Nigeria’s oil and gas sector appears set for a major turnaround after years of lull in the sector occasioned by a low oil price regime and the coronavirus pandemic which saw US oil prices turning negative for the first time in history on April 20, 2020.
A floodgate of unwanted oil in the market caused the West Texas Intermediate (WTI), the benchmark price for US oil, to plummet to almost -$40 a barrel after the fastest plunge in history.
The development sent shivers down the spines of oil producing countries, signaling that the worst was yet to be seen as the coronavirus pandemic spread across countries of the world.
The after effect was the shutdown of refineries across Europe ditto for factories in China and other parts of the world.
Nigeria, a major oil exporter which depends on about 80 per cent of its revenue from oil was the worst hit as oil production and revenue dropped drastically.
In May 2020, Nigeria’s Finance Minister, Mrs. Zainab Ahmed announced that revenue target fell by N125.52 billion in Quarter one of 2020 to N940.91 billion.
Ahmed attributed the shortfall to the double whammy of the headwind caused by the COVID-19 pandemic and the slump in oil price due to a sharp drop in demand and price war between two powerful producers, Russia and Saudi Arabia, representing 31 per cent of the prorated oil revenue target.
Nigeria, according to the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry (LCCI) is among the top 10 countries with the highest cost of oil production.
Though, the Nigerian National Petroleum Corporation (NNPC) has assured that efforts are in top gear for the industry to ensure that it crashes the cost so that the country could reap the gains even in a low price oil regime.
Group Managing Director of NNPC, Mallam Mele Kyari, had last December at the Central Bank of Nigeria’s(CBN) round table session expressed the corporation’s readiness to put in place measures that will reduce the cost of crude oil production in Nigeria to create market for the country’s crude.
He said the move was also aimed at making the country a choice destination for Foreign Direct Investment.
According to Kyari, the current cost of crude oil production in the country is within the range of $15 to $17 per barrel, while Saudi Arabia has a cost of production that is between $4 and $5 per barrel.
He noted that due to the uncertainty of the global crude oil market, countries producing at the cheapest price would remain in the market while those with high cost of crude oil production would not be able to cope with the competing prices.
It was for this reason and many more that President Muhammadu Buhari, in being proactive and as part of measures to ensure that Nigeria’s energy landscape was in tandem with global realities in the area of cost efficiency, safety and value, last Thursday, virtually inaugurated the National Oil and Gas Excellence (NOGEC), Lagos. NOGEC will operate under the supervision of the Department of Petroleum Resources (DPR).
What NOGEC seeks to achieve
Buhari, who also doubles as the Minister of Petroleum Resources at the inauguration of NGOEC, said the centre has been carefully designed to support the achievement of the ministerial priorities – significant amongst which are cost reduction, increase in production, and value maximization in the industry. The Centre, according to him under the direct supervision of Department of Petroleum Resources (DPR), will leverage the existing capacity of the National Data Repository (NDR) as the principal data warehouse of the industry to drive initiatives that will enhance safety, value and cost efficiency across all operations in the Industry.
Buhari, who was represented by the Minister of State for Petroleum Resources, Mr. Timipre Sylva, said the establishment of the NOGEC is not only a response to a safer, cost efficient and sustainable oil and gas industry, but also a strategic move to position Nigeria as regional and global leader in cost efficiency, breakthrough solutions and value added services for the industry.
‘‘The establishment of NOGEC is not only a response to a safer, cost efficient and sustainable oil and gas industry, but also a strategic move to position Nigeria as regional and global leader in cost efficiency, breakthrough solutions and value added services for the industry.
Accordingly, and to achieve the afore-mentioned three-prong value drivers of safety, value and cost efficiency, the integrated NOGEC complex encompasses the following five (5) Units: Search, Rescue and Surveillance (SeRAS) Command & Control Centre, National Improved Oil Recovery Centre (NIORC), Oil and Gas Alternative Dispute Resolution Centre (ADRC), Oil and Gas Competence Development Centre (CDC) and Integrated Data Mining & Analytics Centre (IDMAC)
Buhari highlighted the main elements of each of these centres to underscore its role in driving cost reduction, increasing production and enhance value for the Industry.
According to him, SeRAS is a flagship programme of the centre designed to enhance safety management, emergency preparedness and response and routine transportation for bed space management.
SeRAS, he said, will therefore drive cost reduction and improve operational efficiency across the industry. Conservatively, he said it is projected that upon full implementation of SeRAS, the annual industry expenditure for offshore & remote locations flight logistics and emergency response will reduce by 50 per cent – a significant gain towards the country’s target reduction of cost-per-barrel across our operations.
NIORC on the other hand, is designed to promote the implementation of Improved and enhanced oil recovery technologies/methods to arrest the incidences of production decline and resultant high cost in many assets especially in the matured Niger Delta Basin.
In essence, he explained that NIORC will trigger secondary and tertiary recovery operations in the industry. The Centre will collaborate with operators, global technology centres, international oil and gas regulators and other relevant parties to leverage experiences and best practices for application in Nigeria.
‘‘Expectedly, the foregoing measures will result in reserves growth, production increase, field life extension, improved asset life cycle cost and reduced cost-per-barrel, all with positive impacts on national economy and investors’ profitability.’’
For ADRC, he disclosed that it is was created to arrest the prevalent value erosion attributable to sub-optimal development or non-development of oil and gas assets due to lingering disputes in the industry.
The ADRC, he said, shall offer arbitration, mediation and conciliation services utilising industry’s technical experts who will provide fair and balanced resolutions of industry related disputes from an informed position. The Centre, he added, will take advantage of resources of the National Data Repository (NDR) to ensure alternative dispute resolutions that result in value optimisation in terms of resource growth and global competitiveness.
In the same vein, he explained that the other two (2) units namely; IDMAC and CDC are structured to position Nigeria as a top-tier destination for credible, bankable and investment grade data in oil and gas and to serve as regional hub for competence development respectively.
‘‘These centres will provide cost-effective data and analytics solutions for investors, financiers, operators as well as resources for oil and gas capacity building and trainings.
I wish to assure all that NOGEC represents a state-of the-art, integrated facility that will provide the oil and gas sector with the much needed technical and resource capabilities for stability, growth, safe operations and cost efficiency for the benefit of all stakeholders.
We are confident that this Centre will support the attainment of Mr. President’s clear development imperatives for sectoral growth and the industry performance targets set by the ministry for a fortified oil and gas sector.’’
Director of DPR, Mr. Sarki Anwalu, in his presentation at the inauguration ceremony commended the Nigerian Oil and Gas Industry for its tenacity and resilience in the face of several challenges.
The journey to NOGEC according to him, began with the express mandate of Mr. President for the industry to reduce cost, improve efficiency and create employment.
‘‘Based on these directives and the ministerial delivery priorities, DPR identified five key initiatives that will help to achieve the intent of Mr. President’s mandate. It is pertinent to note that the entire oil and gas business is hinged on revenue and safety, which provide the basis for identifying the five (5) initiatives that form the pillars of NOGEC.’’
Anwalu said NOGEC encompasses industry-focused programmes that will drive strategic mediation in operations, skills and competence development, use of Big Data, Internet of things (IoT) and Artificial Intelligence (AI) for decision making, deployment of proven technology for secondary and tertiary oil recovery as well as coordinated response for emergency.
‘‘Today, we have concluded the framework and implementation modalities for successful take-off of these programmes within the NOGEC due for imminent commissioning.
Your Excellency, sir, we have no doubt that the industry now has the resource and platform to interact, cooperate and collaborate on salient industry issues that remain impediments to cost reduction, safe operations and optimum value optimisation.’’