The director, Petroleum Resources, Department of Petroleum Resources (DPR) Mr Sarki Awuwalu, yesterday task operators in the Nigerian downstream sector of the oil and gas industry to adopt creative and innovative thinking to drive the expected development in the sector, adding that the numerous challenges facing the sector demands new thinking for the operators to survive.
He stated this while speaking as a panelist at the just concluded Nigeria International Petroleum Summit (NIPS), held in Abuja.
He however expressed optimism in the prospects of the sector as government is doing everything possible to revive it.
“The downstream oil sector will witness changes in few years with government’s commitment to drive business in the sector. The sector requires new thinking to achieve the goals needed to drive the sector for growth and development,” he said.
He noted that with the upcoming of the modular refineries and mainstream refineries, local refining would be restored thereby transforming the downstream stream sector.
Speaking of efforts by government to encourage the sector, he said, “The effort of the DPR as a regulator to reduce import of refined products can be seen in the upcoming of some refineries and modular refineries. Domestic Refining in two years from now will supersede the consumption in country.”
He stated that government was supporting all effort to ensure that business in these areas thrive with creating enabling environment.
He added that the closure of some of the nation’s land border had helped to know the actual daily consumption rate in the country.
“The ministry is also looking at alternative source of energy with the Compressed Natural Gas (CNG) to bring a change on energy demand.
“This year has been declared the year of Gas by the minister for State, Petroleum Resources and we know that gas is cheaper and it will help to bring about change on the value chain.”
He noted that East west gas pipeline expansion project and the Ajeokuta Kaduna Kano (AKK) gas pipeline project were among the government’s project that would also help drive the downstream oil sector.
“The Nigeria gas Transportation code launched few days ago will help open access to the downstream, create opportunities and wealth.”
He further assured that government would continue to look at major issues like uncertainty in pricing and multiplicity of regulations and ways to resolve them, as this would help to drive the downstream sector for change.
His comments came on the heels industry players lamenting the dwindling fortunes of the downstream sector, claiming that the challenges in the sector are stifling their margins and impacting their businesses negatively.
Chairman of Integrated oil and gas company, Captain Emmanuel Iheanacho, who was also a panelist decried challenges in the downstream business.
According to him, “Nigeria has been in the oil business for about 63 years, a long time indeed. One would expect that in that time everything to do across the value chain would be absolutely settled. Of course we are aware that our economy is dependent on exploitation and trade in oil.
“In the context of that understanding, the downstream sector represent a sector encompassing the refineries, transformation of crude oil into finished products and it includes the infrastructure and the processes for trading and distribution of products.
“Unfortunately the downstream sector has not function the way it should. It is with a repeat of a lot of challenges which includes questions about refineries. Refineries in Nigeria context do not work.
“In dealing with the challenges we have in the downstream, the government has tried a lot of strategies. They have tried crude oil swaps to ensure sustained supply of the refined petroleum products, we have done the DNDP and now we have NNPC who are functioning as a virtual monopoly.
“Is this helping us in terms of what we need? The answer is No. What we have managed to achieve is that all the occasional shortages that we used to have at festive period of shortage of product, we have them no more and that is one side of the equation.”
Citing countries with successful downstream to understudy Nigeria’s situation, Iheanacho stated that “We are not the only country who wish to invest in refineries. What is the statistics with respect to the US has invested. The US is a country of 327 million people and we have 139 refineries operating in their country and have a refining capacity of 16.7 million barrels daily and that is about 8 times the productive capacity of Nigeria.
“For Texas in US, with a population of 28.7 million, having about 47 refineries has a capacity of 5.7 million barrels per day. This is nearly two times the productive capacity of the entire Nigeria.
“When you look at Nigeria, we have four operating refineries with a capacity of 524,000 barrels a day. But because of inefficiency these refineries are not working and we are down to only 5 percent of that as what we actually produce.
To bring US, Texas and Nigeria on the same level, the US as a whole, 4.25 refineries per 10 million people, Texas 16.37 refineries for every 10million people, in Nigeria, its 0.2 of a refinery per 10 million people.
He, however, call for the deregulation of the downstream petroleum sector, adding that “For market structure, the issue of deregulation is a front burner, subsidies. The reason for market structure bears on the cost and efficiency of how products are distributed. If you have a monopoly as its been experienced in Nigeria, you can be inefficient as you like and nobody is pressing operators to change operations and make it cheaper. “
He also added that competition would strive to better their services as the government is depriving the economy of huge revenues.
He argued that more than one trillion naira in terms of subsidies is paid. “And this subsidy intended to go to Nigerians, does not get to the common man. Market structure should be looked at to determine whether or not subsidy should be placed.”
In his view, CEO, OVH, said petrol margin remains the lowest in other oil countries, “Of all the country, Nigeria has the lowest margins on PMS and the most fragmented market.
“We must understand what the customer wants. I think we sometimes forget that the customers wants good service, quality and quantity that he can trust, wants constant availability to be able to get the product whenever needed and wants it at the right price and wants the product delivered in a safe manner. I think Nigeria is struggling with these areas.”
He calls for continuous investment in the downstream saying without which development may not be realized.
“However, there is one thing that can help us in the future because technology has been made available to mitigate some of these challenges. We need to realize that the consumers at the end would need a multiple of overruns not just diesel but LPG, CNG and then electricity.”
On transportation, he lamented decay in the sector’s fleet, saying “we have ageing fleets. However, we need to start renewing the fleets of trucks in Nigeria to make the road safer and delivery more efficient. With that combined, the investment of pipelines and railways is needed.”
He, also, calls for better regulation in the sector, adding that “we have over 50 agencies coming to us and sometimes asking for money for the same things. We still have the hope that with the signing of the PIGB, succor will be restored. It is important that you run your industry with good governance and compliance. We have been plagued with pipeline vandalism.
Meanwhile, managing director of 11 Plc, Mr Tunji Oyebanji, warned that the country may not enjoy the benefits and opportunities of upcoming refineries projects if it does not create the right environment for investment to thrive in the country.
According to Oyebanji, who is also the chairman of Major Oil Marketers Association of Nigeria, MOMAN, said “efforts must be directed by the government at creating environments that would unleash investments in the downstream, else operators of modular and traditional refineries would end up exporting their refined petroleum products outside of the country.”