Audrey Joe-Ezigbo is the Co-founder and Executive Director, Commercial Operations, Falcon Corporation Limited and a member of the Executive Committee of the Nigerian Gas Association. In this interview with‘FEMI ASU, she calls for a review of joint venture arrangements in the nation’s oil and gas industry.
What do you think about the Nigerian oil and gas industry amid the sustained decline in global oil prices?
I think obviously it is in a state of flux at this point in time. But I actually believe it is very good for the industry. Much as we have taken a hit, it is forcing us to look inward and begin to re-strategise and re-position to begin to cut off the excesses; to begin to professionalise at a higher level, especially from the regulatory side and even within the private sector. There are going to be a lot of adjustments and we will come out stronger for it both in terms of our oil revenue and the gas side of the business, which obviously is going to demand a whole lot more attention as we move forward.
Do you think the fall in oil prices reinforces the need for us to focus more on our natural gas?
Certainly, I believe before we even got to the point of declining prices, there was an imperative for us to focus on gas from the point of view of the strategic role that gas development plays vis-a-vis our own industrialisation and aspirations as a nation. Power is the bedrock of anything that we could have wanted to achieve. We know how the entire power infrastructure has been.
So, before oil price decline, there was an imperative for the focus. Now certainly because oil is the main revenue-earner driving so much of the economy of Nigeria, we find that the decline forced us to look somewhere else. And so, certainly, this means gas is getting more attention, primarily because at this point, those imperatives for gas are more evident.
It is common knowledge that Nigeria has vast gas resources, but many Nigerians do not know why the country continues to experience gas supply shortages to power plants. Can you give a sense of what the problem is?
It is one thing to have gas resources, it is another for the resources to be converted into usable form. What has happened is that over the years in Nigeria, we have heard that we have a hundred and something years worth of gas, but most of the gas is actually in non-associated gas form. So for the last few decades, what we have been talking about is the associated gas, which is produced alongside with crude oil. So, we haven’t actually focused on exploring for gas itself. So, gas has been riding on the back of exploration for crude.
But now, we have found that over the years we have been talking about gas-based projects, but over those years we have not been having commensurate investment in the non-associated gas reserves, when we have all the gas that will drive these projects. Now, we are at a point where the projects that will use the gas are there, but the gas that is needed is still in the ground. And that is what the big challenge is. It is not that we don’t have gas, but it needs to be at the well heads for it to make sense on any project. And now when you have to drill exclusively for gas, the economics of the project changes completely. I think that’s one of the issues that we have, and that’s one of the reasons there is a lot of push for parity in pricing as far as gas is concerned so that investors can look at it as a viable investment to make.
What are the things we need to put in place to encourage gas-to-power projects in the country?
There are quite a few things. One, as I already touched on, is the issue of pricing. Gas is hugely capital-intensive and so the pricing must be attractive. What we have now is almost like an artificial pricing. We need to just graduate the entire market to willing buyer-willing seller model and then we will see a lot of development in that space. Secondly, however, is the enabling legislation. We have talked for many years about the Petroleum Industry Bill and whether we are going to pass it as one bill or it is going to be broken down into smaller bills. My view, even at this point, is for us to extract portions that are relevant to gas and make the passing as a smaller bill so that investors and those of us who are players will understand where we are going. There is a very fine line between a risky investment and a reckless investment. Nobody wants to go in when you are not sure that your revenues are secure and sustainable over the long-term. So that’s another key element.
Now, if you also look at some of the existing contracts, they are just not investor-friendly. There are contracts that were drawn up with the mindset that government is in charge. But as we move forward as a nation and allow the private investors to drive investment some more, we will find that we need to revisit some of those contracts and even be sure of the sanctity of the contracts.
I also believe it is important that we go back and revisit the structure of our JV arrangement because that is also part of the challenge in getting the International Oil Companies themselves even make more investment in the gas side of the business. So, we need to open it up more to the private sector and then many of us who are willing to do a few things can do so. But I am sort of encouraged personally by the things we are seeing in the NNPC space. It is giving me a sense of direction and we are hoping to see more tangible output coming soon to guide the industry going forward.
How in your view have indigenous firms in the industry fared in the past few years?
Over the past couple of years, we have seen significant divestments of assets by the IOCs as they move deeper offshore, and this in itself has presented clear opportunities for increased indigenous participation in the upstream space. Additional divestments are in play and there are some of us who have positioned to move into these emerging opportunities. There are upside and downside to this development, but, in the long run, I believe this is good for Nigeria in terms of increasing investment by indigenous players, and beefing up our local content capabilities, capacity development and technology transfer.
What are your thoughts about the Nigerian Gas Master Plan vis-a-vis gas development in the country?
One significant area of impact has been with respect to the domestic supply obligation and the level of compliance by the producers. We can also attest to a reduction in the level of flaring. On the pricing side, we have seen some movement towards achieving a strong commercial and more cost-reflective pricing framework, and certainly the scope of the Gas Master Plan itself has created several investment opportunities that we expect to begin to see yields soon.
In the first place, the NGMP was put in place to address the issue of long-term energy security, which is critical to national development. It was set to address three strategic objectives – the delivery of gas to power targeted at ensuring about threefold increase in generation capacity by 2015; to achieve a reasonable level of gas-based industrialisation and thereby positioning Nigeria as the undisputed regional hub for industries such as fertiliser, petrochemicals and methanol, which require natural gas as feed-stock; and of course, to ensure we deepen our export gas market, making it more robust and profitable.
Key things that we still need to address include the issue of pricing and of deregulation. We must address the pricing issue across the value chain to attract investment into the sector. This is the only way we will be able to ramp up the pace of investment in gas field development to be at par with investments in power generation – a situation which has led to the current demand-supply mismatch.
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