Nigeria’s Energy Focus Must Change From Crude Oil to Gas – Dr Chukwueloka Umeh

Nigeria’s Energy Focus Must Change From Crude Oil to Gas – Dr Chukwueloka Umeh

According to the Nigeria National Petroleum Corporation (NNPC), Nigeria has the world’s 9th largest natural gas reserves (192 TCF of gas reserves). As at 2018, Nigeria exported over 1tcf of gas as Liquefied Natural Gas (LNG) to several countries. However domestically, we produce less than 4,000MW of power for over 180million people.

Think about this – imagine every Nigerian holding a 20W light bulb, that’s how much power we generate in Nigeria. In comparison, South Africa generates 42,000MW of power for a population of 57 million. We have the capacity to produce over 2 million Metric Tonnes of fertilizer (primarily urea) per year but we still import fertilizer. The Federal Government’s initiative to rejuvenate the agriculture sector is definitely the right thing to do for our economy, but fertilizer must be readily available to support the industry. Why do we import fertilizer when we have so much gas?

I could go on and on with these statistics, but you can see where I’m going with this so I won’t belabor the point. I will leave you with this mental image: imagine a man that lives with his family on the banks of a river that has fresh, clean water. Rather than collect and use this water directly from the river, he treks over 20km each day to buy bottled water from a company that collects the same water, bottles it and sells to him at a profit. This is the tragedy on Nigeria and it should make us all very sad.

Several indigenous companies like Nestoil were born and grown by the opportunities created by the local and international oil majors – NNPC and its subsidiaries – NGC, NAPIMS, Shell, Mobil, Agip, NDPHC. Nestoil’s main focus is the Engineering Procurement Construction and Commissioning of oil and gas pipelines and flowstations, essentially, infrastructure that supports upstream companies to produce and transport oil and natural gas, as well as and downstream companies to store and move their product. In our 28 years of doing business, we have built over 300km of pipelines of various sizes through the harshest terrain, ranging from dry land to seasonal swamp, to pure swamps, as well as some of the toughest and most volatile and hostile communities in Nigeria. I would be remiss if I do not use this opportunity to say a big thank you to those companies that gave us the opportunity to serve you. The over 2,000 direct staff and over 50,000 indirect staff we employ thank you. We are very grateful for the past opportunities given to us, and look forward to future opportunities that we can get.

For the better part of 50 years, Nigeria has largely been an oil producing economy with its 37 billion barrels of proven reserves. The practice of oil exploration and production, as well as marketing of oil is largely well understood. Most projects in the oil & gas industry, which have seen many IOCs, and recently, indigenous producers make a decent living have largely been oil related.

In today’s world, the focus is steadily shifting to clean energy, so we are beginning to see the world’s focus on oil starting to decline. Many countries in Europe are at the forefront of this energy revolution, and with time, African countries, including Nigeria will be dragged along. It is time now to embrace a paradigm shift, and change Nigeria’s energy focus squarely from oil to gas. With its position as the 9th largest gas reserves in the world, we have the resources to do that. The will is also there. The only thing missing is the innovation to build a sustainable gas economy in the country. Currently, the only guaranteed gas income stream comes from production and exportation of LNG. This is understandable because the energy value chain, which taps into the gas reserves in Nigeria is broken, and cannot therefore reliably pay for gas.

Gas production, transportation, usage in power generation, petrochemicals generation & agriculture, power distribution, etc. is broken. We cannot put the cart before the horse, therefore for the gas industry to work, the gas offtake and the means for collecting revenue to pay for it must work. Herein lies the required innovation. We cannot simply copy and paste what has worked in other developed or developing countries. We must leverage learnings from other countries to create our own semi-unique methods that will work. We have done this successfully in several other industries. For example, Telecoms (data and voice) works very well in Nigeria. We have the highest internet penetration in Africa, with 55% in Nigeria alone. This is an average of 1 in 2 people (111 million people in 2019) with internet access in Nigeria. The Telcos divested from owning towers, and left that to the likes of IHS, while they focus on the business of providing quality voice and data services within their allocated frequencies. Competition amongst them and intelligent regulation by the National Communications Commission (NCC) have created a market where subscribers have the option of enjoying services from several different providers – MTN, Glo, 9 Mobile, and have the ability to switch between providers if the pricing or quality of their service provider no longer suits them. This is a proper industry driven by market forces. Tower companies, left to provide uninterrupted infrastructure to run their equipment are compelled to power their thousands of towers almost exclusively on diesel generators. Though somewhat primitive, this is their innovative response to keep the telcos running 24 hours a day, 7 days a week. Competition has also aided the birth of smaller companies like Smile, IPNX, to name a few, who provide primarily quality data service, and now also voice service at competitive pricing.

The telecoms industry works because the companies did it our way, for our own market, and primarily, because the government regulations were relaxed enough to allow the industry to grow, and develop and competition was allowed to drive pricing and product offerings.

Imagine if we replicate this in the energy industry. Imagine a situation where private power generating companies, GENCOs, secure the required licenses without having to deal with too much bureaucracy. They would develop IPPs within 2 – 4 years, secure the required investment based on bankable agreements with the offtakers, and build plants. They would be able to deal directly with privately owned distribution companies, DISCOs, and large industrial, commercial and residential clusters, selling power to them at cost reflective tarrifs, i.e. tarrifs that are economically viable and allows the GENCOs to repay their loans, pay their fuel suppliers and make a decent return. DISCOs would be allowed to sell power at a cost-reflective tarrif that allows them make the required investment to meter most of the customers within their network, and generally improve their network, and also make a decent return. Like the tower companies in the telecoms industry, ultimately, DISCOs would likely be split into companies that own the cables and transformers for distributing power, while Power Traders would use this infrastructure to get power to their end customers. The customers themselves would be able to buy power from the power trader of their choice, depending on price. In this scenario, competition for customers’ business would drive pricing.

Bringing this home to the oil and gas industry, GENCOs would buy gas from gas producers, who in turn would be able to deliver their gas on pipelines owned either by NGC or private companies. With the increase in the number of GENCOs, DISCOs and metered customers, more gas pipelines would be built in the country. A true gas grid would therefore be born. Nigerians would have cooking gas piped directly to their homes instead of carrying ugly gas cylinders around. Imagine how many pipeline EPC companies would have to grow in order to meet the demand? More companies like Nestoil would spring up and grow. Imagine it.

We look at a nation like China, who turned their economy around in 20 years; the primary catalyst was the country’s strong stance to invest in building a robust infrastructure. They built large base load power plants in many locations to provide reliable power to its growing manufacturing industries. With these power plants that run primarily on coal, they are able to produce goods at competitive prices. Anywhere you visit in China, you would see its bustling economy, with a considerable percentage of its citizens being elevated out of poverty each year.

I have imagined the scenario I described, and it is simply remarkable. It would be the beginning of the much talked about growth in our economy. Anything short of this is a dream that would never come to pass.

(Being excerpts from a speech Dr Umeh delivered in Abuja at the Nigeria Oil and Gas Summit 2019)

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