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Reforming and Repositioning the Oil and Gas Industry in Nigeria by Mr. Emmanuel Ibeh Kachikwu

Earlier today, Tuesday Nigeria's Honorable Minister of State, Petroleum Resources Mr. Emmanuel Ibeh Kachikwu gave a keynote address at the Nigeria Oil & Gas Conference & Exhibition, 2017 which gave a great insight into the Oil and Gas sector. The presented is here for your reading and possibly studying pleasure. Topic is "Reforming and Repositioning the Oil and Gas Industry in Nigeria."

1. I am honoured to be in your midst today at this Nigeria Oil & Gas Conference and exhibition to make some remarks on “Reforming & Repositioning the Oil & Gas Industry in Nigeria”.

2. The theme of this year’s conference; Journey towards transformation and the title of my speech “Reforming & Repositioning the Oil & Gas Industry in Nigeria” aptly describes Nigeria’s current situation of transiting to the next chapter on the journey to maximizing our resources for the development of our Nation.

3. Today, the Nigerian Oil and Gas Conference & Exhibition is an important event in the Nigeria oil and gas industry calendar. As such, I am delighted to participate with you today in discussing the current state of our industry and discuss the roadmap for moving the industry forward.

Highlights of the Industry and the Journey So far

4. Globally, 2016 tested the resolve and resilience of the oil producing countries especially OPEC members.

5. Between 2015 and 2016, there has been about a 25% drop in global spending on exploration and production running into hundreds of billions of dollars which is directly attributable to the low oil prices.

6. Unlike in 2008 where the oil price decline was driven by demand deterioration, the decline in the oil price from 2014 to 2016 was due to excess supply.

7. More than ever, the need for closer collaboration became necessary internally within OPEC members and externally with non OPEC members. This strong collaboration yielded the production adjustment of 1.8 mb/d by OPEC and number of Non-OPEC countries; this great achievement for the first time is expected to balance the market by 3Q17.

8. Oil market sentiments have improved since the OPEC and Non-OPEC declaration as prices rose, volatility decreased and net futures and options long positions increased.

9. In 2016, the Nigeria upstream sector of the oil and gas industry was challenged by the menace of upstream assets vandalism. Our crude oil export pipeline system namely, Trans-Forcados to the west, the Obangbiri – TemiDaba – Brass in central Niger Delta, the Nembe creek trunk line and the Trans-Niger pipeline which evacuates crude produced onshore to export terminals were subject to severe vandalism. Similarly, the Bonny – Port Harcourt crude oil pipeline and the Escravos – Warri – Kaduna crude oil supply pipelines were not spared.

10. In spite of this, we witnessed a peak production of 2.35 Million barrels per day recorded at the beginning of 2016 which declined to an almost all-time-low of 1.3 Million barrels per day per day due to incessant vandalism. Our 2016 Crude oil production averaged 1.85 mln barrels of oil per day.

11. Despite these, Nigeria however, still remains a leading producer in Africa with potential to boost production to the neighborhood of 3 mln barrels of oil per day by 2020; once the required investments flow in and the planned deep-water projects are fully realized to achieve an incremental reserve of at least 1 billion barrels and half a million barrels in incremental/production capacity per day. For example, the opening up of Dahomey Basin with the coming on-stream of the Aje field is certainly a major milestone for the industry.

12. On the gas front, we witnessed an increase in the 2P National Gas Reserves from 188 Tcf in 2015 to 192 Tcf in 2016.

13. Petroleum products supply and distribution to the nation is fairly stabilized since the giant leap of May 2016 Market liberalization. However, with the prevailing change in the macroeconomic conditions, this is being achieved at higher cost, especially to NNPC as the supplier of the last resort. We continue to channel more energy towards resolving our downstream issues, once and for all.

14. 2016 also saw us Negotiating and signing a novel Agreement on a new sustainable funding framework for Joint Venture cashcall operations. This will not only sustain our JV operations but is also a key enabler for incremental production from our JV operations and a pathway towards incorporating our JVs.

15. In the area of Nigeria Content, we also witnessed a steady increase in participation of Nigerians in oil and gas contracts by 180% from Fifteen (15) Nigerian Content Compliance Certificates (NCCCs) worth $396,103,336.38 issued in 2015 to forty two (42) Content Compliance Certificates (NCCCs) valued at $1,645,233,425.59.

16. When all these highlights of the industry are taken together, we can see both progress and challenges.

17. Our challenges include that of security & environment, institutional capacity, funding of investments, high industry technical costs, obsolete legislation & fiscal regimes, downstream sector issues and infrastructure constraints.

18. There are often various factors that contribute to these expected outcomes. I therefore would like to engender both interest and debates to the strategies that underpin our roadmap for reforming and repositioning our oil and gas industry.

Reforming the Industry

19. We developed and launched a practical and well-reasoned Petroleum Industry Roadmap tagged the 7 Big Wins for the new Nigerian Petroleum Industry.

20. The 7 Big Wins is not like any other roadmap, as we have never been in short supply of roadmaps. This roadmap is different because it reflects the vision of the country’s Leadership and the explicit support and commitment of the industry and all stakeholders, to its implementation.

21. The roadmap is different as it has very specific time-focused targets and like the many bold steps we have taken in this sector since the inception of the present Administration, we are by this roadmap focusing and committing to take unprecedented steps and making dramatic policy shifts in this sector to grow, deepen and open up the business and opportunities in Nigeria’s Oil and Gas Sector.

22. The focus of the roadmap covers the following 7 key areas:
 Emplacing new policies, legislations and regulations
 Enabling the Business environment and attracting Investments
 Unleashing a Gas Revolution to spur multiplier effects including wealth creation, environmental protection and job creation
 Improving our domestic capacity for local petroleum products production and attaining self-sufficiency by 2018.
 Sustaining engagements with Oil producing communities and attaining zero militancy in the Niger Delta region by the end of 2017
 Enshrining Transparency and Efficiency in the industry and automate business processes to account for every drop of oil produced in the country.
 Adopting a sustainable and well-structured Stakeholder Management framework that will address the peculiar needs and circumstances of the Oil and Gas Industry.

23. All studies conducted on the Nigeria petroleum sector since 1999 are settled on the issue that the role of Government in the oil and gas sector needs to be better clarified whilst the policy, regulatory and commercial institutions need to be given a refocused mandate to ensure better sector governance, transparency of regulations and operations, accountability of the institutions, and removal of opaqueness around the industry.

24. For these reasons, we have commenced to address these issues with an overhaul of sector policies. Dialogues have already been held with stakeholders in the industry and civil society on critical sector issues and the outcome of this process is a new National Oil Policy, a new National Gas Policy and a new Fiscal Policy.

25. To clarify, we have taken a root and branch effort to reform, which is the basis of these policies and in order to ensure the sustainability of the policies, Nigeria is in the process of legislating these critical policy positions within the next few months.

26. The strategic objective of the new oil policy is to:
 Create a market driven oil and gas industry:
 Maximise production and processing of hydrocarbons;
 Move away from oil as a source of income to oil as a fuel for economic growth;
 Cost efficient storage, transportation and distribution for petroleum products;
 Minimise the environmental footprint of oil exploration and production;
 Managing the balance between depleting oil resources vs renewable energy.

27. In the gas space, our policy interventions aspires to :
 Move the economy from oil to gas;
 Diversify the gas supply options within Nigeria, to ensure security of supply;
 Extend gas penetration in the domestic market in order to facilitate the growth of the electric power, agricultural, and industrial sectors;
 Gain a presence for Nigerian gas in international markets;
 Operate a gas industry with a clear division of roles between private and public sectors
o Public sector policy making; implementation and regulation;
o Private sector; investment and operations;
 End and commercialise gas flaring and address environmental issues;
 Provide an enabling environment for increased private sector participation in
 the gas sector;
 Clarify the rules guiding investment in the gas sector.

28. The new fiscal policy sets out to address Nigeria’s energy trilemma of addressing energy availability, enhancing energy accessibility and promoting energy availability.

29. It will enhance fiscal neutrality, create a fiscal basis that will encourage investments and market developments while emplacing competitiveness and cost efficiency for the benefit of both government and the industry operators.

30. Hitherto, the Nigerian downstream infrastructure has been solely financed by government because of the social and economic impact, high investment requirements and long gestation period.

31. Over 5000km of petroleum product and gas pipelines, storage depots, refinery, power generation, transmission and distribution infrastructures were all built through direct government funding.

32. Due to competing needs for government resources from other public sector services such as education, health and transportation infrastructure etc. most oil and gas infrastructure development projects should be financed and managed through private sector participation.

33. It is in the light of this that comprehensive reforms are ongoing to fast track the development of private sector led downstream infrastructure and fully deregulate the market for effective competition and efficient service delivery,

34. We are determined to address the Niger Delta issues and build a peaceful and prosperous Niger Delta, with emphasis on job creation for our teaming unemployed youths, investment in infrastructure, energy and promotion of sustainable livelihood.

35. We have being working closely with all relevant stakeholders including communities, state governors, government agencies, oil and gas companies to deploy a holistic developmental framework that will ensure lasting peace and sustained development in the region. This is our commitment, and this bond we are determined to achieve.

36. It is indeed a bumpy but rewarding ride and we are excited about it.

37. We will continue to deploy innovative thinking, new ideas and robust partnerships to re-tool, re-kit, redesign and re-engineer our systems and processes to ensure that we get more from the little that we are getting at the moment than we did even in the time of plenty.

38. This is the choice that we have made and the challenge we must meet. We appreciate the fact that reforms are often not easy because they often cause inconvenience, but for the Nigeria Oil and Gas industry, we are encouraged that we have the determination to see through the structural changes that are needed to create the conditions for prosperity in the near future.

39. The lessons of the past ought to enable us respond decisively - It is indeed a new dawn for Nigeria’s Oil and Gas Industry.

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