Logistics: the key component

Nigeria

Simone Volpi, managing director of Intels Nigeria, talks to TOGY about the role logistics bases play in developing the country’s hydrocarbons industry and the impact that the shift in activity from onshore to offshore plays is having on logistics management. Through its subsidiary Intels Nigeria, Orlean Invest operates the Onne Port Complex and Oil & Gas Free Zone, located in the Niger Delta.

What role do onshore logistics bases play in the development of Nigeria’s growing offshore oil and gas industry?
Unfortunately, logistics is not considered a primary segment in the oil and gas industry, but at the end of the day, it is one of the major catalysts in keeping projects and operations on time and running efficiently.
About 90 percent of offshore activities in Nigeria’s hydrocarbons industry are supported from Onne’s logistics base, where 11 oil companies’ and 250 services companies’ operations are situated. Operators are drilling at water depths of more than 2,000 metres in some deepwater and ultra-deepwater areas. The future will see more of these developments.
This is creating a need for more sophisticated equipment or upgrades, both in specification and volume. An average deepwater oilfield development sees at least 50 wells drilled in a two to three year period.
While offshore rig rates are lower in the second quarter of 2015 due to the drop in oil prices, contracting seventh-generation drillships cost between $600,000 and $1 million per day in mid-2014. If any of the rigs have to halt operations due to poor supply chain or logistics management, losses can be enormous.

How does Nigeria’s lack of manufacturing capacity affect the role of logistics bases in project cost and operational efficiency?
This lack of capacity makes logistics management a critical component of maintaining cost and operational efficiency. Most material and equipment used in offshore hydrocarbons activities must be imported by freight or air.
Typically, logistics counts for up to 30 percent of project costs in the industry, but this figure is in all likelihood higher in Nigeria, due to infrastructural deficiencies in ports, roads and power supply, which are all an integral part of the supply chain.
If you order pipes for drilling, it will take six to nine months from the moment you issue your purchase order for them to arrive in Nigeria. The pipes are manufactured outside of the country – in Europe, South America, Southeast Asia or the US – and due to the different technical specifications, this equipment is not off-the-shelf. Therefore, it takes three months from the pipe mill’s purchase order receipt for the pipes to be manufactured. Then they have to be shipped, clear Customs and be brought into the logistics base in Nigeria, prior to sending them offshore.
This last part can take as long as six months. It can take up to one year before you can use these pipes in operations. If a company mistakenly does not account for 15 percent of the equipment it needs, it will have to do the entire process again for the remaining part.

What differences exist in onshore and offshore demand for well development and how does this impact logistics management?
The volume of materials needed to develop shallow-water wells is around 4,000 tonnes. In ultra-deepwater, this figure doubles to an average of 8,000 tonnes.
Increasing the volume of materials for each well has a trickle-down effect on the entire logistics management supply chain. More personnel are needed. Thus, offshore demands are greater, and even costlier a few hundred kilometres off the coast.
Greater material volumes also require bigger vessels. The average supply vessel in Nigeria in early 2015 was 100 metres long with a 9-metre draught, while the same vessels 10 to 15 years ago were 60 metres long and had a draught of 6 metres.
Nigeria needs the necessary infrastructure to support this type of activity. This requires long-term planning and investment, key ingredients for setting sound foundations for the future growth of its oil and gas industry.

Are moves being made to increase Nigerian infrastructure’s capacity in this respect?
When the Onne port was built in 1982, it had a 6-metre draught that was expanded by Intels to 10 metres, and later 12 metres in anticipation of the move to deepwater plays. This has enabled deepwater vessels that require larger draught capacity to operate in Nigeria.
While clear government policy will help drive the oil and gas industry, the required infrastructure must be present to make investment decisions and operations possible.

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