The current state of the Nigerian economy demands drastic, urgent and unconventional actions in the power sector. As a nation, all our efforts should be focused on getting the economy out of recession and onto the path of sustainable long term growth premised on maximum local value addition and wealth creation.
But to achieve this, the critical and foundation problem of lack of electrical power must be solved first; for no power means no economy, and to get power you must address the problem of gas production as 80 percent of current and future power generation is based on gas fired power plants.
But the Gas-to-Power value chain itself is terminally sick in the emergency ward infested with a number of crippling diseases chief amongst of which are the primary diseases of vandalisation of oil and gas facilities , sector illiquidity , price and securitisation challenges as the immediate major infections and lurking behind these monsters are the secondary diseases of inadequate and dilapidated power transmission and gas distribution infrastructure, low economic returns for gas projects and lack of access to gas reserves by those willing to develop them if the terms and conditions are right .
From where I stand it appears the doctors and nurses are staring helplessly at the comatose patient wondering what to do and arguing amongst themselves as to who should do what, when or if they should even do anything at all! I hope I am wrong. If nothing is done soon the patient will surely die and Nigeria will be plunged into perpetual darkness and all the associated knock on effects.
Let’s limit this discussion to only the primary problems afflicting the Gas-to-Power sector today. The most critical of the four primary problems is vandalisation of oil and gas facilities and infrastructure. Vandalisation is a short-term hyper priority problem because if you have zero production, you cannot talk about illiquidity, price or securitisation. I strongly believe that the vandalisation problem will soon be solved as the government is now taking the matter very seriously.
Less than two years ago vandalisation was not a critical issue. Today, vandalisation of oil and gas facilities and pipelines is topical and has brought the Nigerian oil and gas industry and the power sector to its knees. The country’s current oil production has dropped to about 1.4millon barrels a day from about 2.2 million barrels a day in 2015 causing the nation to suffer significant losses in oil revenue with the knock-on effect on the national budget and economy and lack of foreign exchange to meet the needs of our import dependent economy.
We are all witnesses to the impact that this is causing in all sectors of the Nigerian society presently. Indeed the government has only achieved 51.3% of its half year budget target in 2016. In addition, the grid power generation capability of the nation has dropped drastically from a peak in excess of 5,000 megawatts, achieved sometime in the first quarter of this year, to about 2,000 megawatts presently. This is because there has been vandalisation of not only oil facilities, but also of gas facilities and pipelines. In the past six weeks, the third party owned gas evacuation system through which our company – Frontier Oil Limited – transports gas has been sabotaged twice resulting in the loss of about 450 megawatts of power from the nation’s power generation capacity thereby worsening an already dire situation.
We need quick-win initiatives that will put a stop to vandalisation of oil and gas assets to ensure that oil and gas production ramps back up to circa 2.2mmillion barrels of oil production per day and 5,000 megawatts of power generation, which is what we are capable of generating and transmitting successfully at this point due to an antiquated “dumb” grid that is the weakest link in the Gas-to-Power value chain. This will yield the immediate short term benefit of increasing the country’s foreign exchange earnings and providing power for the nation, the factories that are closing down daily, the offices and homes that are wasting hard earned income on expensive diesel or petrol for self-power generation.
One school of thought considers vandalisation of oil and gas assets as criminality and if you reward criminality, the only thing you get is more criminality. That the full force of the law has to be brought to bear on those who are committing criminal acts as the immediate short term solution. Another school of thought considers vandalisation as a legitimate means of fighting for the just and the equitable share of a regional resource exploited to the detriment of the host region, people and communities.
The acceptable short term solution for the proponents of this school of thought is that the Federal Government has to engage the political, traditional, opinion leaders and stakeholders in the Niger Delta and get them around the table to find out what the issues are and how the issues can be solved.
There should be sincere and meaningful discussions on the issues including the effectiveness of the Niger Delta Development Commission (NDDC), an organisation that has failed woefully in its duties to the people of the Niger-Delta in its current form and in its previous form as OMPADEC.
The good news is that the Federal Government has initiated the engagement process as part of a carrot and stick approach. It is also encouraging that most of the militant groups have now agreed to join in the discussions and declared a halt to sabotaging oil and gas facilities.
This reinforces my belief that the vandalisation problem, though currently the biggest issue we are facing in the oil and gas industry today, is a short term problem which will soon be solved. I therefore truly wish all the stakeholders the best of luck in this endeavour as discussions and constructive dialogue are the best ways to identify and find lasting solutions to the problems of the region.
For avoidance of doubt the only long term and sustainable cure to the vandalisation problem and the sporadic civil unrests we are seeing is good governance. To achieve sustained good governance will take time and a major paradigm shift across all segments of the Nigerian society. The issue of regional struggles for equitable distribution of resources (aka Resource Control in Nigeria) is neither new nor peculiar to Nigeria. Let’s learn from others who have also confronted and dealt with this problem. The Netherlands (Holland) and the United Kingdom are good case studies.
The bulk of the gas in The Netherlands is produced from the north of the country; in and around the Groningen, Drenthe and Friesland regions but many of the natives of these regions believe that most of the money generated by the exploitation of the natural gas resources has been used to develop the western parts of the country; The Hague, Rotterdam, Amsterdam etc. Similarly most of the United Kingdom’s oil comes from the North Sea much of which lie off the North East coast of Scotland. Many Scots argue that the bulk of the wealth generated from North Sea oil is spent in England thereby fueling much of the agitation for an independent Scotland.
These nations have been able to peacefully deal with the issue of resource control simply because they have good governance and strong stable institutions and are able to debate the issues instead of resorting to violence and destruction of national and private assets. Let us as a nation also work to achieve good governance at all levels but especially at the local government level.
Watch for the next part of this article