Oil Blocks Under the Hammer

Oil Blocks Under the Hammer

By

Bello Salihu, PhD

Recently it was hinted by no less a person than The Honourable Minister of Petroleum that Nigeria will be engaging in another open licensing round for hydrocarbon exploration. This is in tandem with the nation’s desire to further increase its oil and gas reserves and deepen the participation of indigenous operators in the industry. Both worthy and laudable ambitions.  This is the first licensing bid run to be conducted by Nigeria’s current government headed by President Goodluck Jonathan, it is also a golden chance for the government to showcase its attempt at transparency in view of the perceived opacity that has all these years characterised the Nigerian oil and gas industry in both the downstream and upstream sectors.

Already, some aspects of the current government’s approach to the situation are a welcome departure from the past. For one, so far no one is talking about the unnecessary and expensive roadshows undertaken to ‘showcase’ what is ‘on offer’ in Nigeria. Whoever is remotely interested in bidding for an oil prospecting license in Nigeria is bound to have done his homework and is more likely to have pencilled down the least risky investment for his or her money. A fancy roadshow in a glitzy London or New York hotel will do little to get anyone interested in Nigeria if their minds have not been made up already. Besides, if history is anything to go by, serious investors will be too busy cutting back room deals with the Nigerian authorities to have anytime left to attend roadshows. So it is good to see that such wastage is out this time around.

However, since it is generally believed in the industry that the hiatus since the last bidding round was to await the passage the of the Petroleum Industry bill, it is interesting to note that, save for the unlikely scenario of a record-breaking expedited deliberation and assent that sees the the PIB passing through both the legislature and executive approval before the end of the year, then this might as well be the last licensing round before the PIB becomes law. I am sure the implication of this, vis-a-vis the provisions of the PIB is not lost on the Nigerian authorities. Section 190 (sub-sections 1 to 6) in Part III of the PIB details the award process. This section, and others that link to it, will eventually provide the legal framework based on which the process shall be conducted in future and of resolving disputes and grievances that may arise. To foreclose any future abuse, especially since the Petroleum Inspectorate, or DPR if pre-PIB, will not be autonomous, one hopes that the bill takes it a little further by amending Section 191 which still retains the power of the President to grant licenses by fiat.

When they were introduced by the Obasanjo administration, licensing bid rounds brought globally recognised best practice to the process and were seen to be a more transparent change from the days of yore when autocratic governments dish out such unfathomably kind gestures to their friends and clients. Days when heads of government can allocate, with a single stroke of the pen, something as pivotal to the country’s economic interest as an oilfield in a prolific and proven basin such as the Niger Delta, to whomsoever they wish. The way, manner and aim of these discretionary awards are often times not kosher.

So bidding for an oil exploration license ranks up there with GSM as one of the so-called dividends of democracy.

All over the world, governments that conduct licensing rounds have to thread a fine line between attracting investments and being corruptly compromised by of the value of the assets they are auctioning off. The pendulum swings from countries who hold no such auctions such as Nigeria before the fourth republic and countries where it takes place almost every year on the average such as the United Kingdom. A licensing round is often used as a barometer to measure both a country’s acceptance by investors as a good place to sink their investments and also the robustness and fairness of the country’s bidding and regulatory processes. It also measures the level of optimism the investors have on the prospects under auction. But that is only half the story. What happens before and what follows after the auction sometimes become bigger news than the process.

Take the case of the South American nation of Ecuador for example, the news coming out of Quito, the nation’s capital, this week is that the country’s Confederation of Indigenous Nationalities is planning a demonstration against the latest licensing round taking place at the end of November this year. The confederation, which represents Amazonian tribes, is protesting against the destruction of their environment and way of life by oil exploration. Now, companies coming into the process in Ecuador will have to steel themselves for popular discontent before after the auction. The aftermath of the process in the UK Continental Shelf (UKCS), on the other hand, saw a record number of applications that according to the UK government confirms that the North Sea remains a “fertile landscape for investors”. A statement that is designed to fly against the general perception that oil production in the North Sea has peaked along time ago and it is no longer a viable oil region.

So far Nigeria has conducted three auctions with varying levels of success. All, seemingly, have three things in common. The first is a lukewarm embrace of the process by the established international oil companies operating in Nigeria. Few if any western oil companies have participated actively in any of the past bid rounds. Which makes one think that it is either they know something others don’t or they have figured out their own way of skipping the process all together. They definitely cannot turn their back to an established and rewarding oil region such as the Nigerian Niger Delta. It will be interesting to see if they will be more enthusiastic this time around. The last bidding round in Nigeria’s Gulf of Guinea neighbour, Angola, which was held in 2011 BP, ENI, ConocoPhillips, Total, Statoil and Repsol all participated and got themselves a chunk of that country’s deepwater concessions.

The second thing the past Nigerian auctions have in common is the entry of the lesser known and wanna-be operators from Asia such as Essar Exploration and Production, Sterling Global Resources and ONGC-Mittal all of India, the Korean National Oil Company and the China Offshore Oil Corporation, to mention a few.

Almost all of them got their concessions, some with a controversial preferred right of first refusal  clause, on the back of promises to undertake infrastructural projects. This, if such projects were ever executed, is laudable. But history has shown that such promises are hardly kept if ever. Since then nothing has come of China’s CNPC’s promise to invest 2 billion into the Kaduna refinery on the back of winning four blocks in the 2006 bidding round; it is unlikely that ONGC-Mittal’s promise to invest six billion dollars in building a refinery, a power plant and a rail line on the back of its own controversial winning bid in 2006 wold have been kept even if their bid was not revoked. Oil operating companies are normally not interested in taking up peripheral obligations tied to the the award of an exploration prospect. They will play along, win the bid and bury such obligations in bureaucracy and technicalities. These obligations that are unwelcome to them include commitment of the winners to invest in the country’s infrastructure or to go into partnership with local Nigerian companies for the exploitation of the blocks and to strictly abide by the Nigerian content policy by using local service companies and subcontractors. Nigeria will have to think of something more concrete or an enforceable contract when these type of promises are to be broached in the bidding process.

The third was the active encouragement of indigenous, smaller Nigerian operators to participate in the country’s upstream industry through measures ranging from preference to them in the bidding process to encouraging foreign bid winners to work with a selection of them as local content vehicles. While both moves are antithesis to the principle of the open bidding process, they are understandable in as much as they actually achieve their stated objective of encouraging Nigerian companies to participate in the industry and not to act as briefcase-holding proxies to foreign interests and, also, that all of the Nigerian companies considered for such privilege are made to play by the same rule.

However, unlike Ecuador or the United Kingdom mentioned earlier, in Nigeria the news mostly happens after, and not before, the bidding process. The prominent snafu that received most of the media attention in the aftermath of the last biding round was the case of ONGC-Mittal and Transcorp. In the case of ONGC-Mittal the company was not able to show that it has the capacity to undertake the exploration and development of the prospect they were licensed because their strength was found to be in the downstream end of the business. Transcorp on the other had no technical background in oil and gas. The hand of executive arm of government was seen to have played a role in how both companies were able to scale the technical pre-qualification in the process. Eventually, as a measure to inject sanity into the system and after due investigations by the legislature, both Transcorp and ONGC-Mittal lost their prospects. 

Essar Exploration and Production Company and Sterling Global Resources, both of India, on the other hand, couldn not come up with the cash to redeem the concession they won.

Feelers in the industry suggest that this time around things will be a little different. Let us all hope ‘a little different’ here means for the better and not for the worse. A thorough due diligence check on all companies to be involved in the process, both indigenous and international, will go along way to sanitising the process and saving the everybody’s time.

This was earlier published in my column 'Oil and Gas Weekly' in Government, 

a publication of Leadership Newspapers, Nigeria - 2012.

Bakassi

Bakassi

By

Bello Salihu, PhD

Lord Robert Salisbury, the British Prime Minster at the time when major European powers were carving up Africa as their colonies, enclaves and spheres of influence was quoted to have said “ We [the colonial powers] have engaged in drawing lines upon maps where no white man's feet have ever trod; we have been giving away mountains and rivers and lakes to each other, but we have only been hindered by the small impediment that we never knew exactly where those mountains and rivers and lakes were.”

His statement was as apt as it was true when it was made. Truer still is the sad legacy it bequeathed to later generations of Africa. In the great scramble for Africa of the 1880s, the embryos of the nations that later became Nigeria and Cameroon were formed. Ancient empires and civilisations that pre-dated the colonial adventures of the Europeans were carved up and traded as if they were farmlands in western Europe. It was during that time that a small chunk of northern Nigeria was traded from the French by the British in return for France’s desire for fishing rights off the coast of the Canadian Island of Newfoundland. The French also traded parts of Cameroon to the Germans in return for German recognition of its protectorate role over Morocco. In the south east of Nigeria, a small coastal extension into the Atlantic Ocean of about 1000 square kilometres and inhabited by tens of thousands of people was ceded to Germany by the British. That coastal extension is a Peninsula called Bakassi by its inhabitants.

It was an agreement of mutual benefit to the two powers in which one of them, Britain, wanted guaranty from the then stronger Germany of a clear passage to the important sea port of Calabar while the other, Germany, wanted access to the shrimp-rich waters around the peninsula and also to forestall any eastern expansion of the British colonial ambition. This arrangement was concretised in the Anglo-German treaty of 1913 which clearly put Bakassi on the German side of the border and the navigable portion of the peninsula on the British side. The British could do this because Bakassi was part of the old Calabar Kingdom which the then King of Calabar ceded to the British Empire in a Treaty of Protection agreed with Queen Victoria of England and signed on the 10th of September 1884. The inhabitants of the Peninsula belong to the Efik tribe which is one of the Nigeria’s main ethnic groups but a historical power play that they have had no hand in, has, without their consent, traded away the land they were literally standing on. Or in other words, they could as well be Nigerians but their land had ceased to be. To the colonial masters, that was an issue of little significance.

After the defeat of Germany in the First World War, the League of Nations, a fore-runner of the current United Nations, divided German colonies into two territories administered by Britain and France. At this point British Cameroons and Bakassi were recognised to be under British Mandate by the Franco-British Declaration of 1919. Bakassi was as of then administered through indirect rule by the same colonial masters ruling over Nigeria, but even then as a Cameroonian territory. After the Second World War, the United Nations maintained the same mandate leaving Bakassi still as a Cameroonian territory.

In the run-up to independence in both colonies the UN mandated the British to carry out a referendum in its western Cameroonian colony which stretches from the sahelian north to the atlantic coast in the south to ascertain which independent nation the indigenes want to belong to, Nigeria or Cameroon? British Northern Cameroons which include a large chunk of northeastern Nigeria voted to gain independence as part of an independent Nigerian nation. Due to security issues, the referendum was delayed in the British Southern Cameroons until after Nigeria’s independence in 1961. When it eventually held, the people voted to join the then also newly-independent Cameroon. Even the oft-mentioned meetings between Nigeria’s Gowon and Cameroon’s Ahidjo in 1971 in Yaounde and later in 1975 in Maroua (that led to the Maroua Declaration) did not place Bakassi in Nigerian territory but discussed the navigable maritime border between the two countries as contained in the earlier treaties of the early colonial era.

So the Nigerian nation lost the Bakassi peninsula long before the ICJ judgment of 2002. In fact, Cameroon successfully posited, with ample historical documentary proof, that Bakassi Peninsula was never and has never been part of the Nigerian nation in the first place. They argued that what Nigerians mistook for souvereignty was ethnic and language affinity that is present around every land border in the continent. Nigeria, seemingly, was never able to present a superior counter argument to that. 

I recall from my high school literature class the great Chinua Achebe saying that those whose palm kernels were cracked for them by a benevolent spirit should not forget to be humble. To paraphrase, even if Cameroon has its own version of a benevolent spirit the country does not, and will not in the foreseeable future, have Nigeria’s extensive and rich proverbial palm kernels. So it was a good to see that Nigeria, out of stark realism rather than altruism, chose the path of wisdom and humility and pulled away from contesting the ICJ judgment that handed over the Bakassi peninsula finally to the Cameroonians. 

The focus of the nation should now be the welfare of its citizens who have been grossly short changed by the ruling. There is a reason why they cherish being Nigerians and are ready to fight for the privilege. It is Nigeria’s turn to show them that their emotional attachment to the country is not in vain and will not be taken for granted.

Calculating on the basis of the ICJ court ruling in 2002 and the seeming hopelessness of Nigeria’s case, international oil companies operating on and around the peninsula quickly re-oriented their loyalties and sought new clients in Yaounde. They will still maintain Abuja and Port Harcourt as important ports of call on their other deals, but on anything to do with the oil riches of the Bakassi Peninsula, their first class tickets are now re-routed to Yaounde and Douala. Some companies that may need to do that sooner than later are the US giant ExxonMobil and France’s Total. The two companies, along with two Nigerian oil producers, Moni Pulo and Oriental Energy, all have oil blocks straddling the new border between Nigeria and Cameroon around the Peninsula which has the Bay of Cross River to one side and Bakassi Peninsula to the other. One of the fields in the area of potential border contention is Total’s deepwater OPL 222 block (co-owned with ExxonMobil and Nexen) which is estimated to hold nearly 100 million barrels of oil. This alone will add a quarter to Cameroon’s current estimated reserves.

The scramble has started already. Few days ago, a few hours after the expiration of the appeal deadline of the ICJ judgment, America’s Fox News reported that Sino-Swiss firm Addax Petroleum has discovered new oil and gas reserves in Bakassi, south western Cameroon. Cameroon’s Rio Del Rey basin in which Bakassi is now situated will be busy in the foreseeable future. Eagle-eyed energy prospecting companies have been encircling the Bakassi prospect waiting for a definitive signal of who to go into deals with. With this Addax statement, it looks like some of them have already perched in Cameroon.

In June this year, Dana Petroleum, a United Kingdom oil and gas company already active in Equatorial Guinea announced the signing of a production sharing contract with the Cameroonian Government for the Bakassi West block which covers over 390 sq. km. They have already stepped up mobilisation to commence exploration activities.

But even more important for Cameroon is that its ownership of the Bakassi Peninsula will further extend the size, not to mention the prospects, of their own little segment of the Niger Delta, the Rio Del Rey Basin, which is already hosting, and attracting interest, from many major international oil companies.

Similar resource-fueled border disputes in the Gulf of Guinea and elsewhere such as that between Ghana and Cote D’Ivoire over the West Cape Three Points prospects are worrisome to prospective exploration companies. The business of oil exploration is risky enough without such bothers.

Others attracting similar level of attention are the disputes between Sudan and South Sudan, between Kenya and Somalia and between Tanzania and Malawi .

This is hoping that all will be resolved with the same maturity and amity as shown by both Nigeria and Cameroon.

Fuel For Thought:

$75/barrel benchmark price in Nigeria’s 2013 budget

As discussed on this column last week, there are hints (just hints for now) of dark clouds in the horizon in the price of a barrel of oil. The first and second highest energy consumers, the United States and China are both experiencing flat growth. The Eurozone has slowed down and is currently in fiscal turmoil and the growth estimate for the United Kingdom was just this week downgraded by the IMF to negative figures. So the federal government is right to inject a dose of caution in its estimate for the benchmark price for the oil barrel in its revenue projection for the 2013 federal budget. Raising that benchmark will put the value of the Naira on a route of certain decline if for any reason there is an oil glut and the revenue base of the country begins to evaporate. And lest we forget, Nigeria is still a heavily import-dependent country.

If this government is in error in pegging the benchmark that low, then that error is on the side of caution. Better that than fiscal armageddon 2013.

While no one is praying for increased volatility in the global energy market, economic planners in countries like Nigeria that depend on oil revenue will do well to read these signs and be both optimistic that things turn out for the better and be prepared if they don’t. With Nigeria’s current security challenges generally believed to be occasioned by unemployment and poverty, an oil glut that makes our principal export unattractive is the last thing we need. A glut with catastrophic consequences for Nigeria’s economy has happened before and it could happen again.

This was earlier published in my column 'Oil and Gas Weekly' in Government, 

a publication of Leadership Newspapers, Nigeria - 2012. 

Can The World Survive Another Oil Glut?

Can The World Survive Another Oil Glut?

By

Bello Salihu, PhD

At the end of last week the dollar price for a barrel oil was slightly above  $112 for the brent blend light sweet crude and just slightly higher than $91 for the heavier West Texas Intermediate (WTI) blend. The price for a barrel of oil has almost never been this good for this long for anyone connected to the industry. The current unprecedented high investments in exploration that is helping to discover even more fields and an almost at par spending in field development and supply infrastructure that is keeping the almost insatiable energy appetite sated may make it seem that supply and demand are at last in an almost perfect harmony. So the reader will be forgiven  in thinking that talk of an oil glut and its attendant consequence of economic crises and political upheavals at this time is nothing but an academic exercise or, at worst, scare mongering.

But, historically, anytime things are this good in the oil industry, national leaders and economic managers of both producing and consuming nations must beam their full lights ahead as danger could be lurking just around the corner. Some of these dangers could, at first glance, deceptively present themselves as positives. This precarious loop of boom-bust-crises in the oil patch has happened so many times in the past that it has almost become rote. And at each time the crisis has been of a different type and the principal players, save for the United States of America, have also been different.

Let us examine a few of the possible dangers this time around. The first one, of course, is the  energy demand from India and China. The main driver of such demand is the energy needs of almost a third of the global population located in these two increasingly economically active nations of the Asia Pacific region. It is quite easy to notice that even though this presents itself as a situation that bore some good for the industry and exporting nations while it lasted, a double-whammy slowing of growth in those two countries will, due to the more connected and globalised nature of today’s world economy, present us with a more precarious version of the Asian financial crises of the mid-nineties. Which, if I may remind us, created a domino effect of reduced industrial output from the Asian tigers which led to suppressed demand for energy. That, in turn, led to the crashing of the price of energy in the world market which in turn led to unheard-of economic crises in both the producing and consuming nations. For Nigeria, the revenue loss to the country further consolidated the pains of the average citizen. 

Pains that were introduced during an earlier oil glut in the early to mid-eighties which came about because OPEC oil had new competition due to new and increased production from suppliers such as Canada, Norway, Britain and Mexico and a depressed demand from the number one consumer, the United States. These new sources came about because of OPEC’s supply constriction and the Iran-Iraq war. That crash of the 1980s manifested itself in reduced revenue to supplier nations and heralded the introduction of over the counter economic pills as prescribed by the IMF and the World Bank. In Nigeria, those pills were administered by the General Ibrahim Badamasi Babangida government as a Structural Adjustment Programme, or SAP. Overnight, the life of the ordinary Nigerian became acutely more austere and the economic power of the middle class was so severely decimated that it is yet to recover nearly thirty years later.

The second potential danger is the rise of the renewables. President Obama’s investment of over 90 billion dollars in the renewables industry in the USA is not only a fulfillment of his campaign promise of four years ago but also a possible death knell of America’s dependence on imported fossil fuels. Once America’s renewables industry is up and running, it will seem sensible or even cool by the rest of the world to jump on the green band wagon. 

Currently most developing countries are switching their public transportation to greener sources energy or other forms of cleaner travel. Because of higher gasoline prices there is currently no major car manufacturer in the world that does not have an electric vehicle in the pipeline. It does not only help the environment it also make better economic sense. In the same vein, almost all airlines and aircraft makers are working towards greener air travel using renewable fuels. It has become a race to the market of who can produce the fastest and most reliable car or plane to challenge the status quo. As soon as green transportation is seen to be on its way to becoming mainstream, high rate gasoline users such as India and China will join the revolution and, with a large chunk of global oil production going into transportation fuels, that will collectively apply a downward pressure on the price of oil or at least keep it depressed.

The third potential danger is a seemingly robust supply in the horizon. The locked in excess daily capacity of Saudi Arabia of over a million barrels of oil pera day, the production  anticipated from newly-discovered fields located mostly in Africa that are yet to fully come on stream or peak and the increasing discoveries and production from non-OPEC countries that do not adhere to any production quotas mean that global energy  production is operating on a margin that is getting wider and more robust. In other words, while whatever is being currently produced is immediately consumed, the consumer’s choice is getting broader across sources and types of energy. Leading to a situation where these days supply fears are expressed with a shrug and the headlines they create are hidden in the inner pages of newspapers as discussion points rather the than world-stopping front page banner headlines of the seventies, eighties and nineties. Hitherto, an actual or imagined production or supply disruption could trigger the oil price to go into a tailspin and the global economy to shiver. That The West could today threaten Iran with oil export sanctions over its nuclear ambitions and the global energy prices experience but a short blip is a manifestation of that point.

As an economic system unto itself, the oil industry is most fickle. A seemingly inconsequential  political or social upheaval in some remote part of the world that we have never heard of could effect the disruption of carefully laid plans that will see nations or companies that are heavily invested in oil production (and consumption) teether on the brink of bankruptcy. So it is scary to think that none of the three scenarios described above is far-fetched. Firstly, China and India cannot continue to experience near double-digit growth indefinitely, something somewhere has to give. If anything happens to drastically reduce the growth rate in these countries, the first symptom of an impending crisis will be a fall in oil price as demand  from them will fall all of a sudden.

Secondly, may be, and just may be, President Obama’s investment in renewables may  bear fruit sooner than expected and environmental consciousness, functionality, style and simple economics could combine to tilt the scale in favour of the electric car or biofuels. Thirdly, it is more likely that with current technologies it will continue to become much easier to find and produce hydrocarbons such that global demand is met and even exceeded. Even if it is for a brief period before the prices rise again due to genuine fears such as peak oil, supply disruption due to conflict or artificial supply constriction from cartels.

So back to the question above, yes, the world could survive another oil glut. The simple explanation is that consuming nations, this time around, would feel the pain much less than the producing nations as they would have diversified their sources of energy and their industrial growth will continue chugging on. But for oil producing nations whose economies have stubbornly refused diversify and their governments remain unwilling to plan for such eventuality, the loss of revenue will lead to crises better imagined than experienced. Such crises will be exacerbated by higher populations (think Nigeria and Mexico), a more crises prone and socially conscious environment (think the Arab Spring) and a fewer listening creditors ready to offer a bailout (think the European economic crises). 

Every citizen of an oil producing country, especially those countries that have not taken the wise and deliberate step to diversify their economies, will feel the effects of an oil glut. Obversely, because of the oil curse that afflicts most of such countries, few citizens therein will feel the direct effect of a global oil scarcity which, under normal circumstance, should mean more revenues to their countries and more income in their pockets.

For oil revenue dependent nations, measures such as a well managed excess crude accounts and souvereign funds dampen the effects of this boom and burst cycle at boom times and basing a national budget on an acutely conservative minimum price per barrel will do the same at burst times. But such measures can only go so far as to remain dampeners of the effects of fluctuating oil price, the only real solution is for such countries to look inwards, play on their strengths and use their hydrocarbon resources to eliminate their dependence on oil and the fluctuation of its price.

This was earlier published in my column 'Oil and Gas Weekly' in Government, 

a publication of Leadership Newspapers, Nigeria - 2012.

Mozambique, Africa’s New Gas Princess

Mozambique, Africa’s New Gas Princess

By

Bello Salihu, PhD

Gas, it is said, is the choice hydrocarbon of the new age. Not only is it much easier to transport but it burns more cleanly than oil thereby harming the environment less. So the excitement across the world about gas finds in Africa, a continent which, due to its very low per capita energy consumption, is more likely to export rather than consume it, is understandable. Africa’s proximity to Europe also means that, at last, Russia’s position as the gas cylinder of Europe could be threatened in a way that the gas productions of Algeria  and Nigeria which are tied to long term LNG supply contracts could not do. The Maghreb-Europe Gas (MEG) pipeline which links Algeria to Spain (through Morocco) and the Greenstream Pipeline, also known as Libyan Gas Transmission System (LGTS), laid across the Mediterranean sea, which transports gas from Libya to Italy all terminate in European countries that, due to the current state of their economies, are themselves hungry for cheap energy. 

So when it hit the global headlines for the very first time, Anadarko’s massive gas find off the coast of Mozambique last year commanded to be taken seriously. Anadarko’s CEO, Al Walker, promptly told the world that it could be the biggest gas find in the last ten years anywhere in the world. As of last month, with the new huge discoveries from the Atun and Golfinho wells in Offshore Area 1 where Anadarko’s operates in the country’s Rovuma Basin, the total estimated gas in place in the basin was about 100 Trillion Cubic Feet (TCF) with about 60 TCF recoverable. That is about 35% of Nigeria’s proven gas reserves, all discovered within a span of 14 months in just two fields. Anadarko is building an LNG liquefaction plant in Mozambique that plans to start exporting in about a decade.

The recent gas finds off the Indian Ocean coast of southern Africa has got many energy analysts excited. Just last month Italy’s ENI, reported substantial gas finds- also in Mozambique. ENI’s find is located in Offshore Area 4 of the Mamba Exploration Prospect and is estimated to hold between 7 to 10 TCF of gas.

All of a sudden a scramble is on to find as much hydrocarbon as can be found in the southern and eastern tips of Africa, from the horn all the way to Madagascar and every country and geological prospect in between. Kenya and war-torn Somalia are at loggerheads over their maritime border where another massive gas or oil find is expected. UK companies, Heritage and Tullow (of Ghana’s Jubilee Field fame) are in partnership in the exploration going on in the Lake Albert Rift basin which is estimated to hold nearly one billion barrels of oil. In fact, they have already hit oil in the Ugandan sector of the basin and plan to extend their exploration into the Kenyan part of the basin.

Kenya, the economic giant of eastern Africa is planning to upgrade its ports and build a new oil export terminal on the Lamu Archipelago on the east African coast.

A few weeks after heralding the British Gas (BG) huge gas discovery offshore Tanzania, Norway’s Statoil announced a gas find of over a Billion Barrel of Oil Equivalent (BOE) off the coast of the same country.

It is very likely that, going by the current energy demand pattern of the world, that this new energy hub will supply the seemingly insatiable thirst of the Asia Pacific region, particularly the two rising economic powers, India and China. Two Indian companies, Bharat PetroResources Limited and VideoCon Limited both have a ten percent stake in Anadarko’s finds in Mozambique. As stated by the CEO of Videocon in an interview with India’s CNBC-TV18 in 2011, their aim is to import the Mozambique gas into India.

Quite interestingly, apart from a small holding in an onshore field in Kenya operated by Tullow, China’s finger prints are not seen in the East and South African energy grab. It is definitely not because China does not need the hydrocarbons as their energy demand has been on the upward trend for the last two decades with no sign of letting off. So it is either they are bidding their time or they have chosen to limit their concentration in East Africa to solid minerals. But, of course, if the discoveries continue at this ferocious pace China will be all over onshore and offshore eastern and southern Africa like an octopus.

A country of just over 22 million inhabitants, Mozambique lies on the eastern banks of the Indian Ocean directly opposite the island nation of Madagascar. The former Portuguese colony became independent in June 1975 after a debilitating 10-year armed struggle for independence led by Front for the Liberation of Mozambique (Frelimo) that consumed generations. After independence, the new nation was then plagued by renewed violence in a civil war that lasted seven years between the post-independence government and rebel forces sponsored by apartheid South Africa under the name Mozambican National Resistance (Renamo). It is estimated that over a million lives were lost, nearly two million people became refugees dispersed into neighbouring countries and several millions were internally displaced during the civil war.

With these discoveries, the country is now firmly placed in the league of African energy producers. As we have mentioned oftentimes in this column, they are now at a crossroad where they will have to choose either to use their newly-found wealth to rebuild their nation or allow it to drag them further down to the path of renewed anarchy. Hydrocarbon resources have a way of testing governments and rulers with unbelievable wealth and power. Few nations in the world have succeeded in passing that test. For Mozambique the test is just one question, how do they translate all these discoveries and attention into sustainable national development through technology transfer, skills acquisition and jobs?

Mozambique is indeed Africa’s new gas princess. There is and will be a long line of suitors all ready to woo and court her. It is also not far-fetched to think that some other country or region may soon attempt to snatch that position from Mozambique. But while this rate of discovery continues, Mozambique will continue to attract attention and with such attention, even more discoveries and infrastructure. 

Meanwhile, from the experience of eastern and western European nations in the hands of Russian government and Russia’s Gazprom, everyone now knows that gas is more than an economic phenomenon. It is also, in more canny hands, a potent diplomatic tool.

But phenomenal as the scale of the finds in Mozambique are, the crown is still perched pretty on the head of the queen of African gas, Nigeria. What makes Nigeria’s position even more phenomenal than Mozambique’s is that no part of the 187 TCF of Nigeria’s reserves was found as a consequence of directly and deliberately exploring for gas. All of Nigeria’s massive gas reserves were found as a consequence of oil exploration and as a by-product of oil production. One wonders if the African queen of gas will take the global crown if an active gas exploration campaign is waged. Or if her wasting gas flares are capped and the gas diverted for internal use or export. But, alas, one will only but continue to wonder until that happens.

This was earlier published in my column 'Oil and Gas Weekly' in Government, 

a publication of Leadership Newspapers, Nigeria - 2012.

Tackling Nigeria’s Unspeakable Energy Poverty

By

Bello Salihu, PhD

Recently it was revealed that Nigeria lost over two billion dollars last year from gas flaring. Since gas flaring has been going in the Niger Delta for as far back as when oil production in the delta started it is safe to assume that, on average, at least half a billion dollars is wasted each year through gas flaring for the past fifty years. This simple assumption considers that firstly, it took years for oil and gas production to reach its current peak state and, two, the price of gas has not always been this high.

But looking at this issue from pages of profit and loss statements misses a more important point, or two. Firstly, it negates the importance of those who live in the vicinity of the gas flares and who see their quality of life continuously being eroded. People who have rather not live with those flares at whatever cost. 

Secondly, for a nation grappling with nearly fifty percent of youth unemployment, tackling the flares of the Niger Delta could go along way in providing millions of jobs if the gas is processed and used to power thousands of industries across the land that have become moribund over the past decades for no other reason but the high cost and, often times, inaccessibility of energy.

At different times in past editions of this column the issues of youth (un)employment and the (half)wisdom in exporting tanker loads of cheap energy for a few dollars when we are faced with massive unemployment at home have been discussed. But these are discussed here again because they are issues of immense gravity that should drive our energy policy with or without deregulation or passing of the PIB. One will do anything and everything that one can do to draw the attention of the Nigerian authorities and keep it firmly focussed on this issue. So far no local or international statistic, index or news headline on this issue is complimentary to the country. That needs to change.

The recently released item of statistics from the United Nations that two in five Nigerian young people are unemployed seriously underestimates the level of employment in the country. Even if that is to be accepted as the correct data then one might add that of the two that are unemployed one and a half are grossly under-employed. And here we are not talking about the university graduate that has found himself ferrying passengers about on his motorcycle taxi or selling mobile phone recharge cards. I am talking also about the young graduate who can only work for the few hours that his part of town has electrical power. He or she must have invested the little money they lay there hands on to open a tailoring shop or hair salon but for most of the day they are just sitting and waiting for power. In those UN statistics he or she would be counted as fully employed.

At the other end of the economic scale only an uninformed over overly optimistic entrepreneur will engage in the the business of manufacturing anything in NIgeria today. All one has to do is look at the thousands of factories that have closed shop all over the country, but especially in the North, due to lack of energy. Another sad statistics is that millions that hitherto have decent means of livelihood have now been rendered unemployed swelling the ranks of the disgruntled. This has manifested itself into the most widespread security risk the country has experienced since the civil war of the late sixties.

An often used predictor of the economic state of any nation is how much energy the citizens of that nation consume per person. In that, Nigeria currently fares woefully when compared to other nations of the world. Even in West Africa many countries are ahead of Nigeria in that measure. Others may argue that because of our massive population the energy usage per capita is bound to be low. I would in turn counter that  all the countries in the world that have populations higher than Nigeria’s are ahead of us in per capita energy usage, this includes China and India. Like these two countries that make up almost half of the global head count, translating our massive oil and gas resources into corresponding rise in productivity holds the key to the country’s economic emancipation. In other words, the more energy we consume per person the more productive we are and consequently the higher our GDP. Simple.

According to statistics obtained from the Energy Commission of Nigeria the country’s primary energy consumption per citizen nose-dived from 0.153 tons of oil equivalent (TOE) to 0.079 TOE in a span of five years between 2002 and 2007. Since 2007 the country has been struggling to return to that level. And returning to that level in itself will be nothing to celebrate as the global average per capita energy consumption currently stands at about 5 TOE. 

A saturation point at which a country is totally sufficient with energy and thus exports the excess exists. As long as a country has not reached that saturation point it makes little sense to sell off something it needs more than those it is selling to. Almost no country in the world has reached that saturation point yet. 

Nigeria can work towards that saturation point and still have a huge percentage of oil and gas production left for export. Two examples of countries that have achieved this are Venezuela in transportation fuels and our Gulf of Guinea neighbour, the Equatorial Guinea in natural gas.  A litre of gasoline still stands at 0.5 U.S. cents per litre or 80 Nigerian kobo in Venezuela yet almost all taxis and a large proportion of public transportation in that country run on natural gas. Equatorial Guinea uses its gas to generate 80% of its electricity. The country’s annual gas usage counted in billion cubic feet rose from zero to 45 in a span of two years ten years ago. It now stands at almost 60. Because of its relatively small population, per capita gas utilisation in Equatorial Guinea is most impressive placing it above almost all the OECD countries including United States, United Kingdom, Japan and Germany. While at the end of last decade Nigeria’s per capita domestic gas consumption stood at just 2500 cubic feet, that of both Equatorial Guinea, one of Africa’s biggest energy exporters, and Saudi Arabia, the world’s number one oil exporter, stood at over 70 thousand cu. ft. each, proving that high domestic energy usage and earnings from  oil and gas exports are not mutually exclusive.

Another ‘gas’ news that came out about the same time announces that Nigeria and its co-investors in the Nigerian Liquefied Natural Gas (NLNG) have earned over fifty billion dollars from LNG exports in the last thirteen years since the company’s liquefaction trains were commissioned. Most LNG importing countries use the gas to provide their power plants with thermal energy, yet Nigeria, with one of the most extensive gas reserves and one of the major exporters in the world, is grappling with problems in power generation for almost a generation. As the Jamaican reggae superstar, Bob Marley, aptly puts it, “in the abundance of water, (only) the fool is thirsty”. 

In the last three years Nigeria has exported between sixteen and eighteen million metric tonnes of LNG each year to countries that require cheap energy far less than Nigeria does. This volume corresponds to about eight percent of the global LNG demand. 

First mooted in 1970, the aim of the Trans-Saharan Gas Pipeline (TSGP) project is to transport Nigerian gas from Warri in Nigeria to Hassi R’Mei in Algeria where it will connect with the existing Trans-Mediterranean and Maghreb-Europe gas export pipelines. Along its way, in Nigeria, it will transverse the breadth of the country, south to north, where it is planned that gas will be tapped at selected junctions to be delivered to power generation and industrial concerns. The Memorandum of Understanding on the project was signed ten years ago between Nigeria’s NNPC and Algeria’s Sonatrach. The feasibility studies were completed six years ago and three years ago a joint venture and an inter-governmental agreement were signed between Nigeria and Algeria to kick start the project. But the project is hardly in the news these days because, for some unexplainable reasons, attention has shifted from there. Yet, paradoxically, this project may hold the key to unshackling Nigeria from our dependence on oil and gas export revenue.

The entire nation stands to benefit from TSGP. Ready gas to thermal power plants and industries will unleash a wave productivity in the country that can best be imagined. The same gas can be used both as fuel and as an industrial feedstock. 

If only the agitators for oil discovery in the North can shift their focus from exploration for oil to the realisation of the objectives of the TSGP they will discover that it is infinitely more important, for now, to have ready energy delivered to the region than to go exploring for oil which may or may not be discovered. The delivered gas will revive the industries that are now dead and possibly fuel the creation of even more agro-allied industries to provide easier and faster outlet to market for the grains produced by millions of peasant farmers.

Every security challenge faced in the country today can be traced to poverty and unemployment. Reducing energy poverty will go along way in providing sustenance to millions of young people who make up the ready pool of potential recruits that fuel the insurgencies the country is now facing. Our young people become easy recruits because they do not see any future for themselves in the current Nigerian arrangement. A career, a family and a rewarding means of sustenance will go along way in showing them that another avenue for self-realisation exists and re-enforcing their belief in their nation.

This was earlier published in my column 'Oil and Gas Weekly' in Government, 

a publication of Leadership Newspapers, Nigeria - 2012.

To the Nigerian Youth: The Gulf of Guinea Beckons

To the Nigerian Youth: The Gulf of Guinea Beckons

By

Bello Salihu, PhD

One of the most disturbing realisations that ever hit me entered my mind as a slows preading, mind-numbing lament that settled in a small corner of my heart while I was on a business trip to the tiny mediterranean city-state of Malta in the penultimate year of last decade.

I arrived in Malta at a time when the major news item in the small island nation was how public resources, especially law-enforcement resources of the tiny nation, were being overwhelmed by modern-day boat people; mainly young Africans, of all genders, nationalities and age brackets who strayed into Malta on their way to look for a better life in Mainland Europe. From their various countries, they brave the unforgiven dangers of crossing the Sahara Desert to arrive in, then, Gaddafi’s Libya where unscrupulous local fixers arrange for them to be cramped into rickety boats in which to attempt to cross the Mediterranean sea into Europe. Their target destinations are normally any of the small Spanish or Italian islands dotting the Mediterranean sea from where they hope to be picked up by the coast guards of any of the target countries and be entered into the asylum system. They normally embark on their days of sea crossing equipped with nothing but bread, water and a two dollar compass as the only navigational aid.

Many that are unlucky stray or get into mid-sea distress and end up in tiny Malta. Many more that are unluckier still never make it to either mainland Europe or Malta at all but perish in the high sea. Malta, with a population of less than half a million people, found itself coping with a disproportionate number of illegal immigrants that needed to be housed, hospitalised, fed and, yes, even jailed. Their prison population spiked overnight.

That was when the realisation hit me that with all the resources and opportunities that abound in Africa, we are still haemorrhaging people! For nearly half a millennia Africans have been crossing the great waters that separate us from the rest of the world on journeys that were as perilous as those any human has ever endured. In the earlier instance, we were forced into those journeys as slaves to service that inhuman and shameful trade in human misery. In these latter days it is an adventure that is borne out of extreme hopelessness and dejection that is wilfully undertaken by our youth.

This column, however, is today throwing up the challenge to our youth to replicate what they achieved in entertainment and sports in the area of service delivery and innovation in the West African oil and gas industry. That if only they look a little harder, the opportunities they seek in Europe abound in Africa. All they need to do is prepare themselves to see and take those opportunities. All they will need from their government is help in preparing them to leverage the opportunities and enforceable policies in place to make it a bit easier for them to access these jobs especially in companies and projects taking place in their countries. This needs not be over-emphasised as all governments in the world do, or should do, this.

In the next few years, the West African oil and gas industry will generate nearly a million jobs worldwide through massive field developments that are going on in Ghana, Cote D’Ivoire, Equatorial Guinea, Angola, Gabon and the two Congos along with similar developments in the inland basins in Niger, Chad and the two Sudans . These projects will provide a massive jobs reservoir from which many young people in the region can draw successful careers and rewarding means of livelihood. If well managed, this has the capacity to do to the region what business process outsourcing (BPO) has done to the young people of the Indian subcontinent.

When exploring for hydrocarbons on the seismic lines, drilling for oil and gas onshore or offshore, the construction of offshore support structures and topsides or processing plants and refineries, the maintenance of these structures throughout their entire service life and the final abandonment of these structures and the reclamation of the land on which they stood, boots are required on the ground. These boots are normally young men and women in coveralls working to deliver the project. This, however, just scratches the surface because a many more people are required to support what these people do - from office admin staff to caterers to logistics experts - the list goes on and on. In west Africa some of these jobs are still, unnecessarily, undertaken by expatriates while many citizens are unemployed.

By using the tools of diplomacy such as bilateral trade agreements and technical support agreements, the Nigerian authorities will prove their mettle by selling Nigeria’s unparalleled advantage as a source of qualified and skilled labour to service the oil and gas developments in the Gulf of Guinea. They can do this by highlighting the factors have come together to put the the Nigerian youth at a unique position to take advantage of the opportunities available in the West African oil and gas industry.

These factors include the fact that English, being, not only the most widely spoken second language in the world, but also the language of the global oil and gas industry, is spoken at some level of fluency by all Nigerian graduates. In fact, Nigeria produces more graduates than almost all other West African countries put together and unlike most of the other graduates from those other countries that have to learn the language of the industry, Nigerians come equipped with that language.

Further to that, today’s generation accesses more information from the informal public domain than from structured learning in a classroom. The internet has democratised learning and access to information - which directly translates into access to skills and opportunities. Overwhelmingly the majority of the information on the internet today is in English.

This all dovetails into the fact that historically and culturally, Nigerians tend to be more itinerant and entrepreneurial than citizens of most other countries in Africa.

Another very important cornerstone for the realisation of this possibility is the objective of Economic Community of West African States, ECOWAS, which is hinged on the idea of free movement of people, goods and services throughout the region. Nigerians do not need a visa to enter or engage in legitimate employment in all the countries that make up the ECOWAS. Likewise, Nigerian service companies should have no impediment accessing contracts in other West African countries. If these impediments exist, the Nigerian government will do well to work on removing them.

Most of the major multinational oil and gas service companies operating in west Africa are also operating in Nigeria. For most people, entry into the industry is normally through the service companies. This is because of the project-based nature of their personnel demand which makes access to the jobs in these companies to be more fluid than in the international or national oil companies.

Incidentally, almost all the coastal nations that make up the ECOWAS are either oil producers or are currently engaged in active oil exploration. Even though Cameroon and Chad are not part of the ECOWAS family, because of their shared border with Nigeria, Nigerians do not require a visa to them. As for countries farther east such as Gabon, Angola, Sao Tome and Principe, the two Congos and even Namibia and South Africa, access can be negotiated as part of the various bilateral technical agreements we see being signed daily in the news.

To engage in, and be part of this evolving scene, the Nigerian youth will do well to broaden their knowledge of their region, be ready to travel widely within Africa and to also diversify their source of knowledge. Because the oil and gas industry generally looks at what one learns in the classroom as the starting and not the end point, those students who have endeavoured to widen their source of knowledge and information will soar above those who see obtaining a degree certificate as the be all and end all. This in itself, will help in checking the massive fraud that goes on in our educational institutions as students will wise up to the fact that while cheating may get you the grades, it is what you actually know that will get you the job and keep you in the job. After all, you can cheat your way to a degree and even blag your way past an interview - but from my experience in this industry - that will amount to nought if you cannot prove yourself on the job.

We must also encourage the Nigerian youth to learn a second international language. As a rule, Nigerian technical professional bodies such as the Nigerian Society of Engineers and similar organisations should make the adoption and fluency in another widely-spoken European language in Africa a pre-requisite for registration. Greater emphasis should be given to the French language. If the United Kingdom government is telling English kids whose mother tongue is the de facto lingua franca of the world to learn Chinese Mandarin because they understand the role China will take economically in this century and beyond, we will do well to tell our own young people to learn French because we are surrounded in West Africa by French speaking countries. Countries that are not only rising economically but also looking afar, normally to France, for technical know-how to exploit their resources. As Professor Ali Mazrui once noted, Nigeria’s major competition in West Africa is not any African country but France. There is nowhere that statement is truer than in the West African oil and gas industry.

At the lounge of my hotel I met and befriended two of these African boat people both of whom are from a West African country that has been recently in the news these last few years for hitting one of the most extensive oil finds in Africa. When I asked one of them why undertake such risk only to end up as unwanted illegal immigrants in Malta, his answer came in the form of a question. The question, asked in a voice laden with a mixture of regret and lament still plays in my mind; he simple asked “where are the opportunities back home?” He further told me that since he arrived in Malta he has learnt skills such as marble and stone masonry with which he works and gets paid by the hour in the Maltese construction industry. He does not earn much doing that but he earns enough for a decent life, albeit thousands of miles from where he calls home.

That the redemption and elevation of Nigeria and Africa largely rests on the shoulder of the youth is to repeat an oft-stated mantra. But then, a thousand similar mantras exist in Nigeria. Most have been repeated often enough to make them sound hollow and vacuous.

This was earlier published in my column 'Oil and Gas Weekly' in Government, 

a publication of Leadership Newspapers, Nigeria - 2012.