WORLD OF GAS
Neconde’s Giant Leap with Gas
In an interview with Nestoil News, Engr Chi-Chi Emenike talks about Neconde’s short, medium and long term aspirations; natural gas pricing; infrastructure deficit in the gas sector, the National Gas Policy amongst other issues. Excerpts:
Give us an overview of your job and Neconde as an entity?
I currently head Neconde’s gas business with the sole mandate to grow the business and position the company as one of the leading players in developing Nigeria’s gas industry. In my role, I am equally responsible for develop-ing and expanding the company’s natural gas (associated and non-associated gas) commer-cialisation strategy in Nigeria and West Africa. My role also allows me to work with interna-tional and local investors on devising funding and investment solutions for development of the company’s huge gas reserves of about 3.8 trillion cubic feet (TCF).
Neconde for me is about value addition for impact. Neconde is a value-driven organisation that is globally inspired and locally relevant. It has a strong passion and commitment to becoming one of Africa’s energy giants. The company’s core operations focus on the exploration and development of oil and gas assets for the purpose of production and sale of crude oil and gas stock to generate revenue.
“We have made significant investment in the oil sector and want to replicate the same in the gas sector.”
We enhance long term value and prosperity by means of dynamic growth championed through its subsidiary business units like Nestoil, Impact OM Engineering, B&Q Dredg-ing, EWT Energy Works and Hammakopp Consortium Limited. As an integrated energy company, the operations of the company spans across the upstream, midstream and downstream sectors of the Nigerian oil and gas industry.
What would you consider as Neconde’s biggest accomplishment?
For me, accomplishment is about value creation and addition for impact and growth. It suffices to state here that Neconde has been able to build an integrated energy business that has impacted and contributed to the growth and development of the Nigerian economy. The company has consistently redefined industry standards in delivering exceptional value to guarantee energy availability, accessibility and affordability for the overall economic sustain-ability.
For instance, we participated and emerged successful in the bid for the acquisition of 45% stake in OML 42 held by Shell Petroleum Development Company Limited (SPDC), Total Exploration and Production Nigeria Limited, and Nigeria Agip Oil Company Limited (the SPDC JV) with a bid sum of $585 million to the SPDC JV who constituted the sellers in 2011. Following the completion of the acquisition, the new ownership structure of OML 42 is in the ratio of 45% (Neconde): 55% (NPDC).
Through our different subsidiary businesses, we built over 300km of pipelines of various sizes through the harshest terrain, ranging from dry land, seasonal swamp, to pure swamps, as well as some of the toughest and most volatile and hostile communities in Nigeria. We have made significant investment in the oil sector and want to replicate the same in the gas sector. Hence, we are currently refocusing our strategy to invest and unlock the vast potential of our gas resources.
The strides we are making in the Nigerian gas industry through our diversification mandate is also worthy to note. In this regard, we have been able to commercialise our Associated Gas (AG), thereby reducing our level of gas flaring and other flaring obligations. We made our first gas delivery to the domestic market in June 2018 through a Central Processing Facility and other associated gas infrastructure. The goal is to optimise our gas production capacity and further commercialise our flared gas in order to achieve zero gas flaring in all our production sites. In doing this, we would ensure availabili-ty of clean energy to support industrial development and enable overall economic prosperity in the country.
Currently, we are seeing added investments into the company with the just concluded refinancing that would provide us the opportu-nity to grow. For us, this is a major milestone and was headlined by a consortium of 7 local and international lenders assenting an agreement to restructure the company’s existing senior secured Medium-Term Loan Facility Agreement worth $640 million. This breeds a cash flow machinery that would provide more funds for the company to pursue her developmental plans. Our chairman, Dr Ernest Azudialu-Obiejesi has stated on several occasions that the facility reaffirms the strong fundamentals of the company and frees up capital for Neconde to take up more develop-mental activities that would result in increased capacity and production output across the board.
Gas pricing has been a big issue in the sector. Has it ever been a source of conflict with your off-takers?
Gas pricing is and will continue to remain a hot focus in the sector. It is the fundamental element that would drive increased develop-ment and sustainability of the Nigerian gas industry towards unlocking its full potential. In fact, it is the pricing that guarantees and sustains existing and new investments.
Gas pricing should be allowed to mirror the realities of the market. It should be allowed to gravitate towards a willing buyer-willing seller position which will see the government taking a position to create an investor-friendly business environment that would encourage a deregulated pricing regime. By this, I mean gas pricing should be determined by market forces.
There are benefits that accrue when operating a free market regime. In a regulated market, the activities of the market participants are highly restricted because market access (entry and exit) are restricted. This hinders the market from realising its full potential as participants are prone to constrained liquidity and product volumes which on the overall affect margins across the board. On the other hand, a free market is a free market for all participants; prices are determined by the forces of demand and supply practically allowing for a highly liquid market as well as unconstrained volumes to drive high margins for all players. The market is apparently ripe now and the focus should be on achieving a market-led price towards willing buyer-willing seller arrangement that will provide a win-win situation for all market participants. Maintain-ing a pricing structure that does not reflect market realities and as well provide enough incentives to lead the motivation of invest-ments into the sector will certainly jeopardise the entire industry.
Significant movement towards achieving a strong commercial and a more market-driven price should be promoted for sustainability and growth of the industry.
So what are the short, medium and long-term aspirations of Neconde?
The company’s overall aspiration is to be a global brand that is locally relevant. In this regard, we are currently strengthening our processes and systems. Following our diversifi-cation mandate to increase focus on our gas business, we aspire to be responsible for the supply of at least 12% of the aggregate market demand for gas in Nigeria.
Thus, we are in the short run increasing our associated gas production capacity from our OML 42 asset (Odidi and Egwa fields) with added investments in new gas infrastructure. The fields account for 70% of our associated gas reserves. Furthermore, we are progressing towards reaching a Final Investment Decision (FID) on our 3.8TCF non-associated gas development project. The project on comple-tion is expected to add about 200mmsscf/day to the Nigerian domestic market and is already attracting investors within and outside the country.
How is Neconde coping with the infrastruc-ture deficit in the gas sector?
Infrastructure is the crux of developing any sector of an economy. Infrastructure is an essential element for energy security, produc-tivity and growth. Gas infrastructure deficit in Nigeria is appalling and has greatly impacted on the accessibility of the market by existing and new players. Companies in the gas space are finding it difficult to convert huge gas reserve potential into economic prosperity and social benefits for the country and the people. Also, the country’s level of gas flaring has been driven by lack of adequate infrastructure.
However, the narrative is changing with traction being recorded by some infrastructure projects by some indigenous players Neconde, as a fully indigenous company, is constantly using up high capital investment to create infrastructure to support the industry regardless of the unfavourable economic clime within which we operate. In this regard, we invest in equipment and facilities that ensure the infrastructure gap in the industry is bridged. Recently, we successfully delivered on the 40km K2S (Kolo Creek to Soku) gas plant project. This was an EPC project to build an export pipeline to reroute gas from the Kolo Creek gas area to the Soku gas plant facility for our client, Shell Petroleum Development Company Nigeria.
We have also successfully built and commis-sioned a Gas Central Processing Facility (CPF) to deliver over 80mmscf/day of gas to the domes-tic market. Neconde believes in the Nigerian gas industry. We are certainly committed to continuously ensuring that infrastructure is available to drive Nigeria’s gas developmental strides for increased availability of gas to support industrial, commercial, power and other applications for the growth and develop-ment of the domestic economy. The company is driven by a passion to ensure that adequate infrastructure is provided to ensure that her energy solutions can be accessed by the market and is not depending on government to create the needed infrastructure.
Do you see the National Gas Policy living up to its billing of transforming Nigeria into a gas-driven industrial nation?
The National Gas Policy can only transform Nigeria into a gas-driven industrial nation if and only if the government is fully committed to the implementation of the provisions as codified in the policy. For me, the policy is not the point of consideration. The Petroleum Industry Bill (PIB) is the backbone to the achievement of the original intent of the National Gas policy. The PIB which seeks to increase government revenue from the strengthened legal and regulatory framework for the industry, has consistently suffered legislative delays and limited consideration from the executive arm of government for decades.
The PIB is still an ongoing conversation, and this, of course, sends a wrong signal to potential investors, thus, limiting the realisa-tion of industry’s full potential. This will further impinge on the potential for aggressive development of gas infrastructure especially huge infrastructure that requires huge capital investments.
We have, however, witnessed some level of traction in the implementation of the National Gas Policy especially around the provision to eliminate gas flaring in the country. This is evident in the Nigerian Gas Flare Commercial-ization Programme – a platform to attract investments and develops a transparent market mechanism through a competitive procure-ment process for allocating gas flares, under clear and transparent criteria.
So how do we end Gas Flaring in Nigeria?
I would like to first acknowledge the fact that we have significantly reduced the level of gas flaring to below 11% as against the 60% over 10years ago. But the continuous flaring of over 700mmscf/day from about 178 sites is still a huge waste of the nation’s resources. We have seen a lot of traction from investors interested in commercialising and monetising the flared gas with the Nigerian Gas Flare Commercializa-tion Program. However, there are still a mix of issues that makes it difficult to completely end gas flaring in Nigeria.
There are constraints around inadequate pipeline network and vandalism, location of the gas-fired power plants and the demand centres, and above all, the power sector liquidi-ty constraints. Also, issues around gas pricing and appropriate tariff structures to incentivise investments along the value chain is a huge concern which would serve as a hindrance to gas flare reduction in the country. Gas prices today are not market reflective of current realities and again, a big consideration for investment by potential investors. Also, regulatory inconsistencies relating to forex in terms of the investment/income currency mis-match is a critical path as over 85% of equipment to be deployed to a typical gas flare reduction project in Nigeria is sourced offshore. There are challenges around the transmission and distribution systems.
Another major hindrance is financing. Investors are finding it difficult to source for funds to finance gas flare projects.
The bureaucratic nature of dealing with the government and multiplicity of agencies which impacts projects in the industry is also a hinderance. It is pertinent to note that the level of government involvement in the commer-cialisation programme is high and hence creates a serious concern for investors especially with respect to obtaining approvals to progress on projects.
The Nigerian National Petroleum Corpora-tion (NNPC) called for natural gas liquids bid pre-qualification exercise for 2019-2021. Is it something Neconde is interested in?
Certainly, our interest is highly expressed in natural gas liquids but at this stage, the focus is not lifting from the NNPC but more around developing and selling our own NGLs from our assets. Part of our gas developmental agenda is the production, storage and distribution of Liquefied Petroleum Gas (LPG) to the Nigerian domestic gas market.
This decision is in line with the company’s commitment to contributing her quota towards ensuring the availability of clean, cheap and environmentally-friendly energy source for households’ utilisation and commercial and industrial application. Neconde recognises the dearth in midstream infrastructure in the LPG sector, hence, leading the development of LPG storage facility and other associated infrastruc-ture to bridge the demand–supply gap for the product in-country for value maximisation and growing the LPG market to global scale.
This would go a long way in increasing our per capita consumption of LPG in Nigeria which has remained one of the lowest when compared to other West African countries. Thus, for Neconde, making the product available, accessible, acceptable and affordable is the only way to boost consumption to drive the domestic market.
How much of technology and innovation are integrated in Neconde’s operations?
As a company, we have always been open to innovation and all kinds of modern technolo-gies especially those ones that support our operations across the board. Neconde is a tech savvy integrated oil and gas company with a keen understanding of the legacy of technolog-ical innovation. We are fully aware that aligning digital technology to our overall business strategy is pivotal to achieving cost reductions with guaranteed productivity to boost performance across the board. To this end, we are consciously making significant investments in new technologies, especially artificial intelligence (AI) and big data analyt-ics. We are looking at using AI to optimise our exploration and production campaign as well as making our operations safer and more efficient.
Neconde is also investing in research and development to complement the technology and innovation drive in the company as we believe this will differentiate and set us ahead of our competition.
Five years from now, where do you see Neconde?
We have come a long way and we are still going to greater heights. The commitment to excellence in delivery and our ingenuity as a local company believing that Nigeria can be built by Nigerians are some of our key drivers. The future for Neconde outweighs 5 years because this a company that will transcend generations. Ultimately we want to be the leading indigenous Exploration and Produc-tion company in Nigeria and beyond.