Being A Speech Presented By The  Minister Of Petroleum Resources,  Mrs Diezani Alison-Madueke At The 2011 Annual Conference Of The National Association Of Energy Correspondents Held August 25, In Lagos.

Excerpts.

It is my pleasure to welcome you all to this year1s National Association of Energy Correspondents (NAEC) annual conference. I am particularly pleased with the positive efforts of this association towards creating awareness amongst key  gas industry anchored by the Ministry of Petroleum Resources.

We truly value and pay close attention to your feedback as a way of improving our pel1or-mallce and respect the checks and balances associated with your traditional responsibility in the fourth estate of the realm as custodians of the public trust.

I am happy to note that the topic of today’s discussion “the impact of the Petroleum Industry Bill on Nigerian Content Development” is very apt and in alignment with a major preoccupation of the Oil and Gas industry at this important juncture.

Therefore, I would like to express my appreciation to the entire members of your association for the opportunity to share the vision of the Ministry of Petroleum  Resources on this subject of critical importance with this enlightened audience. It is our hope that the strong collaboration with this important stakeholder group will strengthen the confidence and engender a better understanding of the determination of government to drive reform in the sector using the enablement of  the Nigerian Content Act and Petroleum Industry Bill when it is finally passed into law by the national assembly.

Both of these initiatives of government introduce changes of a magnitude never seen in the industry, therefore it is in our enlightened self-interest to provide clarity of vision, a roadmap for implementation, policy predictability, continuity and more importantly, assurances on peace and stability. I could not be more confident than I am today in telling you that Nigeria is firmly on course to meet each and everyone of those conditions.

By way of providing background, I will dwell a bit on an overview of the Nigerian Oil and gas industry.

Nigeria’s Oil And Gas Resources

As we ail know, Nigeria is endowed with about 187 Trillion Cubic Feet (TCF) of proven gas reserves and another estimated 600TCF of undiscovered gas potential. In addition to the gas reserves, we have over 35 billion barrels of proven oil reserves.

Our oil production is over 2 million barrels per day and we currently produce over 8 billion cubic feet of gas per day. We are also a major Liquefied Natural Gas (LNG) exporter of over 3billion cubic feet per day of gas in the form of LNG. We have also commenced export of natural gas through the West African Gas Pipeline to the Economic Community of West African States (ECOWAS) sub-region.

There is a renewed focus on the domestic gas sector for which we are driving an unprecedented growth in gas utilization from the current 1 billion cubic feet per day to about 5 billion cubic feet per day by 2015. This growth rate is forecast to be the world’s most aggressive growth in gas, stimulating an unparalleled level of investment activity in Nigeria, seen only in the early oil boom days of the 70s.

Putting it in investment perspective, to sustain the current scale of activities in the sector and fund the expected growth for the next few years, the industry need to spend about $20 billion annually. Recently, upstream gas production for the domestic market alone, has been receiving a dedicated spend of between $1.5 billion – $2 billion annually from the Federal Government of Nigeria.

Loss Opportunities

For sometime, it has been a major concern that after many decades, Contractors and multinationals that have done business worth several hundred millions of Dollars in Nigeria do not have appreciable footprint in Nigeria. Instead the trend has been to look to foreign countries for procurement of .equipment, spares and technology in support of their operations in Nigeria and the Gulf of Guinea region.

The major operators have not helped matters by reliance on the importation of goods and services from abroad without making provisions to develop sustainable capabilities within Nigeria that would support life cycle operations in Nigeria. Instead more emphasis has been placed on speedy achievement of first oil, generation of revenue without paying attention to actions that add value to the economy.

The cumulative effect of operating this model for so long is that in an industry that currently spends an average sum of $20 billion  per annum, less than $2  billion  is retained in the National economy and over $300 billion  has been lost to capital flight in this way. Of more significance is the fact that, this persistent practice has actually resulted in the export of millions of employment opportunities, opportunities for training, knowledge and technology transfer, opportunities for investment in facilities and infrastructure to support industry operations within Nigeria and denied indigenes of Nigeria the opportunity to participate in the most critical aspect of their national development activity.

The challenge therefore is for government to create the enabling environment that allows capital to flow inwards and get retained for economic growth and development. I want to reassure Nigerians and our international partners that the Government has taken firm steps to address these concerns in a structured and sustainable manner. Let me quickly share with you the specific steps we have taken in the oil and gas sector to create the required environment to support government’s transformation aspirations.

Enabling Environment

Nigerian Content Act: One of the key steps taken in recent times by government to ensure that oil and gas activities result in value retention in Nigeria is the signing of the Nigerian Content Act which came into effect in April 2010. The Act’s provisions can be presented in four main thrusts:

The introduction of a structured organization and implementation framework involving the creation of the Nigerian Content Development and Monitoring Board (NCDMB) which can issue procedure guides and empowerment for the  Minister of Petroleum to make regulations.

The provision of guarantees for indigenous participation and integration of oil producing communities into mainstreams industry activity.

Development and utilisation of local capacity by promoting education and training, employment, asset domiciliation, indigenous ownership of equipment and establishment of a fund for capacity building.

Setting of targets for specific work items to be executed in Nigeria, with monitoring framework and defined penalties for non-compliance

The implementation of the Act in the past one-year has provided immense inspiration and confidence to adopt the pilot schemes, which are already making positive and measurable impacts. From the testimonies presented at the first anniversary celebrations by the major operators, multinational and local service providers, major milestones have been achieved and the appetite for compliance is quite palpable across the industry.

Specifically, based on directives I issued in the 3rd Quarter of 2010 to the NCDMB in my capacity as the Chairman of the governing council, the following programs and interventions are at various stages of maturation. With the full support of the Federal Government. The key objective of these targeted activities is to ensure that as we progress towards the passing of the PIB, sufficient local capabilities would have been developed to execute the projects to be stimulated by the favorable terms anticipated in the PIB.

Nigerian Oil and Gas Employment Training and Tracking System (NOGETTS)  designed to retrain and provide attachment opportunities to Nigerians to prepare them for the skills required to work in the industry. This has resulted in the absorption of over 5000 engineers, geologists, welders and other skill sets into the industry and formed the basis of a national skill database.             ·

Utilisation of existing Pipe Mills and Promotion of the establishment of New Mills

Upgrade of existing Yards and development of new Shipyards and Fabyards Offshore Rig Acquisition strategy Expatriate Quota Utilisation and Management strategy Equipment and Component Manufacturing initiative Nigerian Content Development Fund (NCDF)

NOGIC JQS

It is important to emphasize at this juncture that the Nigerian Content Act is not intended to indigenize the industry or nationalise assets of investors in the Nigerian, economy. Rather, it sets out provisions that guarantee that investments made in facilities within the country will be fully utilised and we will ensure that the rights of every investor are protected under the laws.

In order to address another major aspiration of the government to unlock the enormous potential of the Nigerian domestic gas sector and attract investments even ahead of the PIB, Mr. President directed a structured accelerated implementation of the Nigerian gas masterplan.

In this regard, we have implemented the most aggressive reform of the commercial framework for gas in Nigeria to address the observed inadequacies in the erstwhile, commercial terms that stunted investment.

A more stringent and bankable contractual framework has been introduced for the gas sub-sector through the establishment and development of world class gas supply and purchase agreements, gas transmission agreements and more recently the Gas Transmission Network Code.

We also addressed a major area of vulnerability in the system, which is the risk of payment for gas consumed, particularly by government owned power companies. Consequently, we implemented the World Bank Partial Risk Guarantee, which provides a triple-A bank guarantee for suppliers against payment risks.

In addition to the above, we established the Gas Aggregation Company of Nigeria to manage access to gas in Nigeria for potential investors.

Recently, we achieved another milestone in our implementation, which is the formal launch of the Gas Revolution – a critical aspect of the Gas Master Plan that brings gas and industrialization together. The gas revolution is focused on an industrial rebirth of Nigeria through the stimulation of gas-based industries such as fertilizer, methanol and petrochemicals. These help diversify the gas sector and jumpstart industrialisation as well as the attendant job creation.

Towards this end, President Goodluck Jonathan, launched 3 major investment programmes as part of the event namely the development of Africa’s largest petrochemical complex by NNPC and its partner, the Saudi Arabian conglomerate – Xenel. This will cost about $6 billion and is planned to be in place by 2015. The President also launched the development of 1 billion cubic feet per day gas Central Processing Facility which is expected to be built by a consortium led by Agip in partnership with NNPC and Oando. Two other CPF’s (Eastern and Western) are also in the process of being developed.

These major initiatives all fall within the principles and concepts enshrined in the PIB. With continued active collaboration between the National Assembly and the Oil and Gas industry, a Petroleum Bill that will meet the long-term aspiration of Nigerians and the economic interest of all investors will be passed into law. We believe that a Bill that ensures transparency, full accountability, responsible environmental stewardship, good corporate responsibility and above all a fair reward for all stakeholders including the oil producing communities will be passed into law.

The full impact of the PIB will introduce a new culture of competition, transparency and openness in the management of the oil and gas industry. The new order will open new opportunities for investments in Exploration &Production, Refining Capacity, Gas Infrastructure, Research, Development & Innovation and Petroleum Products Distribution Assets. These investments will come through domestic savings and foreign direct investment.

Passage of the PIB will certainly unlock investments currently being held back by perceived uncertainties and there is          a major link between the PIB and NC Act implementation and the lessons we are learning from our current efforts will certainly come in handy, in the development of the post PIB structures and models.

As a government our desire is to ensure that substantial proportion of these investments are retained in Nigeria and that explains the unique provisions for Nigerian Content Development in the PIB.

Emerging Business And Investment Opportunities

As you can see from above, we have put in place all the machinery for an explosive growth in activity of the gas sector. There is an enabling environment for investment and we are continually evolving to adapt to the challenges of the time.

The investment opportunities implicit in the above are numerous, some of which include:

Engineering Design and Related Services

There will be need for world class engineering design capability to support the development of the various petrochemical, fertilizer, gas processing plants, refineries etc.

Petroleum Engineering Services – the growth of gas utilisation from 1 bcf/d to 5bcf/d will require a step growth in petroleum engineering studies, drilling activity and other related services by both NNPC and its joint venture partners. Third party support will be inevitable Fabrication and Construction – With the local content law, a significant amount of fabrication of all components will need to be done locally current in-country capacity is significantly smaller than what is required, hence there is need for investment in this area to build modern fabrication yards.

Pipe Mills, Pipe Laying and Support Activities

As part of the agenda above, we will be laying over 2,000 km of oil and gas pipelines over the next 4 years. There is need for domestic pipe mills, pipe laying equipment and services

Equipment leasing

As you can imagine, when the activity commences, the country will be a giant construction site. All sorts of heavy equipment will be required. Leasing of equipment will be a major opportunity for investors.

Logistics and Haulage – As over $40bn is planned to be expended within the next few years in both oil ,and gas activities, logistics alone is expected to account easily for 5-10% of this spend, creating a major service industry on it’s own

Financial Services – The envisaged growth will succeed only with commensurate growth in the nation’s Financial Support Services, the banking and insurance sector.

Hospitality Services – A lot of the activities will be in location where little or no facilities exist. From as early as 2012, there will be a desperate need for all sorts of hospitality services for construction workers – local and foreign

Legal Services – Numerous contractual agreements will need to be signed. This will create a lot of opportunities for legal service etc.

Civil Works – The agenda calls for major construction effort, often in hostile terrains. There will be need for both routine and specialized civil engineering capability.

These are just a few of the opportunities that will unfold as the agenda gets implemented.

To facilitate your participation in these emerging business and investment opportunities, potential investors can either direct enquiries to the Ministry of Petroleum Resources or NNPC.