Though the destiny of Nigerian oil and gas is still bound up in the passing of a bill designed to simplify and restructure the sector, a new push for transparency may help dismantle the roadblocks.
Advocates for accountability – both in the oil and gas industry and on government spending – are winning the argument after this year’s political battle over deregulating the local market for petrol and other oil products. Until now, it has been difficult to get accurate figures about the cost of corruption in Nigeria’s oil industry, but two reports released this year are beginning to change that. A report by the Nigerian Extractive Industries Transparency Initiative (NEITI) on revenue from 2006-2008 found that some $540m was missing from the $1.7bn owed the government in signature bonuses.
It also found that $3.8bn in dividends from the gas export plant on Bonny Island had yet to be paid into the federation account some five years later. Most importantly, the NEITI investigators found foreign oil companies may have underpaid taxes and royalties by as much as $3.3bn, often with the connivance of state officials.
A report by KPMG auditors, which the government tried to keep secret, concurred with those findings and went further to expose the fuel subsidy payment racket. It found that the government was subsidising 59m litres of fuel per day but that national consumption was just 35m litres. This meant the fuel importers and marketers received subsidy payments for an extra 24m litres – some of which may have been imported to Nigeria then smuggled to neighbouring states or some of it may never have made it to Nigeria.
Announcing the hiring of two new accounting firms to audit the industry, oil minister Diezani Allison-Madueke conceded “there is undoubtedly a need for change.” She has also set up a committee under former finance minister Kalu Idika Kalu to oversee the establishment of new commercially viable oil refineries and another committee to steamroll the much-delayed Petroleum Industry Bill (PIB) through the National Assembly.
The world’s largest publicly traded oil company, Exxon Mobil, confidentially described the PIB as a “pocket-picking exercise” but this year won a lengthy battle to renew its oil production leases for an additional 20 years. Neither Exxon nor Nigeria would reveal the renewal fees paid, but they are thought to be substantially higher than the $600m Exxon had offered in 2009.
The battle over the bill
As legislators and lobbyists battle over the PIB, there is a brighter story in the Nigerian Oil and Gas Industry Content Development Act, designed under President Umaru Yar’Adua but signed and implemented under Goodluck Jonathan. Total’s Usan offshore field, one of the few to start up in recent years, had significant input from Nigerian engineering companies. They contributed 42% of the total man-hours, including those from Jagal Group, which built the floating production, storage and offloading vessel. The government wants Total’s deepwater Egina project to incorporate more local input, although the company has a better record in this domain than its competitors.
Local content is monitored by a government board, whose chairman Ernest Nwapa has threatened to get auditors to monitor progress. He will be gratified to see plans to establish a 250,000tn-per-year oil pipe mill in conjunction with China’s Jiangsu Yulong.
Hosting the seventh-largest gas reserves in the world (it has the tenth-biggest oil reserves), Nigeria is determined to boost its export capacity. The Nigeria Liquefied Natural Gas (NLNG) project on Bonny Island, despite the messy corruption case that led to the imposition of more than $500m in fines on US contractor Halliburton, has been a commercial and technical success. The company, a joint venture between the Nigerian National Petroleum Corporation (NNPC), Royal Dutch Shell and other oil majors, is going ahead with a seventh train. The NLNG project has contributed to the training of a new generation of Nigerian gas engineers.
Industry specialists Bernstein Research estimate that global demand for LNG is growing at 20% per year, bolstered by growing anti-nuclear sentiment in Japan, Korea and Europe after the Fukushima disaster. Major new buyers in China, India as well as Dubai and Kuwait are also driving demand.
The Gas Master Plan, unveiled in 2008 and taken up by Jonathan has still not progressed beyond the planning stage. It forecasts growth in domestic and export demand of 15-18% per year. However, the director of the department of petroleum resources, Osten Olorunsola, says a quarter of all gas produced in Nigeria is still being flared. That results in an annual revenue loss of $2.5bn.
Though previously subsumed into the PIB, “elements of the gas plan have been pulled out of the bill, and various gas pricing regimes were reworked”, Diezani told the Nigeria Oil and Gas conference in February. The plan is designed to attract investors for five gas gathering and processing centres that would bring in wet gas from smaller producers and the major oil companies. These centres would provide gas to anchor clients including power stations and fertiliser and methanol plants. They would sell any extra gas on the open market. Once these are up and running, the collateral benefits to the economy will be huge – with electric power and rejuvenated agriculture two key planks of the Jonathan reform agenda.
Investor interest has been tepid but increasing. A bid has come in for a processing plant that would be operated by Agip, the NNPC and Oando, with the latter commissioning a 128km gas pipeline able to deliver 100mmscf/d between Akwa Ibom and Cross Rivers State. But delays are still the norm. In late February, Chevron announced it is pushing back its Escravos gas plant – designed to gather 120mft/d to transport onshore – by three years.