The future of oil and gas in Nigeria: Renewed obligations from private sector

BY MOHAMMED METTEDEN

From catalysing oil and gas potential to optimising gas production, diversifying consumption, and addressing gas flaring challenges, debates about hydrocarbon production in Nigeria continue to dominate the energy scene.

As Africa’s largest crude oil exporter, with an output of almost 2 million barrels per day, global investors and business leaders are urging Nigeria to optimise and diversify its oil resources, especially considering the oil price volatility caused by the COVID 19 pandemic. McKinsey Global Institute (MGI) identified Africa as the next frontier for growth and opportunity, highlighting the need for Nigeria to incentivise investors into its oil and gas industry. In Nigeria, almost two-thirds of production comes from shallow-water and onshore fields, creating demand for investments that will improve production and create additional reservoirs. Yet, despite this, it remains largely unclear what the future holds for oil production in Nigeria.

Gas Flaring Emergency 

Oil, accounts for 90% of Nigeria’s foreign currency earnings. Compounding this lack of diversity in revenue sources, is the sub-optimal utilisation of gas, resulting in significant gas flaring and value destruction to the nation.

According to Nigeria’s minister of state for petroleum resources, Timipre Sylva, approximately 90.9 billion cubic feet of natural gas valued at $230 million, was lost to gas flaring in the first five months of 2020.

Although an 8% reduction in gas flaring was recorded in 2021, the increasing importance of gas as a lower carbon energy source presents a new reality for all players.

The key infrastructure deficit in the sector is primarily on the gas transmission network. Not enough attention is given to transmission. Stakeholders’ approach to this challenge has been to invest in improved oil production models, with the private sector leading new and promising interventions. More investors are becoming strategically attuned to the demand for business models that will minimise gas flaring while remaining profitable.

Earlier in January, leading pan-African investment company, Heirs Holdings and Transcorp, through Heirs Oil & Gas (HHOG), acquired 45% of OML 17 from Shell (30%), Total (10%) and ENI (5%) in a landmark deal worth $1.1BN, seen as the largest oil and gas transaction in Africa for the year 2021. Currently, Transcorp is one of the largest power producers in Nigeria, with 2,000 MW of installed capacity and over 300,000 shareholders.

Located in South-Eastern Nigeria and occupying 1,300sqm, OML 17 feeds into a wider strategy of the Heirs Holdings group to economically empower and develop Africa, and more importantly, develop a fully integrated energy value chain that will power the continent out of poverty. The asset is endowed with the resources required to address the energy gap in Africa. With a resource base of 2.2 TCF of gas, 1.2 billion barrels of oil and a further 1 billion barrels of oil equivalent in exploration upsides, the acquisition will drive the development of energy infrastructure to meet the current and future demands of the teeming population within and outside Nigeria.

The acquisition also presents an opportunity to rethink the hydrocarbon value chain, with a view to maximise value creation, development and preservation within the country and continent at large. OML 17 produces over 27,000 barrels and 50 million standard cubic feet per day, with an existing infrastructure that can accommodate circa 200,000 barrels per day and circa 300 million standard cubic feet per day. Indeed, leveraging such resources, managerial expertise, supply chains and market developments, can support the drive to minimise gas flaring.

Ranked among the top three countries with the largest electricity deficits in the world, Nigeria’s power generation status remains a relevant conversation, especially given the supply of gas. In this regard, a portion of the Petroleum Industry Bill (PIB) was passed in

2020, to further strengthen the regulatory framework of the oil and gas sector and drive investment to boost revenue collection by the government. These changes will directly affect the management of gas, with stringent policies for stakeholders across the natural gas value chain.

More Foreign Investments

The recent acquisition of OML 17 illustrates the opportunities for development across West Africa. One such opportunity is for operators in the industry to utilise oil and gas proceeds to boost investments for Nigeria and accelerate its foreign exchange earnings.

Beyond oil production, indigenous players in Nigeria’s oil and gas industry are in a position to reform the consumption of power and improve the standard of living for Nigerians by way of employment opportunities and improved collaboration with host communities. For HHOG, the skills of the host community will be engaged to effectively deliver on the asset’s potential. As investors also focused on impact investments, not only will this Heirs Holdings asset acquisition pioneer policies around its energy system, but it will also play a key role in the investment landscape by contributing to the performance of other businesses. HHOG envisions the energy transition accommodating emerging technologies and unique business models. The introduction of an improved approach to energy will also enhance the productivity of SMEs in Africa, ultimately uplifting the quality of life for most citizens.

Improved labour productivity

With the implementation of a series of unique measures, oil, gas, hydrogen, electricity, and non-oil services, HHOG’s newly acquired asset will be able to fully drive an integrated energy strategy to deliver the benefits of meeting energy demands, while improving labour productivity in the country. The long-term goal is to leverage Nigeria’s natural resources to create value-based, sustainable opportunities in Africa.

Indeed, indigenous private sector oil and gas companies like HHOG will play an important role in not only improving labour productivity but delivering optimality for a greater overall impact towards a better, safer and more prosperous future for Africa.

Metteden, strategy and business intelligence manager, Heirs Oil & Gas