Emeka Okwuosa is the chairman of Oilserve Group, which is into power, oil exploration and production and farming. He spoke with JOSEPH JIBUEZE and NNEKA NWANERI of The Nation on various issues affecting Oil and Gas.
How can Nigeria survive the oil price plunge?
I’ll give you a background to oil price drop. It is a normal thing. Oil is a natural resource that we mine or drill through a process. When you talk about oil production and utilisation, you talk about a global phenomenon. We apply the basic knowledge of economics here. When you have production and consumption, you try to match them. When production becomes higher than consumption, you have a glut of the product. So, what you have is a drop in price. When consumption at anytime is higher than production, you have a squeeze, which leads to oil price increase. I can tell you that the current drop in oil price is the fourth cycle I’ve seen in the industry. The first one was in 1986. Oil went down to $5 per barrel. The second one was in 1997/1998. Oil price went down to $9 to $10. The next was in 2008 when we had the global economic crisis. There was a major problem in the structure of the world economy. Oil price went down, before we had the one of two years ago. It’s a normal thing. Therefore, being a normal thing, it’s left for any producer to plan ahead. Our problem in Nigeria is not low oil price, but lack of planning of the economy. At $20 or $30, it’s tough because production cost in Nigeria has gone up to about $28/$29 per barrel, which should not be so. If Nigeria had gotten its oil industry under control, and managed it properly, we should not be having production cost of more than $12 or $13 per barrel. So for it to be over $20 is our fault.
The inability of successive governments to plan ahead and know that when you have a resource based economy, you will be open to all the vagaries of price changes of this commodity is the problem. We should not at this stage, after more than 60 years of oil and gas production, be a single commodity economy. Today we should have an oil industry that should have gone through second or third cycle of evolution where we’re using the oil and gas industry to develop various industries to have added economic benefits. Why is Nigeria still exporting crude oil? All you do is produce it and sell. Who you sell it to will be the one to refine, produce bitumen, and other things that you go back to buy. It’s a no-brainer that it’s not sustainable. Today we should not be importing refined products. We should be producing our products. We should produce enough fertiliser from our gas. We should have added economic benefits from our oil. We have not done that and that’s why we’re suffering.
The second part is the way we have structured our economy. It is not robust enough to adapt to world economic changes. So, oil price drop is not the primary thing that is affecting our economy. It is primarily because we have not planned and executed very well, and we do not have enough savings to drive the process. So, I hope we have learnt from this.
The inability of successive governments to plan ahead and know that when you have a resource based economy, you will be open to all the vagaries of price changes of this commodity is the problem.
What should be done?
There is an added incentive to develop alternative sources of energy. Nigeria has many. Nigeria can develop biogas systems, solar systems, even our coal, but in a cleaner manner. How come Nigeria has not been able to develop cheaper forms of energy in the past 40 years like other countries? The last time coal was properly mined was when the colonial powers were here. Since the late 60s, we have just been living in denial; we have not developed our systems. So, there is a lot we can do. Agriculture is another one. Our economy should be robust because we have all it takes and we have the human resource to drive it.
Younger ones have not received the same training that the older ones got in the 70s and 80s.
What projects have your companies executed?
Oilserv is made up of six companies in the group. But Oilserv EPC Limited is primarily an engineering, procurement and construction firm, that’s why it’s called EPC. We are the first Nigerian company to provide full EPC services. We do the front-end engineering, we do detailed engineering, we do the procurement of the required facilities, and we construct the lines. We also maintain and rehabilitate the lines when necessary. We have full value chain coverage. Oilserv has that capacity. We have built over 30 pipelines in Nigeria. We built the longest gas pipeline in the Southern part of Nigeria of 137 kilometres. We crossed eight major rivers through what we call horizontal directional drilling (HDD), where we do not disturb the water, but we drill under the water, just like you have the channel tunnel between UK and France. We have the capacity to do that. We built the gas supply to five of the gas fired power plants in the country. We built the systems including the pipelines and the metering stations. They include the Ihovbor power plant in Edo, Gbaran Power Plant in Bayelsa, Egbema Power Plant in Rivers, Alaoji Power Plant in Abia, Calabar Power Plant in Cross River. We also built the supply system for geometric power plant in Aba, the one owned and operated by Prof Barth Nnaji’s company. So you can see that we have contributed more than any other company in Nigeria in developing gas systems.
What is East-West pipeline project?
It is the largest pipeline system in Africa. It is a 48-inch diameter of 67 kilometres pipeline. It is referred to as East-West pipeline. It’s actually called OB3 Pipeline, which means Obiafu, Obrikom, Oben pipeline. It starts from the eastern flank of Rivers State and goes all the way to Edo State through Delta State. It is about 85 per cent concluded. The pipeline is 100 per cent built. What we’re now building is the metering stations, and the gas commissioning systems. That should be completed this year. When it is completed, we’ll have a total of two billion standard cubic feet of gas being transported from the eastern flank where you have gas source into the West and North. Part of the pipeline will supply the Escravos to Lagos pipeline and feed more gas into Lagos and then into the West African gas pipeline. The other part will move from Oben to Ajaokuta and from there we’ll construct another line that will go to Abuja, Kaduna and Kano. So this is the major artery of Nigerian gas transportation system.
How have you been dealing with vandalism and militancy?
Don’t forget the basic, underlying issues and the causes. The fact that successive governments did not address the needs of host communities led to agitation, which led to militancy. But I believe that the current administration has done quite a lot in trying to address it. The engagement is better today than it was before. We have managed to work despite all these problems because we have a method of engaging the communities; we have a corporate social responsibility system that works very well. It can be quite expensive but the only meaningful solution is the government addressing the issues holistically by looking at environment degradation and the huge gap in development between what these communities should have and what they have. Of course government has put in funds previously, but their management was questionable. But from what is coming out of the current government, it seems they fully understand the issues and are working towards addressing them.
The fact that successive governments did not address the needs of host communities led to agitation, which led to militancy.
How can Nigeria boost its refining capacity?
We have over time made a simple issue complex. Our refining capacity is there but not efficient. Some of our refineries are not functioning, while some are not up to capacity. For over 20 years, we have managed our refineries in a way that made them not to work. Successive governments did carry out turnaround maintenance, awarding these contracts to individuals and companies that had no capacity to maintain them but ended up destroying them. Another factor is that the government has not invested in developing further capacity by training people. Most of the people that built these refineries were very good workers, but have retired.
Younger ones have not received the same training that the older ones got in the 70s and 80s. So, there was a problem of sustainability of the refineries. However, I’ve been an architect of their privatisation. Refineries cannot be run by government or NNPC. They should be sold. And then entities like the operating companies should be encouraged to set up their own refineries. And the environment should be made conducive for them to do so. We should have enough refining capacity in Nigeria. On tackling illegal refining, I’ve heard government in the past few weeks talk about modular refineries. If we can articulate it very well and work closely with host communities, some of these illegal refineries will be taken out and replaced by modular refineries. And jobs will be provided for the same people that engage in illegal refining that is damaging the economy and the environment and killing people.
Source: The Nation