Market competition in Nigeria

• On investment: “There are loads of opportunities in Nigeria in the oil and gas industry, both for oil and gas. The question is, what does the government do to unbundle these and to make them attractive to the right capital from anywhere in the world? The country is competing against the rest of the countries in Africa for the same capital.”

• On natural gas: “It is said that Nigeria is more of a gasfield than an oilfield. Our choice as a nation is clear: Do we flare it or do we monetise it?”

• On competition: “The cost per barrel here is quite low, which keeps a lot of companies here, but you need to ensure that you are competitive across board. You are not going to be competing against Mozambique only. We face competition from the likes of Ghana, South Sudan, and North Africa. People are looking for oil everywhere else in Africa. The competition is only going to increase, so the quicker Nigeria puts her laws together to retain as much value as possible, the better.”

• On regulation: “A proper governance structure for the sector is important because it is important to make sure that the minister is not too powerful – not both judge and jury – and that the NNPC is not both player and regulator.”

Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find an abridged version of our interview with Pedro Omontuemhen below.

What is the outlook for Nigeria’s refining capacity?
Nigeria is a major oil producer and yet a major importer of refined products, which is quite an irony. We produce millions of barrels of crude oil and yet we import millions of litres of refined products every year. This is because of the challenges around our refining capacity. Conventional refineries are capital-intensive projects, so financing is often an issue. To this, we have proposed the modular refineries model. Apart from financing, there is also the issues around petrol [PMS] regulation in Nigeria. While other petroleum products are deregulated, PMS prices are still regulated. So if I were to set up a 30,000 barrel modular refinery to produce PMS, the question of how much I will sell arises. Currently, the pump price is NGN 145 [USD 0.40] per litre, but we know that the landing cost of PMS is more than NGN 165 [USD 0.45] per litre. There is a differential currently being absorbed by government. This is clearly an unsustainable model, which has discouraged investments in the sector.

What measures would help Nigeria stimulate the downstream sector?
The real solution is to liberalise the downstream sector. The government has no choice. For Nigeria to encourage private investors into the modular refinery or the conventional refinery space, the downstream sector has to be liberalised. Otherwise, investors will not come in.
There are loads of opportunities in Nigeria in the oil and gas industry, both for oil and gas. The question is, what does the government do to unbundle these and to make them attractive to the right capital from anywhere in the world? The country is competing against the rest of the countries in Africa for the same capital. As a country, we need to do something quickly to attract the right level of capital to ensure we realise the massive potential available in the oil and gas industry in Nigeria.

How can gas development be promoted in Nigeria?
It is said that Nigeria is more of a gasfield than an oilfield. Our choice as a nation is clear: Do we flare it or do we monetise it? We need to think about this. Currently a lot of flaring is going on. If we want to monetise it, how do we use it effectively? We can use it for power; a number of private developers are building gas-fired power plants. But to move this gas from the gas heads to the stations, you need pipelines. Those pipelines are currently lacking.
We thus need investments in this critical infrastructure. Before you build the pipelines, you need to go to the owners of the gasfield to negotiate prices. Key considerations around pricing is what rate you will be paying, the government fixed price or the international price? Therefore, the right price for the gas and putting in place the needed infrastructure are important to maximise gas development in Nigeria.

How strong is regional competition with regards to oil and gas?
I am not sure we are doing very well as regards how competitive we are. I think we can do a lot better. Mozambique just launched their LNG plant and there is huge investment in that country at the moment. Here in Nigeria, we are still debating over the PIB [Petroleum Industry Bill], which has been going on for 15 years. If you are an investor and you are not sure what the rules are, you may be concerned. Good returns drive investment and this is subject to a stable policy environment. If the returns are not good and there is so much uncertainty, you will go somewhere else.
The cost per barrel here is quite low, which keeps a lot of companies here, but you need to ensure that you are competitive across board. You are not going to be competing against Mozambique only. We face competition from the likes of Ghana, South Sudan, and North Africa. People are looking for oil everywhere else in Africa. The competition is only going to increase, so the quicker Nigeria puts her laws together to retain as much value as possible, the better.

What are the main opportunities for investors in Nigeria?
There are loads of opportunities for investors in the oil and gas industry here, whether in the upstream, midstream or downstream. Opportunities exist regardless of whether you want to play in the services space, the refining space or transportation. That is manifested in a number of foreign-owned companies in Lagos, Abuja or Port Harcourt.
If you have an oil and gas event, more than half of the attendees will be expats. That just shows that there are opportunities here. There are risks, no doubt, but they can be significantly checked by ensuring they are working with credible parties, the right level of government officials and with the right professionals, whether in accounting, taxation or in law. Once they have taken care of that, the other risks can be mitigated while ensuring that their businesses are above board.

From a legislative point of view, what are the steps that still need to be taken?
The tax or fiscal concerns are the biggest worry for investors. Dealing with host communities is also a critical issue though oil and gas companies have over time, evolved various ways of dealing with communities. A proper governance structure for the sector is important because it is important to make sure that the minister is not too powerful – not both judge and jury – and that the NNPC is not both player and regulator.
The tax regime is very important too. As an international investor, you want to make sure that you are getting the most value for your dollar. You can take that dollar to Mexico, Australia or Indonesia, so you want to know how much you will get in return for a dollar invested here. Until investors have that certainty, the market will remain in a watch-and-wait mode.

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