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    Nigeria: triumph of hope over experience [NGW Magazine]

Summary

The opening few months of Buhari’s presidential second term do not bode well for the gas industry, but the government may yet surprise. [NGW Magazine Volume 4, Issue 15]

by: Omono Okonkwo

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NGW News Alert, Featured Articles, Africa, Premium, NGW Magazine Articles, Volume 4, Issue 15, Political, Nigeria

Nigeria: triumph of hope over experience [NGW Magazine]

Following his re-election as president and the May 29 inauguration ceremony, Muhammadu Buhari dissolved his cabinet. All the ministers and heads of department who worked with him during his first term have stepped down from office.

It was not until July 23 that he sent his list of cabinet appointees to parliament on July 23, six weeks since winning the 2019 elections, an ill omen for a country so beset by bureaucratic delay. And with 43 appointees, he now has a fifth more than he had before, another bad sign.

And third, he said that all the names were personally known, suggesting either he mingles only with the best candidates for the many jobs, or there is an element of cronyism in the mix. If the former, then where is the evidence of competence come in, given the challenges facing the gas sector in his first term?

On the other hand, it took Buhari six months to name his cabinet members during his first term in office, which economic entities such as the International Monetary Fund (IMF) said contributed to the slow response to the low oil prices that pushed Nigeria into a recession in 2016.

According to the IMF, after being sworn in in May 2016, it was not until November that Buhari inaugurated his cabinet and the budget was approved in May 2017, holding up infrastructure spending and leaving investors in the dark over future policy. The naira sank from its 197/$1 peg to 265/$1 and was trading at about 317/$1. So by that metric, things are improving.

Although the ministerial candidates on Buhari’s list did appear in front of the National Assembly for screening, the process was done without assigned portfolios. This left out the integral part of determining who gets what portfolio depending on their qualifications and career history.

A Kogi State senator from the country’s North Central region, Dino Melaye, recently said that not assigning portfolios to the candidates listed by Buhari makes the screening more of an adoption process and turned the National Assembly more of a rubber stamp arm of the government.

By July 31, the screening over, no portfolios had been assigned to any of the nominees.

Of all the possible names, Uchechukwu Ogah seems to be the most qualified to be the next minister of state for petroleum resources, the position vacated by Ibe Emmanuel Kachikwu. Ogah’s claim is based on his position running Master Energy, an oil and gas company boasting some 15 subsidiaries in Nigeria.

That position also doubles as the chairman of the Nigerian National Petroleum Corporation (NNPC) and will report to Buhari, who appointed himself minister of petroleum. This is a largely ceremonial role as he does not officially work out of the ministry of petroleum resources or attend events in that capacity.

In November 2018, a federal high court sitting in the nation’s capital, Abuja, said Buhari cannot legally double as the minister of petroleum resources. 

Can we have the bill, please?

Buhari’s refusal to sign the petroleum industry governance bill (PIGB) in 2018 showed his lack of understanding of the extent to which the gas sector needs a strong regulatory framework in order to bring in foreign direct investments. Members of his first cabinet have been courting prospective entities during international conferences.

In fairness though the Buhari administration is not totally to blame for the delay in the passage of the PIB into law, as the parliament has been sitting on that bill for about a dozen years.

In 2007, the executive sent the bill to parliament for debate and passage but it underwent so many changes that it was no longer fit to be voted on. Something similar happened in 2011, and then in 2015 it was parliament’s turn to draft the bill which it passed, but then it failed to meet the executive’s approval.

In 2011, the bill also came from the executive but the required legislative debate was not concluded. In 2015, the bill came from parliament which debated and passed it, but the executive did not assent to it.

On May 28, 2019, before parliament was dissolved, the PIGB was repackaged and resent to Buhari for review. During a plenary session in June, the newly inaugurated ninth parliament promised to ensure passage of the PIGB, if it were rejected again by Buhari.

“In reconsidering the bill, the executive will have to be carried along since all the previous solo efforts made either by the executive or legislature failed,” said the senate’s president, Ahmad Lawan. He said that both arms of government had to work together. 

Signs of hope

Frontier Oil CEO, Thomas Dada, told NGW, that the Buhari administration is on track towards ensuring that the gas sub-sector is maximised through more collaboration with other partners and the realisation of gas production and processing projects. He pointed to ongoing gas projects such as Train 7 of Nigeria LNG and Seplat’s Anoh project in support of his argument (see below).

He also quoted Buhari’s June 12 speech, after being sworn into office, when he said: “It is a fact that Nigeria has more gas reserves than it has oil. Over the last four years, we have become a net exporter of urea, which is made from natural gas. We invite investors to develop more natural gas-based petrochemical projects.” Nigeria has well over 187 trillion ft³ of gas. 

Still an oil-dependent nation

Mele Kolo Kyari was recently appointed by Buhari to head the Nigerian National Petroleum Corporation (NNPC) after the former director, Maikanti Baru retired early July 2019. Although he has said that under his direction there would be successes in the oil and gas sectors, it is clear which of the two would attract more management time.

Before his retirement, Baru announced the NNPC’s intention to continue exploration activities in Bauchi State in the northern part of the country, where it had carried out crude oil exploration activities in 2017.

“We will go back there as soon as we receive security clearance. There seem to be some prospects there because the Niger Republic has drilled over 600 wells and now they are producing, while we have only drilled 23,” Baru reportedly said at the time.

Perhaps Buhari may be only interested in further crude oil exploration, which is a direct contradiction of what he promised Nigerians before assuming office for his first term in 2015. This stands despite his awareness speech on Nigeria’s gas resource abundance and his support of gas development projects.

It is possible that the Buhari administration believes Nigeria is an oil-rich country, which it is not. It is only dependent on oil because it has given no thought about how to maximise its other natural resources, while its oil output is woefully inadequate for its population size.

A February 2019 analysis by Nigerian economist and member of the Central Bank’s monetary policy committee Doyin Salami puts this in perspective: “Nigeria could produce 800mn barrels of oil/yr which means that for every one of Nigeria’s roughly 200mn inhabitants, the country produces four barrels of oil. If each barrel costs $45, that is about $180/person/year.

“If Saudi Arabia produces 4bn barrels/yr, with a population of only 30mn people, the kingdom would produce $6,000 or 130 barrels/person/year.”

But when Buhari campaigned for office in 2015, just before the presidential elections, the main strategy pushed by his staff was “diversification of the economy”. It was said that as soon as the Buhari administration came into power, Nigeria’s over dependence on crude would end. 

Foreign investors needed

The Nigerian government hopes to use gas projects such as the Nigerian Gas Flare Commercialisation Programme (NGFCP), Obrikom-Obiafu-Oben (OB3) and Assa North-Ohaji South (Anoh) projects to boost gas and power supply and are banking on foreign direct investors to put their money into these projects.

The Anoh project which is being handled mainly by Seplat Petroleum seems to be on track. In June 2019, Austin Avuru, CEO of Seplat Petroleum, said with the Anoh project, Seplat aims to be the largest supplier of gas to the domestic market. While referring to delays in securing drilling equipment and higher maintenance work than expected, he said these would not affect guidance for production. Anoh comprises a first phase 300mn ft³/day processing development with first gas targeted for Q1 2021, and benefits from an equity investment of $150mn from government.

“By the time we commission the Anoh project, we will be able to produce 850,000 ft³/day. Seplat took a conscious decision to invest in the gas business as the price of gas inched up. ’Willing buyer, willing seller’ commercial terms became possible,” he said.

The Obiafu-Obrikom-Oben, OB3 project is also about to be completed by Q4 2019, executed by Nestoil and Oilserv.

One of the executors of the Nigerian Gas Flare Commercialisation Programme, who spoke on the condition of anonymity, told NGW, August 1, that the programme is experiencing slight delays, while the portfolios are assigned to the ministerial nominees. He further said that the minister of state for petroleum resources had to be an active player in moving the project form one phase to the other.

Nigeria’s flaring programme executors have been reviewing statements of qualification from prospective gas flare commercialisation partners, with a timeline to start off by the of this year (NGW #13). However, the official said, the likelihood of that happening will depend on when the minister is appointed.

According to Nigeria LNG officials, the long-awaited final investment decision on Train 7 will be taken in October 2019, so the project can move forward.