July 26 2010 www.energyintelligence-ng.

com
SPE-2010
EDITION

Gas Sales Aggregation

Agreement Rekindles
Hope In Gas Development
FRONT PAGE FEATURE
INSIDE HOPES of moving from statistics to reality Alison-Madueke superintended the signing
appear to be in the offing. For the umpteenth of a world class bankable gas supply for
NATIONAL UPDATE time, Nigeria still flaunt their gas statistics power Agreement between Power Holding
with no appreciable benefit to the economy; Company of Nigeria (PHCN) and an
NNPC Explains Financial the seventh largest gas indigenous gas
Status pg2 reserves in the world with company; Pan Ocean
about 187 trillion cubic Mrs. Alison Madueke Corporation of Nigeria,
feet of proven high w h o d e s c r i b e d t h e o p e r a t o r o f t h e
CORPORATE BRIEFS quality gas reserves. NNPC/Pan Ocean Joint
CENTRICA boosts fight Geoscientists even regard c o n t r a c t s i g n i n g Venture.
against HIV/AIDS pg4 the country as a gas Mrs. Alison Madueke
province with some oil in ceremony as a landmark w h o d e s c r i b e d t h e
FEATURES i t , w h i l e t h e U . S . achievement noted that c o n t r a c t s i g n i n g
Is the World Running Geological Survey says ceremony as a landmark
Nigeria has the potential t h e A g r e e m e n t w i l l achievement noted that
out of oil? Pg12 for additional gas the Agreement will
reserves of more than underpin the supply of underpin the supply of
POWER & MINING 6 0 0 t c f . D e s p i t e t h i s 65mmcf/d of gas from Pan 65mmcf/d of gas from
FG may take loan to potential, the reality on Pan Ocean's Ogharefe
fund power projects ground is inconsistent Ocean's Ogharefe Gas Gas Plant to Egbin Power
with the expectations. Plant. She further noted
Pg9 Plant to Egbin Power that the importance of
SPECIAL REPORT Breaking The Plant. today's event is anchored
not only in the size of Gas
Pan Ocean Jinx supply, but also in the
Oil Corporation - pg 5 Recently, Petroleum Minister, Diezani integrity and robustness of the process for a
Cont. on pg 3
NATIONAL UPDATE
NNPC Explains Financial Status
GROUP Managing Director of the Nigerian National Petroleum
Corporation (NNPC), Mr. Austin Oniwon said some of the country's
past leaders unilaterally approved the withdrawal of N1.5 trillion
from the coffers of the corporation for various uses without due
process. Oniwon, who disclosed this at the investigative public
hearing organised by Senate Joint Senate Committees on Petroleum
Upstream and Downstream, had in a letter sent to the Federation
Account Allocation Committee (FAAC) confirmed that NNPC is
indeed insolvent. He said one of the past presidents unilaterally
directed NNPC to release $18 million for the establishment of a Sugar
Company without recourse to the National Assembly as provided for
by the extant laws and that the money has not been paid to the
corporation. The NNPC boss added that the Corporation was also
directed to release additional sum of N651 million for the take-off of
the Department of Petroleum Resources (DPR) but that the money was
not refunded. Oniwon who was in company with the Minister of State
for Finance, Mr. Remi Babalola, at the investigative hearing, explained
that the Corporation was unable to pay the N450 billion to Federation
A c c o u n t b e c a u s e o f i t s u n i m p r e s s i v e c a s h f l o w.
NEITI: CBN Can't Account for $16m
Oil Money
NIGERIA Extractive Industries Extractive Initiative (NEITI) said
yesterday that based on its audit of transactions in the oil and gas
sector between 1999 to 2004, the Central Bank of Nigeria (CBN) could
not account for about $16 million- that is, N2.4 billion, which the oil
companies claimed they had paid into the treasury. But CBN's Deputy
Director, Corporate Affairs, Mr. Mohammed Abdullahi said he was
not aware of the transaction and as such was not in a position to make
any comment on NEITI's claim. “I don't know anything about the
account, I don't know anything about the transaction and I cannot
comment on it,” he said. NEITI Chairman, Chief Asisi Asobie, spoke
yesterday in Abuja at a press conference on Update on Validation,
Remediation and Implementation of NEITI Audit/Reconciliation
Reports of 1999-2004 and 2005. Asobie noted that with these
discrepancies identified, there are some outstanding oil monies to be
recovered from the apex bank. “We were able to find discrepancies
sometimes, if you look at 1999-2004, which has been wholly, quote and
unquote on file. There is still outstanding sum of $16 million, which
companies claim they have paid but, which CBN cannot produce
evidence for. So for us, that is more that requires to be recovered, not
from companies now, but from the CBN,” he said. Describing NEITI as
“Publish What You Pay Plus Initiative ”, Asobie explained :“Plus is
that NEITI is on reconciliation with what the companies have
published and what government says it has recorded.”
Stakeholders seek probe of oil block
deals
A FRESH crisis of confidence may be brewing in the nation's oil
sector, over the sale of oil blocks by International Oil Companies
(IOCs) to suspected fronts, with stakeholders alleging scripted
compromise ahead of the passage of the Petroleum Industry Bill (PIB).
An investigation revealed that some IOCs, in collusion with some
indigenous operators, have been floating some companies, with local
profile, to beat PIB's provisions, which offer incentives for indigenous
companies. Already, the Trade Union Congress (TUC) and
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NIGERIA ENERGY INTELLIGENCE
Independent Shareholders' Association of Nigeria (ISAN) have called
on the Federal Government to probe the recent sale of oil blocks over
alleged under-hand dealings by some IOCs. TUC's President-
General, Peter Esele, said allegations of infractions geared towards
undermining the PIB, should be probed by the government. Esele's
position was against the backdrop of allegations that some IOCs sold
three oil blocks to foreign firms with the facade of using local
c o m p a n i e s t o b e a t t h e p r o v i s i o n s o f t h e l a w.
The TUC president, a senior employee in the oil and gas industry and
former President of the Petroleum and Natural Gas Senior Staff
Association of Nigeria (PENGASSAN) said sanctions should be
meted out to any firm found sabotaging government's efforts in the
industry
US assures of investment in Nigeria's
oil sector
UNITED States of America (USA) does not have the intention of
halting its investment in Nigeria's oil and gas sector. It has
consequently pledged to work in concert with the Nigerian National
Petroleum Corporation (NNPC) to ensure success of the reform in the
sector. The U.S. Ambassador to Nigeria, Robin Sanders, stated in
Abuja while paying an official visit to the Group Managing Director of
the NNPC, Austen Oniwon, that America would work to ensure the
passage of the Petroleum Industry Bill (PIB) which encapsulates the
oil and gas reform agenda of government.
The ambassador explained that her country's interest in Nigeria was
not just because of the strategic position it occupied in Africa and the
international community, but because of the potential it has for the
future. Sanders also disclosed that the U.S. looks forward to the
consolidation of the amnesty programme.
Oniwon, while receiving her, said that he was proud of her
achievements, especially in getting the U.S. government to have a
better understanding of Nigeria and the oil and gas sector, saying,
“throughout the difficult period of heightened militants' activities in
the Niger Delta, the U.S. never lost faith in us.”
He commiserated with the U.S. government and its people over the
huge environmental damage caused by the oil spillage from British
Petroleum's well in the Gulf of Mexico. He added that he hoped BP
would share the lessons it learnt from the incident with other industry
players with a view to averting such disasters in the future.
Oniwon also clarified that the corporation is not insolvent, adding that
the PIB was designed to make business in the Nigerian oil and gas
sector easier and more transparent.
NNPC achieves N45billion savings
from initial reforms
OVER N45 billion in savings has been achieved in the preliminary
stage of transformation of the Nigerian National Petroleum
Corporation (NNPC). This comes as its stakes in the commercial
values of International Oil Companies (IOCs) now stand at about $105
billion. The figure represents 11 percent of the NNPC's total
businesses in all producing and planned oil fields. Speaking on
current reforms and re-organisation in the NNPC, Timothy Okon, its
lead strategist and director, corporate transformation, said the key
objective of the transformation is to turn the corporation into a profit
centre. He did not give details on the aspects of the internal reforms
that led to the N45 billion savings.
NIGERIA ENERGY INTELLIGENCE FEATURES

GSAA Rekindles Hope In Gas Development

gas access and contracting which the
agreement symbolizes in the evolving
Nigerian domestic gas market.

Promises Improvement In
Energy Supply
Nigerians, who have been suffering untold
hardship over the epileptic power supply
situation in the country, are hopeful that the
signing of this gas supply agreement will
remove all encumbrances in the power
supply chain. The mystery surrounding the
unending gas supply crisis in the power
sector appears to have been unraveled with
the signing of this Agreement.

Domestic Gas Obligation

Wi t h t h e G a s S u p p l y A g g r e g a t i o n
Agreement, a Domestic Gas Supply
Obligation Regulation is now in place. The
aspiration is that at a national planning level,
the energy requirement for the country will
be rigorously determined for various
planning horizons five years, 10 years, and
so on. This plan will stipulate power
requirements, gas and other petroleum
product requirements to meet the long run
economic aspirations of the federal
government.
The domestic gas supply obligation
mandates all oil and gas companies to set
aside a pre-determined amount of gas to the
domestic market. This obligation aims to
deliver about five bcf/d by 2013 - a volume
that will drive significant economic growth.
Gas Supply and Purchase Agreement
templates are now in place for the Nigerian
domestic market. These templates will
specify the terms for gas purchase in Nigeria
and clearly stipulate liabilities and
obligations of all parties. The lack of a
sustainable commercial framework for
domestic gas will be addressed by a gas
pricing framework is now in place for the
domestic market. The framework essentially
divides the domestic market into three; the
power sector, the gas-based industries, and
the wholesale sector. The aggregate price
ensures the commerciality of supply and
should attain export parity by January 2011.
Industry experts are optimistic about the
progress made so far by the federal
government. The Nigerian Gas Association
said it is pleased with the steps taken by the
government, but the group advocated for a
balanced implementation of the gas master
plan for optimum results.
The domestic gas supply obligation mandates all oil and
gas companies to set aside a pre-determined amount of gas
to the domestic market. This obligation aims to deliver
about five bcf/d by 2013 - a volume that will drive
significant economic growth
The Nigerian Gas Master
Plan
The gas master plan aims to create a structure
that will enable Nigeria to leverage on the
multiplier effect of gas on the economy,
consolidate Nigeria's position in the high
value export markets, and manage the gas
asset for national energy security. These
objectives are to be achieved through focus
on four key areas through; a short term gas
availability that will focus on meeting
immediate power sector requirements, jump-
start the domestic gas-based industries and
more importantly, provide a base load of
domestic gas volumes that will underpin a
major investment in gas infrastructure.
It is anticipated that this will set the tune for a
s u s t a i n a b l e c o m m e r c i a l f r a m e wo r k
underpinned by credible and enforceable gas
contracts, and a price regime that is
commercially driven and recognizes the long
term affordability across different buyers.
This is expected to encourage investment in
building a domestic gas infrastructure that
will ensure accelerated supply growth in line
with demand growth.
Part of the plan is also to introduce a gas-
based economy in the Niger Delta, to drive a
rapid industrialization and ownership
amongst the states and host communities.
The Nigeria Gas Association (NGA) has
charged the Federal Government to continue
its gas development, stressing that the total
adherence to the Domestic Gas Supply
Obligation (DSO) by operators would also
boost the development. Federal Government
had threatened to fully enforce penalty on oil
majors that henceforth violate the Domestic
Gas Supply Obligation (DSO). The progress
made in the gas sector, notwithstanding, the
Nigeria Gas Association still has significant
challenge in achieving alignment among the
independent parties involved in the gas
delivery for power, as the agreed strategies
for gas supply in some instance are not being
implemented.

3
CORPORATE BRIEFS
CENTRICA boosts fight against
HIV/AIDS
CENTRICA Energy, global integrated energy company, organized
a citizenry education and community awareness campaign on the
acquired immune deficiency syndrome, otherwise known as
HIV/AIDS in Ewang community of Akwa Ibom State. The campaign is
a further demonstration of the premium Centrica places on human life
and community health. The campaign, held in conjunction with the
World Health Organisation educated the participants on various
aspects of the disease including ways of transmission, caring for the
people living with HIV/AIDS (PLWHAs) and on the need to avoid
stigmatization of and discrimination against PLWHAs. According to
Mr. Stuart Connal, Managing Director of Centrica Resources Nigeria,
“HIV/AIDS is one of the greatest killer diseases in sub-Saharan Africa.
We therefore see this initiative as our humble contribution to the fight
against this global pandemic. We hope this programme will assist the
community, especially the youths, appreciate the possibility of a
generation without HIV/AIDS through the avoidance of lifestyles and
habits that render them prone to the disease”. Mr. Connal noted that
recent reports on HIV/AIDS in Nigeria show that about 3.6 per cent of
the 149 million population are infected with the disease, while over
192,000 died in 2009 alone. This worrisome situation, he said
prompted Centrica to come up with the initiative. Connal said that
“the programme is in tandem with the National Strategic Framework
on AIDS which is aimed at providing access to quality care and
support services to at least 50 per cent of people living with the disease
by 2015”.
AGIP Bid for NPDC Oil Block
Thwarted
A bid by Italy's multinational oil subsidiary in Nigeria Agip Energy
and Natural Resources and a local oil firm Allied Energy to take over
the most prolific oil mining lease held by the Nigerian Petroleum
Development Company (NPDC) has been stopped by the
management of the Nigerian National Petroleum Corporation and the
NPDC branch of the Petroleum and Natural Gas Senior Staff
Association of Nigeria (PENGASSAN). NPDC, a wholly owned
subsidiary of NNPC, is the exploration and production arm of the
state-run oil company and holds all of its assets and working interest
in some 18 oil leases located mostly in the continental shelf and
onshore in the Niger Delta. Agip is said to have made overtures to the
presidency to construct a 450 megawatt thermal power station in
exchange for 40 per cent of NPDC's stake in oil mining lease (OML)
119, which would have served as guarantee for the proposed power
station. On the other hand, Allied Energy, an indigenous oil firm
belonging to Houston-based billionaire oil magnate Kase Lawal,
would have taken 20 per cent of the block. The deal has been in the
pipeline for several months stretching back to the days of NNPC's
erstwhile group managing director Mohammed Barkindo and was
about to get the endorsement of the presidency eager to encourage
private sector investment in the power sector.
$7b asset sale to Apache puts BP back
on road to recovery
BP rose in London trading yesterday after agreeing to sell oil and gas
fields in the US, Canada and Egypt to Apache for $7 billion (Dh25.7
billion), raising cash to meet the costs of the Gulf of Mexico spill.
BP climbed as much as 4 per cent and traded at 402.65 pence. The stock
4
NIGERIA ENERGY INTELLIGENCE
is down 39 per cent since the Deepwater Horizon rig exploded on April
20, killing 11 workers and triggering the worst oil spill in US history.
Europe's largest oil producer by volume said last month it would sell
$10 billion of assets to raise cash for the $20 billion fund demanded by
US President Barack Obama to compensate victims of the oil spill. BP
said that it plans to sell assets in Pakistan and Vietnam, and the
company was said to be in talks with Apache about selling half its stake
in Alaska's Prudhoe Bay oil field. “It's a nice tidying up of the
portfolio," said Iain Armstrong, an analyst at Brewin Dolphin, which
overseas more than $31 billion in London, including BP shares. "If they
can get rid of Vietnam and Pakistan assets as well, even better." Apache
will buy BP's Permian Basin holdings in Texas and southeast New
Mexico and gas properties in western Canada, London-based BP said
Tuesday after the close of trading. BP also agreed to sell exploration
concessions in Egypt.
India may buy BP stake in Vietnam
INDIA may consider buying BP's stake in a natural gas field in
Vietnam after the British company battling the worst US oil spill
agreed to sell assets as part of a plan to raise funds to meet liabilities.
"We have read that BP may offer its stake in the field and we will be
very happy to consider it," Indian Oil Minister Murli Deora said by
telephone yesterday from Vietnam. Deora said he will discuss the plan
with Vietnamese Prime Minister Nguyen Tan Dung tomorrow. BP has
said it plans to sell some $10 billion (Dh36 billion) of assets over 12
months to help pay for damages related to the Gulf of Mexico oil
disaster. Oil & Natural Gas Corp (ONGC), India's biggest energy
exploration company, is spearheading the South Asian nation's quest
for energy resources overseas, competing with China for fields from
Africa to Venezuela. "Vietnam as a geography will be easy for
investments and ONGC knows the geology of the area," said Jigar
Shah, head of research at Kim Eng Securities India in Mumbai. "ONGC
has been trying very hard to expand overseas and this is a good
opportunity."
Occidental, Pertamina eye Sonangol's
Iraq fields
US oil major Occidental Petroleum and Indonesian state oil firm
Pertamina have shown an interest in taking a stake in Sonangol's two
Iraqi oilfield development projects, a company official said .
"Our proposal will be for Sonangol to have a percentage of 45 per cent
... in Najmah and Qayara," Sonangol executive J. da Graca Luis told
Reporters in Baghdad on the sidelines of a meeting between oil
companies and the Oil Ministry. “The rest will be for Occidental or
Pertamina or whoever," said Luis, who is the Angolan state oil firm's
asset manager for Najmah and Qayara. Sonangol currently has a 75 per
cent stake in the oilfield projects, with the Iraqi state oil company
holding 25%. The fields are among a series awarded to companies last
year which could catapult Iraq into the top ranks of global oil powers,
potentially rivalling Saudi Arabia with a production capacity of 12
million barrels per day within seven years. The Qayara field, with an
estimated 800 million barrels, and Najmah with 900 million are in
Nineveh province in Iraq's north, where Sunni insurgents including Al
Qaida remain active. It remains one of the most dangerous areas of the
country despite a sharp fall in overall violence elsewhere. Luis said the
aim of enticing other international partners into the ventures was to
spread the risk and investment costs. The company clinched the deals
with an offer of a $6 a barrel remuneration fee and a plateau
production target of 110,000 bpd for Najmah, and a fee of $5 a barrel
and output target of 120,000 bpd for Qayara.
NIGERIA ENERGY INTELLIGENCE SPECIAL REPORT

PAN OCEAN:
Consolidating on all Frontiers
By Frank Uzuegbunam & Stephen Ishola

P AN Ocean Oil Corporation,

operator of Pan Ocean/NNPC Joint
Venture recently hit the headlines
with the signing of Gas Sales
Aggregation Agreement with PHCN. The
Gas Sales Aggregation Agreement include
the supply of 65mmscf/d of gas to Egbin
Power Station from its Ovade-Ogharefe Gas
Processing Plant. This landmark achievement
was performed before the Minister of
Petroleum, Diezani Alison-Madueke;
Minister of State for Power, Nuhu Wya
amongst top ranking officials from NNPC,
PHCN and other stakeholders. Pan
Ocean/NNPC Joint Venture became the first
of the three planned suppliers of gas to the Ovade-Ogharefe Gas Processing Plant at night
Egbin Power Station to sign the agreement.
The other two are SPDC/NNPC and Highlights Of Gas Sales
Chevron/NNPC Joint Ventures. Pan Ocean has shown
It is noteworthy that the Pan Ocean/NNPC Aggregation Agreement
Gas Sales Aggregation Agreement with through its gas initiative The agreement includes obligations and
PHCN is coming with the Federal
Government's approval of a new gas
that it is indeed a trail blazer liabilities in gas supply. Off-take are now
explicitly specified, thereby removing the
supply/purchase template which will serve in its operations displaying current situation of supply or off-take on
as the format for all gas transactions in the
gas-to-power domestic market. The gas
excellence, dynamism, and best endeavor basis.

supply/purchase agreement, according to the
Petroleum Minister, has been designed in
such a way that the gas and power sectors
would have bankable instrument that is
robust enough to attract external finance as
well as provide for new investors to engage in
supply development for the power and other
domestic markets. The Gas Sales Aggregation
Agreement will also help potential investors
in Independent Power Projects (IPPs) to have
immediate visibility of the terms and
conditions of gas supply in Nigeria, hence
expediting their investment decision.
Pan Ocean's Ovade-Ogharefe Gas
Processing Plant is an initiative in line with
the Federal Government position to end gas
flaring in the country through the harnessing
of flared gas; the gas plant stands unrivalled
in its pace setting achievement of being the
largest Carbon Emission Reduction Project in
West Africa currently. The Ovade-Ogharefe
Gas Plant (OOGP) will also supply lean gas to
the National Integrated Power Project (NIPP)
Plant situated at Ihobbor, Edo State and
provide LPG (Liquefied Petroleum Gas) to
the extraordinary talent of When gas is supplied, it must be taken and
its workforce. The company vice-versa, otherwise penalties (take or
pay) apply.
pioneered Gas Utilization
Clear line of sight between buyers and
Project in spite of the
supplier of gas is now being established
challenges of an through this legally binding contract.
It provides platform for the immediate
unapproved gas bill, an rollout of the new gas price to power.
underdeveloped and
It allows a clear and transparent
unstructured gas market. segregation of value chain by separating
the gas transmission agreement thereby
enabling transparency in pricing and
liability.
Nigeria's domestic market when fully
commissioned.
Contractual process must be such that it
Pan Ocean has shown through its gas
enforces performance of all players in the
initiative that it is indeed a trail blazer in its
value chain from producer to the up-taker.
operations displaying excellence, dynamism,
and the extraordinary talent of its workforce.
The company pioneered Gas Utilization Performance is crucial to the
Project in spite of the challenges of an sustainability of supply.
Continues on page 6
5
 SPECIAL REPORT
PAN OCEAN: Consolidating on all Frontiers
Continued from page 5
unapproved gas bill, an underdeveloped and
unstructured gas market.
Gas utilization has been in the fore front of
Pan Ocean's plan since 1984. In 2007, it signed
a $144 million contract agreement with
Lemna Energy Resource for the 1st phase of
the Gas Processing Plant Project which
involves Engineering, Procurement,
Installation and Commissioning of the
compression stations alongside other
facilities such as dehydration, combined dew
point reduction/mechanical refrigeration
system and other facilities, ancillaries and
utilities to achieve safe and continuous
operability of the plant.
In all, Pan Ocean will invest over $250 million
in the Ovade-Ogharefe Gas Processing Plant
project. This project when full at capacity
will provide 135 million standard cubic feet
per day for electricity.
The United Nations Clean Development
Mechanism (CDM) of the Kyoto Protocol is
designed to reduce green house emission by
more than two million tonnes of carbon
dioxide annually. It will address the negative
effects of global warming. The Gas
Processing Plant at Ovade-Ogharefe is
registered under the United Nations Clean
development Mechanism (CDM). It should
be noted that amongst oil companies
operating in Nigeria, (government and
individuals) that set up power plants and
several other facilities in the last few years,
Pan Ocean was one of the few that pioneered
the initiative.
Pushing on with Exploration &
Production
Pan Ocean/NNPC Joint Venture carries out
its activities from OML-98 situated onshore
at the northern fringes of the Niger Delta.
OML 98 is a 523 sq.km land mass positioned
between Edo and Delta states. The company
has persistently continued its drilling
campaign in the Niger Delta with a bid to
building on existing reserves. Its corporate
model of continuous improvement through
performance standards is designed to
facilitate continuous growth and financial
stability. The company has acquired another
rig and purchased Oil Prospecting License
275 (OPL 275) during the 2007 bid round.
OPL 275 will be operated as a Production
Sharing Contract (PSC). In 2009, Pan Ocean
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NIGERIA ENERGY INTELLIGENCE
signed a Production Sharing Contract (PSC) growth for Pan Ocean.”
with the NNPC on Oil Prospecting License
(OPL) 275.
Petroleum Industry Bill (PIB)
According to the Chairman/Managing
Director of Pan Ocean, Dr.Festus Fadeyi,
Buy-in
“The last couple of years have been The Petroleum Industry Bill is aimed at
momentous for most business organizations revolutionizing the Nigerian oil and gas
including oil and gas exploration and industry while ensuring that Nigerians reap
production companies. For Pan Ocean, it has the full benefit of the nation's natural
been a significant period for several reasons, resources. While the bill has been
chief among which is the total shut in of our controversial in some quarters especially
producing operations because of challenges amongst the International Oil Companies, it
in the Niger Delta. Secondly, and in spite of is still commonly believed that the new
those challenges, the last couple of years have Petroleum Industry Bill (PIB) will
been a period of self rebirth, rediscovery and
Continues on page 7
Interview with Head of Corporate Strategy, Adesina Shittu
Question: How will you access the
Nigerian Gas Masterplan and its
implementation so far?
Answer: The Nigerian Gas Masterplan
seeks to develop the hitherto moribund
Nigerian Gas Industry to a vibrant industry
with the ultimate objective of having a
willing seller and a willing buyer situation
d o w n t h e l i n e . E ve n t h o u g h t h e
implementation has been delayed, a lot of
momentum is being generated which will
be good for the industry. Adesina Shittu; Head, Corporate Strategy
Question: What are your expectations Question: Recently, PHCN and NNPC-
from the new gas supply/purchase Pan Ocean JV signed a gas deal which has
template for the gas-to-power domestic been described as a landmark achievement
by stakeholders. What are the highlights of
market being fashioned by the federal
government? the agreement?
Answer: The expectation is that it will Answer: The agreement provides that Pan
Ocean will supply for the next ten years,
facilitate the development of the Gas
55mmscf/day to Egbin Power Station Plc
market and the graduated pricing structure
(PHCN).
being put in place will encourage further
investment in the sector.
Question: Where do you see Pan Ocean
Question: What are the legal and Gas projects five years from now?
regulatory issues which can put the Nigeria
gas sector on the right footing? Answer: Pan Ocean would have
completed the second phase of the project
Answer: The Nigerian Gas masterplan if and have an expansion to 200MMSCF/day
fully implemented will help to put the by the end of the five year period.
market in the right footing as well as the
Petroleum Industry Bill.
NIGERIA ENERGY INTELLIGENCE SPECIAL REPORT

PAN OCEAN: Consolidating on all Frontiers

Continued from page 6

significantly impact the industry. The PIB

comes with it, a range of opportunities,
challenges and macro-economic gains for
both the energy sector and its related sub
sectors.
Pan Ocean is confident that the PIB will
ease the burden on many businesses and help
in enhancing business focus and processes
used in the sector as a whole. Despite the
drop in oil prices, energy remains a high
priority on the government's agenda, and
new policies remain committed to
prioritizing use of alternative energies to
reduce pollution and promote gas utilization.

Re-defining Corporate Social

Responsibility
Pan Ocean's community relations strategy is
hinged on one cardinal principle to improve
the quality of life, and be a medium for
development and social change within and
beyond its area of operations.
Pan Ocean is committed to maintaining
cordial relationships with its neighbouring
communities. These communities spread
across Delta and Edo which is the hub of Pan
Ocean's operations and Lagos State where the
Editorial Director: Frank Uzuegbunam
Editorial Advisers/Contributors
Prof. Wumi Iledare
Dr. Adeoye Adefulu
Sonny Obienu
Abubakar Atiku Nuhu-Koko
Alexandra Gillies
Val Ezeokeke
Design/Graphics Consultant: Felix Omoregbe
Design/Graphics: Adebayo Balogun
Reporter/Researcher: Stephen Ishola
Marketing: Ijeoma Nwimo
Research/Production Assistants:
Chizoba Asiegbu
Ikechukwu Nzemerenwa
Editorial/Advert Bureau
BluefieldAFRICA Ltd
No. 11 Olufunmilola Okikiolu Street
Off Toyin Street, Ikeja Lagos.
Tel: 01-7407875
E-mail: info@energyintelligence-ng.com
Bluefieldafrica@yahoo.com
Www.energyintelligence-ng.com
Ovade-Ogharefe Gas Processing Plant
Pan Ocean's community relations strategy is hinged on one cardinal
principle to improve the quality of life, and be a medium for
development and social change within and beyond its area of
operations.
corporate headquarters is situated. Pan
Ocean supports various community groups
and funds a multitude of non-profit
organizations.
Pan Ocean's community engagement is
governed by the following principles; operate
in a responsible, ethical and honest manner in
all dealings and negotiation; ensure two-way
communication between the communities
and Pan Ocean; provide communication
channels which may be accessed by the
c o m m u n i t i e s . O ve r t h e ye a r s , t h i s
fundamental goal has been pursued in
collaboration with the joint venture partner-
Nigerian National Petroleum Corporation
(NNPC), whose tremendous encouragement
and support is an asset to these programmes
and activities.
Pan Ocean has successfully implemented
various community development projects
such as the building of roads, construction of
new community town halls and schools, as
well as the renovation and furnishing of
existing ones. The company also offers
scholarships to students from neighbouring
communities ensuring the overall
development of the oil producing areas.
In Ovade, Delta State, Pan Ocean provided
the community with a clinic equipped with
Doctor/Nurse quarters. In addition, the
corporation constructed one block of five
classrooms and furnished the Ovade School
with desks and chairs and asphalted 6.5km
access road for the community.
Similar projects were also carried out in
Otefe and Amukpe to demonstrate Pan
Ocean's drive in improving the quality of life
in its neighbouring communities. Between
2001 and 2009, Pan Ocean has completed
over 25 projects in these communities. In
Iguelaba, Edo State, Pan Ocean provided the
community with a town hall, fifty market
stalls and a borehole system with a 13.5KVA
generating set. The neighbouring
communities of Ologbo and Obayantor have
also benefited from Pan Ocean's community
development initiatives. Pan Ocean is poised
to continue to lend its support to the
development of various initiatives that
positively impact on its communities and the
environment.

7
NEWS NIGERIA ENERGY INTELLIGENCE

and follows the government's decision in May to double the price at

Excess Crude: Govs Want $3bn Shared which the explorer sells gas. India is ramping up gas output at the
GOVERNORS from the 36 states of the federation are mounting fastest pace in the world, according to BP's 2010 Statistical Review of
World Energy, after companies including Reliance Industries
pressure on the Federal Government to share another $3 billion be
discovered new fields. "ONGC has been discovering new reserves for
shared from the savings in Excess Crude Account (ECA). The
a while but the concern is being able to convert them to production,"
governors, made the demand at the recent National Economic Council
said Rohit Ahuja, a Mumbai-based analyst with Centrum Broking in
(NEC) meeting in Abuja.
Mumbai. "The company is looking to address this with the very good
Already, the governors, according to sources, are currently
discoveries they have in the east coast." The producer of almost 25 per
mounting pressure that an emergency Federation Account Allocation
cent of the crude oil used by India, Asia's third-largest energy-
Comm-ittee (FAAC) be convened to create an avenue to deliberate on
consuming nation, is starting new fields at home as output declined at
how the $3 billion should be shared. The ECA, which was created by
aging areas off the west coast. Reserves added in fields operated by
the government of ex-President Olusegun Obasanjo in 2003 when Dr.
ONGC in the year ended March was the equivalent of 82.98 million
Ngozi Okonjo-Iweala was the Finance Minister, is where the difference
metric tonnes, the highest in the past 20 years, the explorer said April
between budget benchmark price for oil and the actual market price is
26.
saved. The ECA, which is currently believed to hold up to $4 billion, is
meant to mitigate the effect of boom-bust cycle of crude oil revenue.
Crude oil sales account for over 80 per cent of budgetary revenues in Chinese demand for LNG likely to
Nigeria and 95 per cent of foreign exchange earnings. But Nigeria has
been lucky since the beginning of this year with average crude oil price rise 48%
hovering between $74 and $77 and currently selling for $78.55 per CHINA'S demand for liquefied natural gas may increase 48 per cent
barrel as at the yesterday as against the budget benchmark of $67,
in 2020 from an earlier forecast as the cleaner-burning fuel displaces
meaning that there has been some accrual to the ECA. Experts have
oil, Wood Mackenzie Consultants said. LNG consumption in 2020
suggested that crude oil price is likely to remain steady at $79 per
may reach 46 million metric tonnes a year from a previous estimate of
barrel for the rest of this year. When late President Umaru Yar'Adua
31 million from end-2009, the Edinburgh-based energy consultants
was sworn in on May 29th, 2007, the ECA held $20billion, out of which
said in a report titled "Race for Supply - The Future of China's Gas
$5 billion had been pledged by the three tiers of government to the
Market." "This strong demand growth will not purely be driven by
National Independent Power Project (NIPP), which jointly own the
gross domestic product," Gavin Thompson, China gas study director
account. In 2008, the ECA dropped to $15 billion. By end of 2009 it had
for Wood Mackenzie, said. "The gas demand story is about displacing
dropped to $.6.5billion and currently holds about $4billion.
oil products, not coal, in the industrial and residential sectors." China's
economy expanded 10.3 per cent in the second quarter from a year
BP names Dudley as new CEO, takes earlier, down from 11.9 per cent the previous three months, after the
government tempered credit expansion, investment spending and
$32b hit for oil spill property speculation. The nation's gas demand may rise to 43 billion
BP PLC says that Tony Hayward will step down as Chief Executive cubic feet a day (444 billion cubic metres) in 2030 from 9 billion cubic
feet a day last year, with strongest growth prior to 2020, according to
Officer from October 1, to be succeeded by American Robert Dudley.
excerpts from the Wood Mackenzie report.
In a statement accompanying its earnings update, BP says that the
decision was made by "mutual agreement." BP also reports that it has
taken a pretax charge of $32.2 billion for the Gulf of Mexico spill, and US crude likely to average $79.44 this
plans to sell assets for up to $30 billion over the next 18 months. The
company says that Dudley will be based in London when he takes up year
his appointment and will hand over his present duties in the United US crude oil is expected to average $79.44 a barrel in 2010, a slight
States to Lamar McKay the chairman and president of BP America.
decline from the June poll and the third consecutive lower monthly
Hayward will remain on the board until November 30 and BP plans to
forecast. The poll of 31 analysts, banks and government agencies
nominate him as a non-executive director of its Russian joint venture
showed a lower consensus forecast, and respondents cited Chinese
TNK-BP.
macroeconomic policy, global oversupply and a seasonal drop in
demand to explain their forecasts. Oil has averaged above $75 a barrel
ONGC will spend $5b to boost gas in 2010, its second highest average price ever, but has come up against
resistance any higher, as disparate global data shows a fragile recovery
output 60% in six years from the economic recession has only just begun to take hold. "It will
Oil & Natural Gas, India's biggest energy explorer, plans to spend a not be well into third quarter that oil decisively breaks above $80 per
record $5 billion (Dh18.4 billion) to develop gas fields to boost output barrel," said senior analyst Harry Tchilinguirian at BNP Paribas, who
by almost 60 per cent in six years, two people with direct knowledge of left US crude forecasts unchanged based on a strong dollar and recent
the matter said. The New Delhi-based explorer sought permission Chinese currency moves. Last month China reformed its currency by
from the country's oil and gas regulator on July 16 to invest the funds in increasing the yuan's flexibility and ending a 23-month-old peg to the
nine natural gas discoveries off India's east coast to produce 35 million dollar. China's central bank sent clear signals it would keep an
cubic metres a day by 2016, one person said, declining to be identified appropriately loose monetary policy.
before the Directorate General of Hydrocarbons approves the plan.
The amount is triple ONGC's planned spending on its largest oil field

8
NIGERIA ENERGY INTELLIGENCE
FG May Take Loans To Fund Power
Projects, Others
VICE PRESIDENT Namadi Sambo said that the Federal
Government was looking towards the direction of concessionary and
cheap loans as a way to surmount the huge funding challenges being
encountered in its quest to provide adequate infrastructure for the
t e a m i n g N i g e r i a n p o p u l a t i o n .
He stated that “power is an emergency issue and takes precedence in
implementation of government programmes.”
Vice President Sambo while receiving the contractors handling the
National Independent Power Projects in Sapele, Calabar and Uromi
Power plants, said the Federal Government was strategizing on ways
to meet the funding requirements for infrastructural development in
the country. He stated that the Yen Credit facility recently resuscitated
by the Japanese government to which Nigeria is privy would go a long
way in assisting Nigeria to meet her infrastructural needs.
Vice President Sambo urged the delegation to partner the Federal
Government in setting up Coal Power Plants, considering the huge
deposits of coal in Nigeria, which runs into trillions of tones, citing the
Gombe deposit. He also called on the Japanese company to consider
partnering with government in the provision of Hydro Power Projects
like that of Mambilla and rehabilitation of the Jeba Hydro Power Plant,
adding that Nigeria has several large, medium and small dams that
can accommodate hydro power plants. Sambo assured the
contractors that government would assist companies that are ready to
partner with her in providing adequate infrastructure in the country
by helping to secure such facilities as insurance cover, guarantees from
reputable international organizations like the World Bank (MIGA)
unit, Islamic Development Bank (IDB) and African Development Bank
(AFDB). Vice President Sambo commended Marubeni for the progress
made so far in handling its power projects, but expressed concern over
the lack of coordination among the contractors and other stakeholders
handling power projects.
NERC Inaugurates Panels to Boost
Electricity Supply
FOLLOWING the successful constitution of the Initial
Stakeholders Advisory Panel (ISAP) for Grid, Distribution and
Metering Codes by the Nigerian Electricity Regulatory Commission
(NERC), the commission has inaugurated stakeholders in the industry
selected to serve on the Code Panels to boost the efficiency of the
electricity supply industry in Nigeria. The Code Panels are headed by
the Special Assistant on Power to President Goodluck Jonathan,
Akinwunmi Bada as the Chairman of the Grid Code Review Panel,
Abiodun Ajifowobaje, Chairman of the Distribution Code Review
Panel and Emmanuel Ezekwere as the Chairman of the Metering
Code Panel. The panels are expected to take on the function of
reviewing, monitoring and implementing the constituted codes as
part of the reforms within the electricity industry. They are saddled
with the responsibility of ensuring standardization in electricity
delivery in the country. Inaugurating the Code Panels in Abuja,
Administrator of NERC, Mallam Imamuddeen Talba, stated that the
members of the panels were selected with contributions from
stakeholders in Nigerian electricity industry. Talba who was
represented by Head of Legal, Licensing and Enforcement of NERC,
Mrs. Olufunke Dinnah, explained that members of the panels have
been nominated to change the course of electricity delivery to ensure
high efficiency of existing networks and safety of utility workers and
members of the public.
POWER & MINING
FG Pays Electricity Workers N5b to
Stop Strike
TO avert an indefinite strike action by electricity workers scheduled
to begin across the country, the federal government said that it has
released N5 billion as part-payment to settle the workers'
monetization arrears. The money, the government stated, has already
been paid to the account of Power Holding Company of Nigeria for
immediate disbursement to the workers. According to a statement
signed by his Special Assistant, Media, Yakubu Lawal and made
available in Abuja, the Minister of State for Power Nuhu Somo Wya
said government has also appointed consultants to carry out the
verification of monetization claims forwarded by PHCN.
Wya said adequate arrangements were made in the supplementary
budget passed by the National Assembly to address the workers
demands. He stressed that the action by the federal government was
an indication of its concern for the welfare of the workers, particularly
now that power is being treated as a number one priority by the
government. Electricity workers under the aegis of the National
Union of Electricity Employees had threatened to go on strike to
protest against federal government's planned privatisation of the
PHCN and failure to pay the workers accrued benefits amounting to
over N69 billion.
One killed, two injured in Russian
mine blast
AN explosion in a Russian coal mine killed a miner and injured two
others, officials said. "An explosion took place at the Krasnogorskaya
mine in the Kemerovo region," about 3,500 kilometres (2,200 miles)
east of Moscow, a spokeswoman for the emergency situations
ministry said. Sixty-four people were working underground at the
time of the blast, she said, adding that all survivors had been
evacuated. The spokeswoman had earlier said there were 67 people in
the pit when the explosion occurred. A miner was killed "and his body
was found by rescuers," she said, adding that two of the evacuated
were hospitalised for burn injuries. Initial reports said the accident
appeared to be a methane gas explosion. Deadly mine accidents are
relatively common in Russia because of ageing infrastructure,
violations of ventilation safety requirements and tampering with gas-
level monitoring equipment. In May, at least 67 miners and rescue
workers died in methane blasts at a coal mine in southern Siberia. The
disaster was the second deadliest mining accident in Russia's post-
Soviet history after a tragedy that claimed 110 lives at a different mine
in the same region in 2007.
Indian Oil to Revive Project for Power
Plants
INDIAN Oil plans to revive a Rs200 billion ($4.3 billion) chemical
project in the eastern state of Orissa and build nuclear, wind and solar
power plants as cash flow increases, Bansal said.
"We will bring the petrochemical project out of the cupboard again
since there is more clarity about our finances now," he said. "We want
to become an integrated energy player and will spend on renewables."
The refiner plans to build a 1,400-megawatt nuclear power plant in the
state of Rajasthan at a cost of Rs120 billion in partnership with Nuclear
Power Corp. of India. Indian Oil would own 26 per cent in the venture.
9
NEWS
Indian Oil Targets African Fields
INDIAN Oil Corp., the country's second-biggest refiner, plans to
acquire oilfields in Africa as part of a $1 billion (Dh3.6 billion) overseas
investment plan, its chairman said. "Africa is top of our list to buy
assets because it is near India and has good quality crude," Brij Mohan
Bansal said in an interview at his office in New Delhi. "We are
planning retail outlets in Indonesia." State-run Indian Oil's renewed
plans to expand overseas came after the government freed gasoline
prices from its control last month and said it will eventually allow
refiners to set diesel rates, helping to increase cash flow. The refiner
has set aside $1 billion for acquisitions overseas, Bansal reiterated.
"Africa offers many grades of crude and gives refiners security of
supplies to have fields there," said Vinay Nair, a Mumbai-based
analyst with Khandwala Securities Ltd. "They will however still need
financial support from the government to help make profits."
The refiner delayed crude-processing and pipeline projects overseas,
including Nigeria and Turkey, because of reduced cash flow after
selling fuels below cost, Bansal said last year. Indian Oil and Turkish
builder Calik Holding had planned to spend $4.9 billion to build a
300,000 barrel-a-day refinery in Ceyhan on the Mediterranean coast.
The companies, along with Italy's Eni SpA, Europe's fourth-largest oil
company, had also planned to spend $2 billion on a pipeline from
Samsun on Turkey's Black Sea coast to Ceyhan to transport as much as
1.5 million metric tons of Central Asian crude oil a day. The shares
have increased 23 per cent in Mumbai trading this year compared with
the 3 per cent gain in the benchmark Sensitive Index of the Bombay
Stock Exchange. The stock declined 3.8 per cent to Rs374.45 yesterday.
Indian Oil, which owns stakes in ventures in Africa and the Middle
East, had plans to invest in refinery and pipeline projects in Nigeria,
former company spokesman M. Kali Krishna has previously said .
Industry Experts Laud Proposed
Special Gas Pricing
PLANS by the government to fix a special price for natural gas
consumers, especially the Manufacturing Association of Nigeria
(MAN) and other industrial concerns in a bid to be able to purchase the
commodity and maintain their operations, has been described as a
welcome development, provided it will ensure sustainability of gas
supply without any member of the supply chain being weakened. The
move indicates that government intends to keep the manufacturing
companies afloat and also boost the economy through job creation.
However, whatever price government would fix, it is expected, must
benefit all members of the chain. Industry experts, however observed
that if any member of the chain (transporters {the Nigerian Gas
Company (NGC)}, distributors-Gaslink, Falcon and Shell and
consumers) is weakened by such policy, it would make nonsense of
the good intention of government. For instance, if the price regime is
such that would benefit the distributors and the consumers while the
NGC is put at a disadvantage, it would not be able to expand its
facilities or generate enough revenue to make necessary investment in
infrastructure that would enable it convey the commodity to the
distributors. On the other hand, if NGC and the consumers are
favoured, while the distributors are not given the price that would
enable them to make returns to expand their investments, they would
then be unable to pick the commodity.
10
NIGERIA ENERGY INTELLIGENCE
NNPC: Bayelsa Greenfield Refinery'll
Create 7,000 Jobs
NIGERIAN National Petroleum Corporation (NNPC) said an
estimated 7,000 job opportunities would be created from the
construction and operation of a Greenfield Refinery in Bayelsa State,
which it plans in partnership with the China State Construction
Engineering Corporation (CSCEC). The NNPC, about two months
ago, executed a Memorandum of Understanding with CSCEC to
jointly seek debt financing from Chinese banks for the funding and
construction of three Greenfield Refineries and one Petrochemical
plant. The Refineries, which would be located in Kogi, Lagos and
Bayelsa States have a combined capacity of 750,000 barrels per day.
Speaking in Government House Yenagoa, at the commencement of a
two-day visit to Bayelsa state by the NNPC and the Chinese investors
to seek the allocation of land for the project and undertake a physical
appreciation of the proposed sites, Group Executive Director,
Engineering and Technology at the Corporation, Engr. Billy Agha who
represented the Group Managing Director, stated that while about
5,000 workers would be required during the period of the planned
construction, an estimated 2,000 workers are needed to run the
industrial complex when it comes on stream.“Other multiplier effects
will include the generation of local businesses for auxiliary services,
including suppliers of goods and services of all types to the
hydrocarbon complex.
Oil Spill: FG to Unveil New
Compensation Policy
FEDERAL Government expressed its resolve to come up with a
new framework for handling compensation claims by communities
and individuals over oil spill incidents. Acting Director-General of the
National Oil Spill Detection and Response Agency (NOSDRA), Mrs.
Uche Okwechime, said during a visit by the National Emergency
Management Agency (NEMA) to the agency's office in Abuja that the
existing compensation rate for oil spill damages is no longer
acceptable to communities in the Niger Delta.
She said NOSDRA and the United Nations Development Programme
(UNDP) is partnering to develop a framework for assessing damages
of oil spill as well as rates for effecting compensation to communities
of imparted sites. "By the Act establishing the agency, NOSDRA is
supposed to take damage assessment of any oil imparted sites and that
extension we try to do so. At the this moment, we are working in
collaboration with the UNDP to come up with the guidelines on
remediation or damage assessment and also we are working in
partnership with the UN agency to draw up a compensation rate".
" What we have at the moment is not acceptable to the communities so
e are trying to develop an acceptable rate and in that we are working
with .the Department of Petroleum Resources (DPR) and all other
stakeholders to reach agreement on an acceptable rate. Any moment
from now we are going to subject the draft proposal for new
compensation rates to stakeholders consideration", she said.
The DG said NOSDRA has been very proactive in engaging oil
companies and trying to get them to respond to promptly to
incidences of oil spill in the country, adding that the companies have
realised the need to collaborate with the agency in dealing with oil
spill issues.
NIGERIA ENERGY INTELLIGENCE
Oil rises above $78/barrel
OIL rose above $78 a barrel on strong U.S. corporate earnings raised
optimism over the strength of economic recovery in the world's
largest economy. U.S. crude for September, the front-month contract
after Tuesday's expiry of August, rose 53 cents to $78.11 a barrel,
before dipping to $77.83. London ICE Brent futures gained 34 cents to
$76.56. The optimism that started on Wall Street spread to European
and Asian equities. Sentiment was helped by strong earnings from
Apple and speculation that Fed Reserve chairman Ben Bernanke may
suggest steps to spur lending in testimony to U.S. lawmakers later.
Investors should have a clearer picture of how well U.S. businesses are
recovering following the economic meltdown, from a flurry of
companies reporting second-quarter results later on Wednesday,
including financial services group Wells Fargo and investment bank
Morgan Stanley.
UAE has highest OPEC quota
compliance
UAE in June had the highest quota compliance with the Organisation
of Petroleum Exporting Countries' (OPEC) re-adjusted quota for
member countries, latest data from the International Energy Agency
(IEA) shows. "OPEC'S largest producer Saudi Arabia pumped
200,000 barrels per day (bpd) above target, with compliance just over
90 per cent, second only to the UAE at 95 per cent," said the IEA, which
advises 28 industrialised countries on energy policy in its oil market
report. "UAE production fell by 20,000 bpd to 2.29 million bpd in line
with lower June contract allocations. "Supplies are expected to
rebound in July after state-run Adnoc [Abu Dhabi National Oil
Company] eased curbs on contract allocations for Asian buyers.
"Supply allocations for Murban, the UAE's primary export crude,
were reduced to just 3 per cent below contract volumes in July versus a
12 per cent discount in June. Adnoc tightened allocations again for
August liftings," said the IEA. Meanwhile, the average official selling
price of Adnoc's crude oil grades averaged $74.11 (Dh272.17) a barrel
in June, extrapolated data from oil figures from Adnoc revealed.
Tehran, Ankara Ink Gas Link Deal
Iran's Oil Ministry said the country had signed a 1 billion euro (Dh4.75
billion) pipeline deal to take gas to Turkey and a Turkish firm called
Som Petrol said it was the partner in the project. "The one billion-euro
deal to build a 660-kilometre gas pipeline was signed during the
Iranian Oil Minister's trip to Turkey," the Iranian ministry said in a
statement. A senior Iranian official said Iran would pay a transit fee to
export its gas to Europe using the pipeline crossing Turkey. "The
pipeline will enable Iran to export 50 to 60 million cubic metres of gas
per day ... It will be constructed within three years," Javad Oji, head of
the National Iranian Gas Co. (NIGC), told the Iranian Oil Ministry's
official website SHANA. Oji was quoted by the Mehr news agency as
also saying that 23 per cent of the project would be handled by the
Iranian side and 77 per cent by the Turkish side. One of the world's
biggest oil and gas producers, Iran has been hit by US and UN
sanctions that have hindered access to foreign investment and slowed
its development as a major exporter.
INTERNATIONAL BRIEFS
America May Lead LNG Import
Growth
AMERICA may lead growth in purchases of liquefied natural gas
this year and next because of opening of import terminals in Latin
America and rising demand in emerging markets, a consultant said.
Countries including Mexico, Chile, Argentina, Brazil and the US may
boost purchases by more than 50 per cent this year and 15 per cent in
2011, Facts Global Energy said in a report. Europe may expand
purchases by about 5 percent in 2010 and cut imports in 2011 while
Asian imports may rebound, it said. "The US will likely remain a key
outlet for Atlantic Basin and Qatari LNG, especially when the partially
Qatar Petroleum-owned Golden Pass receiving terminal comes online
in the summer of 2010," analysts Sook Ching Wong and Shahriar
Fesharaki said in the report. World LNG trade rose 6.5 per cent last
year to about 180 million tons, according to Facts. A decline in Asian
LNG imports in 2009 by 2.9 per cent was offset by a 23 per cent growth
in Europe and a 36 per cent expansion in the Americas where "markets
of last resort" such as the US and the UK absorbed fuel rejected by
Asia, Facts said. Asia, the world's biggest consumer of the frozen fuel,
burned 113.6 million tons last year compared with 51 million in
Europe and 15.2 million in the Americas. The Middle East may boost
imports of the fuel in 2010 and 2011 because of demand for power
generation, Facts said.
OPEC Predicts Oil Market Will Stay
Well Supplied Into Next Year
OIL market will stay well supplied and an overhang of stocks will be
more than sufficient to meet any extra demand next year, the
Organization of the Petroleum Exporting Countries (OPEC) said.
OPEC cut its estimate of demand for its own crude oil this year, saying
supply from countries outside the producer group will rise more than
expected and it forecast only a small increase in demand for its oil next
year. “The overall outlook indicates that the current stock overhang
would be more than sufficient to supply the additional volumes
needed in 2011,” said OPEC which pumps more than one in every
three barrels of oil in its Monthly Oil Market Report. “As a result, the
oil market is set to remain well supplied, especially in the light of the
ongoing increase in oil production capacity,” the report said. The
OPEC report leaves little room for more supplies from the producer
group. It is much more cautious in its estimate of global oil demand
than the International Energy Agency (IEA), which says world oil
demand next year will be almost 1.5 million barrels per day (bpd)
higher than OPEC's forecast. The producer group has kept its formal
output policy unchanged since announcing a record supply cut in
December 2008. It is next scheduled to meet to review policy in
October. The report kept its forecast for world oil demand growth this
year steady at 950,000 bpd, seeing global consumption at 85.36 million
bpd. In 2011, it expects oil demand to rise by 1.05 million bpd to 86.41
million bpd.
Sponsorship Hotline
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11
FEATURE NIGERIA ENERGY INTELLIGENCE

Is the World Really Running Out of Oil?

Lessons from the Past Four Decades
By Professor Omowumi Iledare

O IL, the engine that drives the

global growth and development
economy, is the most significant
and highly traded commodity worldwide.
Since replacing coal in the last century, oil has
remained the primary source of global
energy accounting for approximately 35% of
world primary energy consumption. There
is, however, apprehension that oil
production has peaked or will peak in the
Figure1: Estimated World Oil & NGL Resources (Billion Barrels)
near future and that imminent drastic
depletion will usher in a permanent oil shock
era. Thus, incentives to promote “green”
energy and implement energy conservation
and efficiency programs are deemed more
appropriate now than ever before. Is the
world really running out of conventional oil?
Is the end of low-priced oil really at hand?
Resource supply pessimists and resource
availability optimists are two generic schools
of thought on this debate. For the supply
pessimists, the rising trend in the price of oil Figure 2: Trends in Estimated Proved Oil and NGL Reserves (Million Barrels)
from $12 per barrel in 1999 to the breaking of
all oil price records at nearly $100 per barrel
in late 2007 and the sudden increase in oil
price to about $147 per barrel in the summer
of 2008, are indicators or predictors of the end
of oil or at least the cheap-oil era. The premise
of this disposition has always been that the
world has used approximately 50% of its
fixed petroleum resources. Consequently,
global oil production has peaked or nearly
peaked and scarcity of petroleum supply is
inevitable in the near future. Figure 3. Global Oil Depletion Trends
On the other hand, oil resource supply
optimists advocate that though easy-to-find
oil may be declining, the aggregate declining concerned with the physical exhaustibility of expectation of a permanent oil shock is not
phenomenon presumed by pessimists is oil. consistent with public data on reserves and
because of restricted access to resources, This paper evaluates key components of production over the last four decades. Thus,
restricted capital investment flow and global petroleum resources and reserves to such an expectation is not a useful premise to
resource reallocation, and industry assess whether the world is running out of oil guide global or regional energy policy.
restructuring that emphasize short term or into it. The results from our empirical
planning and profit goals, not geology. The analysis are as good as the data available in
optimists assert that the world is awash with the public domain from 1970-2008. The global Global Oil Resources, Reserves,
oil resources because price and technology E&P performance indicators we evaluated
suggest promising prospects for world & Production Trends
do matter and they posit that recoverable
petroleum resource development and supply To a large extent, the debate over oil supply
resource growth with research and
in the aggregate sense. The world may be availability revolves around proper
technology innovation is indisputable, even
though the extent and size of the growth are running out of “low-priced oil,” but, this is
not precisely known. The optimists are less not because of geological exhaustibility. The Continues on page 13

12
NIGERIA ENERGY INTELLIGENCE FEATURE

Is the World Really Running Out of Oil?

Lessons from the Past Four Decades
Continued from page 12

understanding of the difference between 582

6 00
Addition Extraction
resources, recoverable reserves remaining, sl
e
rr 4 00 427
and production capacity installed. Resources a
22 2 21 1 336
B 219 250
20 0
are the stock of petroleum deemed n
o
lil
2 58
i 0
extractable in an undefined future. The B

estimated value varies significantly with a 19 70-1979

198 0-1 989
great deal of uncertainty. Reserves, on the 1 990-199 9
2 000-200 8
other hand, are resources presumed
recoverable under currently known
Figure 4: Reserves Additions and Extraction
technology, operating and economic
conditions. It is estimated and not measured.
Estimated values require some degree of
1.0%
certainty of recovery if it is to be meaningful. WORLD
A sia Pacifi c - 0.1%
Production capacity measures the A frica 2.6 %
1.0%
sustainable flow of petroleum as a result of M idd le East
Eur op e & Eu rasia 1. 1%
discovery, investment, and installed S. & C e nt. Am er ica 1.7%
0 .0%
infrastructure. Thus, economics and No rth Am erica

-0 .5% 0.0 % 0.5 % 1 .0% 1 .5% 2 .0 % 2.5 % 3.0%

technology, in addition to geology, matter in
the debate on whether we are running out of
oil or into oil. Figure 5. Net Growth in Recoverable Reserves, 2000-2008

Resources
Estimates of worldwide conventional oil,
including natural gas liquids (NGL), range
from 2,000 billion barrels to 4,900 billion
barrels at the 5% and 95% probability levels,
respectively, according to the United States
Geological Survey's World Petroleum
Assessment in 2000. The corresponding
mean estimate of world conventional oil and
NGL endowments (including the United
States) was approximately 3,350 billion
barrels (BBO) consisting of approximately
939 BBO undiscovered conventional oil and Figure 6: Reserves Replacement Ratio, 2000-2008
NGL, 730 BBO conventional reserves growth,
969 BBO reserves remaining, and 717 BBO Adelman and Lynch opined that this drastic
Reserves
cumulative production at yearend 1995. change in reserves in the Middle East was
Trends in world proved reserves measured in
million barrels since 1970 show significant improbable because exploration and
Agueilera notes that these USGS estimates development activities were curtailed at that
expansion (See Figure 2). Yet we know
are conservative because they are based on time. Scientists and researchers from Oxford
extraction has also increased significantly
only 407 petroleum provinces. More than University argue that world oil reserves were
since 1970. It seems that advances in
500 provinces not anticipated to produce oil exaggerated by up to a third in the 1980s. To
technology do not just hasten or enhance
during the 30-years (1995-2025) are excluded date, no physical evidence has emerged to
extraction from existing resources but
in the USGS assessment process. Previously suggest that the reported reserves additions
expand the resource base as well. Besides
published USGS estimates of world oil in the 1980s in the Middle East region or in
economics and fiscal policy, not just geology,
resources have expanded by at least a factor OPEC for that matter were guided by the
do affect resource discovery and production.
of five times in the past 50 years (see Figure 1). politics of market share.
Surprisingly more reserves were added in the
It was estimated at 600 BBO in 1948 and it has
1980s, predominantly, in the Middle East
expanded to approximately 3,600 BBO by
region, yet the period was dominated by
2008.
unfavourable swings in crude oil prices. Continues on page 14

13
FEATURES NIGERIA ENERGY INTELLIGENCE

Is the World Really Running Out of Oil?

Lessons from the Past Four Decades
Continued from page 13

Extraction
The proportion of recoverable petroleum
reserves extracted worldwide, since 1970,
was about 43% as of yearend 2008 in
comparison to 37 percent at yearend 1998.
However, nearly 75%, 65%, and 60% of
recoverable reserves discovered since 1970
have been extracted in North America, Asia
Pacific, and Europe/Eurasia regions,
respectively. The proportion extracted was
rapid in these regions from 1989-1999
Figure 7: Trend in the R-P Ratio, 1970-2008
compared to the extraction rates in the other
periods. For example in North America, the
proportion of recoverable reserves extracted
as of yearend 1989 was 50.9% and 68.7% at
yearend 1999. This represents a 17.8
percentage point difference between 1989
and 1999 in comparison to 9.6 percentage
point difference between 1979 and 1989 and a
4.9 percentage point difference between 1999
and 2008 in North America. Recoverable
reserves depletion is above 50% in North
America, Asia Pacific, and Europe/Eurasia as
reflected in Figure 3, which shows the
rapidity of extraction rates relative to 1979-
Figure 8: Sustainable Years at 2008 Extraction Rate
1979.

Global Oil Supply Vulnerability

The empirical evidence from public data so From 2000-2008, the net growth in recoverable
far in this presentation seems at odds with
the cry of global conventional oil scarcity or reserves is highest in Africa at 2.6%, followed by
the imminent end to the oil era. Ironically,
the imminent end to oil story has been heard South and Central America at 1.7% as evident in
over and over even before the 1970s.
Empirical indicators of oil resources and
supply availability support the view that the
Figure 5. Interestingly, the Middle East reported a
world is awash with oil in the major oil
producing regions--Africa, South and
net growth of 1.0% in recoverable reserves during
Central America, and the Middle East--as
evident in trends in net reserves growth, this period.
reserves replacement ratio, reserves-to-
production ratio, and regional depletion
index trends.
grown even more as evident in Figure 4. More in recoverable reserves during this period.
reserves were added, in the aggregate, than The other regions did exhibit inevitable
Net Reserve Additions
produced in every decade since 1970. dependence on imported oil. This should not
Figure 4 shows worldwide recoverable
From 2000-2008, the net growth in be a problem in a global economy, keeping in
reserves additions and extraction rates from
recoverable reserves is highest in Africa at perspective the concept of comparative
1970-2008. Worldwide depletion has not
2.6%, followed by South and Central America advantage in international economics.
been faster than expansion. As global
at 1.7% as evident in Figure 5. Interestingly,
production has expanded, oil reserves have
the Middle East reported a net growth of 1.0%
Continues on page 15
14
NIGERIA ENERGY INTELLIGENCE
Is the World Really Running Out of Oil?
Lessons from the Past Four Decades
Continued from page 14
Reserves Replacement Rate
Worldwide replacement of reserves has been
adequate since 1970 and Figure 6 shows that
the sustainability of E&P business is robust
worldwide. The estimated worldwide
replacement ratio from 1970-2008 was
approximately 170 % (BP, 2009). From 2000-
2008, the world, on average, replaced 165% of
produced reserves. Asia Pacific region was
the only exception with respect to replacing
all the extracted reserves with new reserves
from 2000-2008. High replacement rate
delays exhaustion of petroleum resources as
replacing the produced reserves at just 100%
can lengthen the life of the reserves by a great
margin.
Reserves-Production Ratio (R-P)
The R-P ratio provides a measure of the life of
proved reserves relative to a specific point in
time, given a constant production rate from
that time onward. The ratio measures, in a
qualitative sense, the expectation of the
“tightness” or “softness” of the world oil
market at a point in time in the future. The
global oil market, in terms of the
sustainability of the current extraction rate, is
not as “tight” as it was in the 1970s when the
historical production equivalent life of global
reserves fell to as low as below 27 years in
comparison to the estimated life of 40+ years
at yearend 2008. The global R-P ratio has
remained above 35 years as evident in Figure
7 for the last 20+ years, on average, despite the
more rapid extraction rate now than then.
Figure 8 shows there is at least a 15 year
premium over the global oil status in the
1970s when the world critical ratio was less
than 27 production equivalent years (PEY),
even assuming there are no new reserves
added worldwide. For North America, the
critical ratio as defined above is 9.7 PEY. This
implies that, ceteris paribus, North America
can continue at the current extraction rate for
approximately 5 years without any
noticeable fall in production. The 2008
regional extraction rates can be sustained for
the next 34+ years in the Middle East, 37+
years in South and Central America, and 10.4
years in Africa before the critical level is
Over 150% of worldwide produced conventional oil
reserves were replaced during the last 38 years (since
1970), in the aggregate. This is an indication that the state
of the E&P industry worldwide is robust because high
replacement rate delays imminent exhaustion. The
reserves-to-production ratio has remained above 35 years
for the last 20+ years (since 1982) despite the rapidity in
extraction. Empirical evidence suggests that the market
is not as “tight” as it was in the 1970s when the critical life
was about 25 years, on average.
reached. On average, across all regions, the suggests that the market is not as “tight” as it
reserve-production ratio for the period 2000- was in the 1970s when the critical life was
2008 was higher than the historical average about 25 years, on average.
ratio from 1970-1999. In the aggregate sense, Perhaps, the world is running out of “low-
there is a verifable sustainability of oil priced oil;” but this phenomenon is not
reserves at moderate growth in demand with because of geological exhaustibility. The
a premium of 15 years above where the world coming to a halt of the “low-priced oil” era is
was in 1970. being driven by restricted access to resources
due to government policy failures, restricted
capital investment flow and misallocation,
Conclusions
and petroleum industry restructuring with
The idea of an imminent geologically
emphasis on short term planning and
induced petroleum resource exhaustion
profitability goals. The “law of unintended
worldwide is strictly speculative, judging
consequences” that encumbers the
from the E&P industry physical measure of
regulations of crude commodity market
performance since the 1970s. Empirical
trading for paper market transparency is,
analysis of global E&P performance suggests
perhaps, a consequential factor underlying
promising prospects for world petroleum
the end of the low-priced oil era.
resource development and supply.
Over 150% of worldwide produced
conventional oil reserves were replaced
during the last 38 years (since 1970), in the
aggregate. This is an indication that the state
Professor Omowumi Iledare, a regular
of the E&P industry worldwide is robust
because high replacement rate delays contributor to Nigeria Energy
imminent exhaustion. The reserves-to- Intelligence is of LSU Center for
production ratio has remained above 35 years Energy Studies, Baton Rouge,
for the last 20+ years (since 1982) despite the La 70803. Email: wumi@lsu.edu
rapidity in extraction. Empirical evidence
15
NEWS
Oil Majors Commit $1bn To Contain
Oil Spills
INTERNATIONAL oil exploration and production companies,
including Chevron, ConocoPhillips, ExxonMobil and Shell, has
initiated plans to build and deploy a rapid response system that
would be available to capture and contain oil in the event of a potential
future underwater well blowout in the deepwater Gulf of Mexico.
To underscore their commitment to the new spill containment system,
the companies had committed $1 billion to fund the initial costs. A
statement released by the consortium, said the new system will be
flexible, adaptable and able to begin mobilization within 24 hours,
adding that it could be used on a wide range of well designs and
equipment, oil and natural gas flow rates and weather conditions.
The new system will be engineered to be used in deepwater depths up
to 10,000 feet and have initial capacity to contain 100,000 barrels per
day with potential for expansion. It added that additional operational
and maintenance costs for the subsea and modular processing
equipment would incorporate contracts with existing operating
vessels in the Gulf of Mexico and any potential new vessels that might
be constructed. The consortium said the system offered key
advantages to the current response equipment in that it would be
pre_engineered, constructed, tested and ready for rapid deployment
in the deepwater Gulf of Mexico. It is being developed by a team of
marine, subsea and construction engineers from the four companies.
It was learnt that the system would include specially designed subsea
containment equipment connected by manifolds, jumpers and risers
to capture vessels that would store and offload the oil. Dedicated
crews will ensure regular maintenance, inspection and readiness of
the facilities and subsea equipment. The four companies are expected
to form a non_profit organization, the Marine Well Containment
Company, to operate and maintain this system, while other
companies would be invited and encouraged to participate in the
organization.
Fuel crisis looms as NUPENG others
threaten strike over NNPC deal
FRESH industrial crisis in the nation's oil industry is looming,
following fresh threats by the Group Executive Councils of the
National Union of Petroleum and Natural Gas Workers (NUPENG)
and the Petroleum and Natural Gas Senior Staff Association of Nigeria
(PENGASSAN), to down tools over what they described as alleged
plans by the Bureau of Public Enterprises (BPE) to
sale/concessionalize some strategic business units in the Nigerian
National Petroleum Corporation (NNPC). They alleged that the BPE
had concluded plans to “surreptitiously transfer ownership and
control of some carefully selected, performing and viable National
Assets in the NNPC to certain surrogate foreign fronts that have been
arranged by some privileged Nigerians to satisfy their parochial
interests”. In a communiqué signed by Comrade Francis Johnson
(Group Chairman, NNPC PENGASSAN), Comrade Richard
Otovwievwiere ( Group Chairman, NNPC NUPENG), Comrade
Olusegun Erinoso (Group Secretary, NNPC PENGASSAN) and
Comrade Ahmed Tijjani Sani (Group Secretary NNPC NUPENG),
made available to newsmen shortly after an emergency meeting in
Benin City, the Unions disclosed that arrangements had been
concluded by the BPE to sale NNPC business units such as NPDC,
NGC, PPMC and the Refineries to some Nigerian politicians “using
NIGERIA ENERGY INTELLIGENCE
certain phony entities”. The communiqué recalled that “similar
clandestine and unpatriotic move was made by the same BPE in
2007/2008 which was roundly condemned by Nigerians when the
Unions, both at the National and NNPC DEC levels, took a stand
against it”.
US demands more data from BP after
seepage
US government officials demanded to see BP's plans for reopening its
sealed Gulf of Mexico well after tests found a suspected leak seeping
from the seabed. In a letter addressed to Bob Dudley, BP managing
director, National Incident Commander Thad Allen said tests had
detected a "seep a distance from the well and undetermined anomalies
at the well head." The letter was posted on the website of the joint
information centre for the spill. No decision was announced as to
whether BP will be ordered to open the valves sealing the well, which
would allow oil to resume flowing. BP would restart efforts to capture
the oil and funnel it to vessels at the surface after the well is opened. "I
direct you to provide me a written procedure for opening the choke
valve as quickly as possible without damaging the well should
hydrocarbon seepage near the well head be confirmed," Allen wrote in
the letter. Hours before, BP officials said the company planned to keep
the well sealed until it could be permanently plugged by a relief well.
Three days of tests on the capped well showed no signs of a hidden
leak or other problems that would prompt BP to reopen the well, Doug
Suttles, chief operating officer for exploration and production for BP,
said .
Import Licence: House to Probe
PPPRA
HOUSE of Representatives Committee on Public Petitions
yesterday said it would soon commence investigations into
allegations of "deliberate manipulations" in the issuance of import
licences to petroleum marketers in the country. The Petroleum
Products Pricing Regulatory Agency (PPPRA), the institution at the
centre of the crisis, had been accused of favouring a cartel of "portfolio
marketers" against the core investors in the oil and gas sector.
Chairman of the committee, Hon. CID Maduabum, said the
investigation was in response to a petition sent to the Speaker of the
House by the Managing Director of Capital Oil, Mr. Patrick Ubah.
In the petition, Ubah accused the PPPRA of victimisation and
marginalization of some marketers in the allocation of petroleum
import approvals, leading to unnecessary scarcity of petroleum
products. Capital Oil also demanded that PPPRA should make
available to the public details of beneficiaries of its import approvals
for the year. The petition dated July 16, 2010 reads in part: "We have
observed with dismay the Agency’s manipulation and non-
transparency in the administration of the newly introduced Sovereign
Debt Instrument, (SDI). These manipulations and lack of transparency
are largely underscored by the non-compliance with due process, the
disregard of and discrimination against us in the granting of
approvals and allocations to portfolio marketers in the importation of
petroleum products which became rampant in the second and third
quarters of 2010.