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An Initiative that Pays

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Measures introduced by Diezani Allison-Madueke, minister of Petroleum Resources, to strengthen the petroleum sector are now yielding dividends

The past one year of the administration of President Goodluck Jonathan, has been that of a marathon race, unprecedented moves at jockeying and juggling policies to strengthen the socio-economic fabrics of the country. Nowhere was this jockeying more pronounced than in the oil and gas sector where Diezani Alison-Madueke, the petroleum minister, has had to ride the tiger by the tail because of the inherent controversial problems that come with running the affairs of a ministry which oversees the nation’s cash cow.

Ever since Jonathan blew the whistle for the ministers to set sail, the indefatigable minister mounted the saddle riding a very unruly horse, an industry where corruption and opaqueness have been the bane for years. To turn the tide was not easy. It was also made worse by the distractions that came with the probe of the downstream sector as a result of the fuel subsidy controversy earlier in the year.

Hardly had she mounted the saddle when the kerosene scarcity hit town due to sharp practices on the part of the importers. Despite government subsidy for kerosene, marketers made a kill at the expense of the masses selling the product they bought for N50 from the Nigerian National Petroleum Corporation, NNPC, at more than 100 percent profit. The minister waded in and brought the lingering problem to an end by making the country wet with the product and collaborated with the Capital Oil which sold kerosene direct to the public in the hinterland with mobile sales outlets.

As the kerosene debacle was ending, the minister focused attention to a more ominous challenge which had threatened the economy – gas supply-to-power which worsened the power outage in the country. This is where the minister showed that having industry experience with an international oil company could be an advantage in tackling the problem. She studied the major cause of the gas-to-power shortage, and found that debt owed gas suppliers, inappropriate pricing for gas, inadequate gas infrastructure among others were responsible. To solve the problem, she secured the president’s approval for the immediate implementation of a new gas to power price in the domestic market. “This new pricing arrangement has been very positively received by the industry and should stimulate a major growth in new supplies critical to both our aspirations for power but also for other gas based industries,” she said.

The current price of gas to power $0.2/mm British Thermal Unit, BTU.  According to the new pricing regime, by the end of the year, the price of gas to power will increase to $1mmbtu, and will move $2/mmbtu by the end of 2013. Beyond 2014, it will increase by inflation. The price of gas will be capped by export parity and this means that at no time will the Power Holding Company of Nigeria pay for gas than the export projects are paying for gas. In essence, the minister explained that should export prices (on a netback basis) fall below the prices above, the lower of the two is what would be paid by the power sector, adding that the price review is performance based. This means that the price is attached to growth in gas supply. Thus each price change will be triggered only when the gas sector has demonstrated that it has developed sufficient gas to attain a particular threshold of electricity generation. The prescribed thresholds are 4.7gw by the end of 2010; 6.2gw by the end of 2011, 8.2gw by 2013. With this linkage to performance, Nigerians are assured that they are paying for growth in supply. “This change in gas pricing is a major milestone in the repositioning effort of our gas sector and the effective take-off of the gas master plan. With the power sector consuming over 75 percent of the planned domestic supply, it is essential that we get the commercial framework right to ensure sustained supply. We are confident that these changes will signal a major boost in gas development for the domestic market.” 

Part of her solution to the gas-to-power issue was to convene interministerial meeting of her ministry and that of power to engage the stakeholders at a one day meeting which resulted in a committee to streamlines issues which impeded affective gas supply to power.

Another major concern of the minister was to address the inadequate gas infrastructure which made her to declare a 12-month gas emergency timeline geared towards the speedy expansion of the country’s gas-to-power capacity. As part of efforts to ambitiously transform the country into the industrial hub of Africa, the federal government will spend about $1.billion on gas infrastructure for projects that will impact positively on the power and industrial sectors of the economy. Alison-Madueke said at the ministerial platform last week, to commemorate the one year in office of President Goodluck Jonathan in Abuja, that the present administration, in the spirit and letter of the transformation agenda, had embarked on the most aggressive expansion of the domestic gas infrastructure in 30 years, creating a platform to transport more than two billion cubic feet of gas per day within the next 24 months.

The ministry has completed 136km x 36inch permanent gas pipeline from Oben to Geregu, creating a major sharp artery to the Geregu Independent Power Plants, Dangote’s Obajana Cement and other potential industrial customers. This line will provide arterial supply to the North once the Ajaokuta-Kano line is completed. Also, two other critical pipelines that will be concluded shortly include Itoki-Olorunshogo 31km x 24inch gas pipeline and 104km x 24inch Escravos-Warri gas pipeline expansion. By the time the two pipelines are completed in the next few months, a permanent solution to the challenge of gas supply to the PHCN and NIPP power plants at Olorunshogo as well as supply to Ewekoro, Abeokuta and environs for industrial capacity growth and double the existing transmission capacity to 600 mmcf/d and immediately add about 80mmcf/d additional gas supply to the grid from Escravos.

Three other major gas pipeline projects that are on-going and progressing steadily are the doubling of capacity to 2bcf/d of ELPS from Oben-Ore-Lagos, through the 320km x 36inch pipeline construction, NNPC/Total JV pipeline from Ubefan to Imo River via Obigbo.

The administration recently awarded the 120km x 48inch Ob/Ob-Oben East-West gas pipeline contract. “Specifically in the time frame, we have invested close to $1bn in almost 1000km of gas pipeline development,’’ the Minister said, adding: the NNPC/Total JV Usan Floating Production and Storage System (FPSO), the fifth in the Nigeria deep offshore region was recently commissioned and is currently producing 103,000 barrels per day. The federal government has continued to invest in increasing the country’s oil reserve to meet its target of 40 billion barrels of oil and crude oil productivity of 4 million barrels per day. “The aspiration is to grow crude oil reserve to 40 billion barrels. Collectively, these projects have added about 1.5 billion barrels bringing the national reserve to 37 billion barrels,’’ the minister  said. 

The federal government’s effort at encouraging indigenous participation in the oil and gas industry is aggressively yielding positive results with the establishment of an oil terminalling facility (the Ebok terminal) with current daily crude oil production of 7,000 barrels per day and a plateau production of 50,000bpd at full capacity.  The minister added that 1000 barrels per day crude oil topping plant to produce diesel have also being completed and commissioned by an indigenous oil company.

Speaking on the transparency and accountability principle of the present administration, Alison-Madueke said the ministry has set up four special task forces headed by eminent Nigerians to address critical issues in the sector. In support of the Nigerian Petroleum Development Company, NPDC, a subsidiary of the Nigerian National Petroleum Corporation, NNPC, the federal government has approved the assignment of 55 percent equity stake in the eight blocks whose IOC’s 45 percent equity stakes were divested under the NNPC/Shell/Total/NAOC joint venture.

On the current state of the refineries, the minister asserted that the rehabilitation of the three refineries were being pursued vigorously saying that a major feat was achieved early this year when the fluid catalytic cracking unit, FCCU, of Kaduna Refining and Petrochemical Company, KRPC, was repaired locally and restarted after almost 10 years of dormancy, thus adding about three million litres to in-country production of Premium Motor Spirit.

On May 17, the minister along with a team of experts and relevant stakeholders in the oil and gas industry started a seven-day tour of the gas facilities in the country. She was at the Utorogu Gas plant in Ughelli South local government area of Delta State where she was shown the new $250 billion gas facility which was built by Shell Petroleum Development Company, SPDC and would be handed over to the National Petroleum Development Company, NPDC, according to Mutiu Sumunu, SPDC, managing director. The current average production of the plant stands at 250 million metric standard cubic feet while work is ongoing at a new plant designed to increase capacity to about 510 mmscuf per day which would have significant increase in power generation very soon.

Alison-Madueke, also visited some gas production related facilities operated by some major indigenous service providers like LEE Engineering & Construction Company as well as MAKON Engineering & Technical Services, Fenog Nigeria Limited, and affirmed that the drive to ensure adequate gas supply for power needs has reached an irreversible path.

Right now, a team of experts are continuing where the minister stopped to go round the gas facilities to ensure that the problem was resolve early enough for the power supply to improve latest by July. “This is a very crucial task, that’s why the minister has directed the group executive director in charge of exploration and production at the NNPC, Andy Yakubu to lead the inspection. The team is expected to report back to the minister on a project-by-project basis. The projects will include new gas plants, as well as expansion of existing plants and new pipeline infrastructure projects,’’ Levi Ajuonuma, group general manager, group public affairs division, said. Other members of the team include David Ige, group executive director, GED, Gas & Power; Kunle Allen, managing director, Gas Aggregator Company of Nigeria; Saidu Mohammed, managing director, Nigerian Gas Company, and Morrison Fiddi, group general manager, National Petroleum Investment Management Services, NAPIMS, and  Paul Ajishafe, general manager, Gas, NAPIMS.

Alison-Madueke’s next port of call is shoring up the production level of the National Petroleum Development Company, NPDC. Prior to her coming, the NPDC was producing about 80,000 barrels per day, bpd, but she tasked them to shore it up  to 250, 000bpd by 2015 and removed some of the obstacles that impeded efficient and effective functioning of the company. The result is that NPDC which was number seven oil producing has moved up the ladder. A thorough review of the obstacles that militated against the NPDC operations was done and positive actions such as acquiring new oil blocks were done for the company. This help in boosting its reserve. Also the funding impediment was also dealt with by improving the approval its approval limit from N5 million to N2 million dollars. This new funding arrangement ensured that decisions were reached fast on actions to move the company forward unlike before when the managing director would have to go to Abuja to get approval to implement projects.

As effort to increase oil production gains ground, the ministry is also waging a war against crude oil thieves. Crude oil theft has robbed the country about 180 million barrels daily worth about $7 billion. To stop the illicit practice, Alison-Madueke met with services chiefs penultimate week along with chief executives of international oil companies. At the end of the meeting, a taskforce was set up to curb the menace of crude oil thieves.


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