is that we don’t want prices of oil too high or too low.
We want it at a certain level. OPEC always says we don’t want too high price for oil or too low price for oil, We want the price to remain at a certain point. As at now, Nigeria is not complaining because, two days before the incident, oil was already $68 per barrel, well over our benchmark of $60 for 2020 budget. These issues that is happening will affect oil price this way or that way but Nigeria is hoping that the world remains peaceful and that things continue to remain peaceful.
Having said that, we know that tensions like this will lead to oil price increase. But if you look at it from the backdrop of what is prevailing now, Iraq has always been a crisis territory. Today in OPEC, Iraq is not given any quota as such because they are not a major producer due to their crisis.They are not able to produce oil, so if you have more crisis in Iraq, I don’t think it will significantly affect what is happening around the world.
The Deep Offshore Amendment Act, I must tell you that we shouldn’t always look at things in black and white.
We cannot tell you that Deep Offshore Amendment Act is going to give us $62 billion. People like to bandy figures around and that is not how it works in the industry. We are all aware that the fiscals offshore need to change, the oil companies also are in agreement that the fiscals have been there for too long. Initially, the Deep Offshore was considered a frontier territory, a territory that has not been tried yet. So the federal government at that time just said, we give you this opportunity, go and try and see if you find oil offshore, if you find oil, recover your cost, you pay zero royalty and then we share so that after a while we start getting benefit. That is what gave birth to the Production Sharing Contract (PSC).
So, they started and we found a lot of oil offshore. The circumstances over the years have changed. Now the territory is no longer a frontier territory, it’s been tested, it is what is called in the oil industry as a “proven” territory. So if you are giving someone an acreage offshore, he is not just going to try now, there is likelihood that he will find oil, so you cannot give him those generous terms that you gave to the pioneers.
Unfortunately, there was a clause in the law which says when the oil price gets to $20 per barrel, the oil companies should pay Nigeria additional money but that happened and Nigeria unfortunately did not take advantage of that clause at that time.
Today, as we speak you will all agree with me that $20 is no longer a windfall. At the time that law was made, $20 was considered to be windfall if the oil prices get to $20. Today, oil cannot get to $20. If it does, then we are all dead. So the times have changed . If you say oil companies should pay anything above $20 per barrel, you are not being fair to them.
That is why we have to be really careful about some of these things.
If you are going to calculate, you have to look at when, at what point, did $20 increase to be a windfall. Ten years ago, $20 was no longer considered a windfall, maybe 15 years ago. In 2010, I remember oil price was already over $100 per barrel. $20 was not considered a windfall because our production cost over the years has also gone up. Today, we are talking about cost per barrel, it’s higher now. Before now, to produce a barrel of oil in some places was about $7, we have one of the cheapest cost per barrel. Today, our oil cost is more to produce because of security and other issues. For now, if a company produces oil at $30 per barrel and considers $20 windfall, then the company is going to pack and go.
So, these are the issues around the Deep Offshore Act. Definitely what we have just done and we need you to understand is that honestly, the cost needed to change and those terms have changed. But as to how much the country is going to gain from it, it has to be worked out taking a lot of factors into consideration.
So when people just wake up and bandied figures like $62 billion, I keep saying that look, $62 billion cannot possibly be sitting somewhere that we have not taken, it is part of the production process, it is a partnership. Nigeria and the IOCs are in partnership, sometimes we have issues with our partners, and sometimes they have issues with us. We will sit down together and resolve those issues. That is what is going on now. You know when you hear these figures, Nigerians like to run with big figures. So, I will not at this point tell you that this is how much we are going to gain from the deep offshore amendment Act.
Production losses is a big issue for us. It is very sad that a country will invest so much money to produce crude oil that is stolen enroute. The state of the contract, of course oil companies own different contractors manning their pipelines. But what we are really trying to do as a ministry is sanitize that process because, we believe that a lot is going on around us. Because, the cost per barrel for some companies have become unsustainable and they are crediting this increase in cost to security cost all the time. So if a company was producing at $20 per barrel and now they say their production cost has moved to $30 due to security risks, we need to look at it very well, how much are you spending? Can you possible spend all that money on security? Those are the issues we are trying to rejig and ensure that we have some kind of sanity in the pipeline security system.
But of course all the ongoing arrangement with the communities will continue like engaging the communities because, there is no security in the Niger Delta without involving the communities. I believe there must be cooperation between the communities, security agencies, the IOCs and the Federal Government.
That is the coalition that can solve these problems of insecurity and I want to assure you that we are really determined to ensure that we solve this problem of insecurity during this tenure.
Yes. It is important we begin to run the oil and gas sector as a business. Unfortunately what is responsible for the breakdown of refineries is also due to the fact that we didn’t run them as a business, we ran it as a government. If a seal starts to leak in Port Harcourt refinery, the approval process to get that seal fixed is a long and tortuous bureaucratic process. So, by the time you go through that whole process and go back to fix that seal, maybe another two have started leaking as well.
You don’t run a refinery like that, you must run it as a business. Unfortunately, we have not run our refineries as a business.
Some states will say, bring all the money that we get from oil sale into the federation account and share. That is not how you run a business, then what are you going to invest because, in the oil industry, you must invest. You have cash calls, Federal Government has to put in some cash as our contribution, the IOCs have to put down some cash before they invest.