Mallam Mele Kyari, NNPC, GMD
…Economies across the globe impacted
…Covid-19 Created Revenue Instability for the Country and Its Budget
…Job losses for companies about 30% to 40%
…NNPC Supports Siemens Project for Effective Power Supply
-By Felix Douglas
EFFECT OF COVID-19 ON THE INDUSTRY
In terms of oil exploration across the globe, Nigeria is rated as the highest in Africa in exportation of oil and gas, but the global pandemic occasioned by Covid-19 has clearly affected activities in the oil sector.
It was like a dream when Covid-19 transcends the world and the oil and gas sector bears more of the hit with combination of low oil prices which brought activities to a close as there was shut down and lockdown, making people to remain indoors. Every human activity was brought down to a halt while businesses grinded.
Concerned about issues in the oil and gas industry, the Nigerian Association of Petroleum Explorationists (NAPE), had its third webinar series with the topic; “The Impact of Covid-19 on the Nigeria Oil & Gas Industry- The Way Forward”
The guest speaker was Mallam Mele Kyari, Group Managing Director, (GMD) of the Nigerian National Petroleum Corporation (NNPC). The largest oil and gas company in Africa and it covers the entire value chain of the oil industry from exploration to downstream with many subsidiaries.
Speaking about the impact of Covid-19 on the oil industry, Kyari noted that the present situation is a tough time for the industry and the world.
The first obvious casualty to the industry was the crash in the price of oil because after exploration there will be production that will be taken to the market. If cost cannot be recovered in the market, there will be challenges. This is where the issues lie. It will definitely affect every facet of activities since oil has a connectivity across the globe, the economy and GDPs of many countries will be impacted.
Kyari said, most countries GDP forecast collapsed in the first quarter of 2020 and economic activities are practically grounding to a halt, people do not go to work and businesses are shut down. For instance, in India about one billion people did not come out or go to work for over 2 months. This resulted to the loss of 8million barrels of oil within the period.
The GMD explained that in a glut situation, when production is over supplied, it affects price and demand goes down. “I have never seen anything like this, prices collapsing to as low as $13 at a point in time in a day, for the first time Brent came down to $13 and beyond that many countries responded differently.” Most oil producing countries decided to discount their crude so that they can sell the back-load of local production they had with crude oil selling below $10 to the barrel.
In some countries where heavy oil is produced, it came to a situation where people were given cheques for crude oil payment. Oil was given out for ‘give away prices’ which was not sustainable for the industry.
Investment in the industry collapsed particularly in the upstream where there was a clear drop of 26% of investment. In the United States where data are clear and well recorded, over 446 rigs were dropped within three months of the year.
Kyari remarked that crash in oil price affected Nigeria’s economy and created revenue instability for the country. “There is a massive decline of revenue when you are estimating $57 to barrel and then you ended up at crude oil prices below $13 then you know you are in trouble.”
For the Nigerian state, the pandemic and low oil price is worrisome because the country is largely depended on crude oil revenue for project support, the actual cash flow comes directly from the oil and gas production for revenue. Even though most government revenues come from Value Added Tax (VAT) but as long as oil and gas activities go down VAT collection becomes very low, “the end result is that you will see the overall collapse in the revenue that comes to the federation.”
Mallam Kyari stated further that “The forecast for 2020 budget was $57 at the average price, crude oil was selling at $63 to $64 we thought that $57 will run through the year but at the end of all when the reality came on us, we don’t think we can achieve any price higher than probably $30 to $40 for the end of the year.” So, the budget was pegged at $27 with projection that price will increase to $41 to $42 and possibility of $45 before the end of the year. Hopefully, this will compensate for low prices in March and April.
The NNPC helmsman revealed that the impact of Covid-19 is monumental and it tinker a number of issues. There was loss of revenue, budget deficit for both companies and countries across the globe particularly in Nigeria.
Also, there was slow growth in project development and project deficit with huge industry job losses. The job losses for some companies are about 30% to 40%.
Kyari said for NNPC, it strategized differently, “We cut our cost so that we can continue to maintain our workforce.”
To stay afloat, Kyari asserted that NNPC did a wide industry intervention by bringing down cost because Covid-19 has brought some lessons to the industry. The corporation has to restructure its services by cutting cost to sustain production. “Companies will diversify portfolio as we do in NNPC. We have to look at other businesses that will cushion the effect of crude oil price crash.”
He enjoined companies to diversify and use scarce resources as an enabler to source for resources.
GAS AS A SUCCOUR
Kyari made clarification that development in the industry shows that the future is in gas particularly for Nigeria. He said the country is more of a gas province than oil. “We have over 200 billion tcf of gas resources that is available in this country, we have not utilized substantial part of it, the fragment of it is what we are using.”
POWER
Emphasizing on power which is a major problem in Nigeria, Kyari noted that no country can develop without having power, “Power is a very good indicator of development and what we need to do as a country is to make sure that we are able to put all necessary structures and infrastructures in place to bring up the power into our country.”
The easiest resources that Nigeria has, is gas resources which NNPC has a state-owned oil company is focusing to improve distribution and generation across the country.
The NNPC GMD disclosed that Nigeria has 23 gas power plants. There had been projections of 9000 to 10000 Mega Watts (MW). But available generation is about 5,252MW, the contracted gas volume is 1.4 billion scuff which is low for a country with 200 million people, “if you don’t have power, you don’t have development.”
According to Kyari, what Nigeria needs is 30,000MW of power and government’s plan is to drive it to 25,000MW within the next two years. This is possible and realistic.
The GMD said that the corporation is focusing in making sure that it makes gas available while investing on the power plants to the grid.
For sustainability of power, The GMD said, the Siemens project is unavoidable. Power generated should get to the end users. The Siemens project will make sure that transmission and distribution lines are upgraded.
The corporation throws its weight behind the project so as to deliver to the national pipeline from line expansion to OB 3. This also includes expansion of domestic ability to deliver power through transnational lines which involves AKK pipeline for the next 2 to 3 years.
Thus, “We know that it is possible to have up to 8,000 bcf of gas and we put it into our grid that will transform into monumental shift in our country.” This will enable power to the industry and homes for domestic uses.
Fundamentally, Kyari opined that Covid-19 is a ‘blessing in disguise’ and the only thing “we have lost is price and price is coming back.”
Kyari projections show that there is green light for the oil industry in spite of price volatility and what operators need to focus on is cutting of cost with a shift to gas. The positive multiplier effect of gas keeps hope alive for the industry since it enhances power generation. If Nigeria improves in its enormous gas reserves and efforts to find it since it is a gas province, the fall of oil in the future will not affect the country provided there is a leeway.
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