Oil & Energy
Firm Targets Take Over Of Moribund NNPC Pipelines
An indigenous Engineering Procurement and Contract (EPC) company, Oilserv Limited, says it plans to bid for all moribund Nigerian National Petroleum Company (NNPC) Limited pipeline distribution systems to ease products distribution chain.
Group Chairman, Oilserv Limited, Mr Emeka Okwuosa told newsmen on the sidelines of the just concluded Offshore Technology Conference (OTC) in Houston, Texas, United States.
He said that Frazimex Engineering Ltd., a subsidiary of Oilserv, had submitted a tender to NNPC in this regard.
Oilserv Group is the company handling the $2.8 billion Ajaokuta-Kaduna-Kano gas pipeline project.
“As we speak today, one of our companies is working closely with NNPC.
“There is a tender going on how to correct the moribund distribution systems for petroleum products distribution. We see them all over Nigeria. They are not functional.
“But we want to buy them over, rebuild them and make energy available, instead of having people transport petrol and diesel from Port Harcourt to Makurdi, for example. Does it make any sense?
“There is a pipeline built many years ago but, really, it is not there anymore because it has been damaged and not maintained. We are also addressing that. We’ve also gone into renewables,” he said.
Okwuosa said that the company was working to build gas networks, built locally, and then operate.
“That means that we are already trying to address the issue of energy availability within our group,” he said.
On agriculture, Okwuosa, said that one of the Oilserv subsidiaries, Ekcel Farms Ltd. was involved in agriculture and products processing.
He said: “We have our primary feeds – cassava and tomato. We are trying to develop cassava at the moment.
“Part of the reasons for this is not to only provide for the teeming population of Nigeria but also provide products or feeds that can be used in pharmaceuticals, in the other food industries.
“What that means is that it helps us to balance our footprints in the energy industry because one of the aspects of our foray into agriculture is to be able to generate power that we use from agriculture by using biomass and biogas, taking the waste and then converting it to energy.
“That again helps us to address our carbon footprints as a country.
“Having said that, if you look at the energy sector around the world, particularly oil and gas, you will see a lot of discussions going on,” he said.
On energy transition strategy, the Oilserv boss said the company has a clear energy transition strategy.
“Apart from developing it, we sensitise people about it and review it regularly.
“We’ve also gone into renewables. We are not, at this point, developed in renewables. But we have a partnership with a German company to address the renewables, solar or whatever.
“We are more concerned about how we can utilise the principle of both green and blue hydrogen.
“We want to be able to generate power without having to damage the environment. So, we are already moving into that sector.
“But going into the new phase of energy delivery takes a lot of time to plan, a lot of investments. And like I said, if you look at Nigeria, we also have some issues,” he said.
Okwuosa said most of the countries in the world that have developed and still developing have frameworks to encourage these developments.
“By way of tax rebate, addressing price issues to make sure that entry points, in terms of costs for these alternatives, will not be too high.
“Unfortunately, we don’t see any articulated situation like that in Nigeria. What that means is that there is really no encouragement for any investor to come into that as a business because he cannot compete today in terms of pricing with fossil fuels.
“But we cannot give up, it’s about engaging the government, it’s about pushing because we have no choice. If we don’t, the train will keep moving and we’ll get to a point where our oil is there but we cannot produce.
“It is our duty as a country to make sure we can refine the crude oil we use. We can do that. Nigeria’s utilisation is high enough to actually absorb about a third of our production “ he said.
Bridging infrastructure deficit, Okwuosa, said that the Federal Government had done quite a lot of things for which it has not been given credit.
“When President Muhammadu Buhari came into power, the AKK pipeline was already under discussion since 2009, it was never moved anywhere.
“But within three months of coming into power, Buhari brought the issue up and said it must be done.
“Buhari government gives us the support to navigate that process, especially the funding. The government has been determined to ensure the Nigeria Gas Master Plan is fully executed because of its impact.
“That is why we are talking about the pipeline to Ajaokuta, which is the last interlink. So, I give them credit for that.
“There are quite a number of programmes the NNPC has initiated, like the seven gas programmes we have. The Train 7 NLNG is ongoing as we speak.
“A lot has happened. That is why I keep saying that gas is the mainstay of our transition. If we get gas right, it would be easier for us to transition into renewables.
“The Nigerian government has done a lot. But, as a developing country, you know we are struggling with so many things for now.
“It is about focusing on what matters the most. The government has done a lot, but there is room for more. It needs to make it possible that there is an enabling environment for investors who are interested in the renewables,” he said.
The Federal Government has expressed optimism in attracting more investments by International Oil Companies (IOCs) into Nigeria to foster growth and sustainability in the energy sector.
This is as some IOCs, particularly Shell and TotalEnergies, had announced plans to divest some of their assets from the country.
Recall that Shell in January, 2024 had said it would sell the Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance.
According to the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, increasing investments by IOCs as well as boosting crude production to enhancing Nigeria’s position as a leading player in the global energy market, are the key objectives of the Government.
Lokpobiri emphasized the Ministry’s willingness to collaborate with State Governments, particularly Bayelsa State, in advancing energy sector transformation efforts.
The Minister, who stressed the importance of cooperation in achieving shared goals said, “we are open to partnerships with Bayelsa State Government for mutual progress”.
In response to Governor Douye Diri’s appeal for Ministry intervention in restoring the Atala Oil Field belonging to Bayelsa State, the Minister assured prompt attention to the matter.
He said, “We will look into the issue promptly and ensure fairness and equity in addressing state concerns”.
Lokpobiri explained that the Bayelsa State Governor, Douyi Diri’s visit reaffirmed the commitment of both the Federal and State Government’s readiness to work together towards a sustainable, inclusive, and prosperous energy future for Nigeria.
While speaking, Governor Diri commended the Minister for his remarkable performance in revitalisng the nation’s energy sector.
The Federal Government has assured investors in the nation’s gas sector of the security and safety of their investments.
Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, gave the assurance while hosting top officials of Shanghai Huayi Energy Chemical Company Group of China (HUAYI) and China Road and Bridge Corporation, who are strategic investors in Brass Methanol and Gas Hub Project in Bayelsa State.
The Minister in a statement stressed that Nigeria was open for investments and investors, insisting that present and prospective foreign investors have no need to entertain fear on the safety of their investment.
Describing the Brass project as one critical project of the President Bola Tinubu-led administration, Ekpo said.
“The Federal Government is committed to developing Nigeria’s gas reserves through projects such as the Brass Methanol project, which presents an opportunity for the diversification of Nigeria’s economy.
“It is for this and other reasons that the project has been accorded the significant concessions (or support) that it enjoys from the government.
“Let me, therefore, assure you of the strong commitment of our government to the security and safety of yours and other investments as we have continually done for similar Chinese investments in Nigeria through the years”, he added.
Ekpo further tasked investors and contractors working on the project to double their efforts, saying, “I want to see this project running for the good of Nigeria and its investors”.
Earlier in his speech, Leader of the Chinese delegation, Mr Zheng Bi Jun, said the visit to the country was to carry out feasibility studies for investments in methanol projects.
On his part, the Managing Director of Brass Fertiliser and Petrochemical Ltd, Mr Ben Okoye, expressed optimism in partnering with genuine investors on the project.
Crude oil prices recently logged their second monthly gain in a row as OPEC+ extended their supply curb deal until the end of Q2 2024.
The gains have been considerable, with WTI adding about $7 per barrel over the month of February.
Yet a lot of analysts remain bearish about the commodity’s prospects. In fact, they believe that there is enough oil supply globally to keep Brent around $81 this year and WTI at some $76.50, according to a Reuters poll.
Yet, like last year in U.S. shale showed, there is always the possibility of a major surprise.
According to the respondents in that poll, what’s keeping prices tame is, first, the fact that the Red Sea crisis has not yet affected oil shipments in the region, thanks to alternative routes.
The second reason cited by the analysts is OPEC+ spare capacity, which has increased, thanks to the cuts.
“Spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months”, senior analyst, Florian Grunberger, told Reuters.
The perception of ample spare capacity is definitely one factor keeping traders and analysts bearish as they assume this capacity would be put into operation as soon as the market needs it. This may well be an incorrect assumption.
Saudi Arabia and OPEC have given multiple signs that they would only release more production if prices are to their liking, and if cuts are getting extended, then current prices are not to OPEC’s liking yet.
There is more, too. The Saudis, which are cutting the most and have the greatest spare capacity at around 3 million barrels daily right now, are acutely aware that the moment they release additional supply, prices will plunge.
Therefore, the chance of Saudi cuts being reversed anytime soon is pretty slim.
Then there is the U.S. oil production factor. Last year, analysts expected modest output additions from the shale patch because the rig count remained consistently lower than what it was during the strongest shale boom years.
That assumption proved wrong as drillers made substantial gains in well productivity that pushed total production to yet another record.
Perhaps a bit oddly, analysts are once again making a bold assumption for this year: that the productivity gains will continue at the same rate this year as well.
The Energy Information Administration disagrees. In its latest Short-Term Energy Outlook, the authority estimated that U.S. oil output had reached a record high of 13.3 million barrels daily that in January fell to 12.6 million bpd due to harsh winter weather.
For the rest of the year, however, the EIA has forecast a production level remaining around the December record, which will only be broken in February 2025.
Oil demand, meanwhile, will be growing. Wood Mackenzie recently predicted 2024 demand growth at 1.9 million barrels daily.
OPEC sees this year’s demand growth at 2.25 million barrels daily. The IEA is, as usual, the most modest in its expectations, seeing 2024 demand for oil grow by 1.2 million bpd.
With OPEC+ keeping a lid on production and U.S. production remaining largely flat on 2023, if the EIA is correct, a tightening of the supply situation is only a matter of time. Indeed, some are predicting that already.
Natural resource-focused investors Goehring and Rozencwajg recently released their latest market outlook, in which they warned that the oil market may already be in a structural deficit, to manifest later this year.
They also noted a change in the methodology that the EIA uses to estimate oil production, which may well have led to a serious overestimation of production growth.
The discrepancy between actual and reported production, Goehring and Rozencwajg said, could be so significant that the EIA may be estimating growth where there’s a production decline.
So, on the one hand, some pretty important assumptions are being made about demand, namely, that it will grow more slowly this year than it did last year.
This assumption is based on another one, by the way, and this is the assumption that EV sales will rise as strongly as they did last year, when they failed to make a dent in oil demand growth, and kill some oil demand.
On the other hand, there is the assumption that U.S. drillers will keep drilling like they did last year. What would motivate such a development is unclear, besides the expectation that Europe will take in even more U.S. crude this year than it already is.
This is a much safer assumption than the one about demand, by the way. And yet, there are indications from the U.S. oil industry that there will be no pumping at will this year. There will be more production discipline.
Predicting oil prices accurately, even over the shortest of periods, is as safe as flipping a coin. With the number of variables at play at any moment, accurate predictions are usually little more than a fluke, especially when perceptions play such an outsized role in price movements.
One thing is for sure, though. There may be surprises this year in oil.
lrina Slav
Slav writes for Oilprice.com.
