• In Current PIB Version, Money Meant For Oil Communities  May End Up In Coffers Of State Govts Like The Derivation  Fund, Which They Cannot Account For...

• Nigeria Has No Respect For Planning

The founder of Emerald Energy Resources Limited and former SPE Director, Africa Region, Dr. Emmanuel O. Egbogah recently turned 70. An honorary DSc degree holder in engineering from the University of Port Harcourt, and Bells University of Technology, Ota, Nigeria, the erudite scholar earned a PhD degree in Petroleum Reservoir Engineering from Imperial College of Science and Technology, University of London; a DIC degree in Petroleum Reservoir Engineering from the Royal School of Mines, Imperial College; an MSc degree in Petroleum Engineering from the University of Alberta; and an MSc degree in Applied Petroleum Geology from Friendship University, Moscow.  A stakeholder in the oil and gas sectors, Egbogah was Vice President, International Production, Niko Resources Ltd in Calgary; Technical Adviser and Technology Custodian for Petronas Malaysia; Enhanced Oil Recovery Adviser for Libya’s National Oil Corporation; Petroleum Engineering Manager and Enhanced Oil Recovery Specialist for Amerigo International in Calgary and Houston; and Senior Vice President Engineering with Applied Geosciences and Technology Consultants in Calgary. In this interview with CHUKS NWANNE, on occasion of his 70th birthday, the former Special Adviser to the President of Nigeria on Petroleum Matters, with more than 35 years of diversified geological and petroleum-engineering experience in Canada, the USA, the North Sea, Africa, the Middle East, and the Asia Pacific region, gives insight into the Nigeria’s oil and gas sector, spelling out the many hurdles facing Nigeria as a country.

What’s your view about the oil and gas industry?

The future of Oil and gas industry in Nigeria is quite bright. In recent times, we’ve achieved reasonable success that gives me hope that we are in a very healthy situation in terms of supplies for energy use. There has been an upsurge in the gas market and discoveries. Most of what we called stranded is no longer stranded; new technologies have afforded us the opportunity to have gas in abundance.

Beyond Nigeria, the United States, which was the world’s major consumer of gas, would soon become an exporter of LNG because of the upsurge of shale gas in America. There have been huge discoveries in parts of Africa, where nobody would have thought of exploring for gas. Places such as Uganda, Mozambique, Kenya, etc. When you look at these things, you appreciate that the industry has a great future, despite comments by pessimists that we are running out of fuel. That is not the case.

As long as we continue to make investments and efforts, we shall be making even more discoveries.

A few years back, we had only about 900 billion barrels of oil available for the world, but now we are at 1.3 trillion; that gives us a lot of hope. Nigeria is also one of the biggest custodians of natural gas in the world. We currently have about 37 billion barrels of oil in reserve, but we are hoping that in the next few years, we should be able to bring it up to 40 billion, which is a target we’ve set for ourselves. We currently have 187 tcf of proven gas reserve, that figure can go up to 600 tcf if we have dedicated  effort in gas exploration.

With all these, you can say that globally and in Nigeria, we are not under any threat of running out of fuel and power for the foreseeable future. That’s why I started by saying that the future of the industry is bright.

Would this abundance not bring a slump in price? Would the products not become worthless at some point?

It can never be worthless. As long as we require fuel and power for human development, these would always be of value. Slump and low price mean that maybe we will pay less than we used to. It is good for consumers, but maybe not good for producers.

With gas being found in so many areas in the world, and the usual Nigeria’s slow response to changes, won’t investors look elsewhere? How can we develop if we don’t change this culture?

I think you are quite right in that concern because, when opportunities open up in many places, we cannot afford to sit; we need to move forward. If we think that we will sit idly that people would come looking for us, then we haven’t woken up to what is happening around us. Gas is being discovered all around us, by countries that have clear advantages over us in terms of ability to get to the market quickly. Therefore, it is time for us to begin to look inwards; to think of how to better utilize what we have, not hoping that it will always be available to the others, because those others are now being flooded with gas from other sources of supply. Now that we see this coming, we should pay more attention to economic use within our own country. We have a lot of gas, but we are probably the lowest user of energy among all the producing countries of the world. So, we should focus on how we can use these things for our own internal development. Economically, you know we are in the doldrums and therefore, focusing more attention on the use of our God given energy is the only catalyst for our development.

Do you see gas being unhinged from oil to become a community of its own?

I don’t really see that ever happening; the linkage between the two is so intricate that I don’t see that happening. Most of the time, what the oil companies are saying, which is to their greater profitability, is indexing gas away from oil. But from the economic point of view, you find that when we are doing total economics and incremental economics, it makes a lot of difference. For them, the total one is better so that the cost of developing the gas will be put into the cost of developing the oil. That is good for them, but certainly not good for us; that’s the only difference. So, I don’t see a situation where we are going to have an unhinged situation. What is good for them is not necessarily good for us.

‘To Address The Anxiety Of Oil And Gas Indiustry, We Could Adjust The Figures In The PIB To Favour Them’

What’s your position on the current Petroleum Industry Bill (PIB), putting into consideration the many concerns from the industry people?

The oil industry is complaining about the harshness of the new PIB; I don’t agree. This is the debate I’ve been holding with them; I’m the one that supervised the writing of the PIB. I’m the one that held all these meetings with them and then they are always saying ‘harsh fiscal clauses...’ I did the economics and I did a comparative analysis of fiscal terms in 56 countries of the world, where does Nigeria stand, you will see it there. We are not the worst case, but we are not the best case.

So, what’s the best way to resolve the issue?

I personally would advocate that we adjust the numbers a little bit in favour of the industry; they have sat with me over these things and they’ve continued to complain. For instance, I advocated giving greater benefit and equity to host communities where these things are produced. They are the people, who suffer the effects that no amount of money can compensate; those are the ones I argued should get more.

The oil industry people get enough benefit and rewards. As I said, if you are paying only 40 percent before and now, I tell you to pay 61 percent, you will find it excessive. That is what it is in terms of deep offshore and things like that. But I think that eventually, we will get it resolved. I will support moderating some things to accommodate the industry, simply because the longer we delay, the more they stay on the fence. That will hurt us. No matter what happened, they are still making a lot of money; the cost of doing business here is high, but the cost of producing oil is not very high.

So, there’s a good profit margin, no matter how you look at it. I think that one other problem is that our government doesn’t know how to negotiate. If you remember that in the past, all these things were written by oil companies and given to our people. And now that we understand some of these things, we should try to do it ourselves and that’s really their biggest objection. Very soon, the PIB bill will go into public hearing and we will be there to make submissions that probably could lead to the moderation of some of these things, but there are many areas where we are not going to make any compromises. Gas is one of such areas. Until now, the oil industry has treated gas as a nuisance, no development plan, nothing at all. And now, we are saying, we can no longer do this; these are some of their objections.

Have you been following the numerous versions of PIB?

I reject the notion that we have several versions of PIB. That notion arose as a result of people’s lack of understanding of the process. When you submit a Bill to the National Assembly, it goes through a process of readings and discussions. The first reading, second reading and then the public hearing stage, where the lawmakers give members of the public the chance to make input. So, public memoranda are requested. As the government agency, we submitted a memorandum to say these are some of things that needed to be included and so did other people. These various memoranda were what people referred to as different versions of the PIB; they were not versions, it was only one Bill. I always try to correct that impression. We have only one bill, which didn’t pass the 6th Assembly. So, we resubmitted it to the 7th Assembly; it has gone through the first reading, the second reading will soon happen and then it will go for public hearing.

How confident are you of the passage of this bill?

Because it was rewritten, I don’t feel happy with the current version; I even made a recommendation to the president that it should be withdrawn and re-done. For instance, the producing community proposal that I made has been watered down to the extent that it will no longer serve the interest of the host communities. The proposal I made was 10 percent equity for the communities, but to be received in terms of dividends and to be paid directly to the communities, through the Trust System that will be set up for them.

So, it is something they should receive by themselves. I know that when it was introduced, I was challenged by the governors because they said it should be administered by  the state government and I said no. The state governments are doing a lot, but the situation has not improved. So, this one, the people should receive it directly and I made it clear that it is not a development fund. We have so many development funds in the communities; we have NDDC and others. This one should to go to the communities that suffer the hardship and the bad environment of oil production as consolation. But they have now turned it over to government; it will no longer reach the citizens as I designed it.

That is my objection to it because it will go the way of derivation and other funds we’ve had, for which the citizens have not benefitted. If you look at a state like Bayelsa, which receives one of the highest derivation, go to the place and you can tell me whether the place looks like a state that receives N60 to N70 billion a year. This is part of the reason I said the money should go to the people themselves, not to the government.

Is there any precedence for this kind of funding?

What I have done has become a model in the world; most countries that have seen it, they want to learn how to do this for themselves. I copied what was done in Alaska, USA, Papua New Guinea and many places and refined it. In Alaska, citizens get a cheque every April from the government based on the amount that is dedicated to them. But what they receive is small compared to what I designed here. In fact, in my comparison, what they receive is probably one percent of what our own people would have received if the bill was passed. In my calculation, the communities for instance, would have received more than $1 billion as dividends from this programme last year. That would have been something like N160 billion. When you calculate it against the population that will receive it which is about 16 million, you find that it is significant. Whereas in Alaska, they were receiving around 54 dollars to 80 dollars a year and they are very happy for it.

Many countries, including Iran contacted me on how to help them to design a similar scheme. Because of the novelty and benefit of this scheme, there are  six PhD students  working on that programme — three of them from Columbia University and others from Princeton University. They were all in residence with me in Abuja for a period of time studying this; it was on that basis that they invited me to give a lecture at the Woodrow Wilson Centre at Princeton University.

With your objection to state governments running the programme, how will the funds be managed to ensure it gets to the people?

That’s why we said it would be managed for them through a Trust System; we set up trusts that will manage it on their behalf and we have a system that is working. Niger Delta Exploration Company, their own is working. I designed this thing for my own company long time ago and that is what I introduced when I went to Abuja to be part of the national government. In the areas where the programme is in place, you find that the natives are working with you; you don’t hear of busted pipelines. If you burst the pipeline, there’s no more oil production; you don’t get anything. You actually own this thing yourself and you don’t burst your own pipeline. When I presented it first to President Umaru Musa Yar’Adua, he said to me, ‘Dr., this is the greatest thing that will happen to us.’ When he launched the amnesty programme, it was anchored on my proposal. To him, this is something we should have done long ago. Because the people, they own this thing. There’s no way you can burst your own pipeline; 10 percent of everything is your own, that’s very significant.

‘Nigerians Always Talk About Starting Things, But Have No Plans How That Would Happen’

As the Special Adviser to the former President  on Petroleum Matters, what were your challenges in getting issues such as this resolved?

The major problem was that we didn’t have programme of what to do. In fact, I remember that what really pushed me was that, the very first speech the president was going to make when I came on board, there was a statement there about gas flaring. They said that the law is that gas flaring would  end that November (2007) and he was to make that speech in October. So, I wondered how that would work. Nigerians always talk about starting things, but they don’t have plans on how that would happen. I said, this question of gas flaring coming to an end, you must have a plan that will lead to that happening; they just make statements and nothing happens. Till today, we don’t have any programme to end gas flaring.

I remember it was in 2005 that Obasanjo said that our wish was to achieve four million barrels of oil production and 40 million barrels of oil reserve by the year 2010. I enquired from his aide: ‘this thing that has been said, do you have plans on how to pursue it?’ He said, ‘what plan? This is what the president has said and it must be done.’ And I said, ‘how? Because they said that by 2010, we must make as much money from gas as we make from oil.’ I wanted to see the plan on how to achieve this. There was none! That was how I embarked upon what you call the gas masterplan so that we have something that can help us achieve this. We are now in 2012; we still don’t have as much money from gas as we have from oil, whereas they wanted it in 2010. But with the gas masterplan that we have now, it is possible to achieve this probably in the year 2016 to 2020. The gas masterplan still requires some tinkering with; what we have so far is inadequate.

In putting together this masterplan to solve the problem, would you think you did it too much in a hurry?

I don’t do any thing in a hurry; I’m very realistic. I am in the industry; I know what it takes to do this. Unfortunately we don’t make plans in Nigeria. Even the vision 2020 that we are going to be one of the 20 largest economies by the year 2020, it is just a statement; we didn’t develop anything from that. It is based on the study some bankers did, and identified economies that could be this in 2025, not 2020.  Achieving that must be conditional; there are things you have to do to attain that. But we are not talking about that, we are only saying, ‘in 2020 we are going to be this...’ How are you going to be this, by special magic wand? If we are able to achieve all these, then we might become one of those 20 economies; not that you are just sitting at home, eating eba, and you become one of the biggest economies? No, others are working, implementing their own plan.

Of what importance is science and technology to Nigeria, in terms of national development?

There’s a talk I have given a million times, The role of science and technology in national development; the miracle of Malaysia and the future of Nigeria, where I used Malaysia to illustrate what focus in science and technology can do for a nation. The Malaysians developed the first vision 2020 plan; they developed it in 1989 and the implementation started in 1991, where they said, ‘in 30 years, we want to be in such and such position.’ I was the nucleus of that plan, using the petroleum industry plan; that is how they expanded their 2020 vision plan. So, it involves a lot of things, including educational system. Midway, they have already achieved what they intended to achieve in 30 years. Today, nobody says that Malaysia is a Third World country because of what they’ve achieved.

When I went to Malaysia to help them develop their oil industry, Petronas, their national oil company, was just a $5.7 billion company. When we finished, you can go and check yourself, Petronas is now number 94 in the world’s 500 fortune companies; from $5.7 billion company to over $115 billion company.

When I went there, Petronas couldn’t even hold an ordinary meeting with agenda, but today, it has over 120 subsidiary companies, including aircraft manufacturing. We cannot maintain the Mickey Mouse refineries we have here; they have over seven of them that are working and providing products to the world. The structure of Petronas that I wanted is a hybrid of what we did in Malaysia, Norway and Saudi Arabia. From what we have today, NNPC will remain the way it is; completely indolent; it cannot do anything.

You had the opportunity of advising a sitting president, what stopped you from advocating for such changes then?

Well, you have to look at Nigeria. In the industry,   I’m described as man of perpetual optimism; there’s nothing man cannot do. But you only need to define the problem; if you define a problem, you can find the solution. But if you fail to define it, you will be beating about the bush. Nigeria doesn’t have a plan of how to do anything and so, we are just beating about the bush. If you have one, show it to me.

In this case, how do we define the problem?

What we call the PIB arose from the concern on how to reform the oil and gas industry in Nigeria; that’s the original thing. Now, to implement this reform, you need certain enabling laws that will help you anchor it; that’s how PIB came about. We checked all the petroleum related laws in Nigeria; they are all obsolete. In fact, when I came, I said, for us to do this reform, we need to have a national energy policy; that’s where to start from. When you want to set up a company with the Corporate Affairs Commission, they will ask if you have your vision and  mission statements — what you want to do and how you will do it.

But Nigeria in planning our economy, we don’t have vision and mission statements; that’s where planning comes in. But remember we have the Ministry of National Planning; it doesn’t plan anything. When you have a plan, then you devise a strategy for implementation of that plan; that’s how it works. We went through this process everywhere that I have worked.

Coming here, I was on the vision 2020 committee and we had to make the plan; that was the responsibility of the Finance Minister and Minister of National Planning. When they presented the plan to the team, I said, ‘this is not a plan. What you’ve presented is a checklist of what you will like to do, but this does not constitute a plan.’ We were about 20 members, including ministers and other experts. They said they don’t understand what I was saying. This is why nothing has ever been implemented in Nigeria; they write nice things and people think it’s a plan; it is just wish list! How can you say that in this country that has the greatest expertise of all developing nations of this world, that we don’t know how to do these things? But the reality is that, we don’t! If you say that Nigeria is this poor and cannot do this, people say you are insulting our country.

We have professors upon professors climbing on themselves and yet, we cannot do these things. We did it in Malaysia.  Malaysia in 1965 applied to Nigeria and Ghana to get people to run their government because they didn’t have qualified people. Today, look at where they are and look at where we are!

What are the fundamental problems of the oil and gas industry? Could possibly proffer solutions to the challenges?

When I said that Nigeria is suffering from all these, I did not mean to say that we really don’t have people who know and people who can do. The problem is that, no matter how good anybody is... in my own case, I’ve had hands-on experience on doing this and evidence of my success is incontrovertible, because you see them everywhere I have worked —  Libya, Malaysia etc. So, how come that here, you cannot see impact of my contributions; you are drawn in an ocean. When we talk about corruption, many people don’t understand what it means and what it does. In Nigeria’s case, people are actually very unwilling to make a change.

What’s the Way forward?

I think that to be able to solve the problem of Nigeria, it will take a lot of education for Nigerians themselves to understand that they do not understand what their problem is.

The gas masterplan included expectation on growing gas exports, but those projects like NLNG Train 7 have been on the back burner for sometime, what is your opinion?

When we talk about gas, the only bright star in Nigeria’s economy is the Nigeria NLNG. This is the first and only thing that has been done that actually uses Nigeria’s gas and monetises Nigeria’s gas successfully. This is the only project in Nigeria that has put money in the pockets of the Nigerian government. I know that since inception, the Six Train project has earned about 50 billion dollars, out of which they’ve paid taxes, levies, dividends and all that. In fact, it has paid dividends of about $22 billion, out of which the government received, through NNPC, which holds 49 percent equity, about 12 billion dollars.

When I visited NLNG three years ago, I did remark that it is the only company that has been putting money into the pocket of the Federal Republic of Nigeria.

As for Train Seven, there’s no question about it; we have serious reasons to advocate for Train 7, which will probably take the next four years to come to life and continue to earn Nigeria $3 billion every year, so we are looking at $12 billion  for the next four years. Not only earning this money, but the job that will be created. In fact, I think that the company was creating something like 2000 jobs every construction year and at peak, had brought 18,000 jobs for Nigeria and the locality. And Train Seven is going to create about 13,000 to 14,000 jobs in the next four years.

So, when you look at it, it is the greatest success story in this country; the brightest spot in our industry. It is so because it is very well organised and very well managed; that’s the key.

Everything is done with international best practices in mind. The Nigerian oil industry makes a lot of money too, but do you ever hear they have put 9 billion into the hands of the government, no! There’s no government interference in NLNG; you don’t have a senator who comes to tell them what to do. It is being run as a professional business. I think Train 7 is something that will bring further hope that things can actually be done in Nigeria with Nigerian gas. Even at that, Nigeria LNG Limited is not getting as much gas as it actually needs.

So, all our efforts should be to provide sufficient gas for NLNG to continue to make these wonderful contributions in the development of the Nigerian economy. It is something that we look forward to and we give all the support and encourage the government to, without any hesitation, what so ever, get this project going immediately.

Are the policy issues that were there then five years ago when you were in government that led to the FID, not being taken, gone away?

Those issues have been resolved. You will remember that the former Head of State, Chief Ernest Shonekan said there’s no reason for us to be delaying the project. I think those issues have been resolved, but I can’t say 100 percent, but to the extent that definitely, the project should go on. We are still languishing with the other two that are yet to come on stream (Brass LNG and OK LNG); Brass LNG will go, but Ok LNG, I’m not sure if the project will see the light of the day.

But for NLNG, I think the issues have been resolved. In fact, it will be a major mistake for it not to start immediately. Look at the performance data; what is the kind of policy issue will stop it? In fact, we’ve lost too much time already; if we did this five years ago, by now, we would have earned over $10 to $15 billion.

Most of the time, our decisions are clouded by political and selfish reasons. As a person and as a professional that has clear mind on how to see things, Train Seven without any question should go on. We must learn to look beyond quota system and federal character in project development. Business is mainly about economics.