By Ediri Ejoh
Managing Director, Aiteo Energy Resources Limited, Ewarezi Useh, in this chat identifies the challenges in the downstream sector that must be tackled for there to be efficiency in the oil and gas sector of Nigeria’s economy.
How can Nigeria get it right in the oil and gas sector in this dispensation?
I am a business person and not a politician. The subsidy is a very sensitive issue in the country. But eventually, we would need to remove it. If small countries like Ghana and the rest are surviving, there is no reason we should not. The question is how has subsidy benefited our lives? It is a lot of money that the government is spending and it is a very tough call and I don’t envy the government. Nigerians need to be seriously educated on the danger of subsidy as there is a lot of mistrust around the removal and its utility.
The situation where the bulk of our foreign exchange is more than half of the national budget and it is being used to import petrol is alarming and of great concern. It is a very tough call politically and we have tried for a very long time to get it off.
The challenge for Nigeria is first to develop our infrastructure, get the refineries working, create an environment where investors can come in and build refineries and it would reduce the cost of the product. However, it will not be sold at N145 as obtainable today.
Anyone that starts a refinery today is going to buy the crude at local price. In that situation, we would make savings from shipping from Europe and other indicators. But the continuation of subsidy is not beneficial to the economy.
What do you make of the arguments that modular refineries will address the energy challenges in Nigeria?
The government’s move to encourage the private sector in establishing modular refineries is not a permanent solution to the current fuel import crisis.
The capacity of a modular refinery is 5,000 and 10,000 barrels per day. The product derived from it is a desolated unit. The first products you get from the modular refinery are diesel, kerosene.
In Nigeria today, how many cars are running on diesel? It is only used on generators am some commercial buses. You would get more of diesel from modular refineries.
If you are to get petrol from modular refineries, you would need to have a cracking unit attached to it. But that is expensive and only a few can pool that kind of fund today.
Nigeria now consumes more petrol. A modular refinery is not the final solution for the country’s petroleum needs. The Federal Government should increase its efforts in stemming the menace of crude theft and pipeline vandalism.
Aiteo operates a very key strategic piece of oil and gas infrastructure which is the Nembe Creek trunk line, which is over 100 kilometres and increasingly, there has been a lot of incursions on that pipeline leading to outages of production.
This pipeline, not only delivers Aiteo crude to the terminal, it carries crude to Shell. If we look at the shutdown impact in financial terms as a result of this oil breakages and theft, it is close to $2billion in the past four years. That is what we have lost not just as a company but as a nation.
To this end, the royalties that ought to be from crude to the country is gone because of the activities of these vandals. That is why we are calling on the government to collaborate with us in finding a lasting solution to this menace bedevilling the industry.
Is it possible to get the refineries working in the next four years?
Painfully, our refineries are not functional. Even if we have all those refineries working, their total capacity is 410 barrels and Dangote is putting on 650 barrels. However, our refineries were built in the 60s and the newest of them is the Port-Harcourt refinery. These are not enough to meet the needs of 200 million people.
The refineries are old. We need favourable policies that can attract investors to come in and build refineries and see how old ones can be revamped. We are the only Organisation of Petroleum Exporting Countries, OPEC, the country still importing petrol and the situation doesn’t look good.
The challenge is that people will not invest in a place where they are not sure of their returns. There is no attraction in the downstream business in Nigeria.
We hope that the passage of the Petroleum Industry Bill, PIB, will define clearly the regulation for the industry to enable us to know the clear cut margins of the prices. A guaranteed margin and right environment would bring investors into the sector. Even if our local refineries are operational, they are subsidizing and will not get their full returns, which is why the refineries are not working. There is no money to run them.
No businessman will come to where he is not making a profit. Investors are waiting to come in and once the legislature is right they will come in. In the 60s International Oil Companies, IOCs were fully in the deregulation chain but has packed up because they were not making money.
However, one of our biggest challenges is inadequate is the power supply. Dangote is building power plants to run his refinery. That is an industry of its own. Our facilities in Port-Harcourt have their own independent power plants running them. The place of government is basic infrastructure and governance. Our fields are all self-powered with their power plants.
Our plan for the downstream is very big and ambitious as well. We have one of the largest storage facilities in Nigeria. In Lagos, we have over 151 million storage facility, which is the largest in Lagos, other facilities in Port-Harcourt with over 90 million litres.
On the area of depots and storage facilities, we have put a firm infrastructure in place.
Also, we are taking a step forward to develop gas infrastructure. Our sister company, Upstream OML 29, is putting together a huge gas master plan to develop LPG as well as plants. We are taking it in phases and we are very committed to the development of the downstream sector.
We are building capacity and already have an investment in the upstream, production and storage litres, as we are fully an energy company.
Aiteo was one of the biggest single investment decision-makers when we have invested over $2 billion in acquiring the Oil Mining Lease, OML, 29 assets.
At the moment, we have our development plan which has been submitted to our Joint Venture partners, JV, and because the government is exiting the cash call situation, we are negotiating an alternative finance package to be able to fund about $5 billion investment. The investment would move production to 250,000 barrels per day.
However, this will increase our gas supply to about 300 million standard cubic feet of gas per day, which will be enough to power more than 1.2 gigawatts of electricity in Nigeria. We are executing our projects in phases. Remember we started way back in 1999. We started as an oil trading company and acquired its first storage facility in Port-Harcourt in 2004 with over eight million litres of the storage facility. Then we moved into Lagos and commissioned our facility in 2011 which is the largest about 154 million litres.