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Market stability will increase oil, gas investment – Dr. Fawibe

T here has not been much investment in the past few years mainly as a result of relatively low oil prices. But in this interview with UDEME AKPAN, Dr. Diran Fawibe, Chairman, International Energy Services Limited, disclosed that the current stability in the global market will culminate in increased investment.

What is the current state of things in the upstream sector?

Globally, the prolonged era of low oil prices had affected investment in many nations, including Nigeria. But things seem to be looking up again with the current rise and improved stability of prices in the international market. Some stakeholders, especially the Organisation of Petroleum Exporting Countries, OPEC have done a lot in the past few years to achieve the present feat. It is not certain what it intends to do in its June, 2018 meeting. But it is in the best interest of all stakeholders to keep the oil market stable.

Why is the rig count still low?

Dr. Fawibe

The rig count is relatively high in some countries that are doing their best to explore and produce commercial oil and gas. But it is not high in Nigeria because we have not been investing huge funds required to explore and produce much oil and gas. There is not much attraction at this time. In other words, many local and foreign investors have not been attracted to go into exploration because of some reasons. One of the reasons is that the Petroleum Industry Bill, PIB, has not yet been passed into law, thus fuelling uncertainty in Nigeria’s environment. This is not good for Nigeria because investors like to invest their resources in environments or countries with certainty and can be predicted.

What can we do immediately to increase our oil reserves and what role will PIB play?

There is no short cut to increasing the nation’s oil reserves. The nation needs to create attractive environment, capable of attracting and retaining serious investors that have much resources to invest. This is important because if the environment is not right, they will go to other nations. In fact, we have already lost huge investments to other nations. Like I mentioned earlier, the much delayed PIB will play a big role in attracting investors to invest in Nigeria, thus assisting to explore and grow our reserves currently estimated at about 37 billion barrels. The Petroleum Act of 1969 was good and enduring for many years. It shows that those who prepared it did a good job for Nigeria. But a lot have changed since then, thus justifying the need for a new legislation.

As an industry captain, are you aware of any plan to have new oil bidding this year?

The bidding is desirable. But it has not been done for some years. During the second part of 2017, the Department of Petroleum Resources, DPR, gave an impression that this was going to be done. Since then, we have not heard much about it. Indeed, we need to allocate new marginal fields. The allocation of the marginal fields should be a prelude to the nation’s oil bidding round. These are important as they will also make positive impact on the nation’s gas development, increase activities in the oil and gas industry, as well as impact positively on service providers. These will also create many multiplier effects, including the use of technology in the industry and other sectors of the nation’s economy.

What are the dangers in further delay?

If these are not done without further delay, our reserves will continue to drop because oil is a depleting resource. Nigeria had a plan to increase its oil reserves to 40 billion barrels and 4.0 million production capacity by 2020. At present, this target is not realistic anymore. This is one price we have to pay for delay. This is not good for us as a nation, because we do not have the capacity to make much contribution now and in the future. For instance, if OPEC experiences issues in supply and calls on Nigeria to pump more oil to the market, there are indications that the nation may not be able to go beyond a certain level because of limited capacity. Consequently, it will be impossible for Nigeria to take an advantage of that kind of situation. Remember, the planned completion of Dangote Refinery will also call for increased domestic supply, thus justifying the need for us to invest in growing our present capacity to produce oil and gas.

Are vandalism and oil theft still major challenges?

There was a time pipeline vandalism and oil theft used to pose very serious challenges in Nigeria. But these seem to have dropped in recent times, even though they still occur. We need to do more to further reduce or completely eliminate them in the best interest of all stakeholders, including the government, operators and oil and gas bearing communities. It is also in the best interest of all Nigerians because vandalism usually affects the supply of gas to power generating companies. Consequently, it has, at different times, hindered the generation, transmission and distribution of power to consumers.

What is the state of local content in the industry?

The situation with local content is challenging. The operations of many indigenous companies have been grounded as a result of low level of activities in the industry. The Nigerian Content Development Monitoring Board, NCDMB, has been working very hard to stimulate the development of local content and, by extension, indigenous participation in Nigeria’s oil and gas industry. We are optimistic that things will get better in 2019.

What should we expect from the emergence of some East African nations as oil and gas producers?

The East African nations such as Tanzania, Mozambique, Kenya and Uganda have been working to explore and produce commercial oil and gas. These nations are currently at different preliminary stages. For instance, Mozambique has prospect as it has completed its bidding round which culminated in the emergence of some companies, including Total and Mobil as winners. Some of them appear to be slow because of some reasons, including international political issues. We are very happy for these nations. But they need to work harder as good things don’t come cheap. They should put in place good legislations, policies and incentives to attract and retain serious investors.

Coming back to Nigeria, what advice do you have for the government?

The Federal Government has a lot of roles to play. It has to work hard to reduce or completely eliminate political instability and risk. No investor seeks to invest in nations with high risk. Take Sudan as an example. Despite its relative commercial endowment, no investor will go there. In the case of Nigeria, we should continuously take actions to promote investment because we cannot operate as an island. The world is dynamic and things will continue to change with the use of new technologies, meaning that we cannot remain at one spot for too long.

INTERVIEW

The government and other stakeholders have been making efforts to tackle issues in Nigeria’s energy industry without much success. In this interview with The Daily, the Executive Director, Spaces for Change, Victoria Ibezim-Ohaeri, provides insight into her organisation’s latest study, findings and implications on Nigeria. Excerpts.

What is this study all about?

Under the auspices of a multi-year international energy sector research programme focusing on Nigeria, Bangladesh, India and Indonesia, this research focuses on Nigeria where the government is implementing substantial energy sector reforms to address lingering energy access issues. With the aim of investigating the stark inequalities in access to energy resources, the research reviews the likely impacts from fossil fuel subsidies and their reform on the welfare, productivity and empowerment of women in low-income households.

In addition, it explores how subsidies on petroleum products, particularly, petrol and kerosene, can be better targeted and redistributed in the future for the benefit and empowerment of low-income households, with women making up the majority of those on low incomes. It is hoped that the outcomes from this research will enable governments make informed choices regarding the reform and implementation of energy sector policy in ways that lead to improved social, economic and other developmental outcomes for women. SPACES FOR CHANGE conducted this multi-year study in collaboration with the International Institute for Sustainable Development | IISD.

Why did you embark on it?

Poor access to energy supply contributes to the record-high levels of poverty and underdevelopment. In performing their traditional gender roles, women have more need for energy for domestic use such as cooking, heating, laundry, cooling, lighting, storage etc. As such, they bear a significant share of the burden of energy poverty; a situation compounded by lower literacy levels among women and income inequalities. Prevailing energy policies pay little attention to these differentiated energy consumption levels and the impacts on men and women.

Despite subsidizing petroleum products like premium motor spirit (PMS) and household kerosene (HHK), a large number of households do not purchase them at government-subsidized rates. Because of the numerous inefficiencies and accountability gaps in administering subsidies effectively, Nigeria has over the years, taken steps to reform its subsidy regimes on the two common petroleum products: premium motor spirit (PMS) and kerosene. There is evidence that reforming subsidies—whether by outright removal or reduction of the subsidies—on petroleum products lead to higher fuel prices, stirring public anger and resistance to reforms. There is very little information regarding how these reforms impact on women. There is a gap that needs filling from a research perspective and in order to help policy makers better target energy subsidies or savings from subsidies towards delivering better outcomes for women’s empowerment. This research was conducted to fill that knowledge gap.

What methodology did you use?

Household data surveys and focus group discussions were conducted in Lagos and Imo states. The survey in Lagos was conducted in two urban slums while the Imo survey was conducted in 6 rural villages in Uzoagba community, in Ikeduru Local Government Area. Survey data was collected from individual respondents in residential and commercial buildings in the selected sampling units.  Additional data was also collected from groups of respondents in focus group discussions (FGD) involving 56 women in Lagos and 27 in Imo. Overall, 2,500 household surveys across the three countries: Nigeria, Bangladesh and India.

What were the issues and problems encountered in the process?

The survey work was difficult, including getting to remote areas that were sometimes flooded or dangerous. Language barrier was experienced in some locations, mainly resulting from the differences in local dialects. The questionnaires were very long. This means women and families spent a long time discussing their energy profiles and habits with the team and that took the families a long time too for which the team are grateful.

What were the major research results?

Impact of subsidy reforms differs significantly on consumers living in urban or rural areas, and between men and women in those areas. Impact of reforms also varies according to fuel type: kerosene, PMS, LPG, fuelwood, etc. Women cope with price increases by reducing fuel use, paying more, switching to old fuels with implications for health, safety and time. Women predominantly pay for the cheaper, less clean fuels.  Reforms not effectively addressing the price differential between official pump price and retail prices of energy products, widening gaps in access to energy. Women bear the brunt of supply disruptions, including shortages, losing enormous of time at queues.  A large percentage of low-income and poor women are still not aware (of subsidies). Better targeting of fuel subsidies is needed to support low-income households, and especially women

In what ways will it guide authorities in the management of subsidy and related matters, moving forward?

The research found that subsidies are not directly targeted to low-income households, with women making up the majority of those on low incomes. Women paid and continue to pay much higher prices than the official sales price, especially for HHK. Low-income women not benefitting from subsidies as they depend heavily on informal vendors and therefore, not procuring their fuels at the subsidized rates.

Going forward, there is need to target subsidies better for the benefit of those without access to electricity and cleaner cooking fuels in the urban and rural areas especially the low-income and poor women. There are many lessons that Nigeria can learn from energy transitions and fossil fuel subsidy reform from other countries such as Indonesia and India. There are encouraging efforts in India to target subsidies better by reallocating resources towards the provision of LPG starter kits (cylinder and cooker) for poor women via their bank accounts. The broader LPG consumption subsidies are also being delivered via bank accounts and post-purchase points so as to avoid distortions in market prices. Efforts to address safety concerns and educating people about the health benefits from clean cooking could also be key for uptake of clean cooking fuels.

Globally, where are the advanced nations now in terms of firewood, kerosene, LPG utilisation, etc?

Globally, approximately 2.3 billion people have either “no access” or “unreliable access” to electricity for basic lighting services. Most of this population lives in sub-Saharan Africa and developing Asia-Pacific and the main source of cooking and lighting after day time is provided by kerosene and firewood. Irrespective of whether it is subsidised or not, kerosene lighting is a preferred choice among poor households without electricity access.

Dependency on kerosene has implications for indoor pollution.  S4C’s survey found that in Lagos most of the cooking takes place indoors (41.2% inside the house, 28% inside the house and 16.4% in a separate building). In rural areas, 46% of households cook outside, while 22% cook inside the house and 31% in a separate building. Kerosene as a lighting fuel is used in bedrooms, living rooms and kitchens, according to the survey. This can affect the whole family, but especially family members like women and children that spend more time at home and in the kitchen. The harmful effects of kerosene on health, its negative impact on human productivity and livelihoods, are some of the important reasons for a shift away from kerosene use for lighting.

Countries around the world, including Indonesia and India, are therefore encouraging shifts in cooking away from biomass and kerosene towards cleaner cooking fuels and appliances—such electricity and gas. Nigeria needs to follow suit. Nigeria has 177 million people (6% of the global total) without access to clean cooking, the largest population after China and India. There is some way to go.

Do you see Nigeria catching up in the short, medium or long term?

The rate of transition to cleaner cooking fuels appears to be happening slowly in sub-Saharan Africa compared to other developing countries. One step towards catching up with other developing countries is by diversifying the energy mix into alternative energy sources, appliances and technologies. In the short-term, promoting solar lanterns and solar home lighting systems with the active involvement of the private sector is critical. There is every reason for Nigeria to continue with strong efforts to both reform and target energy subsidies in the future, especially towards poor women. Other countries have made significant energy access gains and so too can Nigeria.

What special recommendation do you have for the stakeholders, especially NNPC, operators and users of energy in Nigeria?

Officials, policymakers, including stakeholders in the energy sector need to understand that subsidy reform without mitigation measures can have a negative impact on women. High prices associated with reforms place high demands on household income, especially women’s disposable income. If reforms proposed and implemented are not taken with care, high energy prices associated with reforms will increase dependence and switching back to old fuels, defeating official efforts to heighten transition to cleaner fuels, including renewable energy. So, there is need for reforms to focus on efficient outcomes for women in terms of access to electricity and cleaner cooking.

Stakeholders also need to be aware of the link between education and access to cleaner energy. The survey found that the highest proportional use of biomass fuel (firewood and charcoal) was observed among respondents without any form of education while those with tertiary and post-graduate education record zero use of biomass fuel. On the other hand, respondents with tertiary and post-graduate education have the highest proportional use of LPG at 17% and 43% respectively while those with no education record zero use of LPG.

Therefore, reallocating subsidies and/or reinvesting subsidy savings on the education of women and girls is strongly recommended. Better targeting of subsidies to poor women through investment in maternal care, education (for women and girls) or loans for women-led businesses are very key to achieving improvements in women’s income and facilitate shifts from traditional biomass to cleaner energy. Not only that, investments in energy-saving appliances or renewable energy lighting that enable women spend less time on drudgery and have more time for productive economic activities which will more disposable income for advancing their families’ priorities. Finally, NNPC needs to strengthen distribution systems especially in rural areas to improve access to fuels needed for household use, especially for cooking and lighting.

Work still needs to be done to allay safety fears around LPG and educate people about the benefits of clean cooking. Here, the government can collaborate with organizations like Spaces for Change | S4C to educate women in the urban slums, rural communities and other harder-to-reach localities, about the health benefits of clean cooking.


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