NLNG Model is Worth Replicating, Says Babs Omotowa, MD/CEO

What’s your take on some on-going national issues? Petroleum Industry Bill (PIB) for instance; how will it ever be resolved amicably? And what kind of support does NLNG offer to Regulators?

Let me start with your second question. For many years, NLNG has worked with regulators to help them develop capacity. . For example, a few years back, we offered support to NIMASA on how to create a credible Nigerian flagging system for vessels. As a company, we are keen on strengthening our regulators as it will help our industry grow. The LNG industry in Nigeria is relatively new and regulators need to be ahead of the curve to be able to properly monitor and regulate the industry.

On the PIB, a concern is that the lack of passage of the bill is worse than a bad bill because it creates uncertainty, which means investments have actually stalled. The impact has started to be felt directly and production levels have started to decline. One issue about the PIB is that it was put together as a very large bill that takes on several aspects. There are fiscal aspects; governance; reorganisation (NNPC, DPR, Ministry, etc.); host communities etc. Combining all of these in one bill has brought together various “antagonists”. It would be easier if broken into two or three bills. For example, the fiscal part could have been passed into law a lot faster. If that was done, we wouldn’t have seen this level of investment drop because there would have been certainty to give investors’ confidence. Thereafter, how Nigeria chooses to distribute its wealth and structure its institutions could come later but without impacting the goose that lays the golden egg. Of course, there have been concerns by the International Oil Companies about the proposed level of government take but that can be worked out and whatever is finally passed, at least it would provide certainty.

Is gas supply a challenge in the light of the security situation in the Niger-Delta, especially since you depend on gas?

Yes, but the problem is not about gas availability in reserves underground. It is about the above-surface-issues, in terms of developing and transporting the gas to users. Investments have not come in because of uncertainties like the Petroleum Industry Bill (PIB), thus, worsening the funding challenges the Government has had. There hasn’t been enough investment in gas exploration and facilities required for gathering, processing and handling the gas.

Unfortunately, the level of criminal activities in the region has remained high with lots of illegal bunkering on-going, mainly for oil, but in some cases, gas lines have also been drilled into. The complication is that oil and gas are interlinked, such that once the oil lines are down, gas transportation is also curtailed. As a result, we have had three cases of gas supply interruptions this year directly linked to illegal bunkering. Although our upstream suppliers continue to rely and work with the Joint Task Force (JTF) and Federal Government Committees, the situation has not abated. So the security and criminal situation in the Niger Delta remains a major problem, not only for the upstream companies who have lost an estimated 150,000 barrels a day, but also for us as a gas company. Funding and security sabotage problems have really affected the industry significantly.

Power has been a major challenge in the country. Is there anything that NLNG could possibly do to support the government with power?

NLNG has always been happy to contribute to make Nigeria better and we already do in the area of power as we generate electricity and supply the whole of the Bonny and Finima communities on a 24-hour basis.

However, there are several aspects of the power problem in Nigeria, from generation of adequate power from various sources, not just gas, but hydro, solar, coal and maybe nuclear, to the transmission and distribution of the power. For example, we have an inefficient grid transmission system that loses a significant percentage of what is generated because of its state. We actually have some power plants that produce electricity but the grid can’t take it, so we need an upgrade to our grid. It is also questionable why we still maintain a national grid approach instead of regional and city grids. You even have the problem of revenue collection which drives the rest of the value chain. If you can’t collect revenue for example, then you are not likely to sustainably maintain the infrastructure. These are some of the challenges we need to tackle as a country.

The Government has made progress with recent sales of the power generating and distribution companies. Private investments are being brought in to help bring the resources and expertise needed to address some of these issues as we saw with the telecommunication industry. But the government still needs to do a lot of work on the grid.

It would appear that if every company took your model of supporting infrastructure in the area they operate and even provide electricity, perhaps some of the demands will begin to be met. Is it a model you think other oil and gas companies could possibly adopt?

Yes. It is a model worth replicating and will help, but remember that oil and gas companies are mainly located around a particular region in the country. So if you just go for that model alone, it would probably only touch about five to ten percent of the country. Many of the oil companies provide electricity for their immediate surroundings even though some may be via generators. The NLNG model is the most advanced though as gas-driven electricity is generated from our facility and distributed to the community in an interdependent manner. However, I don’t see this as the solution to the entire problem. Across the country, there are various sources to generate electricity, not just gas. In some parts of the country, it is hydro, coal or solar sources. The model should be around private investors, generating power and distributing locally or regionally, rather than across far distances.

That is reminiscent also of the issues around the distribution of cooking gas. We read of a situation where the cooking gas comes from a certain part of the country, Bonny, to Lagos and has to go back there through other means, making it difficult for people to access when it is right there at their backyards. And even when it gets to Lagos, the distribution around the country is poor. What could possibly be done to ease the network of cooking gas reaching as many people as possible around the country?

Nigeria has a very poor distribution system for cooking gas. Usage of cooking gas is nearly non-existent outside major cities. A challenge is that the Government continues to subsidise kerosene. That has not allowed investors to look at putting in the infrastructure necessary to enable the distribution of cooking gas. The subsidy on kerosene creates an artificial situation where it is officially sold at very cheap price, but sadly, for the average Nigerian, they still buy it at very exorbitant prices of more than 300 percent of the official rates.

The Government can look at how other countries addressed similar challenges and grew the distribution of cooking gas by over 1,000 percent. They were able to get cooking gas to the end customer at a cheaper rate than the official subsidised kerosene rates. By doing that, it makes sure that the end-users has a cheaper and healthier way to cook and the Government can then remove the subsidy on kerosene and use the extra money for development.

On Bonny, it is true that Liquefied Petroleum Gas (LPG), like most other items, is more costly there than in other parts of Nigeria, mainly due to logistics challenges. The bigger issue is that despite a population of over 300,000 citizens, presence of three major oil and gas companies as well as a terminal from where all oil produced in the eastern corridor is evacuated, there is no single access road that links Bonny to the rest of the country. This remains saddening. We have offered severally to support the Federal Government in the completion of the road but response has so far not been fast. We continue to appeal to the legislature and the executive to give this road a priority.

Other successful companies seem to have grown beyond their original models. Will NLNG ever grow because it looks like with the expertise in the company and the challenges in the country, it could tackle more local challenges? How long do you foresee NLNG running on this model?

Every company does indeed go through various cycles. Many start within their core area, maximizing value, and then at some point, branching into other areas to remain successful. NLNG is no different and the time will come in the future when NLNG will look into going beyond exporting LNG. We are already looking at our strategy for the next 10 years and we are beginning to look at such possibilities. I believe that in the future, NLNG will indeed go beyond what it is doing today.

Shale gas burst into the scene and changed the game as it were. Countries such as U.S. that used to be net importers suddenly have become exporters. We know about developments around Africa and in the Far East. Can NLNG, in spite of all these challenges that we see in the market place, hold its own and survive into the future?

Yes, without any doubt. We are already working ahead of these headwinds. It is clear that past models where, for example, we signed 25-year contracts may not remain the model of the future. We have seen the market in U.S. become more liquid, and the rest of the world will gradually go in the same direction over time. But we have very strong fundamentals, including partnership between international oil companies and the Nigerian oil company. Our plant is well built on the best technology; we have well trained technical staff and we are already firming up our long term strategic plans. I am also optimistic that we will get our growth project Train 7 going and that will give us additional capacity that will help us compete. This will enable us regain our market share of 10 percent and as such have a higher level of influence in the global market that is required for us to attract the premium customers. I have no doubt that we will be successful into the future and remain an inspiration to Nigeria.