Dangote refinery: Declare crude supply emergency, oil producers tell Tinubu

As concerns mount over the lack of domestic crude oil to the Dangote Petroleum Refinery and other indigenous refiners, the Independent Petroleum Producers Group has called on President Bola Tinubu to consider declaring a state of emergency on crude oil production in Nigeria following the lingering crisis associated with this.

IPPG is an association of Nigerian indigenous upstream exploration production companies that engages the government and other industry stakeholders on issues affecting the sector. It has 28 members including Oando Plc, Aiteo, Seplat, Energia, Eroton, First E&P, Frontier Oil, Green Energy, among others.

The oil producers also expressed fears that the 2024 budget might be implemented partially due to the low production of crude in Nigeria lately.

This came as the Nigerian National Petroleum Company Limited announced that it had declared war on the challenges confronting oil production across the country, adding that it was currently engaging its partners including International Oil Companies.

However, the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, charged the oil producers to increase their investments in the upstream arm of the business, as this would also help to grow oil output.

They all spoke at the ongoing Nigeria Oil and Gas conference in Abuja on Tuesday.

Nigeria’s oil production has been dropping since this year, falling from over 1.4 million barrels per day (excluding condensates) in January to about 1.2mbpd in April.

Oil producers believe that Nigeria should be producing about 2mbpd in order to meet the demand of local refineries as well as export.

Dangote refinery as well as operators of modular refineries have continued to raise concern over the poor crude oil supply from IOCs and NNPC. However, industry experts say most of the crude volumes by the IOCs and NNPC have been contracted out to dealers already, amid the low production in-country.

Presenting the industry keynote address at the conference, the Chairman, IPPG, Abdulrazaq Isa, pointed out that the industry was in dire need of extraordinary focus to mitigate the genuine concerns on its long-term sustainability.

He stressed that “as a matter of national importance, Nigeria must act fast and hasten the pace of recovery across the entire industry, even if it means Mr President declaring a state of emergency in the oil and gas sector! We must be seen to do everything possible to unleash the industry.

“Unlocking this incremental production is achievable only through collaboration and commitment between the industry regulators (NUPRC and NMDPRA) and industry operators (NNPC, OPTS and IPPG) and this must be done for the sake of our country.”

Isa said despite Nigeria’s world class hydrocarbon resource base, with over 37 billion barrels of proven crude oil reserves and 207 tcf (trillion cubic feet) and 600 tcf of proven and contingent gas reserves respectively, the country finds itself in a situation where its daily production has significantly dropped and lies at about 1.3 million barrels of oil and 8.5 bcf (billion cubic feet) of gas today.

“This is way below our capacity as a nation and by all globally acceptable standards, this reserves to production ratio is extremely low and a clear indicator that the industry is in a dire situation. In addition, we now run the risk of partial implementation of our national budget considering an estimated deficit of 400,000bpd from the forecasted 1.78 million bpd.

“This trend in production portends another frightening dimension when we consider that in the not-too-distant future our overall installed domestic refining capacity, currently closing in on about 1.2 million barrels per day, may soon outstrip our current crude oil production level with the risk of Nigeria finding itself in a position where it is unable to meet its domestic refinery crude demand or even become a net importer of crude oil, God forbid!,” he stated.

The oil producers chairman noted that it was against this scary backdrop that the IPPG was calling for urgent measures to be undertaken by all relevant stakeholders to immediately arrest this dwindling production level and under-investment by focusing on some priority areas.

Outlining the priority areas, he said, “The immediate conclusion of all pending IOC divestment transactions: IPPG strongly advocates that our member companies – Seplat, the Renaissance Consortium and Oando – have the proven track record to successfully take over and manage these onshore and shallow water assets to realise incremental production in the region of 100,000 – 200,000 barrels of oil and over 1.5bcf of gas per day within 24 months and well over 500,000 barrels of oil per day in the long term.

“IPPG believes the timely approval of these IOC divestment transactions will also be a clear signal capable of restoring global investor confidence in Nigeria in an era of competing global investment destinations in Africa and very limited access to capital.

“The urgent need to address deepwater developmental and production: Untangling issues around deepwater development, particularly in terms of competitive fiscal regime being negotiated with Shell, Total Energies, ExxonMobil and Chevron, has the potential to unlock incremental production of 700,000 barrels per day from this terrain in the short to medium term.”

Isa also stated that enabling deepwater development would attract significant economic benefits as Nigeria has one of the world’s largest untapped deepwater resource base.

“The adoption of a national value-retention strategy: Nigeria’s domestic crude oil refining and petrochemical capacity must be sustained primarily from our domestic crude oil and gas production in order to transform our country into a net exporter of refined petroleum and petrochemical products that will lay a strong foundation for the rapid industrialisation of the Nigerian economy.

“It is therefore imperative to grow our daily production to 2.5 million barrels of oil and 10 bcf of gas in the near to long term to ensure we are able to meet our domestic refinery and petrochemical demands and export commitments to generate the much needed foreign exchange earnings for macro-economic stability.

“The development of Nigeria’s gas resources to catalyse economic growth and complement decarbonisation drive: Nigeria’s vast gas resources must be exploited with immediate focus placed on restoring production to existing installed LNG capacity and expanding production (FLNG),” he stated.

In addition, the IPPG chairman said “we must expand domestic gas utilisation (gas-to-power; gas-based industries) by investing heavily to address the gas infrastructure deficit facing us today. The International Oil Companies will lead the charge on export gas while IPPG members will drive the domestic gas agenda led by NNPC

“These priority areas provide the most realistic and sustainable pathway towards meeting our national long term production aspiration of four million barrels of oil per day and 13 billion cubic feet of gas per day.”

NNPC reacts

 Also speaking at the conference, the Group Chief Executive Officer NNPC, Mele Kyari, said in order ro increase Nigeria’s crude oil production and grow its reserves, NNPC has declared a state of emergency on production in Nigeria’s oil and gas industry.

 “We have decided to stop the debate. We have declared war on the challenges affecting our crude oil production. War means war. We have the right tools. We know what to fight. We know what we have to do at the level of assets. We have engaged our partners. And we will work together to improve the situation,” he declared.

According to him, a detailed analysis of assets revealed that Nigeria can conveniently produce two million barrels of crude oil per day without deploying new rigs, but the major impediment to achieving that remains the inability of players to act in a timely manner.

He said the “war” would help NNPC and its partners to speedily clear all identified obstacles to effective and efficient production such as delays in procurement processes, which have become a challenge in the industry.

Oil sector principalities

Kyari described some players in the sector as principalities, but stated that the President had made orders to tackle such individuals.

 “There are delays in procurement and this is because all of us the producing companies have converted procurement to business. It is not just NNPC, everyone of us. And I’ve said this to all our partners that within your companies you have principalities who will not let you complete your procurement, who will add cost to your costs.

 “And now what Mr President has done is to take out all the principalities and if you do, it is your choice. But for us as a company we are moving to another level. We are going to cap the cost of production. You can call your wife to do the contract, no problem, provided you produce the oil at $20/barrel or so.

 “We’re getting there so that we can take out those procurement people who have stopped us from developing as an industry and a country. This is what Mr President’s executive order has done, to take out those principalities so that we can move.”

 On medium to long-term measures aimed at boosting and sustaining production, Kyari said NNPC would replace all the old crude oil pipelines built over four decades ago and also introduce a rig sharing programme with its partners to ensure that production rigs stay in the country for between four and five years which is the standard practice in most climes.

 He called on all players in the industry to collaborate towards reducing the cost of production and boosting production to target levels.

 He expressed the company’s commitment to investing in critical midstream gas infrastructure such as the Obiafu-Obrikom-Oben, known as OB3, and the Ajaokuta-Kaduna-Kano gas pipelines to boost domestic gas production and supply for power generation, industrial development and economic prosperity of the country.

 On Compressed Natural Gas, Kyari observed that NNPC has since keyed into the Presidential CNG drive, adding that in conjunction with partners such as NIPCO Gas, NNPC has built a number of CNG stations, 12 of which will be inaugurated on Thursday in Lagos and Abuja.

 Meanwhile, the oil minister, Lokpobiri, charged the IPPG to increase its investments in the oil sector by ramping up its production of crude, stressing that if the 28 members of the association could produce at least 5,000 barrels daily, this would go a long way in raising Nigeria’s oil output.