New energy dynamics for NigeriaJune 12, 2020
Ado Oseragbaje, vice-president for sub-Saharan Africa at Baker Hughes, and Francis Oganya, the company’s country director for Nigeria, talk to The Energy Year about how the crisis has changed dynamics in the global energy industry and how technology can bridge emerging gaps in its operations. Baker Hughes is an energy technology company with operations in more than 120 countries.
How has the crisis changed business dynamics in the global energy industry?
Ado OSERAGBAJE: If we look at the broad macroeconomics, 2019 was a transition year. Some major FIDs took place and others were set to happen in 2020 on the back of those. Projects such as Mozambique LNG, the Sangomar field development in Senegal and Grand Tortue in Mauritania and Senegal reached FIDs, and on the back of that Nigeria LNG’s Train 7 came to an FID at the end of 2019. There were another five to six major projects that would have reached FIDs in 2020 inspired by these earlier ones.
2019 was also a landmark year for Baker Hughes, as we completed our exit from GE and repositioned as the global energy technology company. Also in that year, we made a commitment to reducing our net carbon emissions by 50% by 2030 and to achieve net-zero emissions by 2050. This was a pretty bold thing to do in 2019, particularly for an operator in the oil and gas industry. Then in 2020 you saw oil majors such as Total, Chevron and Saudi Aramco addressing the dual challenge of never-ending energy demand and the environmental impact of carbon emissions. This was the first time in my career that I saw industry leaders being very visible and vocal about what their commitments would be in this regard. For me, it was a huge step forward in our industry, and it also started at the right time, at the start of the year.
Then at the beginning of February 2020, the Covid-19 pandemic started to grow and spread out. As a result, many of these projects were put on hold or delayed due to a significant reduction in demand for virtually anything hydrocarbon related. In reality, we have three things happening: the collapsing demand; the geopolitical dynamics between Russia, Saudi Arabia and the US; and the actual physical aspect of managing the virus.
Even if the demand had stayed at 100% and been increasing, you would still have to address operationally how you keep production facilities running and stop people from getting infected and sick.
How has Baker Hughes adapted to this new reality of doing business?
AO: Our turbomachinery headquartered in Florence, Italy, was impacted early by Covid-19. Our priority was to ensure the safety and well-being of our employees but at the same time recognise the fact that because of what we do, we are at the forefront and heart of the critical energy infrastructure.
So, we were able to have the contingency plans in place to quickly identify our critical facilities, operations and employees, and those employees that could work remotely. We were also able to ensure that the supply chain that was serving those critical energy facilities could continue.
It was a very complex task to ensure that this entire chain was able to support our customers while still being able to operate in such a way that kept our employees and the wider community safe.
Another important event was having finalised our exit from GE and fully rebranded as Baker Hughes, which has helped recreate our own identity and reimagine our company – as what we describe now as the leading energy technology company.
This goal we have set is not changing in respect to what is happening now in the current environment or current dynamics. If anything, it is more important, if you look at the reduced demand and pricing, to be cheaper and more efficient. Some projects, however, may need to be reimagined in this new dynamic we face.
As for Nigeria, at the end of March 2020 we took the decision to introduce remote working for our nonessential personnel (i.e. those employees not required to be physically presented at our facilities to execute their tasks), while for the essential personnel we identified who would do what and where. This way, we made sure to be able to support our customers to either keep production going or wind down drilling in a safe and environmentally responsible manner.
With the price collapse, our customers are now very much focused on cost. So, it is our responsibility to support this cost reduction journey. The challenge that the industry faces is that it has not yet recovered from the 2014-2018 low price cycle. So, you have tightened your belt already, but now you are forced to make further reductions. The reality of tomorrow is about how we use technology to bridge that gap. You cannot always reduce the headcount or lower your rates. At some point, you need to look at how technology can bridge that gap.
Do you expect an emergence of new technologies in sub-Saharan Africa as a result of this crisis?
AO: Yes, I do. Just to give you an example, in the past this interview would have taken two weeks to put together, and now we do it in this fashion (using an online teleconferencing platform). Is it perfect compared to a human-to-human interaction? Maybe not always, but it is the result of the current situation.
Microsoft Teams and Zoom are continuing to get better, and if you look at the cost of this meeting now, it is a fraction of what it would have cost three months ago holding it in person. This is a simple example of how technology is enabling us to continue.
I think some of this will become the norm in the future. Remote working is something we already had the capability to do. There has been a reluctance to adopt, but given the reality of today, operators who want to continue to operate safely must explore technologies like remote operations. There is a push to change the operating model, which will also make it more efficient and cost effective.
Last year, we launched a joint venture called BHC3.ai with a company called C3.ai to address the Fourth Industrial Revolution, which is about how you use data and a portfolio of AI solutions for better decision making to drive improved outcomes that oil and gas businesses can use today. The reason we went with C3.ai is that we recognised that no single organisation could do this independently; it requires you to collaborate with the different aspects of the value chain. No entity can have the domain expertise across all of that.
For instance, as Baker Hughes we don’t have the programming capability or the software understanding in that depth to be able to do the design, while companies like C3.ai don’t have the domain expertise in reservoir engineering that we do. Thus, there’s a need for collaboration between the different industries to bring the right knowledge and expertise together to have a meaningful impact on the outcome for the customers’ benefits.
It is early days yet, but we have some very important successes around reliability and operational efficiency, and we continue to add new workflows and new work streams to drive even more productivity and efficiency.
Have you encountered differences in how operators approach cost reduction?
AO: Yes. I think what’s needed is a mindset of breaking away from the past. As an example, if I go to my barber after losing my job and ask him to give me the same haircut as before for half the price, it is an unrealistic expectation. The barber still has to pay his rent, pay his kids’ school fees and meet other obligations. But I can bring my cousin to his shop as an additional customer, we can use a fan instead of AC, we can use grid power instead of using the generator – it is about doing things differently.
Reflected in the oil and gas industry, such changes can be seen in remote operations, additive manufacturing, improving our logistics base and rethinking the certification approach we take. We spend so much money on certifications and revalidation just because different operators reconfigure safety requirements and call them by different names. As a result, I need to spend an inordinate amount of time and money teaching my staff the same guidelines for each of the operators.
Francis OGANYA: Baker Hughes as a company is also deploying technologies to help operators lower their cost of operations. As you may be aware, in view of current realities most of the IOCs in Nigeria have cut back their capital spending by 30%. One of our technologies that drives efficiency is remote capability. To drill a well you only need to deploy two personnel instead of six. By this we are saving the space, the cost of transportation and other related costs, all these to the customer’s benefit.
Regarding chemicals, we now use reduced volumes of chemicals to process the crude, saving operators huge amounts. So, apart from lowering rates, we offer technologies to save on costs and drive efficiency.
Which regional countries with localisation strategies can emerge stronger from this downturn?
FO: Nigeria took deliberate steps towards localisation in 2005. Accordingly, as a company we have always demonstrated our support for localisation; we started to localise most of our engineers, in addition to our leadership. In support of our sub-Saharan Africa footprint, the regional vice-president and myself, the country director, are Africans and we understand the operating terrain and peculiarities of our continent. You can say we already had very high local content as a company, so the impact is not that great, and that is why we can still operate during the lockdown. Despite the current challenges, we are confident of coming out of this situation stronger.
AO: I think the different countries are in different stages of the evolution of local content. We try to keep a consistent and regional approach in our investments and create the right balance between what a country needs for us to execute, what local capacity is available and how we can tie that together to a regional footprint. Going back to the cost efficiencies, if you don’t have the right volume in a country, there is no point creating white elephants.
We are trying to connect things, linking what we produce in Angola to Nigeria, and other aspects to Ghana, for example. Then we can start to have a regional supply chain that works from an Africa-to-Africa perspective. Every time I speak to the regulators, I pass on this message that we must look at localisation from a regional perspective because no country has the volumes to enable the continued capacity that is required.
The question is how we tie together that regional footprint while ensuring we continue to help develop the supply chain downstream of us. There are certain suppliers we have downstream that can supply not just our industry but others as well. So how do we encourage or support that broadening of our local supply chain for companies or supplies that can support multiple industries? One of the things we try to do across the continent is to jointly work with all stakeholders and to support the host governments and our host communities.
Incidentally, it is these same communities which have also been particularly impacted by Covid-19 that we are supporting through donations of sanitation and protective equipment for healthcare teams and other palliatives for members of the local communities coping with the health and economic impact of the pandemic.