Kyari Dissects Nigeria’s Downstream at OTL

…Global economy faces high energy prices, rising inflation and sluggish growth.

…Nigeria’s demand for petroleum products is expected to grow from 15.1 million MT in 2020 to 17.3 million MT by 2025.

NNPC Limited will operate under CAMA 2020 without recourse to Government funds.

-By Felix Douglas

Giving his Keynote address for the opening session of the 15th Oil Trading and Logistics (OTL) Africa Downstream Week 2021, the Group Managing Director (GMD), of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kolo Kyari submitted that the event will expand the net of opportunities for participants beyond networking to productive engagements and creative ideas generation to effectively manage the transition of Nigeria’s downstream post-PIA (Petroleum Industry Act).

He said the theme of the event: “Downstream in Transition: Getting Set” has underscored the reality of Nigeria’s oil and gas industry, not just the downstream sub-sector, at this time of PIA 2021 implementation in the country and the global energy transition and decarbonization.  The downstream conference sounds the timely call for urgent action by stakeholders to unlock opportunities and continuously stay innovative to survive the dynamic business environment. 

Looking at the global economic outlook, the GMD pointed out clearly that $10.4 trillion global stimulus in response to covid-19 pandemic has led to rebound in consumers spending while incentives for long-term investments in hydrocarbon has weaned.

Hydrocarbon will continue to be relevant in global energy mix for next two decades. According to recent OPEC data, the world oil demand will rise from a pandemic stricken 90.6 million bopd in 2020 to 108.2 million bopd in 2045 thereby accounting for 28 per cent of global energy needs. The rise in demand would be driven by growth in world population which is set to expand to 9.5 billion by 2045 and the huge potential for expanding access to modern energy services for the under-served. However, $11.8 trillion in oil-related investments will be required mostly in the US upstream to meet the market needs.

The GMD said decarbonization has left EU and UK vulnerable to natural gas supply panic that sent spot prices up by about 60% in October 2021 while the rising price of carbon emission trading in Europe is preventing switch to dirty fuels. The power shortages in China have deepen the country’s energy crisis thereby forcing it to turn to coal in the short-term. But with coal prices reaching record high and soaring gas prices as the winter draws close, China has assumed the world’s top buyer of LNG in weeks as it looks to US to lock in long term LNG supplies. 

Oil prices climbs to above $85 a barrel recently on forecast of short-term supply deficit due to increase in demand caused by rising gas and coal prices. Goldman Sachs is forecasting $90 per barrel oil price in 2021 while JP Morgan is more bullish at $100 per barrel. Advances in technology will improve the reliability of green power such as hydrogen in the future. However, the current shortages would persist, pushing up fuel and electricity prices and exerting pressure on governments to relax emission targets and consequently slow down the decarbonization efforts.

Kyari maintained that global growth will average 6% and fall to 4.9% in 2022. World Bank has raised Nigeria’s growth forecast from 1.85% to 2.4%. The spread of vaccines and new treatments for Covid-19 would reduce disruptions by 2022. But the global economy now faces high energy prices, rising inflation and sluggish growth which could be aggravated by the risk of housing bust in China.

The NNPC helmsman gave an overview of the Nigerian oil and gas industry that the country’s demand for petroleum products is expected to grow from 15.1 million MT in 2020 to 17.3 million MT by 2025, hence the country needs a refining capacity of about 1.52 million barrels per stream day (MBPSD), to meet its Premium Motor Spirit (PMS) requirement in the next 4 years. The NNPC Refineries’ 445,000 BPSD and Dangote Refinery’s 650,000 BPSD running at 60% and nameplate capacity respectively would supply 76% of that requirement, leaving a shortfall of about 17 million liters of PMS daily.

NNPC is adding 215,000 BPSD of refining capacity through private sector driven co-location at the existing facilities in PHRC and WRPC respectively. Modular refineries are also adding capacities such as the 5,000 BPSD Walter smith refinery which will be upgraded to 50,000 BPSD. Additional 250,000 BSPD is expected to come from the Condensate Refineries through the private sector partnership. The co-location and Condensate refineries will close the PMS supply-demand gap and create positive returns to the investors.

About $3.097 billion investment opportunities exist in Condensate refineries while $1.6 – $2.7 billion is required by NNPC to improve the supply and distribution petroleum of products, revamp LPG infrastructure and build CNG plants.

The demand for natural gas could grow about 2 to 4 times over the next decade increasing from 4.8 bcf/d in 2020 to between 10 – 23 bcf/d in 2030. Presently, supply into the domestic market is about 0.8 bcf/d to power, 0.77 bcf/d to industries, about 0.54 bcf/d is flared and 3.2 bcf/d is for export gas (LNG and WAGP). Achieving this growth in demand will be occasioned by increasing the dispatchable capacity of existing power in line with the Presidential Power Initiative (1.4 bcf/d), assuring delivery of major fertilizer projects (Dangote, Brass).5 bcf/d), and enabling industrial demand for natural gas in the northern axis of the country (1.2 bcf/d).

On the downstream transition, the GMD added that Nigeria’s oil and gas industry has been in transition prior to PIB passage in response to the global energy transition and decarbonization initiatives. It will be difficult to discuss the transition in downstream sub-sector in isolation of the overall evolution that is happening in the industry. 

NNPC has diversified its portfolio over the years transiting to an energy company with new investments in gas, power, and renewables. Key pipeline projects are on-going to assure delivery of the gas to the demand nodes. The OB3 project which brings gas from East to West is nearing completion. The 614km Ajaokuta, Kaduna, Kano (AKK) project which was launched by President Muhammadu Buhari in June 2020 is progressing.  These could add up to $40 billion to annual GDP and create additional 6 million jobs.

Kyari stated that the Corporation has progressed with the Refineries Rehabilitation Programme to further boost its participation in the oil and gas value chain by awarding the $1.5 billion Port Harcourt rehabilitation contract with the commitment to deliver on Warri and Kaduna Refineries. The rehabilitation of critical downstream infrastructure comprising of major pipelines, depots and terminals through the Build, Operate and Transfer (BOT) financing model is on course.

On the aspect of gas, Kyari revealed that Federal Government has declared 2021 – 2030 as decade of gas development in Nigeria. The National Gas Expansion Programme (NGEP) was established by the Government to achieve the Gas Flare Commercialization for monetization of flared gas through investment in processing and distribution infrastructure and to realize the LPG Expansion and Penetration (from 1 MTPA to 5 MTPA by 2023 and convert 60 million households). This will support the attainment of the UN Sustainable Development Goal (SDG) 7 through provision of available, affordable and accessible clean fuel.

NNPC is diversifying her portfolio through acquisition of 20% equity valued at $2.6 billion in the 650,000 bopd Dangote Refinery located in the Lekki Free Zone. This will ensure national energy security and guarantee market for Nigeria’s 300,000 bopd.

The Corporation is also exploring opportunities across new business frontiers like renewables. Research and technology will become more efficient and relevant in Nigeria, particularly with a focus on increasing oil production, growing domestic gas utilisation and hydrocarbon reserves to generate revenue for the nation. NNPC has established a full-fledged Research Technology & Innovation (RTI) Division to drive the development of creative ideas across the Corporation for sustainable value enhancement. 

The GMD noted that the recently signed PIA by President Muhammadu Buhari will unleash the transformation the oil and gas sector in Nigeria by enabling investments and codifying the regulatory, administrative and fiscal framework for the industry.

Kyari disclosed that NNPC Limited will operate under CAMA 2020 without recourse to Government funds, declare dividends to its shareholders and retain 20% of profits to grow its business. The Company and its subsidiaries will conduct business on commercial basis without recourse to Government funds. The new Company is to be supplier of last resort for security reasons and all associated costs shall be for the account of the Federation.

NNPC Ltd was incorporated as a CAMA company on September 22, 2021 in line with provisions of the Act. The Boards of the Nigerian Midstream and Downstream Petroleum Regulatory Authority and the Nigerian Upstream Regulatory Commission were inaugurated on 18th October 2021.

The PIA has deregulated downstream sub-sector and provided the guide for transition to the new supply and pricing regime.

The authority will regulate products prices and tariffs in the interest of public where monopoly exists, or the market is at infant stage. While pricing of petroleum products under PIA will be based on unrestricted free market conditions hence it would lead to increase in the need for cheaper alternatives like autogas and Electric Vehicles (EVs) thus creating new market opportunities in the downstream sub-sector.

The GMD said only licensed retail marketers and those subject to third party access or open access obligations are required to display their applicable tariffs at their offices and will not be allowed by the authority to pass the costs of fines or penalties to the customers.

Marketers must obtain licenses and permits issued by the authority before undertaking Midstream and Downstream petroleum and gas operations and the Act imposes penalties on defaulters that includes sealing of premises, dismantling & confiscation of equipment and imprisonment terms. Holders of subsisting licenses and permits operating in the midstream and downstream petroleum liquids operations are required to apply for issuance of new licenses and permits from the authority within 18 months from the effective date of the Act.

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