Nigeria in the Unfolding Integration of African Market: The Oil and Gas Sector Perspective
I am delighted to be part of the 9th Anniversary Celebration of the Realnews Magazine and Publications. For anyone familiar with the statistics of failure rates of private enterprises, he or she will find it highly commendable that Realnews has been kept afloat for nearly a decade
Permit me therefore to offer my Big Congratulations to my sister, Maureen Chigbo, the Publisher and Editor of Realnews Magazine and Publications Limited. In line with the modus operandi of Realnews when it comes to its anniversaries, I have been invited to deliver a lecture on one of the topical issues of our time in respect of the need for greater integration amongst African Economies under the umbrella of African Continental Free Trade Agreement (AFCFTA).
I particularly appreciate the focus on getting the oil and gas perspectives in the unfolding integration of African Economies especially as it concerns Nigeria. Beyond all the attention being paid to Energy Transition, Net Zero Emissions, Green Energy, and others, the topic of this year’s Anniversary has elected to focus on the nexus between the oil and gas industry and the integration of African economies.
The outline of my lecture will be in the following order:
• A brief introduction of the African hydrocarbon landscape.
• Describe the key tenets and objectives of the AFCFTA
• I will thereafter share my views on the key aspects of Nigeria’s oil and gas industry as it relates to the AfCFTA.
The Africa oil map reveals the rapid spread of the discovery of hydrocarbon especially in the last two decades.
Between 2005 and 2015 alone, we had Ghana, Sierra Leone, Liberia, Mozambique, Kenya, Tanzania, and Senegal as new additions to the league of countries with hydrocarbon resources. Evidently, Africa is practically sitting in oil and gas reservoirs.
In this year alone, Namibia announced discovery of 120 billion barrels of oil comparable to the Permian Basin in Texas, USA. Other discoveries include the 2 billion barrels discovered in Cote D’Ivoire, 700million barrels in Ghana, and 250million barrels in Angola.
With proven crude oil reserve of 37 billion barrels of oil which is the 11th largest in the world and proven gas reserve of 206 TCF which is the 9th largest in the world, Nigeria is also well known as a strategic player in the global oil and gas industry.
In consideration of the share volume of Nigeria’s gas reserves, there is a popular saying that Nigeria is a gas province with pockets of oil deposits. It is estimated that even if the current gas consumption level in Nigeria is doubled, the gas reserves could still last for fifty (50) years.
It is also a well-known fact that Nigeria is highly dependent on revenues from the oil and gas industry to power its economy.
With the huge existing, newly discovered, and the yet to be discovered hydrocarbon resources across the African continent, it is pertinent to evaluate the implication of the unfolding integration of African market on the Nigerian oil and gas industry.
On the 1st of January 2021, the whole of Africa became one single market courtesy of the African Continental Free Trade Agreement (AfCFTA) effectively creating the world’s largest free trade area connecting 1.3billion people on the continent with a combined GDP of about $3.4trillion.
The agreement is meant to address the low intra-regional trade in Africa estimated at 17% compared to 69% obtainable in Europe and 59% obtainable in Asia.
Some of the key thrusts and targeted benefits of AFCFTA include:
• Free movement of people, goods, and capital
• Removal of tariff and non-tariff trade barriers
• Investing in cross-border infrastructure
• Streamlining trade, investment, and monetary policies
Thus, AFCFTA remains a game changer in turning the fortunes of the continent around as it economic and social benefits cut across multiple sectors such as trade, education, health, finance, agriculture, transportation, manufacturing, and even the oil and gas industry.
Regarding Nigeria’s positioning in the emerging integration of the African Market, the following perspectives are pertinent for consideration to ensure the full benefits of the agreement are realised:
• Local Content
• Energy Transition
• Resource Utilisation
• Human Capacity Development/Expatriation and
Ladies and gentlemen, permit me to briefly deliberate on some of these viewpoints as it concerns the opportunities, and perhaps threats, that could be realised by the Nigerian oil and gas industry against the AFCFTA agreement.
Let me start with infrastructure…The word Infrastructure is defined as the fundamental facilities, services and systems serving a country, city, or other geographical area, for its economy to function.
Infrastructure can also be seen as the physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance societal living conditions. It is also important to highlight that there are two ways to view infrastructure – hard infrastructure or soft infrastructure.
Hard infrastructure refers to the physical networks necessary for the functioning of a modern industry. This includes roads, bridges, tunnels, water supply, sewers, electrical grids, telecommunications, and others.
Soft infrastructure refers to all the institutions that maintain the economic, health, social, and cultural standards of a country. This includes educational programs, recreational facilities, law enforcement agencies, emergency services, and governance structure.
Specific to the energy sector, the key driver of infrastructure requirement is the need to convert the energy source in its raw form into a useable form and make it available where it is required to power the needs of humans and the society.
Examples of such infrastructure include hydrocarbon processing plants, pipelines, power plants, pylons, ports, jetties, terminals, and several others.
The African oil and gas landscape provides huge opportunities for cross-boarder infrastructure to unlock development of stranded assets or bring energy closer to the people. Such infrastructure also leads to lower unit development costs.
For example, the existing West Africa Gas Pipeline (WAGP) and ongoing AKK gas transmission infrastructure provide good opportunity to serve regional markets in West Africa and the Sahel region especially with the recent hydrocarbon discoveries.
Facility such as the SHI-MCI yard in Lagos, the only FPSO integration yard infrastructure in Africa has put Nigeria at a vantage position to serve the wider African market.
The next perspective I will like to share my thoughts on is Local Content practice in the oil and gas industry. It is typical for many to consider local content as being against trade liberalization. I wish to state categorically that AFCFTA and Local Content are not mutually exclusive. No nation is blessed with the full list of natural resources, and none can produce every product it requires.
This implies that a country must be allowed to protect its areas of comparative advantage so that it can be utilized to trade for what it lacks. Discouraging local content laws and practice in the name of free trade is like fostering one-way trading which is not sustainable.
Nigeria continues to lead the way in the practice of Local Content in the oil and gas industry. We have ongoing collaboration with our brothers and sisters in Angola, Ghana, Siera Leone, Senegal, Kenya, Mali, Mozambique, Niger Republic, Uganda, and many others as we match forward and compare notes in our local content journeys.
These collaborations have fostered integration of thoughts and actions thereby further enhancing the realisation of the objectives of AFCFTA.
Next on the list is Energy Transition which refers to the global energy sector’s shift from fossil-based systems of energy production and consumption — including oil, natural gas and coal — to renewable energy sources like wind and solar, as well as lithium-ion batteries.
Energy transitioning is not a recent phenomenon as it has been occurring for centuries. The usual trigger for this is the need to utilise energy that is efficient, effective, and economic.
As at the 15th century, biomass was used as the main source of fossil fuel.
Later in the 19th century, biomass was largely replaced by coal as the preferred source of fuel.
A century later, oil was discovered, and it replaced coal as the preferred source of fuel. Crude oil was so much loved and valued that it was nicknamed the ‘Black Gold’.
In the late 20th century, gas was seen as a cleaner fuel and hence it gained much prominence over crude oil as the preferred cleaner fuel.
Now in the 21st century, renewable energy has been embraced as a much cleaner and environmentally friendly source of energy with increasing clamor for outright shift to the renewable energies.
Some of the key drivers of the push of energy transition in our era include the following:
• Technological advancements in the creation of other forms of energy. Hitherto far-fetched technology to manufacture solar panels or construct windmill farms are becoming common-place.
• Reduction in the acquisition cost of renewable energy source such as solar and wind, as well as the cost of energy storage leading to massive roll-out of solar power electricity in homes and the increasing adoption of Electric Vehicles by companies and consumers.
• Environmental regulatory issues and the need to reduce energy related green-house emissions through various forms of decarbonisation.
• Depletion of hydrocarbon reserves in most of European hydrocarbon-rich countries. For example, the North Sea that used to be a prolific producer of oil decades ago, peaked in 1999 and is now largely a location for decommissioning of oil production assets.
It is estimated that UK’s proven oil reserves is not sufficient to sustain its domestic consumption for the next 5 years without increased importation. Netherlands has zero barrels of proven reserves left and relies heavily on oil importation.
European Countries are mainly at the fore-front of the push for energy transition as the level of their hydrocarbon resources have plummeted. Some still retain some elements of hydrocarbon in their energy mix. Last September, UK had to restart some of its coal-fired power plants when it could not cope with the prices of gas.
For instance, in 2007, Germany announced its plan to phase out subsidies for its coal industry.
In the year 2016, the Dutch parliament voted for 55% cut in CO2 emissions by the year 2030.
Norway agreed to ban the sale of new internal combustion engine vehicles by the year 2025 while Britain also agreed to ban all diesel and petrol cars and vans.
In its Net Zero 2050 Report, the International Energy Agency (IEA) called for an immediate halt in fossil fuel supply projects. Some of the major European banks have heeded this call and announced a halt to financing of hydrocarbon related projects as part of their support for decarbonisation efforts.
These pronouncements have direct and indirect implications on the global energy eco-system as nations, businesses, and individuals adjust to the shifting energy landscape.
It is instructive to note however that, despite the unpleasant narratives about coal, the International Energy Agency in its 2021 Global Energy Review projects that the global coal demand in 2021 is set to exceed 2019 levels and approach the 2014 peak.
While China alone is projected to account for over 50% of global growth, coal demand in the United States and the European Union is also on the upswing.
Last September, UK had to restart some of its coal-fired power plants when it could not cope with high prices of gas.
Back here in Nigeria, and in Africa at large, it is important to emphasise that Africa’s industrialisation agenda is at the heart of AFCFTA and fossil fuels remains a very significant part of the energy mix required for industrializing the continent. In addition, the revenues obtained from the sale of the hydrocarbon resources remain key drivers of the economies of the African oil and gas producing countries.
The pull back of investments on hydrocarbon development projects is indeed a challenge for oil producing countries such as Nigeria. There are key areas of focus that could be used to address this challenge: The first is the collaborative platform provided by AFCFTA to provide funding and the technology required to operate and develop hydrocarbon projects.
The second is to have in place an investment-friendly law such as the Petroleum Industry Act (PIA) 2021. This will come in handy to attract much needed funds for project developments when the effect of the premature halting of new hydrocarbon projects lead to supply shortages with attendant unbearable price hikes.
The last point I will like to make is on the need to increase in-country hydrocarbon resource utilization. For crude oil, this can be realised through massive refining and production of petrochemicals.
In realisation of the enormous prospects that gas holds as a cleaner, more efficient fuel in Nigeria, His Excellency, President Muhammadu Buhari GCFR, declared year 2021 to 2031 as the Decade of Gas.
As variously espoused by Mr. President and the Honorable Minister of State for Petroleum Resources at various fora, the future of Nigeria’s hydrocarbon industry is in GAS.
Thus, I am extremely pleased that the Ministry of Petroleum Resources, under the sterling leadership of President Muhammadu Buhari and the Honorable Minister of State for Petroleum Resources, Chief Timipre Sylva, have commenced implementation of several initiatives that seeks to develop the gas sector in line with the ‘’Decade of Gas’’ declaration.
Construction works on NLNG Train-7 has commenced which will increase the current capacity of the plant by 30%. The 614km-long Ajaokuta-Kaduna-Kano (AKK) gas pipeline under construction by NNPC is expected to transport 3.5bscf/day of gas.
Other initiatives that have been put in place in line with the ‘’Decade of Gas’’ declaration includes the Nigeria Gas Flare Commercialization Program (NGFCP) and the Nigeria Gas Expansion Program (NGEP) aimed at deepening domestic utilization of LPG and Autogas.
At NCDMB, we are also pursuing various aspects of gas development and utilization programs to enhance delivery of government policy directives on gas.
70% of our partnership investment programs are targeted towards gas development projects.
In the last two and half years, we have commenced partnerships to deliver gas value-chain related projects as follows:
• Partnership with NEDO Gas Processing Company in Kwale, Delta State for the establishment of 80MMscfd of Gas Processing Plant and a 300MMscfd Kwale Gas Gathering hub.
• Partnership with Triansel Gas Limited for the construction of 5,000MT LPG Storage and Loading Terminal Facility in Koko, Delta State.
• Partnership with Duport Midstream for the construction of Energy Park inclusive of a modular refinery, power plant and 40MMscfd gas processing facility at Egbokor, Edo State.
• Partnership with Brass Fertiliser for the development of a 10,000MT/day Methanol Plant and 350MMscfd gas processing plant at Odiama in Brass.
• Partnership with Rungas Group for the manufacturing of 1.2million composite LPG cylinders every year in Bayelsa and Lagos States.
• Partnership with Butane Energy to deepen LPG utilization in the North with the roll-out of LPG bottling plants and depots in ten (10) Northern States of Kaduna, Bauchi, Katsina, Kano, Nasarawa, Niger, Plateau, Gombe, Zamfara, Jigawa and FCT Abuja;
From all indications, we can see that AfCFTA holds a great promise for the economic growth and development of Nigeria and indeed other African countries
There is no doubt that the Nigerian oil and gas industry has a role to play in AfCFTA.
However, all the key stakeholders in the oil and gas industry need to align the industry to better fit into the AfCFTA regime
On a final note, let me once again seize this opportunity to thank the management and staff of RealNews magazine for inviting me to be a part of this event. Let me also commend you for not joining the bandwagon of FAKE news merchants. I believe you will stay true to the name of the magazine by giving your readers REAL news for many decades to come.
Thank you all for your attention.
Engr. Simbi Wabote (FNSE, FIPS)
Nigerian Content Development and Monitoring Board