By Ashton Dagana
Close your eyes for a moment. Imagine that you are a citizen of the most populous nation in Africa. Your country, Nigeria, is blessed with abundant natural resources, including huge reserves of oil and gas. Yet, generating enough electricity to power homes, not to talk of industries, remains an insurmountable challenge. These are issues that confound the everyday Nigerian, even as other developing economies on the continent continue to take bold steps towards self-sufficiency in energy, leaving the famous Giant of Africa behind.
Nigeria has a population of more than 180 million people and is expected to reach 263 million in another 12 years. This makes Nigeria the fastest growing population in the top ten most populous countries in the world. Even though Nigeria’s gross domestic product of about $500 billion makes it the largest economy in Africa, economic growth has been less than stellar and real development has failed to reflect in major sectors. For example, energy consumption of 156 kilowatt hours per capita is one of the lowest globally.
Despite having the largest proved gas reserves in Africa of 180 trillion cubic feet (tcf), production is inadequate to satisfy the government’s power generation targets. Nigeria’s gas production stands at 3.7 billion standard cubic feet per day (bcfpd), which is very low compared to Egypt’s 4.7 bcfpd and Algeria’s 8.0 bcfpd; both countries with smaller gas reserves than Nigeria.
This unfavourable status quo informed the decision of the Nigerian government to put policies towards stimulating domestic electricity generation to meet growing demand by discouraging gas flaring. The International Oil Companies (“IOCs”), that have been active in Nigeria since the 1950s, have traditionally focused on oil in Nigeria, with gas left undeveloped or flared. Nigeria has the second highest gas flaring rate globally, which was estimated to cost the Nigerian government $870 million in 2014.
In 2008, the government unveiled a Gas Master Plan aimed at addressing the shortfall of gas supply through the promotion of investment in gas infrastructure and gas fired power stations. The target of the Gas Master Plan is to expand domestic power generation from 6 GW to 40 GW by 2020. To achieve this, significant private sector investment is required in the full supply chain including generation, distribution and gas to power infrastructure and distribution networks.
Barely a year after the Gas Master Plan was unveiled, international oil companies in Nigeria shifted their focus towards large offshore projects. This created some much needed space for indigenous oil companies to become major players in the industry and contribute their quota towards the development of Nigeria’s economy through the promotion of local content especially in gas production.
Seizing on this opportunity, Seven Energy and Atlantic Energy invested more than $1 billion in capital expenditure on gas infrastructure. By so doing, these companies have become the leading integrated gas suppliers to power the industrialization of the country through delivery of processed gas into domestic market. These two companies due to their indigenous status are also better aligned with the government’s sector reforms and have helped Nigeria tremendously in moving closer to realizing the Gas Master Plan targets.
Over the last decade, gas consumption has grown in Nigeria has grown by nearly 10 percent every year, driven mostly by exports rather than domestic consumption. This is because Nigeria does not yet have the processing and distribution infrastructure to meet the potential demand of the domestic market. The domestic gas demand in Nigeria is forecast to rise to 10 bcfpd by 2020 from a current estimated demand of 2 bcfpd. Meeting this demand, and the consequent electricity output targets, makes the growth of companies like Seven Energy and Atlantic Energy even more crucial.
There is no gainsaying that a lot of the international oil companies operating in Nigeria have a lot to learn from the duo of Seven Energy and Atlantic Energy. One area that sticks out is stakeholder relations. These companies undertook an extensive stakeholder identification and mapping exercise across all footprint communities in the states in which they operate, identifying close to 300 groups. This was followed with regular engagement and interface meetings were held with the identified stakeholders to update, discuss and manage concerns.
Seven Energy also offers a Vendor’s Development Programme where local vendors are encouraged to connect with and assist one another. Bear in mind that Nigerian companies account for more than 92 percent of these vendors which underlines the commitment to building in-country manufacturing and local content growth. In 2015 alone, 42 vendors were hired under contracts covering operations vehicle leasing, manpower supplies, waste management and civil construction, at a total cost of $16.5 million. This investment has grown local businesses into measurable small and medium scale enterprises and created job opportunities at the community and local government levels.
The company has also made a significant investment of more than $200 million in local procurement of pipeline construction materials, safety wares, operations and maintenance materials and services such as environmental, security, vehicle supplies, financial, legal, insurance, telecommunication, travel and other related services. Indeed, Seven Energy’s vendor management and development strategy has continued to yield positive results through the dedicated principle of ‘first consideration for Nigerian goods and services’ in all its procurement and contract undertakings.
One other area in which Seven Energy and Atlantic Energy have excelled as indigenous companies compared with IOCs is the ratio of Nigerians employed. As at 2015, these two companies employed almost 500 people, 82 percent of which are Nigerians. In fact, 95 percent of the employees working in the offices and stations in Nigeria are Nigerians. This policy cuts across relationship and terms with contractors as well. Seven Energy employed Evomec Global Services as the principal contractor on the Oron to Creek Town gas pipeline project. A total of 512 Nigerians were employed exclusively for this project of which 219 were indigenous to Cross Rivers State, 206 to Akwa Ibom State and 87 project personnel as core staff on the project. The impact on the local employment market from this one contract is significant.
At the centre of this silent revolution by these two indigenous companies in Nigeria’s energy sector is the man, Kolawole Aluko. Mr Aluko has raised $2.4 billion capital investment into Nigeria over the last 7 years, including $1.5 billion in the last 2 years to develop ventures with Seven Energy and Atlantic Energy. These two companies are the majority funders in over 70 percent of Nigeria’s domestic gas production projects with field investment in excess of $ 2 billion.
Under Kola Aluko’s leadership, Seven Energy has completed the largest ever independent gas development project in Sub Saharan Africa with its Uquo marginal field appraisal and development to a 1Tcf asset, 200 MMcfd gas processing facilities and 227 km of pipelines providing 600 MMcfd of distribution capacity.
Currently, the duo of Seven Energy and Atlantic Energy manage the supply of gas to the 560 MW Calabar National Integrated Power Project, Alaoji Independent Power Project in Alaoji, Abia State, UNICEM Cement plant, Indorama Petrochemical, Azura IPP among others. In the process thousands of jobs have been created, and millions of dollars paid in taxes to the Nigerian government. These companies have shown that Nigerians are more than capable of providing solutions to the myriad of challenges facing this country if they are given the chance.
Ashton Dagana, a Quantity Surveyor writes from Port Harcourt.