Sunny Oputa, CEO of Energy and Corporate Africa, a firm that produces oil and gas conferences in different parts of the world spoke to Frank Uzuegbunam, Editor, West Africa Energy on Nigeria’s increasing stranded crude oil cargoes, petroleum subsidy, impact of US oil export amongst other issues. Excerpts:
We witnessed many stranded Nigeria crude oil cargoes in 2015. What urgent steps must be taken to avoid a further plunge in the economy?
The prevailing global oil glut which was an indication of oversupply of crude oil amid a non-appreciating demand triggered many vessels to be stranded along the coast of West Africa and North Sea. Most of these stranded cargoes turned into unintentional floating storage. Nigeria was a case of a net oil exporting country that was economically battered by the ongoing glut which seriously slowed down activities. Nigeria lost most of its international market as some of the buyers from China and Europe switched into buying cheaper crudes from Angola and other countries. US purchase from Nigeria dwindled significantly as a result of the US Shale that created higher production in the country and energy independence of a kind.
Amid the market situation, Nigeria will be better off refining some of its crude oil and selling the products domestically and to the needed markets in Sub-Saharan Africa. Unfortunately, Nigeria refineries are nothing to write home about and acute corruption and cancerous manipulation of the national economy that was endemic in the previous regime stunted the functionality of refineries. Vibrant and visionary nations have state of the art refineries and these have helped in cushioning their market from this looming Armageddon.
Nigeria can also encourage domestic utilization of crude oil and products as these would reduce exportation fever and generate internal market. The more products are consumed internally and within the West African market, the more economic activities would be generated and that would lead to the buoyancy expected to keep the economy afloat and on the verge of recovery.
We also have to look at cost reduction processes in our production processes and the entire value chain as this will help us to be more competitive in the international market
What will be your policy suggestion for the current administration in Nigeria on oil and gas sector?
I will recommend that this administration have a drastic review of the strategic and operational modus operandi for running the oil sector in Nigeria and make necessary overhaul. First, there should be strategies and concrete implementation of cost reduction mechanism, elimination of waste in all aspects of operation and measurable level of transparency.
The game has changed and the economic trend in the world has shown that net exporters of crude oil that depend on it solely for national revenue can easily go down the drain any time the global economy suffers some hiccup. With Nigeria stock market down by almost 3.2 percent and tense weakness of naira at N300/$1 due to low oil price, it is time government should delve into diversifying the economy and promoting SMEs and OEMs in the country. Small and Medium Enterprises that could delve into manufacturing and serious service businesses help in economic expansion and sustainability. We should also go back to our first love in economic development in Nigeria – which was agriculture.
Should Nigerian government remove petroleum subsidy?
Removing of fuel subsidy is like a two-edged sword. While the removal of fuel subsidy makes good economic sense especially this time the global weakening oil price has drawn Nigeria’s economy into comatose, it could also tantamount to uncaring measures of pushing the dagger too deep into the belly of Nigerian citizens who are already riddled with immense hardship.
Nigeria is one of the countries in the world with cheapest fuel prices. At the current price of crude oil which is below $30 per barrel and the ongoing rate of per litre of fuel in the Nigerian market, if full subsidy is to continue, the already anemic economy of Nigeria will cripple and might collapse within the next eight months. This could amount to a national tragedy and economic woe. While removal of subsidy makes economic sense at this period, it should be clear that it could trigger societal disaffection and hardship at the front end for most Nigerian families.
Actually the economic calamity befalling Nigeria today was not just catapulted solely by the current weak global oil market. This is the outcome of colossal economic mismanagement of the oil sector and national treasury for the past 10 years, herculean corruption, ineptitude and lackadaisical attitude to national interest by various jaundiced leadership that had paraded the corridors of power in this country.
However, understanding the prevailing situation and the germane need to save Nigeria’s battered economy, it is sensible to inject a gradual removal of fuel subsidy and not total yanking as it will cause more trouble than good. The subsidy should be removed slightly and then monitored to weigh the economic and social effect. Also, while introducing the quasi-removal of subsidy, government should as a matter of importance find a way to stimulate the economy and ensure realistic actualization of goals and control of waste which has been dominant in almost all the operational sectors of the economy.
What should be the focus of government now with regards to these refineries?
The inability of various governments that have ruled this country to provide constant supply of electricity, petroleum products, accessible roads and other functional infrastructures have continued to be their albatross.
It is disheartening to know that at this present world where technology has tremendously transformed operations of refineries and scientific management have helped to propel efficiency and effectiveness that Nigeria after many years in the oil and gas sector is still wallowing in pity on how to get its refineries working.
If this government is serious and committed to excellence and alleviation of hardship in the country, I believe that the government can easily re-engineer, restructure and get our refineries functional and effective. It requires establishing the right purpose, process and management in place.
Government should also encourage the establishment of green field refineries and assist owners in seeking for funding. There is nothing wrong for every state in Nigeria to have at least two refineries. Houston, a city in the State of Texas, known as the oil capital of the world which is the fourth largest city in United States with a population of 2.196million people (2013) has 10 functional refineries and handles about 13 percent of the nation’s refining capacity. The State of Texas in its entirety with a population of 26.96 million (2013) has 27 refineries which has capacities of 5.1million barrels per day. Nigeria, a nation of 173.6million people (2014) has only four refineries with built incapacities of 445000bpd yet performs abysmally below capacity.
What are your thoughts on the restructuring needed for the ministry of petroleum?
Strategic and innovative de-coupling of NNPC and the Ministry of Petroleum is more than welcomed. It is a long awaited issue that has been over politicised and delayed. It should be allowed to see the light of the day. We can take examples of the role of Statoil in Norway and also the current unpleasant experience of Saudi Aramco. This is the time to act to save the nation and also save NNPC especially now that is a known fact that NNPC cannot meet up with its financial obligations and its credibility before its JV partners and international community is opaque.
It is necessary to look at the core competence of the current NNPC personnel and break into parts along with the ministry of petroleum, by commercializing the core NNPC value chains, creating a regulatory body out of it and re-positioning all the entities in the value chain.
Somehow, I think that the current administration might consider engaging credible consultants to work with the present Minister of State for Petroleum Resources as change agents to lead the needed changes. This would help to reduce the political brigandage and gang-up coupled with other internal forces that might delay the wheel of progress..
What is the impact of the low oil price regime on sub-Saharan oil producers especially Nigeria?
Low oil prices have considerably reduced growth in Sub-Saharan Africa from the envisaged 5.4 percent in 2015 to 4. 2 percent and it tremendously stunted growth in commodity-exporting countries such as Nigeria, Angola, Equatorial Guinea, Sudan, and Chad to mention but a few.
Out of the reported global oil and gas deals done in 2014 which amounted to $443 billion, about 46 percent of the deals were done in USA, 22 percent in Canada, 7 percent in Europe and merely 5 percent were done in Africa and mainly in Sub-Saharan Africa. 2015 witnessed a more deplorable situation because of the declining oil prices which did not encourage much investment either in the upstream or downstream sectors.
If this trend continues to the 2QTR of this year it will lead to slow economic growth in exporting countries as is seen in the weakness of naira and other currencies in the region, trigger high-level of poverty in the region, might wipe out democratic and macroeconomic gains of the past 10 year and could plunge many countries in the region into geopolitical conflicts.
How will the US crude export impact on the global oil market?
The U.S quest for energy independence which materialized since the past two years through Shale oil with the fracking technology is one of the reasons for oversupply in the world. The massive discoveries and productions going on in US at the Texas Eagle, Anadarko and Bakken increased production in United States by more than 25 percent. United States has reduced its purchase of commodity from Africa and the rest of the world. Global demand has not increased and the present economic catastrophe has its crippling effect on China which is currently the highest consumer of energy in the world. Therefore, the high production in America and its reduction in purchasing from the rest of the world would seriously tilt the market.
In the midst of the changing market dynamics of crude oil, what is the future of OPEC?
OPEC is a house divided against itself. It is already divided with various interests over-ruling the general goal. OPEC has been infiltrated and divided on geopolitical lines entwined with the global (political) interest of non-OPEC nations. If OPEC could start speaking in one voice and reconsider its agenda, then there is hope. African Petroleum Producers Association (APPA) seems to be the only intact group in OPEC and has a great opportunity of leading and re-directing OPEC. If nothing is done by the end of next year, there might be lot of breakaway countries from OPEC and the emergence of new global petroleum groups.
What has been informing your decision to focus on marginal fields in Africa in your conferences?
In West Africa and mainly in Nigeria are many fields which the mega oil companies through their ranking rated to be marginal or not commercial enough because of its volume of reserves and economics. Some of these fields have been abandoned for several years or left stranded. The truth of the matter is that one man’s meat is another man’s poison. Some of these fields which were abandoned by mega oil companies due to their gigantic interest could also bring streams of revenue into the national economy and create more job opportunities in the country if developed. There are many of these fields and more will still be discovered. Where the economics are wrong or bad on the side of mega oil companies, the economics could be good for small oil companies by using a balanced collaboration of conventional and unconventional technologies. This has proved to work internationally and could be replayed in West Africa. There are lots of potentials in these fields and what they could bring into our national economies is huge.
Where will the next big oil deal in Africa come from?
Africa as a whole has good geology as could be seen in the Bonga, Agbami discoveries in Nigeria, the Cabinda discoveries in Angola and the advances in the new frontiers (East Africa). There are greater charges of new huge discoveries in the West coast of Africa. The countries to have an eye on for the nest big oil deal in Africa are Nigeria, Senegal ( Sene-Gambia), and Angola. The tendencies of discovery huge gas fields are possible in East Africa (Tanzania & Mozambique).
What challenges and hurdles do you see in marginal fields optimization in Africa especially Nigeria?
I see the challenges of accepting disruptive unconventional technologies and sourcing of capital. Now, E & P companies should understand that seismic is not enough in de-risking and delineating fields. There should be an integration of seismic and the new wave of controlled source electromagnetic survey which are good for offshore fields. Again, government should tailor policies that could seriously ginger development of these fields and encourage operators.
Do you see any new opportunities in Nigeria’s oil and gas sector? And how is Energy Corporate Africa positioning to maximize the market opportunities?
There are huge opportunities in the Nigeria oil and gas sector. Nigeria has a big market and as a burgeoning economy, opportunities spring up every day. At Energy & Corporate Africa, we endeavour to build a knowledge based organization and also use that to help transform other organizations to ensure performance enhancement. We do this through the various conferences we organize, industry based training, workshops and consulting we offer. We are partnering with various technology companies that are relevant for optimization in the industry to elevate the sector in Nigeria
What are the reason (s) behind the annual Sub-Saharan Africa Oil & Gas Conference hosted in Houston every year by your organization instead of picking a country in Africa as host?
The annual sub-Saharan Africa oil and gas conference is a unique event that brings together under one roof African petroleum ministers, national oil companies, international oil companies, investors and financial institutions to share knowledge, showcase expertise and enhance business relationship.
It provides gateway for those who are interested in the burgeoning Sub-Saharan Africa oil and gas market to gain insight and plug into the vast business opportunities in the region.
The idea of hosting the conference annually in Houston instead of any of African country is that the conference is designed to be a bridge to connect both international and national producers, and also act as a platform for local producers and companies to interact internationally and acquire needed experience. Houston, is the energy capital of the world and its climate is akin to a typical African weather. Houston houses headquarters and strategic centers of most of the international oil companies.
The current global trend gives credence to the theme of this year’s conference which is “Optimizing Upstream – Downstream Opportunities & Ensuring Sustainability”. With the low oil prices, companies and nations that want to survive and remain profitable must apply cost reduction strategies and resources to ensure economic viability. While this conference tends to showcase where the deals are, vis -a vis licensing rounds and investment opportunities, it is also the intent of this conference create avenue for industry players to articulate and gain knowledge on available technologies, best practices to enhance operations through strategic cost reduction mechanisms.
Frank Uzuegbunam
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