We’ll crash crude production cost — Kyari, NNPC GMD

Mele Kyari, the Group Managing Director of Nigerian National Petroleum Corporation (NNPC) is a thoroughbred professional.

He assumed duties on July 7, 2019 after his predecessor, Dr Maikanti Baru held the position for three years.

Fortified with decades of cognate experience, Kyari hit the ground running as there was no need to learn the ropes since he was no newbie.

In several fora, he told his audience that enthroning transparency and accountability to the operations of the national oil company believed to revel in opacity, was one his focal points.

Another area of interest is to crash crude oil production cost in order to create the market for Nigeria’s crude and make the country the preferred choice destination for foreign direct investment.

He said that current cost of crude oil production in the country was within the range of $15 to $17 per barrel, adding that some leaders in the industry such as Saudi Arabia’s cost of production is between $4 and $5 per barrel.

He noted that due to the uncertainties of the global crude oil market, countries that produce at the cheapest price would remain in the market while jurisdiction with high cost of crude oil production would not be able to cope with the competing prices.

Kyari has also promised that the nation’s refineries will be repaired and made to function optimally under his watch.

He also revealed that Integrated Data Services Limited, the NNPC subsidiary that focuses on seismic data acquisition, processing and storage, can now operate independently without subvention. He noted that market data was very important to analysts and market players, adding that if there was suspicion of interference, its credibility suffers.

He speaks more about the nation’s oil company.

Black Monday 

We are all aware of what happened on Monday. It also signifies the importance of oil to the global economy. Oil affects everything.

When the oil market collapses, everything collapses and the oil market can collapse in two ways.

The first is low prices which is as it is today. This could happen for two reasons. One is for natural reasons like the coronavirus and weather issues that can cause demand suppression. You can also have issues that are connected to the financial sector which brings about obvious decline in consumption. And that brings down the price of oil and it radiates to the financial sector.

Crude fading away

Demand for oil will be there in the next 20 to 30 years but what will not be there is inefficient producers. So, in the oil market, most of the people who will remain are those that are producing at the cheapest costs.

And until you do that, the oil market will run without you and you will go aground. In our situation, we have expectations, we have plans. The belief is that we can take production to three million barrels per day. And also to shift our reserves from the current status of $37 billion to $40 billion in the next three years.

Much as these are very high expectations and very positive expectations, we must produce them today even at  lower prices. The market operates in such a way that you don’t know what tomorrow will bring. The assumption for this year is $60 per barrel throughout the year and now we are faced with sub-$30. We are yet to see the bottom. We hope we have seen the bottom and if it is not, it’s a huge challenge for this country and its difficult to manage. It will cause huge deficit and will permeate to other sectors including the financial sector.

Huge capital outlay 

Dangote refineries is a $12 billion project and I’m sure that no bank in Nigeria can fund that.

So, we do not have the capacity to finance the oil and gas sector in this country and if you don’t do this, what it means is that you cannot produce in Nigeria because it’s a heavy cost producing territory.

Current realities

Today, there are over 12 stranded Liquefied Natural Gas (LNG) cargoes globally, it has never happened. The LNG cargoes that are stranded have no hope because there is an abrupt collapse in demand associated with coronavirus. We hope that’s the only reason and it’s also hitting other sectors of production which is the liquid crude. Today, for Nigeria crude, we have about  50 cargoes that have not found landing. It means that the traders have purchased it but they don’t know where to take it to and this is true of other jurisdictions particularly Saudi Arabia and Iraq. As at yesterday Iraq dropped their price by $5 and Saudi Arabia by $8. So, once your crude oil sells for $30, and you are dropping it by $8, it means that in the market, you are selling it for $22. And that’s a huge problem.

In a production environment like Saudi Arabia, it’s about $5 to the barrel. You can’t do it here. Today, the best of our production system is at about $15 to $17 to a barrel. So, there are many countries where cost of production is at least $30 and we are one of them. So, when crude oil goes to $32 and you are producing at $30, you are out of business. And beyond that also, there is competition because people are producing at a much lower cost than we are. And then that depresses the potential of coming out of the impact of coronavirus for a long while to come, at least three months. So, prepare for trouble for three months even if the price goes back, you have a backlog of production that is hanging that has to be resolved. And what that means is that you are going to have this impact of this low prices for a while to come.

Ogoni clean up

The Nigerian National Petroleum Corporation and its Joint Venture Partners of Shell Petroleum Development Company (SPDC), Total Exploration and Production of Nigeria (TEPNG) and Nigerian Agip Oil Company (NAOC), have disbursed $360million towards the Ogoniland Clean-Up project as recommended by the United Nations Environment Programme (UNEP).

Funding is not not the challenge of the Ogoniland clean-up project. NNPC and its JV partners are up to date in their financial remittance to the clean-up project fund based on the United Nations Environment Programme (UNEP) framework.

Ogoni clean-up is a massive issue and NNPC and its JV partners are ready to fund the project as prescribed by the UNEP Report. We have so far disbursed $360million out of the $900million recommended. The disbursement was based on the standards set which required that we release funds based on the implementation parameters of the clean-up exercise.

Though NNPC and its JV partners are not responsible for the implementation of the clean-up, all stakeholders need to come together to ensure that the project is carried out successfully.

The implementation of the clean-up is very important as it would enable the restoration of land, water and the economic well-being of the people in the area.

It’s sad that there’s misinformation about the Ogoniland clean-up. We urge the Hydrocarbon Pollution Remediation Project (HYPREP) to ensure that the narrative is corrected for the effective implementation of the project.

Oil theft

Nigeria lost about $750 million to oil theft in 2019 and oil theft and sea piracy are things we have to tackle as a nation because they are threats to our operations and can vandalize the economy. Any threat to the corporation’s operations was a direct threat to the very survival of Nigeria as a nation because of the strategic role of the corporation as an enabler of the economy.

Other security challenges facing us as a corporation are vandalism of oil and gas infrastructure and kidnapping of personnel. There is a deep connection between the various shades of insecurity challenges as they are all linked to what was happening in the Gulf of Guinea and the entire maritime environment.

So,  there is a need for concerted effort and synergy among various stakeholders to secure oil and gas operations for the economic survival of the country.

Gender equality 

For us as a company and by design, and given the very nature of the job we do, which is to deliver power and energy prosperity to this country, we cannot choose anything less than the best. That best doesn’t know your colour, tribe, religion or gender. We would continue to give equal opportunities to the women folk to enable them contribute their quota to the development of the country. The society had always limited the capacity of women on wrong assumptions.

Gas expansion

There are ongoing plans to aggressively expand our domestic gas footprint with the delivery of the Escravos-Lagos Pipeline System (ELPS) II to double capacity from 1.1billion standard cubic feet of gas (BSCF) to 2.2BSCF and the OB3 gas pipeline to connect East and the West. The NNPC would commence the construction of the Ajaokuta-Kaduna-Kano gas pipeline in second quarter of 2020 to serve as an enabler to further boost the economic activities of the country. The recent passage of the Deep Offshore Act into law has set the Industry on the path of irreversible growth. Nigeria as Africa’s leading exporter of LNG and the fourth in the world after Qatar, Australia and Malaysia, is ready to capture more LNG market with the Final Investment Decision of the NLNG Train 7.

Oil and gas resources have remained the major source of revenue that has kept the wheels of Nigeria moving for over five decades. Oil, as we all know, has served as key enabler to the economic transformation of many nations like Norway, Saudi Arabia, UAE, Qatar and many other oil resources dependent nations.

It is not a new story that most resource dependent nations rely on their dominant natural resource to drive other key economic initiatives and activities. This is true of Nigeria and many other countries represented at the conference. The connection between the oil and gas industry and the Nigeria economy is intricate. Every aspect of the nation’s economic and social life revolves around the hydrocarbon resource.

Diversification

There is a need for hard work to diversify the economy away from over dependence on oil revenues in order to avoid the risk of market fluctuations that may impact the nation’s fiscal equation.