Editor's Note: This is a summary version of a paper presented at a seminar in London last month, organized by the Institute of Petroleum.
Earlier this year, a conference was held in London to assess the investment climate in Nigeria, one year into the country's new democratic dispensation. One commentator observed that the most impressive feature of the meeting was the "undisputed and publicly expressed recognition among the many Nigerian speakers - governmental and independent alike - that corruption remains a problem that must be rooted out."
Indeed, all stakeholders in Nigeria recognize that a problem as widespread as this cannot be wiped-out overnight or without committing enormous effort and resources over a long time. That is why President Obasanjo is personally committed to leading the fight against corruption in Nigeria. He presented an anti-corruption bill to the National Assembly, which has recently been passed into law.
A fall-out of the campaign was the recent downfall of the President of the Senate, who was removed from his post after being implicated in a contracts scandal. Many other public officers are on notice as a result of ongoing public investigations. The message is now clear that it is no longer "business as usual."
Lack of transparency
Apart from corruption, the historical lack of transparency in doing business in Nigeria has been a major disincentive to foreign investors. The Federal Government is insisting that all major contracts (purchases, service, and works) must be tendered competitively. It is interesting to note that some oil companies, in joint venture with NNPC, have started advertising their tenders for major contracts.
A case in point is the current open bidding exercise for oil prospecting licenses (OPL), which have attracted overwhelming responses from large and small international, as well as local exploration and production companies. The responses are being analyzed and it is expected that the exercise will be completed before year-end.
The government intends to repeat this open invitation to tender for OPLs on a continuing basis. With the demise of the middleman, a foreign investor can expect to do business in Nigeria on the basis of fair competition. A foreign investor who has a proposal or a new solution can therefore freely select his own partners or directly approach the appropriate government department and expect to be taken seriously and treated fairly.
The oil-rich Niger Delta region has been in turmoil for much of the past two years, with adverse consequences for the oil and gas industry. The issues that gave rise to the unrest are being addressed at all levels. The Federal Government has started implementing the constitutional provision of allocating 13% of national oil revenues to the oil-producing states, while the bill establishing the Niger Delta Develop-ment Commission has been enacted into law.
Throughout the nation, the issue of personal safety and security is being addressed by federal, state, and local governments. To underscore the concern, the government has invited both the British and US governments to assist with the training and upgrading of the Nigerian Police Force. Furthermore, the efforts of the federal and state governments in pursuing poverty alleviation and youth employment programs have also been very helpful in reducing crime.
The most significant factor contributing to the escalating costs of doing business in Nigeria is the poor and inadequate power, telecommunication, and oil refining infrastructures. These are taking rather long to build up to a satisfactory level, but with the Federal Government's backing, massive resources are being invested into revamping these infrastructures. It is realistic to expect satisfactory results within the next 6-12 months. In fact, near elimination of poor telecommunications, unreliable power supplies, and shortages of petroleum products will be achieved by the end of next year.
Nigeria has the unenviable record of flaring the largest volume of gas in the world. Both the government and the producers are committed to putting out these flares between 2008-2010. This goal requires that enormous volumes of gas be commercialized. Already, the engineering design for the third train of the Nigerian LNG plant is at an advanced stage, with commissioning of the plant scheduled for the fourth quarter of 2002.
Concurrently, preliminary works have commenced for developing the fourth and fifth trains of the Bonny Island plant, which will require acquisition of eight new LNG carriers. This project will entail several billion dollars of foreign investment. The Government is already thinking of another LNG plant, but the availability of a market for additional volumes of Nigerian LNG will determine how soon this becomes a reality.
To attract investors to gas utilization projects, the government has created very generous incentives over the past several years, leading to increased numbers of proposals for establishing new independent power plants close to Abuja, Ajaokuta, Kwale, Bonny and Lagos. There are also plans for a gas-to-liquids plant and an export-oriented LPG plant, mostly promoted by E&P companies already well established in Nigeria.
There are various other gas utilization projects. Shell Nigeria Gas is soon to start construction for a project to supply natural gas to industries in estates near Lagos, while Gaslink (an associate company of Unipetrol Nigeria) is also due to start work soon on a project to bring supplies to two other estates elsewhere in Lagos. Once these projects take off, supply of gas to homes for domestic use will be a logical development, both in Lagos and other urban centers.
Recently, the government set up a committee chaired by Dr. Rilwanu Lukman to undertake an in-depth review of the Nigerian oil and gas industry with a view to restructuring it for efficiency reasons and to achieve better value for money. This August, another committee was established to review the supply of petroleum products and distribution throughout the country. With these developments, it is predicted that the Nigerian oil and gas industry will see more privatization.
The West African Gas Pipeline is a regional project that involves Chevron, Shell, and the governments of Nigeria, Benin, Togo and Ghana, with the aim of transporting natural gas from the Niger Delta to the other three countries for power generation and other sundry uses. The project could trigger developments even beyond the oil and gas industry and throughout West Africa.
The huge oil and gas discoveries made in Nigeria's deep offshore by Shell (Bonga), Texaco (Agbami), Exxon Mobil (Erha), and Statoil (Nnwa) have been joined recently by Total/ Southern Atlantic's Akpo and TotalFinaElf's Ukot. These additions are good indications that the recent strong bids for deepwater and ultra-deepwater offshore OPLs will likely turn up results as well.
There has been a strong lobbying effort by the Nigerian Association of Indigenous Petroleum Exploration & Production Companies who want to get involved in exploration and appraisal of these blocks. The major argument against this is that no indigenous oil company has the financial resources to operate offshore, so any such company with an offshore OPL would merely transfer the OPL obligations to a foreign partner while the indigenous company remains merely the nominal concession holder. This is harking back to the middleman arrangement of yester-years, which cannot be justified in a transparent and level playing field.
The development of the new oil and gas discoveries offshore Nigeria, as well as the revamping of the oilfield installations built over two decades ago, are bound to result in significantly increased demands for foreign investment in offshore and onshore construction, marine transportation, and many other oilfield support services. A lot of additional construction and maintenance equipment will need to be imported, while further bases and facilities will have to be constructed and a large number of Nigerians will have to be trained for the enormous amount of work associated with these new developments.
In recent times, partly due to aging pipelines, but also because of willful damage to crude and product pipelines, there has been an unprecedented increase in the incidence of pollution, especially in the swamp and land areas in the Niger Delta. Much remedial work remains to be performed in this regard.
Nigerian deepwater discoveries move beyond expectations
Nigeria's Gulf of Guinea is emerging as Africa's North Sea, claimed Dr. Rilwanu Lukman at the Institute of Petroleum (IP) seminar on Opportunities for Foreign Participation in Nigeria's Oil & Gas Industry. Lukman, who is Special Adviser to the President on Petroleum Resources, as well as Secretary General of OPEC, said that recent deep offshore wells "have tested way beyond expectations."
Bonga appears to contain 1 billion bbl, Agbami 1 billion bbl plus, and Erha around 600 million bbl following recent tests, Lukman said, adding that there are at least five other world-class undeveloped deep offshore Nigerian fields. Fields in these waters (up to 1,500 meters deep) also have a combined 12 tcf of associated gas.
Nigeria's current gas reserve position is put at 120 tcf, "but that can be regarded as the tip of the iceberg, judging from the recent deep offshore discoveries. We want to generate as much revenue from gas and oil as possible, but that vision needs to be worked on ellipse in all the new PSCs, the companies have to do field optimization studies, but there are fiscal incentives to attain zero flaring."
The Nigerian government is developing a good telecommunications and transportation network, he said, "which is necessary as the basis for the future. The challenge to all West African countries is to remain committed to long-term growth, but also to be people oriented. We need further inflow of private sector capital."
Lukman cited potential for investments in new Nigerian fertilizer and steel production plants, aluminum smelters, and power generation, all of which would consume an "enormous amount of gas. There's no reason therefore why we should only have one LNG project. There could be justification for up to five." New gas field developments could in time allow Nigeria to become a net exporter of all these goods, he added. "We could export steel very competitively because we have access to cheap gas."