Uche Usim, Abuja
For over 10 years, Nigeria has not conducted any oil bid for several unresolved issues in the industry.
But Dr. Diran Fawibe, the Chief Executive Officer at International Energy Services Limited (IESL) believes the executive and legislative arms of government ought to close ranks to achieve the speedy passage of Petroleum Industry Bill expected to unlock investment opportunities in the nation’s oil and gas sector.
Fawibe holds a PhD in Petroleum Process Economics from the University of Ibadan, Nigeria, and has his work experience spanning organisations and institutions like Nigerian Institute of Social and Economic Research (NISER), University of Ibadan, Nigeria, the Central Bank of Nigeria (CBN), and the Nigerian National Petroleum Corporation (NNPC).
While at the NNPC, Dr. Fawibe was the General Marketing Manager responsible for marketing Nigerian crude oil in the globalmarket, from where he moved to become the Head of Research and Planning in the Petroleum Inspectorate. He represented Nigeria between 1973 and 1984 at OPEC’s expert meetings (Economic Commission Board, Working Parties and Steering Committees for OPEC Studies) and Ministerial Conferences.
In this interview, he outlines the impact of COVID-19 on the sector, the gas sub-sector, challenges and the pathway into a prosperous future for Nigeria.
Ameliorating COVID-19 impact
The development has affected the industry both locally and internationally. The problem we face in the industry is not limited to a particularly country, it is global, especially with operation being reviewed in various countries. The collapse of oil price and the diseases are already leading to shutdown of operations and projects in many countries. Few days ago, Exxon-Mobil, which was to undertake the LNG project in Mozambique has decided to suspend the project. When you have such suspension, you don’t really know when it is to come back again. That is the kind of situation that may come in other parts of the world, including Nigeria. In Nigeria, our revenue expect ion from oil has already being impacted. It is salutary that government has considered diversification, while engaging tax payer to pay more. When you look at revenue structure, the percentage from oil industry is no a little less. There are contributions from service sector, taxes and the non-oil sector. But the area where we will feel the impact the most is in terms foreign exchange. For many years to come the petroleum industry will continue to provide foreign exchange and that is where the impact would be felt more. Already, the expected reduction in the earning has forced CBN to adjust official rate to N380 against N305 to a dollar. How far they can do in achieving this remained another issue.
We may not feel the impact of foreign exchange now because the demand is low since activities are shutting down but the issue will change as soon the virus problem is addressed. Exchange rate would certainly soar to about N400 in the black market. This is happening across the world. When companies ask their workers to work from home, there are so many areas of activities that can not be done from home. The oil industry is not office activity, it is field activity. If people can no longer go to the field to work then the industry will shut down. The service sector is equally affected. In another few weeks, we shall see the full effect of this challenges. Until there is a vaccine the problem may not go away in a hurry.
Major projects in Nigeria will also suffer, for instance Train seven, Bonga South West, which we are thinking could take off in the new year and other onshore projects that some of the IOCs are considering to revamp their operations. They have been waiting for passage of legislation to move to the deep-water but with the current development, industry players are already worried on the next situation.
Oil drying up in 49 years
We should qualify that deadline. Based on existing reserves, you could say that our reserve will dry up in 49 years but we could still discover more oil. We can extend the period of the running out. A geological survey has said there are still a lot of oil discoveries, especially in deep water in Nigeria. And if only we could engage in exploration, we would be able to discover some of these and add to the existing reserve.
For example, if we are able to add additional 200 billion barrels to the existing reserve, will anybody say that it will run out in 49 years? Of course not. So, that is a statement that we should not accept. To those who know the industry and the business, there are more reserves yet to be discovered in the country.
What should we then do? I think this is a wake up call for the industry and the operators. Of course, operators are currently discouraged due to prevailing investment climate in the country. I wish the government knew the extent to which the uncertainties in the industry are affecting the sector. When compared with some other countries especially in Africa, there are no attractive incentives to encourage investment, particularly in deep water. So, our government should look at this critically and also pass the Petroleum Industry Bill into law. More importantly, passing the PIB is not enough, there is need for the law to capture critical issues that would fast track the growth of the sector otherwise, investors would be forced to reduce their investment or move out of the country.
Need for gas focused bid round
Yes. People have been talking about transition from oil to energy, particularly gas. Apart from renewable, this country is endowed with natural gas and we often say that Nigeria is more of a gas producing country. Our natural gas endowment is much more than oil. Today, we could be talking about over two trillion standard cubic feet of gas. This is coming at a time when we have not really focused on gas exploration. If we focus on gas exploration, we would double our reserves. At a time when there is pressure on the impact of fossil fuel, it is advisable to look at keenly at gas. If there is less demand for oil in the foreseeable future, we then have the natural resource of the future, which is gas. It is generally considered to be a cleaner source of energy. With this, the country would mitigate economic challenges that could come from the uncertainties in the oil demand and supply. Government should strategise and focus on this development. We need to convert gas to other products; like power and other related products. This will also reduce our consumption of fuel and diesel. We can convert our gas into fuel.
PIB
The Petroleum Industry Bill is one of the obstacles that need to be cleared for oil bid rounds to happen in Nigeria. Until this is done, we may not get the best from the bid round. Investors need clarity. This is where the problem has been for the past decade. Investors cannot take care of what the laws will say, those who have invested particularly in the deep water, are at loggerheads with government over the intended review of the legislation. They have to be mindful of what may hurt their businesses. No one would invest when fiscal terms could change prematurely. Projects are pending in the deepwater because of some of these challenges. The only way out for the government is to look at the sector objectively.
The executive and the national assembly must agree and be determined to pass the bill to law as soon as possible. If that happens, it will be a welcome development. There are so many attractive countries and investors know where they get the reward for their investment. So, it is absolutely important for the government to make hay when the sun shines.
Climate change
There has to be efficiency in the exploration and exploitation of oil. We need to take cognisance of the fact that there must not be environmental problems. For example, there must not be pipeline leak or vandalism; there must be adherence to quality health and safety standards in operating the various fields and then there must not be gas flaring. Government must ensure compliance to extant regulations that mandated that the plan for gas is submitted along with the initial project plan. It is regrettable that Nigeria has not met zero gas flaring target since we have been setting the target.
Also, African countries can collaborate in terms of technology or other terms of approach to address the looming impact. Oil companies should work and collaborate in terms of the application of technology to address the challenge.
Local content
We are not doing much in the industry yet. But thanks to Nigerian Content Development and Monitoring Board that continues to prevent job loses to other countries. Their sensitization on local content and the engagement across the country are yielding desired results. The policy to domicile and domesticate will internalize our resources. Jobs are done in-country and materials are sourced locally unless that material is not available in Nigeria. In some cases, NCDMB will have to give waivers to certain things based on realistic assessments of what we have on ground. These are some of the things that the Nigerian authorities are doing. However, countries can also collaborate in terms of using the technical know-how and the resources available in one country against the other. So, today, there is very little research and development going on in the country. Unless we fund research, though expensive, we may not develop the sector as gas flaring target should be zero.
When you’re just concerned with day to day challenges and to have little funds to play with, it will be to look at research and development. Unfortunately, indigenous companies are funding research and development. International oil companies are the ones that are usually coming up with new technologies. We are not there yet. For those who have resources to do it, we should encourage them and also encourage indigenous companies to, in their own little way, engage in full technology in doing things.
IESL/DORIS Joint Venture
Any idea that will create benefits for Nigeria should be supported. Such is the JV between IESL/Doris. There are so many projects, especially deep water projects that can be fast tracked with necessary in-country capacity.
The country is moving into deep water projects. There would be a number of challenges when these projects come up, especially in the aspect of engineering design and asset management. So, with the JV, its expertise would rub off on Nigeria. The JV is primarily focused on supporting local content and Nigerians. It is a long term relationship which is expected to bring lots of values to Nigeria, especially now that there is a lack of depth in engineering design in Nigeria.
It has the capacity to boost offshore engineering in the country. With specialisation in FPSO and platforms, Nigeria will benefit in terms of sub-sea development, fixed and floating platforms, top sides and substructure, onshore facilities, fixed and floating wind turbines, cables and transformer platforms and others.
With this development, IESL-Doris will have access to all the engineering capabilities of Doris Group around the world. This means that if works that are to be done in the country require expertise that do not exist here, they would be brought into the country.
The group has in the past succeeded with a number of Floating Production Storage and Offloading (FPSO) projects in the country and with the new partnership, international Oil Companies and independent players like Total, Seplat Petroleum Development Company, First E& P, Chevron Nigeria Limited, and ExxonMobil Nigeria are being engaged and willing to collaborate on the drive.
About IESL
International Energy Services Limited (IESL), established in 1990, is a specialist, multidisciplinary, energy services company that provides integrated, client-focused and cost-effective services in the oil and gas industry.
It provides clients with engineering expertise throughout the project lifecycle, from feasibility studies and scope documents to design conceptualization, construction management and post-construction evaluation.