Engr. Yusuf Usman is former Chief Operating Officer (COO), Gas and Power, of the Nigerian National Petroleum Company (NNPC)Limited. A graduate of Chemical Engineering of the Ahmadu Bello University (ABU) Zaria, Usman served as Group General Manager/Senior Technical Assistant to GMD NNPC and held other very prominent and sensitive positions, before his retirement as Chief Operating Officer (COO) NNPC. A proponent of energy justice for Africa, Engr. Usman maintains that there is a compelling need for Africa to catch up with rest of the world in the area of development, in tandem with the continent’s proven abundant gas reserves. In this interview with VALUECHAIN’s Eddy Ochigbo, Engr. Usman bares his gas mind on Africa’s Oil and Sector, with special emphasis on energy transition in Nigeria. Excerpts.
Nigeria is among the top gas producing nations in the world with a proven gas reserves of 208.62 trillion cubic feet but gas still remains very elusive to the domestic market and to Nigerians with cost also very prohibitive. Why is this so?
The main reason why gas is not available in the domestic market despite its availability as reserve could be summarized as follows: gas is only available in reserve form. It has to come to the surface for use and to bring it to the surface requires significant investment in drilling, processing and transportation. Producers of the gas are mostly International Oil Companies with emphasis on oil production that has high return on investment (35% and above), while gas value chain returns 12 to 15%. Some resource countries have succeeded in decoupling gas producers from oil producers like the case of Russia. Should the producers be involved in driving the value chain, gas will be available for the entire value chain. This is what we see in the case of NLNG and West African Gas Pipeline Project. Once the entire value chain economics is considered, there is always value chain cross subsidization to ensure that the economics is right.
However, if the value chain is broken, each part will aim at maximizing its profit and the mid stream projects becomes uneconomical. That is why price is escalated by the stakeholders. A cursory look at our daily production figures reveals that, average gas production over the years, up to year 2021 is 8,000mscfd of which 3,500 is used for NLNG for export at average wet gas price of $1.0 to 3.5 per MCF; 2,500mscfd is injected to reservoir for production of oil and storage at lost price (zero price), 1,500 for domestic use at average price of $2.5. The rest is flared. This shows that the aggregate average price of gas used by the producers is slightly above $1.00 upstream, and that of domestic market is higher up to $2.5 where the value chain is broken. It’s because of this reason price of gas in Nigeria for export projects is lower and no complain on price by upstream, but gas price to domestic is higher with agitation for making it even higher and the upstream is still complaining that gas price is low. It should be noted that once gas price is higher, above $2.00 the prospect of gas base industries and power development for economic prosperity of our dear country could be jeopardized.
Liquidity issues in the domestic market is a disincentive to investment. The concept of free lunch (AWOOF) needs to be addressed to make domestic market liquid. There is huge burden on Government in absorbing payment default in the domestic market. There is huge debt in the power sector and even commercial users because of this. Nigeria is not lacking in terms of laws and policy to address the concerns but implementation and speed of execution is always the issue. Laudable policies such as, the Nigerian Gas Master Plan, various gas regulations, flared gas commercialization and gas pricing with the latest being the PIA are enough to address the issues but implementation and speed of execution are lacking. This will require a complete paradigm shift as to the approach by the regulators and the players to deliver on the laws and policies and regulations.
What is your take on the progress made so far in the area of gas development since the federal government in 2020 launched the “Decade of Gas” initiative which seeks to bolster Nigeria’s gas production and exports?
Since 2020, the industry has been undergoing numerous challenges. Production has been falling, investment kept drying up, internal and external issues are making recoveries difficult. The direct response to above question is that there are no new announcements on gas development since year 2020 and it’s really worrisome. We kept missing opportunities to realize the country’s huge potentials. It is really surprising when between 2019 to 2020, at the thick of Covid-19 pandemic, several announcements were made in the Nigerian gas space. Notable are, the FID of NLNG T7, FID of Brass Fertilizer and petrochemical companies, flag off of 614km AKK gas pipelines, commissioning of two major gas plants (NPDC and SEEPCO) etc. Today, despite high oil and gas prices and the high demand for energy, Nigeria is suffering from lack of investment and drop in production. Something drastic has to happen, quickly and urgently before we lose this fantastic wave of opportunity. Frankly speaking, the decade of gas documents and implementation must be revived. The momentum and vibrancy of the gas sector must return to benefit from the huge opportunity of the moment. We should not be lost in transition where the NNPC is moving to a limited liability company and the new regulators are restructuring. A transition team different from the current operators should take off the role of transition and allow the agencies to focus on the industry, otherwise we will continue in transition and allow production to keep falling. The decade of gas document is important because it addresses the supply issue, identifies the projects and time lines to delivery, enablers for viability and investment attraction are well covered and articulated. The document needs to come out for implementation to commence.
You were in the tick of the action during the conception of the Nigeria-Morocco gas pipeline. What is the situation with the project and how important is the project to Nigeria?
The Nigerian-Morocco gas pipeline is a product of a corporation agreement between Nigeria and Morocco following the visits of the two great leaders. Our President Mohammadu Buhari and king Mohammed the IV of Morocco. These two leaders saw a vision of transforming Africa in the areas of energy poverty, agriculture, solid minerals etc. The umbrella agreements signed in Morocco came under the presidential fertilizer initiative that has two components; a) the importation of phosphate from Morocco for blending with Nigeria’s Ammonia and Urea from gas and the rehabilitation of all the blending plants in Nigeria. b) the establishment of fertilizer plants in Nigeria by Moroccan investors and the development of Nigeria Morocco gas pipeline. This gas pipeline transversing Nigeria, along the path of the current West African Gas Pipeline and its expansion to Senegal all the way to Morocco. The pipeline will achieve the electrification of numerous African countries and serve as alternative gas supply to Europe. The project is at the heart of Africa’s sustainable development and support Africa is providing base load for industrialization in our journey to energy transition. Feasibility studies have been carried out and the project is at Front End Engineering Design. The deliverables of this phase of the project will provide a good project estimate, deliver documents for EPC contracts award and survey information for execution. It’s a very important project that should be promoted and all efforts made for its implementation. The political will is there and the push by the two leaders is also there. What remains today is the speed of execution that I talked about earlier. In terms of benefit of the project to Nigeria, the project will provide market for Nigeria’s gas to Africa and Europe, enable Nigeria to lead in African renaissance and influence. It’s right course project for sustainable development. The execution of the project will lead to massive exploitation of huge solid minerals deposit in Africa. The benefits are enormous.
The Ukraine invasion by Russia which is fueling higher energy costs globally is threatening energy transition as countries especially in Europe and America shift energy policies back in favour of fossil fuels. Is this situation beneficial to Africa in view of the fact that many African countries still want to continue hydrocarbon exploration?
Hydrocarbon exploration and exploitation will continue for years to come even with the push for energy transition. Available statistics show that Africa is the least in terms of carbon emission almost near zero when compared to developed countries. However, the level of carbon emission is directly proportional to development and industrialization. Consequently in the same comparison, Africa is least in development. Africa has a right to develop otherwise we will continue to be behind. Development needs at least the base load energy. Today there are only two acceptable sources of base load energy – nuclear and fossil fuel. The African narrative will always be the use of cleaner base load energy and renewables in our journey to energy transition. The nuclear option is expensive and challenging. The cleaner fossil fuel option is cheaper, faster and easier to implement, especially for resource countries like Nigeria. With our reserve of 208 TCF of gas, promoting gas with its good credentials of – Affordability, Availability and Cleanest is right narrative for Nigeria and Africa. The Russia – Ukraine war actually sets the clock backwards and tends to re-establish the use of gas as an enabler for energy transition. It’s left for us to use this perfect window of opportunity to sanction projects such as Nigeria-Morocco gas pipeline, our industrial clusters and parks, and the Decade of Gas master plan. We need to sign up the funding quickly and get the projects going before the window closes. The energy transition for the rest of the world is real. Speed is of the essence. In my view, this is the time to soften our fiscals to attract investment and sanction our project. Keeping the resources in the ground is meaningless. If we are to sell our gas almost free and get the development we need in terms of gas base industries, power projects etc it’s worth doing. Fantastic proposals by way of LNG will keep coming but these opportunities must be tied to domestic developmental opportunities such as gas pipelines, midstream processing, petrochemicals, fertilizers etc. The Russia – Ukraine war is indeed an opportunity to speed up our resource developmental needs.
Europe looks to stop its over-dependence on gas from Russia, and Nigeria is one of the top alternative destinations for its gas. Given the current realities, are you confident that Nigeria is ready to satisfy Europe’s demands?
I am so confident that Nigeria – the ‘God’s own country’ is well situated to benefit from the current situation. We are a resource country and therefore we should use the resource for our benefit. We should use the opportunity presented by the decade of gas document to accelerate our development and be a solution provider for the world’s energy need. The good thing about the decade of gas document is it’s industry driven. The only caution I will give is please let us not use gas purely as a revenue generator. Gas is a catalyst for sustainable development and there should be a balance between cost reflective price and unquantifiable benefit of gas use for industrialization and development. Gas prices should be lower to attract investment that we dearly need at this stage. Let’s make the sacrifice for long term benefit.
What Is your assessment of the government’s effort in promoting use of Compressed Natural Gas (CNG) for automobile application and also deepen transportation fuel diversification in the country?
Again this is one area where implementation slowed down. Promoting the use of gas for auto in a country lacking infrastructure to move gas across require delicate planning. We started the journey through a committee under the chairmanship of the Honourable Minister of State for Petroleum Resources under the National Gas Expansion Program. A carefully articulated plan was developed where 25 LNG hub infrastructure will be developed spread across the country to make transportation of CNG easier and closer to dispensing stations, massive procurement of conversion kits (about three (3) million at a start) and anchored by appropriate gas pricing that will not distort the current structure. These massive infrastructure base are to be developed initially through intervention fund provided by FGN anchored by policy on special gas price intervention. This strategy is similar to Indian method of promoting Auto gas. Assuming we follow the implementation through by now compressed natural gas would have been everywhere. Again the monster of slow implementation came as distraction may be due to the then PIA transition. The process slowed down and only patches of commercial promoters are left in field. It is now not very clear how the take off of this very important policy will happen. Today’s environment is even better for the revival of this policy as PMS prices are challenging and Nigerians are left without alternative.
Before now, one of the biggest hurdles to gas development in the country was regulation. With the Petroleum Industry Act now in operation, would you say this problem has been completely solved?
Yes. The hope of the country today is on the neck of the two established regulators. The Upstream Commission and the Midstream – Downstream Authority in transition. These two regulators could open up the oil and gas industry for tremendous growth. However, like I said before; speed, speed and speed is the devil. The way we are going, opportunities to turn things around may be elusive if speed of implementation is not there. The Midstream and Downstream regulator has a huge job to do in opening the gas space. Under her, resides the responsibility of gas pricing, infrastructure funds, opening up the midstream gas processing etc. regulations in this area will bring about investment opportunities. I saw recently in a tweet, a request for memoranda on key areas for regulations. I will advise that they should also send letters to key stakeholders that understand the gas sector for memoranda. The Upstream Commission will ensure that production is enhanced. I am delighted to witness the recent signing of the new marginal fields. This is a significant progress considering the time they took over to organise and clean the process they inherited. They were able to give new licences and set out the process of cleaning the remaining in the basket.
This month marks exactly one year that the National Assembly passed PIB which was later signed into law by President Buhari in August last year. What is your observation on the 3 major institutions birthed by PIA – Regulatory, Policy and Commercial Institutions. And do you have any suggestion for them?
The passing of the PIB into Act is a remarkable development for the sector. The three institutions that emerged through the law have already started restructuring and working hard to deliver. There is great expectation on them to deliver on their mandate. My advise to them is to focus on delivery and efficiency. For the NNPC Ltd, they have no option than to deliver value to shareholders. They have to focus on production recovery and growth of both oil and gas. Once they get the production right, more revenue will come and return to shareholders will be enhanced. Without enhancement of production, NNPC will struggle. They have to work on three key areas of major leakages; crude oil theft, petroleum products subsidy and staff rationalization. These three areas are major drain on NNPC and their books. We hope to see NNPC subjugating itself to the Board of Directors and imbibe Corporate Governance Culture. Corporate governance is the best yardstick for gauging performance. NNPC should endeavour to give adequate training and exposure to their directors to enable them perform the main function of good corporate ethics, KPIs etc. For the regulators, they should establish their independent sets of accurate data for their function. They should stop relying on NNPC for direction. Reach out to stakeholders for information and advise on areas for regulation.
Oil producers raised the alarm recently on the menace of oil theft that is crippling their businesses, and on the other hand, denying Government revenue for execution of developmental project. How do you think the government can mitigate this crime?
Providing security is a joint responsibility of government and the operating companies. The duty of the companies is to provide adequate information to government and government should act swiftly and decisively. With respect to the oil industry there are gaps in my view. This gap is in the area of application of technology. Sometimes between 2016 to 2019, an extensive work had been done to select appropriate technology to provide life data for securing the entire pipeline system, though expensive, but assuming we progress with implementation by now the situation would have been curtailed. My personal opinion is we have to revisit that exercise and provide life security coverage and expose the parties involved for prompt and decisive intervention by the authority. Poor security affect country risk and drive away investment. We have to take the bull by the horn to address this issue. There is no other way. The IOCs are investors and nobody wants to lose his money.
Do you agree with the recent assertion of the Chevron CEO that the crude oil theft is an organized crime?
I will not like to comment on this, but the fact is that insecurity is insecurity wether organized or not, and has to be tackled decisively. I recalled my advise to Chief of Defence Staff when he invited us for dinner on his appointment. I told him, our role is to support him with data and accurate information and their role is to deal with the situation. It’s their training and should not be a problem for them. Without information their job will be difficult. Providing information is the responsibility of the operators and as such every instrument that must be placed in order to collect information on their facilities must be provided. We installed security cameras in our homes to provide information to security personnel, why won’t we install security gadgets across our facilities to capture information live?
For some time now, the United Nations and the Western nations, in the guise of saving the planet, have been pushing for Energy Transition from fossil to renewables. What do you think is the sustainable path for Africa, considering the enormous energy poverty faced by the over 1 billion people living in the continent?
Africa has already established its narrative and I support the narrative in total. The narrative is energy justice for Africa. Africa needs base load to catch up with development with rest of the world. Africa must be encouraged to pursue cleaner process for base load in parallel with transition. We were very clear in Nigeria that we will pursue gas as destination fuel. It’s cleaner, affordable and lower carbon footprint. We will use gas as a destination fuel. However this initiative must be used in tandem with renewables. The developed world should be made to understand African predicament and allow funding for gas to be used to achieve the transition. Another area to look at is the use of gas for agriculture and pharmaceuticals that are part of sustainability of Africa. Stopping fossil fuels in general without consideration for gas is what Africa should keep on fighting for. We have to tell our story by ourselves not by others that don’t know our situation. However, Africa being part of the globe should also demonstrate acceptance of energy transition and be aggressive in large scale solar power, especially in the north where there is sufficient sunshine. I will like to see deliberate attempt to combine gas projects with renewables if we are seeking for external funding.
