Inside Nigeria’s multibillion-dollar abandoned oil, gas projects

Catrina P. Smith

Before COVID-19 triggered a collapse in crude oil prices and demand last year, several big-ticket oil and gas projects in Nigeria had been hanging in the balance. In this report, ’FEMI ASU examines the impact of project delays and/or cancellations in the nation’s oil industry as well as the economy

Nearly nine years ago, one of the agencies in the Ministry of Petroleum Resources acquired 10.2 hectares of land for the construction of what was to become the first pipe mill in the country, and help meet the industry line pipe demand estimated at more than 800,000 tonnes per annum.

The Nigerian Content Development and Monitoring Board announced on March 20, 2013 that it acquired the land in Polaku community, in the outskirts of Yenagoa, Bayelsa State. It said the land acquisition marked the commencement of the project as the board would immediately begin the preparation of the site ahead of the detailed investment plan.

The then Executive Secretary of the NCDMB, Mr Ernest Nwapa, at the symbolic cheque presentation for the land to the Ezewaribo Family and transfer of deed to NCDMB in Yenagoa, said the establishment of the pipe mill was one of the mid-term targets set for the oil industry by the then Minister of Petroleum Resources, Mrs Diezani Alison-Madueke.

Nwapa, who was represented by the Director of Monitoring and Evaluation, NCDMB, Mr Akintunde Adelana, said the project’s construction and operations would drive development in the industry and provide thousands of training and employment opportunities for members of the community and other Nigerians.

“The pipe mill project will be a major economic activity. It is one of the key industries that have been lacking in the Nigerian oil and gas sector and your community is lucky that it will be established in your vicinity,” he added.

In August 2015, the NCDMB announced that it had concluded arrangements to sponsor 22 young persons to China to acquire critical skills needed to operate and maintain machines that would be used at the pipe mill.

According to a statement on its website, the pipe mill was being set up by Mainland Pipe Mill Nigeria with support from the NCDMB, and the training was being facilitated by the company, which has BSG of China as its technical partner.

It said the trainees, who would travel before the end of August that year, would be heading to the facilities of Baoji Petroleum Steel Pipe Company Limited located at Baoji in Shaanxi Province, China, and would undergo their training for 45 working days.

At an induction ceremony organised in Yenagoa for the trainees ahead of the trip, the then Executive Secretary, NCDMB, Mr Denzil Kentebe, told them to take the programme seriously and acquire the necessary training and certifications that would enable them to successfully operate the Polaku pipe mill after construction.

But the plan to build the pipe mill ended up as a pipe dream, with the NCDMB announcing last year that the land had been repurposed as a gas hub, which was unveiled by the Minister of State for Petroleum Resources, Chief Timipre Sylva, on August 13.

“Discussions with various investors regarding setup of the pipe mill did not yield desired results, thereby forcing the board to re-strategise on how to utilise the land for productive uses,” the agency said.

While the pipe mill project was cancelled outright, several multibillion-dollar projects that have also suffered long delays still face an uncertain future.

‘Africa’s largest gas city’ stalled

In May 2013, the Nigerian National Petroleum Corporation announced plans to build what it called ‘Africa’s largest gas city’ in Delta State. The project was expected to attract an industry-wide investment outlay of over $16bn within the next four years.

The corporation said the Gas Revolution Industrial Park project at Ogidigben would comprise fertiliser, methanol, petrochemicals and power plants with other support offices and residential facilities.

The then Group Executive Director, Gas and Power, at the NNPC, Dr David Ige, said the comprehensive gas infrastructure development programme was couched within NNPC’s aspiration for gas development as anchored on the three-point strategic focus of the government’s Gas Master Plan.

As part of the country’s resolve to become a major player in the international gas market and to lay a solid framework gas infrastructure expansion within the domestic market, the Nigerian Gas Master Plan was approved on February 13, 2008.

It aims at growing the Nigerian economy with gas by pursuing three key strategies: stimulate the multiplier effect of gas in the domestic economy; position Nigeria competitively in high-value export markets, and guarantee the long-term energy security of the country.

The proposed gas park was initially to be located in Koko, a town in the Warri North Local Government Area of Delta State but Ogidigben later emerged as the site for the project due to the potential high cost of dredging the 90km Koko access route to the ocean.

“Ogidigben has some natural features, which made it the choice location based on technical consideration. It has the desirable location by the sea, hence better draught than Koko. It is also located by the Escravos River for inland access; it has proximity to existing gas infrastructure via the Escravos Lagos Pipeline System, thus enabling relatively easy gas access with less pipeline infrastructure development cost,” Ige was quoted as saying.

He said the preliminary works on the gas infrastructure development project, which was expected to attract about $16bn worth of investment to the proposed Ogidingbe gas-based industrial park, would commence in June 2013.

He said the Final Investment Decision for the Central Processing Facilities was expected to be achieved in June 2014; construction work on the CPFs would begin by January 2015; work on the real estate development of the Ogidingbe area, which would service the industrial park, would begin in March 2015; and erection works at the petrochemical complex was to commence between 2016 and 2017.

According to him, the state governor, Mr Emmanuel Uduaghan, approved and issued the Certificate of Occupancy for the 2,700-hectare site for the project.

In June 2014, the NNPC invited interested companies to express interest in the dredging, sand filling and land reclamation of the project site.

It said sand dredging was required to fill and reclaim 585 hectares of land for the first phase of the project, adding that 200 hectares out of these 585 hectares had already been cleared and work was ongoing to clear the balance 385 hectares.

“The Gas Revolution Industrial City is an integral part of the Nigerian Gas Master Plan, and will serve as a model for future developments elsewhere in the country,” it said.

According to the NNPC, the location on the east bank of the Escravos River, opposite NNPC/Chevron Nigeria’s Escravos facilities, has several advantages: easy access for shipping and export to coastal and international markets; access for inland transportation via the Escravos River to inland markets such as nearby Warri and Sapele, and further afield via the Forcados and Niger Rivers; a convenient location to gather gas; close proximity to the Escravos-Lagos Pipeline System to deliver pipeline gas to consumers in western and central Nigeria.

In March 2015, President Goodluck Jonathan performed the ground-breaking for the project.

Ige, who played a key role in the development of the gas master plan and conceived the idea of the gas city, told our correspondent on January 27 that they wanted to “catalyse a major industrialisation of Nigeria out of gas”.

He said, “The idea of Ogidigben was for us to have an industry park where we can boast of some convergence of a significant amount of gas in one location and then create a cluster of petrochemicals, methanol and fertiliser, among others in that location.

“If you go to countries like Saudi Arabia, Trinidad and Tobago, Equatorial Guinea, and Qatar, they all have clusters that are developed for gas-based industries. So, that was the vision that I had at the time when we were trying to create Ogidigben as a perfect location for those industries.”

Ige, who is the Chief Executive Officer of GasInvest Limited, added, “We had initial challenges at the time because of the conflict between the Ijaw and Itsekiri regarding the name [of the project]. But once that was overcome and we had the ground breaking, did some site clearing and we had done some investor road shows, we left the system at that time.

“At the time, we didn’t think there was any other location in Africa that had that kind of ambitious agenda for gas-based industrialisation. So, it was intended to be the biggest.”

A former Managing Director/Chief Executive Officer, Nigeria LNG Limited, Dr Godswill Ihetu, said the project was not well-articulated, adding, “It sounded to me like one grand plan. After all, we were told that three new refineries would be built during the Jonathan era but nothing came up.”

Move to fast-track Ogidigben project falters

In the first term of the regime of the President, Major General Muhammadu Buhari (retd.), there was a move to fast-track the development of the gas city project. But it appears to have lost steam.

The NNPC, in its presentation during the oversight visit of the Senate Committee on Gas to the corporation in February 2016, said it was undertaking six priority gas projects that would reposition the country for profitability, including GRIP.

“We have completed the concept master plan and we have also done the groundbreaking ceremony. We have cleared 535 hectares of the land out of the 585 hectares earmarked for the GRIP,” the then Group General Manager, Gas Infrastructure Development, Mr Farouk Said, said.

On February 27, 2017, the Vice President, Prof. Yemi Osinbajo, said a plan to put in place the park valued at about $20bn through a public-private partnership model was in process.

He said he met with the consortium of GSE&C of South Korea, the China Development Bank, Power China and global operators from Asia and the UAE.

“About $20bn will be invested to develop the Gas Industrial Park, which will generate 250,000 direct and indirect jobs. It will be connected to over 18 trillion cubic feet of gas reserves in fields such as Odidi, Okan, Forcados, located within a 50km radius,” he added.

He said the park would also be connected to Nigeria’s most dominant gas pipeline network, Escravos-Lagos Pipeline System, which would enable supply of gas to and from the park.

In February 2018, the Delta State Governor, Dr Ifeanyi Okowa, called for speedy take-off of the park when members of the Steering Committee of the Ogidigben Industrial Gas Park paid him a courtesy visit.

He said, “It is my hope that this project starts in earnest because it has been delayed for long; we need to fast-track the project as it has been on the drawing board for too long and investors’ confidence is being affected.

“This project holds a lot of prospect for us as a state and for the nation; we are truly ready to have reforms in the gas sector. It will aid our economic development, not only in harnessing our gas reserve but also providing jobs for our teeming youths.

“The state is ready to provide the needed environment to ensure that the project begins immediately in order to build confidence among the investors and the community that has provided us with the land.”

In August 2018, the then Minister of State for Petroleum Resources, Dr Ibe Kachikwu, inaugurated the Technical Working Committee for the project.

Alpha Group, which leads the developer consortium, Alpha Grip Management Company, said in a statement that the committee was tasked with fast-tracking the project by identifying the major issues surrounding the development process and proffering solutions to present to the steering committee, to enable execution of the project.

The Executive Managing Director, AGMC, Sheikh Mohamed Bayorh, said it was very critical for all the stakeholders to work closely, to resolve some of the major key issues delaying development, such as inadequate gas allocation and sand filling of the site required for the project.

“It is worthy of note that the developer’s consortium has attracted and mobilised over $10bn of investment for the successful takeoff of the first phase of the project,” the company said.

But the project has been stalled again, with security challenges identified as the major factor behind the delay in its development.

“The Ogidigben Gas Project isn’t abandoned at all… Unfortunately, before now, Ogidigben project was affected by security issues… As a government, we are keen on that project and we are discussing it, but what we are also asking for from the communities and the entire Niger Delta region is peace in the whole of the area so that we can focus on the development of projects and create jobs in the region,” Sylva was quoted as saying in January 2020.

A tale of two LNG projects

More than 15 years after they were conceptualised, two Liquefied Natural Gas projects in the country have yet to come on stream, with industry stakeholders expressing worry over the uncertainty surrounding them.

With no final investment decision, the mega projects have been stuck for many years despite gulping billions of dollars. They were initiated to help develop and monetise some of the country’s abundant gas reserves that would otherwise remain stranded or be flared.

The $20bn Brass LNG project in Bayelsa State and the $9.8bn Olokola LNG project, located on the border town between Ogun and Ondo states, were initiated in 2003 and 2005 respectively.

The Brass LNG project, which was designed to produce 10 million metric tonnes per annum of LNG, was to be built by the NNPC, Chevron, ConocoPhillips and Eni Group. But ConocoPhillips and Chevron have withdrawn from the project.

OK LNG project, which was designed to produce an initial 12.6 MTPA, was being built through a joint venture by the NNPC with Royal Dutch Shell, Chevron and BG Group. But all the international oil companies have pulled out of the project.

In December 2016, the NNPC said the two projects were high priority gas ventures capable of boosting revenue to the Federal Government.

The then GMD (now late), Dr Maikanti Baru, said, “We are still committed, as NNPC, to monetising our natural gas. We have the Nigerian Liquefied Natural Gas, which is at the moment monetising about four billion standard cubic feet of gas on a daily basis. We also have plans for Olokola LNG as well as Brass LNG.

“We have a little challenge with market windows for these projects which we are reviewing on a monthly basis. Once the appropriate market window opens up, we will quickly get more shareholders to join us for the projects.”

In December 2016, the NNPC reiterated its commitment to the two LNG projects. However, there is still uncertainty over whether the multibillion-dollar projects will ever come on stream.

The corporation said in April 2019 that the actual historical amount spent on the Brass LNG from inception till then was about $1.2bn, denying the speculation that the project had gulped $22bn.

It spoke at the House of Representatives Ad-hoc Committee investigating the expenditure and implementation of the Brass LNG project.

“This sum included the cost of acquiring project land, which covers approximately 606 hectares, cost of early works contract, Front End Engineering Design, Pre-FEED Concept Evaluation Study, Project Environmental Impact Assessment, comprising both onshore and offshore studies, dredging, EIA activities and ambient noise survey, displacement and settlement action plan, cultural site heritage study, staff and administration project cost from inception, sustainable development cost, among others,” the NNPC said.

Its former General Manager, New LNG Venture, Ahmed Dikko, told lawmakers that the project was already at a critical point of FID before the pull out of its major partner, ConocoPhillips.

Describing the exit of ConocoPhillips as a serious setback, he said the NNPC and the remaining shareholders had considered other simple options to bring the project alive.

Ihetu, the immediate past chairman of Petroleum Club, Lagos, noted that Brass LNG project had been in limbo, adding, “The company is still there but there is little or nothing going on.

“Even when Jonathan, who was from that area, was president, the project was already on ice. There were issues about shareholders, products and finance. OK LNG suffered the same fate.”

He lamented that the billions of dollars already spent on the LNG projects had been wasted.

“Money was wasted; I don’t see anybody talking about them. Have you seen NNPC talk about those two projects lately? What they are talking about is Train 7,” he said.

The NNPC and other shareholders in the Nigeria LNG Limited took the FID on the Train 7 project in December 2019 after being delayed for more than 10 years.

The Train 7 project aims to increase the company’s production capacity from 22 metric tonnes per annum to about 30 MTPA, and will form part of the investment of over $10bn, including the upstream scope of the LNG value chain, according to NLNG.

Nigeria has lost out, experts lament

Industry experts, who spoke with our correspondents in separate interviews, said the delays suffered by those big projects had deprived the economy of massive benefits.

“We have a significant amount of natural gas reserves in the country and gas has a huge potential to transform the economy of any country,” Ige told our correspondent.

According to him, gas-based industries are very crucial to creating secondary industrialisation in any country.

He said, “For you to truly industrialise a nation, you need to have significant flow of supplies of your general raw materials, and the raw materials for industrialisation include chemicals, ethylene, polyethylene, and fertiliser.

“So, by delaying this kind of project (GRIP), we have lost a major opportunity over the years to have been able to kick-start a massive secondary industrialisation, which would have been more geographically dispersed, across the country, thereby creating much-needed jobs.”

Ige said on the export side, the country’s rivals were already penetrating the markets for petrochemicals, methanol and fertiliser.

He said, “Trinidad and Tobago, for example, has gas reserve that is less than what we have in Bayelsa State but they have five to eight fertiliser plants; they are one of the biggest methanol producers in the world.

“Imagine if by now that project had matured and we had one methanol plant and one petrochemical plant – because we were talking to Saudi Arabian investors to come and build a petrochemical plant – different people would have been manufacturing different secondary things out of those – creating small to medium-scale manufacturing out of them.

“So, imagine the number of jobs that would be created, the foreign exchange earnings, import substitution that some of those things would have brought about. It’s never too late.”

The ex-NNPC executive stressed the need for competitive fiscal terms in the nation’s oil industry in order to attract investors.

“We need to improve the general ease of doing business in Nigeria; it still remains very difficult for investors to come here. We need to take a very strategic view of critical infrastructure,” he added.

A former President, Nigeria Association for Energy Economics, Prof. Adeola Adenikinji, described the Ogidigben project as critical, saying it would help deepen the domestication of the country’s gas resources and lead to significant infrastructure development.

“It will also enhance peace in the Niger Delta because people will be gainfully employed. It will reduce gas flaring, which is causing environment degradation, pollution and damage to people’s health,” he said.

Adenikinju, a member of the Monetary Policy Committee of the Central Bank of Nigeria, said the project would reduce the country’s dependence on the international markets for foreign exchange, adding that the government would be able to diversify its revenue base.

He said, “The country has been very much exposed to the volatility in the international oil market for many years because we are primary producer and exporter; we produce crude oil and gas and we just export them with little value addition and little integration to the rest of the economy. So, any time we export crude or gas, we are exporting jobs.

“There is so much need for gas in the domestic market; we need so much gas in the power sector. What we use for power is about nine per cent of our gas production, and that is even less than what we flare. The Ogidigben park is a very good project that we should not allow to die; we need to encourage all stakeholders to participate in it.”

A global risk consultancy, Control Risks, said in a recent article that the global economic disruption caused by the COVID-19 pandemic would delay future investments in West Africa.

It said in Nigeria, it would combine with regulatory uncertainty occasioned by the delay in the passage of the Petroleum Industry Bill to further discourage new investments.

Next Post

Best Small Business Loans for Felons: 5 Awesome Paths Forward

Everyone deserves a second chance, even people with a criminal record. If you’ve paid your debt to society, and it’s always been your dream to own your own business, don’t let your past mistakes defer that dream any longer, or keep you from getting financial support. It is possible for […]