Wednesday, February 04, 2015

‘Regional Approval to Oil Industry Issues Imperative for Improved Productivity’
Wednesday, 04 February 2015 20:15
Written by Kingsley Osalador
Nigerian Guardian

Mrs. Diezani Alison-Madueke is Nigeria’s Minister of Petroleum Resources.  She was recently elected President of Organisation of Petroleum Exporting Countries (OPEC) and Gas Exporting Countries’ Forum.  In this interview with Kingsley Osadolor on Good Morning Nigeria on the Nigerian Television Authority (NTA), she spoke about the plummeting crude oil prices, OPEC’s decision not to cut production and the Nigerian economy. Excerpts.

Nigerians applauded the Federal Government on the reduction of the price of Premium Motor Spirit (PMS). Will it not have been possible for the reduction to be more than N10?

It would have been, from our estimation very irresponsible as a government to have gone way below what we consider as the parity price in the market as of today. By parity, I mean the equivalent between the crude price as it was few days ago and its equivalency in terms of subsidy parity and the pump price.  So, we do obviously have a formula for calculating what each price per barrel equates to in terms of the pump price per litre. Now at about the 30th of December, after about three month of the downward trend in the crude oil prices per barrel globally, we discovered that we have achieved subsidy parity, which means that at that point, the actual equivalence in terms of pump price here in Nigeria was about N95.15 per litre.  So, it has gone below the N97 per litre pump price.  Again, because of the volatility of the market, and bear in mind that we were highly subsidized before now, therefore, it took a while for us to arrive at the parity level.  When we got to this point, we had to watch carefully the volatility in the market to ensure that we were going to get it right.  The worst thing that we can do to Nigerians is to give a new pump price and suddenly be put in a position where we have to increase it again.  We wanted to give a price that we will be able to manage despite the volatility of crude oil prices.  As it is now, we feel very comfortable that N10 reduction, which is actually to us at that time, below the parity pricing will be a safe place to be.  I think any government in the world cannot afford to play politics with this kind of thing.  If we were playing politics with it, we would have changed the price as soon as we began to see any movement in the global indices.  That would have been very irresponsible of us and I think that crude oil being our main core mono product revenue earner of the Nigeria economy, is one we have never played with since the inception of this administration and we will not play with it in this administration.  It means so much to the economy of this country.

What measures have you put in place to ensure full compliance?

Again, this is an area that the Department of Petroleum Resources (DPR) along with Petroleum Product Pricing and Regulatory Agency (PPPRA) feature very strongly.  I gave an immediate directive to these agencies to go out there and ensure compliance of the new pump price.  They have been out there ensuring that Nigerians do comply.  I will say to all Nigerians that it behooves you to ensure compliance.  When the government put policies and measures in place, it is for the good of the entire country.  So, it behooves every marketer out there to try and comply.  I do acknowledge the fact that there are differences in pricing in parts of the country.  This is so because we still have major transportation cost between the ports of entry.  This is the reason Lagos is able to sell at the actual price compare with some other parts of the country that may incur extra cost from transportation. If over the last thirty years, we had developed efficient transport system by railway, which is what move products such as crude efficiently and expediently around other countries, we will not have this sort of differences in cost.  Marketers will add their cost in terms of distribution margins to get the PMS from one part of the country to another.  Some of them over do it and that is why the regulatory agencies have in place.  But I must say this administration is working very hard across ministerial boundaries, which has never happen before. The ministry of transport has made vast efforts of our railway systems operational.  More and more rolling stocks are coming into the country. As we speak, products are beginning to be moved by the railway and I hope that Nigeria, over the next four to five years will have seamless movement of products around the country by rail not by road.

The slash in the price of petrol has brought up some questions of why the country cannot boost of new refineries, modular or otherwise?

The Department of Petroleum Resources (DPR) has already finalized all the plans for modular refineries. So any moment from now, that will be put on the table and launched and we are very pleased about that. But you know that modular refineries, depending on the capacity, cannot really do so much. What they will do for us is to ensure equivalency in terms of distribution around the country and ensure that we get a lot more in terms of employment generation from this particular industry, which is capital intensive and therefore traditionally has not been able to be a great employer of people until we began to commercialize it in terms of our gas industrialization.

There has been a decline in the prices of crude oil at the international market, which ordinarily would have necessitated a cut in production by OPEC.  Why did OPEC decide to keep production unchanged?

The United States with their new upsurge of shale oil and gas and Russia are non-OPEC producers.  However, OPEC is still extremely critical.  If it were not so, it wouldn’t have mattered to the global supply and demand whether OPEC maintained its production level, which is what we actually did at 30 million barrels per day at the last meeting. If OPEC had taken the decision to reduce production by 1.5 million barrels per day, which was being looked at, then we would have seen immediate stability and perhaps a rise in the price of crude. However, the largest producer, Saudi Arabia, which controls major world oil production, was of the opinion at that time that we do not cut market share. Every time there is an issue with the oil market, it is the OPEC that is asked to cut market share.  Whereas the non-OPEC countries, such as the U.S and Russia do not cut production. So, Saudi Arabia said why we should continue to lose market share and lose ground. Like I made clear during that particular meeting, this is quite acceptable. You do not lose your market share at every given opportunity while others are gaining market share because at the end of the day, you will move yourself completely out of relevance in terms of the global crude oil production. However, as I did point out during that meeting, OPEC is made up of a number of countries and a number of us will be vastly and negatively affected by the downward trend in crude oil prices. Some of OPEC countries have suffered even more than Nigeria.  Countries like Venezuela are now rationing food.  That is how bad it is.  Iran, Algeria, Angola have all been affected by the declining crude oil prices. Unfortunately Saudi will not bulge at this point.  Their point is that they will drive inefficient producers out of the market because they produce at a very low cost, which may be around $10 per barrel.  Others produce at a much higher cost. So, the feeling was that it will affect others much more before affecting us. Of course, it has been affecting everybody.  We would in a very distant future be sitting around the table, hopefully, we will be able to call and extra ordinary meeting where we would look again at what is happening at the global oil and market and see if there is anything we can do to revalue the situation and ensure stability because in that last few days, we have dropped again approximately from $47 to about $45 per barrel. We achieved a bit of stability for four days, but it has been hovering around the $47 per barrel mark, but dropped slightly again. So, it is of great concern to us.

What is actually our crude oil production capacity? Some time ago,  we were producing over 2.8 million barrels.  Are we still meeting up with that capacity?

No. At this time, we are producing about 2.24 million barrels per day.  We are actually below our targeted national average of 2.388 million barrels per day.  I must say that it is of great and critical concern not just to this administration but to all Nigerians.  Over that last six months in particular, there has been incredible upsurge of sabotage and vandalism (not theft) of our crude and product trunk lines in this country. Now, it think all Nigerians should know that it is not possible that a government of the day will be sending people to dive under the water and puncture holes, vandalize and just sabotage for the sake of vandalism and sabotage alone, which means that there is obviously a reason and a motive behind it.  Now, if you are not actually puncturing the pipelines to steal, and certainly, you cannot puncture the gas pipelines to steal gas, so, it is a clear case of vandalism and sabotage. That means there is a reason behind it, which we can see is to disrupt and distract government and this economy at this particular point in time, which is why there has been a sudden upsurge over the last six months.   It is very unfortunate that in this political clan, we will allow this kind of thing to happen in Nigeria.  I don’t think that any government should sit back and allow this kind of act to happen.  The government is not vandalizing its own pipelines.  The people are vandalizing the pipelines just to disrupt this economy?  To think that they will do that, which is most irresponsible, to the detriment of Nigerians, because this crude oil and gas that we exploit and produce, produces the entire revenue that is the backbone of the country.  This means that whether Nigeria realizes it or not, it affects even the trader in the market. So, one way or the other, you are disrupting the lives of every Nigerian, which is most irresponsible.  So, sabotage and vandalism have actually caused a greater amount of differed production and once production is differed because you have to shut down pipelines and shut in production, our production profile drops incredibly. So, instead of be at 2.5 million barrels per day in terms of crude oil production, we are today at about 2.24 million barrel per day, which is very sad.  Having said that, I think we have done a good job very aggressively to ensure that the actual theft has been cut down with the assistance of security agencies who, I think get a lot of negativity in Nigeria despite the amount of hard work they are doing in the country to handle vandalism, sabotage and of course, theft and terrorism, which are all part of security.  Energy security of one of the most critical in the world and that is what we are seeing affecting the country.  We have up to 60,000 barrels per day in terms of actual crude oil theft. As you know, there was a time it was well above 100,000, in fact at some point it was above 200,000 barrels per day that was being stolen. Our big problem is the act of vandalism and sabotage, which is being done on purpose.  If you ask the power minister, he will tell you the same thing.  Power facilities and infrastructure are being sabotaged so as much as the security tries to handle the situation, there is this constant kick back push back.  There is no country in the world where its citizens don’t make it a point of duty to actually watch their critical assets as well.  If something is happening in your own back yard and you are aware, you should be able to help government by bringing information quietly to the fore.

Before oil prices began their fall, shale oil production by the U.S was becoming a problem as they halt importation from Nigeria. Now, even if oil prices do rise, how much of a threat will that be to us?

It has become a source of concern to oil and gas producers in the world.  So, it has not only affected Nigeria, but producers in the African continent, as well as producers in Europe and as far as China and Japan, which are traditional markets as well for this product.   We have done quite a good job in terms of seeking other export markets.  We have done very well with India in particular and we are moving quite aggressively into China in terms of alternate export markets. We have gained a lot of ground in that area.  But it was a major loss for us because they were our number export destination.  We are also looking inward.  I have noted severally that the African continent has to come together as a body and look for ways or means of utilizing, coordinating and stabilizing our own oil and gas supplies and hopefully we are moving in that direction as well.

Nigeria has often been branded more as a gas rather than oil economy.  This is because we have more gas than crude oil. How far have we gone with the gas master plan in respect to its implementation?

I think it is doing very well.  As you know, we pulled it out of the whole Petroleum Industry Bill (PIB).  We could afford to do that. We started building on it four years ago or so. In terms of that, we have ensured that our gas infrastructure, which before this administration, was non existence and this is the sad truth.  When we came in, we found out that the IPPs were beginning to come on stream, but the gas infrastructure, which should have been laid to ensure the fueling need of the IPPs, where not actually done. That means when the IPPs where being initiated, the gas infrastructure was left out of the whole thing, which means we have to start working aggressively and this of course, caused a lot of issues for us.  But I am happy to say that at this point in time, we have managed to aggressively laid over 375 kilometers of gas infrastructure pipelines in the last four years.  As we speak, in another 476 approximately kilometers of pipelines are on-going for gas infrastructure. We are also working with bodies like International Finance Corporation in terms of bringing financiers to the fore hopefully who will take off this capital intensive tranches of pipelines under various economic policies and structures and that is working for us. Beyond that, we did not put all these things in place overnight.  We had to be creative to ensure as much as possible that in the short and medium term, we are able to fuel the existing Independent Power Projects (IPPs) and those that are coming on stream as much as possible.    I think, we have made a head way.  Again, it is this unnecessary and irresponsible sabotage and vandalism that affected us in many ways both great and small.  We have been fighting aggressively to ensure gas supply to power plants. We have managed to maintain fuel supply that we are still around 4,500MW towards the end of the year.  But again, with each upsurge of vandalism, the gas supply goes down again. So, it is being tactically and strategically vandalized to ensure that power is not reaching the places it should have reached by now. We on our side are doing over and above what we should have been doing right now to ensure we get enough gas to fuel our IPPs.

Beyond the gas to power in the master plan, we also obviously focus on gas for industrialization.  This is critical because that is the only area where we can actually commercialise our gas and create employment for our people.  The first industrial park was sited in Delta State.  There, we suppose to have fertilizer plants.  We are actually moving very fast on that.  The mobilization has gone ahead and I think we have created over a thousand jobs in this period of mobilization. It is expected that as it goes forward, we will create few thousand jobs in that area.  We had a draw back because of the problems between the communities in that particular area of Delta State, which is still being sorted out between the communities.  I had to come into the matter and hopefully, the problem will be sorted out very soon.

Another issue is the pricing of the gas being supplied to power stations. Have you being able to sort this out with the IPPs?

Yes, to a very large extent.  But again, for the first time in history, we came together with the Central Bank of Nigeria (CBN), the ministry of power and of course the chairman of the Nigeria Electricity Regulatory Commission, along with stakeholders, we were able to arrive at what we felt was a comfortable price. Beyond that, we were also able to, through the CBN raised fund to pay off the legacy debt to power and legacy debt to gas suppliers, which was holding back the interest in supplying gas to power plants.  We also looked at guarantees to ensure that there will be sustained payment over time. These are areas that were completely lacking before and have not been hatched out prior to the new administration, which we have managed to do.   You have to get the fundamentals right. Otherwise, you cannot really move forward because we are dealing with international market and international players. Obviously, these are critical fundamentals that have to be handled in appropriate manner and to a large extent, I think we have done that. It is an on going issue, and we hope that over the next three to four years, it will be completely sealed. In Nigerian history, I don’t see any other time that this kind of progress has been made in the oil and gas industry.

You have been a great advocate of the PIB. This is a bill that everybody has applauded and believed that it will transform the petroleum industry.  But some interest groups have pointed to certain clauses, which they feel might be detrimental to their investments. Do we have any reason to worry about these clauses?

I think on the whole, the PIB is a very good bill that will ensure a level of transparency, accountability and responsibility in the oil and gas sector like we have never seen before in this country. It will also give us a legal fundamentals or basis for doing certain things like creating a national oil company or corporation that is in fact, equity and shareholder driven and therefore, activate itself to operate on competitive ground like any other multinational in the world.  However, the areas I think are of great concern particularly to multinationals and investors are the fiscal terms, which we worked on for quite a while.  We wanted to up Nigeria’s take in terms of revenue on PSCs.  Of course, the multinationals and others were not of that opinion because they have enjoyed certain terms for quite a long time. I think the issue of the communities was also extremely critical, when it was first put in the bill even before we came in and completely overhauled the bill that area was already there. It is an area that is very complex and needs a lot of delineation, a lot more that I think we were not competent to do and it was actually taken and handled by a completely independent consultant or group so that it is completely hatched out and taken to a logical conclusion because there are lots of issues.  But the area of ministerial responsibilities, I felt it was more of a distraction by the opponent of the bill.  There is no time, where we have had as limited, as far we were concerned, the responsibilities of the minister of petroleum or where we have reduced the responsibilities as we have reduced them in that bill.   The current Petroleum Act gives the minister far more powers than the one we put in the current PIB. So, as far as I am concerned, if it was to be a matter of responsibility, I will be much happier with the current Petroleum Act in terms of ministerial powers. So, I think that was more of a distraction by the opponents of the bill than anything else.

- See more at: http://www.ngrguardiannews.com/business/energy/196694-regional-approval-to-oil-industry-issues-imperative-for-improved-productivity#sthash.15M5Wj0P.dpuf

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