Nigeria, Africa’s largest oil producer, says it plans to reduce business cost by setting a target of $15 per barrel oil production, just as it hopes to put an end to gas flaring by 2020.
Ibe Kachikwu, minister of state for petroleum resources, disclosed this in the mid-term review of the activities of the ministry between August 2015 and August 2017 presented through a podcast on Thursday.
“How do we reduce business costs? Today, offshore oil production costs are in excess of $32 per barrel, while on-shore fields cost are about $23 per barrel. We must target a cost of about $15 per barrel, where most members of OPEC are at the moment,” he said.
On gas flaring, he said the ministry has set 2020 target to stop gas flaring.
“How do we stop gas flaring as a global environmental concern? Our target of 2020 has been set to stop gas flaring, ten years ahead of the 2030 target set by the United Nations,” he noted, adding that in two years, the federal government has halted the crisis in the oil and gas sector and set it on the path of sustained growth and development.
He said that at the time he took office, the oil industry was faced with numerous challenges including ineffective regulation, concentration and control of petroleum resources within limited set of license holders, JV funding issues, high operating costs, unsustainable importation of petroleum products, limited refining capacity, insecurity in the Niger Delta, and dilapidated midstream oil network as a result of systemic inefficiencies and vandalism.
Apart from the crisis in the oil and gas sector characterised by massive subsidy scams and fraud allegations that was the order of the day when the present administration came to power in May 2015, Kachikwu said public perception of the state oil company, the Nigerian National Petroleum Corporation, NNPC, was critically abysmal, with its credibility at its lowest level.
Also, at the time, he said, the country was facing challenges posed by crashing global crude oil prices, which dropped from about $120 per barrels to as low as less than $30 per barrel.
He said the country’s situation was worsened by the spate of militant attacks and pipeline vandalism in the Niger Delta, resulting the country losing over 54 per cent of its daily oil production, from about 2.2 million barrels to about 1.2 million barrels.
Other challenges the industry was facing included an unstructured and unprofitable NNPC that was in dire need of understanding of its purpose; huge subsidy and foreign exchange distortions arising from the cut in oil production and reduction in crude oil prices as well as shrinking national oil reserves.
“Shortage of petroleum products supply was a regular occurrence, resulting in long queues of anxious motorists at filling stations as a result of uncertainty in products availability,” the minister recalled.
He said to resolve the crisis, the government had to start with creating ‘NNPC’s 20 fixes’, to create initiatives around issues of costs of business, restructuring, business focus, departmental independence, and low morale of staff.
Besides, he said the ‘7 Big Wins’ initiative was to point at the direction the oil industry was to go in the next three to four years, setting the benchmark for the administration’s expectations.
Kachikwu said the National Petroleum Policy was established, to set the medium to long-term parameters and targets for industry strategies and policies on oil resources, including oil reserves growth and utilization.
Other achievements include the approval of the National Gas policy, to define the strategies for harnessing and development of the country’s gas resources, elevate gas from being a subsidiary of oil, and giving it the practical expression of Nigeria as a gas territory.
Also, he said a new joint venture arrangement was approved by Executive Council of the Federation, FEC, to modulate how the operating companies pay cash calls, to promote new investment while freeing government from Joint Venture funding obligations.
To deal with the crisis of fuel queues, Mr. Kachikwu said appropriate fuel pricing framework was created, which facilitated the immediate disappearance of fuel queues at filling stations across the country.
“Since then, refined petroleum products consumption has dropped from over 50 million litres per day to average of 28 million litres, creating certainty and peace in the operating environment,” he said.
On the business environment, the minister said the resolution to encourage the involvement of private investors in massive in infrastructure development has helped resolve the crisis, although he said it was still inadequate.
He identified some of those private initiates, namely the Dangote Group effort to build one of the world’s largest refineries and the development of fuel receptor terminals by MRS Petroleum.
In addition, he said the National Petroleum Development Company, NPDC, was investing in growing its production capacity, from 30,000 barrels to over 200,000 barrels per day, bpd, with a projection to reach 500,000 bpd.
To resolve the perennial Niger Delta crisis, he said the government adopted collaboration, intervention and partnership strategies to calm the restive community people in the region, saying this has since paid off, with oil production increasing from 1.2 million bpd to 2.2-2.3 mbpd, including condensate.