Global Energy Outlook 2040

-Implications, Strategic Positioning

& Priority Actions for Nigeria

Osten Olorunsola FEI

Energy Institute – Nigeria Country Chair
The need for urgency is even more glaring now
The value of oil and gas could progressively declines the
closer we get to the “decade of energy transformation” Typical Cash Flow Profile

Declining value and Stranded

> 50% Acreages hydrocarbons
attraction for new
remain dormant assets
2007 2017 2018 2028 2029 2039

Demand, Supply, Decarbonisation Competition, Climate, Value Technology, Costs, Environment

Unattended assets from Beginning of the

past bid rounds fast end of oil & gas
losing value

Decade of
Decade of Turbulent
Energy Transition
Energy Transformation
2020 Availability, Affordability, Env Acceptabilty
C Energy Outlook 2040…..osten olorunsola Bid Round 43
The value of early preparation & value capture is huge
Turbulence
is TRUE Lost opportunity and plenty
Do of left over low value
Nothing resources
Turbulence
is FALSE Lost early value opportunity
Outlook but with plenty of left over
for Energy resources
Turbulence Turbulence
2030-2040 is TRUE Early value realization to
diversify the economy

Prepare Turbulence
is FALSE Early value realization to
for it
44 diversify the economy
 Sheikh Ahmed Zaki
Yamani
Saudi Arabia Minister of Oil and
Mineral Resources from 1962 to 1986,
and a minister in OPEC for 25 yrs.

“THE Stone Age

did not end for
lack of stone, and
the Oil Age will
end long before
the world runs out
of oil.”
46
03
Strategic Positioning &
Priority Actions
47
Nigeria’s petroleum sector needs urgent reforms

1 2
To remove To establish
• Good governance
Uncertainty • Competitiveness
• Global best
practices and ease
• Growth & LT view
• Sustainability

Inculcate good governance, clarity, certainty, controls

48 …..strengthening policies of Government…..
Through robust formulation process
Petroleum Resource Policy, Legal and Contractual
Management Framework Framework

Transparency & Accountability

1
Essence Scope Governance and
Institutions
• To provide the best possible economic 2
outcome for all Stakeholders Fiscal Framework and
Administration
• To ensure optimal utilisation of all
infrastructure 3
• To ensure operations is managed in safe Revenue Management and
and environmentally sustainable manner Distribution
• To satisfy today and ensure sufficient 4
savings for the rainy day and future Sustainable Growth &
generations Renewal
5
49
Assuring alignment of policies and laws

Petroleum
Policies • Fixing Governance
• Enabling the
Environment &
Operations
• Re-attracting
Governance Administration
Investments
• Growing the sector
Host
Fiscals
2016-17:-Convergence of all
Petroleum Community
Laws prior efforts and attempts by
government, the National
50 Assembly and the Executive
Result:- 4 Bills….. hardwiring strategic themes
• Promoting growth of • Making gas work
reserves and • Core objectives
• Aiming for unit cost
production • Design principles
• Sustaining revenues to excellence
• Design framework
government • “Drill or Drop” philosophy (in
• Incentivizing outcomes
the upstream licenses)
not efforts
• 3rd Party; removing Governance Administration
• Moving towards full market
entry barriers and driven downstream
assuring level playing
• Inclusiveness and Sustained
fields across the value Host
Fiscals
Community competitiveness
chain

…..worked through logical processes

51
Good governance will assure sectoral growth

• Will be delivered through the PIGB

• Functional and enabling institutions
• Clarity of roles and accountabilities
• Elimination of opaqueness
• No more losses and leakages
• Assurance of ease of doing business
• Technology and innovation
• Transparency and accountability
• Accurate data reporting
• Elimination of doubts and
disputes
• Increased production and
revenues (sales, royalty;
tax) to Government

The PIGB will directly impact the Federation Account through

increased revenues due to more accurate reporting and
generally more accountable business environment
52
New licensing administration will catalyze sector

• Will be delivered through the PIAB • Rapid upstream growth,

• Active acreage management
• Clarity and sanctity of terms
• Environmental management
• Abandonments & Decommissioning
• Ease of doing business
• Technology and innovation
• Transparency and accountability
production and reserves
• Revolution in the mid- and
down-streams
• Flares out
• Deregulated and liberalised
downsteam
• Increased revenues to Govt.

The PIAB will promote progressive regulations which will

immediately impact activities, full value chain extraction,
employment, productivity and revenues
53
New Fiscal regimes will stabilize growth

• Will be delivered through the PIFB • Rapid upstream growth,

• Active acreage management production and reserves
• Clarity and sanctity of terms • Revolution in the mid- and
• Environmental management down-streams
• Flares out
• Abandonments & Decommissioning
• Deregulated and
• Ease of doing business
liberalised downsteam
• Technology and innovation • Increased revenues to
• Transparency and accountability Government

The PIFB will deliver rapid growth through competitive offerings,

increased activities, rapid industrialization of the sector,
increased productivity, and catalyst for the economy in general
54
The Host Community bill will stimulate growth

• Will be delivered through the • Peaceful co-existence

PHICB
• Setting up development trust
• Assuring inclusiveness and shared
prosperity
• Infrastructure and human capital
development
between companies and
communities
• Minimal interference
• Increased uptime and
production availability
• Increased revenues to
Government

The PHICB will deliver direct stakes to petroleum operations and

promote peaceful co-existence for increased productivity and
revenues to Government
55
Avoiding dangerous pathways …. upstream indices
How wrong can things go in the short to medium terms?
Annual number of Rigs Annual oil + condensate prod mln bopd Annual oil + condensate reserves bln bbl
50 2.5 38
45 37
40 2
36
35
30 1.5 35

25 34
20 1 33
15
32
10 0.5
5 31

0 0 30

Rig activity for Daily crude oil Crude oil and

upstream operations production could condensate reserves will
could decline become about half continue to nose dive if
further within 10 years no new finds
56 Aggregate impact on revenues and the economy can only be imagined!!
And crisis that could destabilize...mid/down stream

Midstream Downstream Theft Agitation

Unrealized gas Insufficient Unrestricted Continued

to energize domestic illicit refining agitation by
industrialization refining and and attendant communities,
and other continued environmental sabotage and
domestic uses subsidization devastation crude oil theft

57
In addition to fixing specific fiscal deficiencies

Legislative Inadequate Cost assessment Lack of fiscal

obsolescence & terms for & control neutrality
uncertainties domestic refining
High barriers
- appropriateness of fiscal
regimes to entry
- definition and interpretation Challenges
issues
with current AGFA
- applicable oil price to use for
revenue determination
- cost recognition
Fiscal Zero
- capital allowances claims System royalty in
- Tax assessment & collection
- filing of returns deep
- tax appeal processes
- payment of taxes and
offshore
treatment of expired leases
Windfall Non-value
Declining Insufficient Multiple from price adding
competitiveness clarity around
taxation increases incentives
58 PSC gas
Plus chronic issues begging for answers

• Governance
• Ease of doing business
• Revenue management
• Funding
• Competitiveness (beauty +
attraction + preferred)
• Metering/Production accounting
• Data availability & reliability
• Gas to power and industries
• Midstream infrastructure
• Security of supply (PMS)

59
Helping to realize value from holistic management
Framework of petroleum decision chain

• Strategy, • Exploration & • Development • Revenue • Government • International

Consultation & Licensing Distribution Spending Oil
Institutions • Rent Extraction Companies
• Discovery & • Managing • Private Sector
Appraisal • State Participation Volatility Development • Multinational
• Transparency players
& • Monitoring • Sustainability for
Accountability Future Generation

Value = good decisions guided by good governance

Transforming oil and gas wealth into sustainable development

requires a complete chain of economic decisions and strong
foundations of good governance
61
Ultimately resolving key industry challenges
Revenues (to Govt) Investments
-Prolonged shortfalls -Dwindling; NFA mainly
-Declining production -Funding constraints/difficulties
-Shutdowns and sabotage -Declining competitiveness
-Cost creep -Reduced viability & profitability
-Price volatility -Growing business and country risk
Governance Policies & Regulations
-Opaqueness; poor management -Uncertainty and obsolescence
-Lack of transparency & -Lack of continuity; disjointed and
accountability; FAAC disputes short term views
-Delivery incapacity -Chronic revenue management issues
-Inefficiencies & unease -Struggling indigenous capacity
-Leakages and theft -People issues
62 Aggregate opportunity loss in 10 years is >US$150bln
To catalyze and strategically deliver the ERGP

…the nexus between

Nigeria’s petroleum industry reforms & its
economy

Reformed Good Strong •Productivity

Petroleum Governance Institutions •Growth Catalyze
Policies & Laws •Revenues ERGP 63
04
Conclusion
64
A sense of emergency

• With sufficient political

will, Nigeria’s petroleum
industry can be reformed
within one year following
with full implementation
of the new policies and
laws will commence
immediately.

• The outcome of the

reforms would be felt
within 3 years from the
effective date of the new
laws.
65
Sector can turnaround quickly
• Improved production days, from < 200
to > 275 per annum
• Stable production rates from current
<1.8 to 2.3 mln b/day
• Improved revenues; statutory royalty &
tax payments
• 4-5 new rigs p/annum from 2019
• At least 6 medium to large project FIDs
• 8-12 domestic gas projects
• New refineries and petrochemical
projects; at least one commissioning
per annum
• Renewed action to exploration drilling
• Active bid rounds
• Triple revenue generation; Huge
employment opportunity (direct and
66
indirect
Nigeria’s strategic targets….how great can we be?
40 bn
Crude Oil Reserve Growth bbls
4 mn Delivery will be
Daily Crude Oil Production Bbls/d underpinned by
Gas Flaring Elimination Zero Gas
Flaring
Upstream
Power Generation: 8 Bcf/d REFORMS
Electricity Generation (Gas to Power)
• New Policies
LNG Capacity Increase (NLNG Train 7 + 40
Brass LNG) MTPA • New Laws
Gas-based Industrialization - Agricultural • New Activities
Industry (Fertilizers); Construction Industry 3 Bcf/d
Midstream (Cement); Petrochemical Industry • Growth
Full Deregulation of the Downstream +$5 bn
Sector savings

Domestic Refining Capacity 1.2 mn Yes, it’s achievable!!

diversified to an industrial scale Bbls/d
Downstream 67
Finally…….the Role of the Regulator (the DPR)

68 Are these responsibilities truly fully discharged?

Osten Olorunsola

• Petroleum Geologist, Energy Consultant;

40yrs of broad industry practice and
experience (Policy, Regulation, Technical and
Commercial Operations) in Agip, Shell and
Government
• Technical Lead for the Nigeria Petroleum
Industry Bill
• Former Director of Petroleum Resources
• Retired as VP Gas & Power for Shell Sub
Sahara Africa
• Served as Snr Adviser to Minister of State
for Energy and Presidential Adviser on
Petroleum
• Fellowships:- FEI; FEEI, FNAEE
• Non Executive Director in several companies

61