OIL INDUSTRY PRESS RELEASE

New study touts Gulf oil industry's contributions to U.S. economy

Keith Magill
The Courier

Gulf of Mexico oil and gas development supported 345,000 jobs in the U.S. and contributed $28.7 billion to the nation's economy in 2019, an new industry study estimates.

The study, released Thursday by the National Ocean Industries Association, says those numbers are projected to grw. But officials say whether that happens depends in large part on efforts by the Biden administration and other political leaders to reduce the pollution, rising seas and other ill effects greenhouse gasses from fossil fuels are wreaking on the planet.

"The Gulf of Mexico has transformed into a national strategic infrastructure asset, and we must make every effort to sustain it through a predictable regulatory system that includes regularly scheduled lease sales and continued permitting," association President Erik Milito said.

The study, "The Gulf of Mexico Oil & Gas Project Lifecycle: Building an American Energy & Economic Anchor," was conducted for the group by the consulting firm Energy and Industrial Advisory Partners.

The National Ocean Industries Association, whose 120 members include mostly offshore-oil-service companies, hopes the study will help inform ongoing debate over the nation's energy future, Milito said.

OPEC:Biden asks OPEC to increase oil output, but keeps domestic drilling ban in place

Oil advocates:'A win for the entire country': Louisiana oil advocates celebrate decision on moratorium

A federal judge granted the state's request in June to temporarily halt President Joe Biden's ban on new oil lease sales in the Gulf.

However, Milito said, so far the Biden administration has taken no steps to restart the twice-a-year lease sales that seek bids from companies interested in exploring for oil in the Gulf. Lawyers for the state, led by Louisiana Attorney General Jeff Landry, have filed motions asking the judge to force the Biden administration to schedule the lease sales.

Milito and other industry officials contend that limiting U.S. drilling will encourage more oil production in foreign countries and higher greenhouse gas emissions.

"President Biden should fulfill his legal obligation to schedule and hold offshore oil and gas lease sales and abandon the shortsighted leasing pause," Milito said. "As long as Americans depend upon oil and gas for modern life, it must come from somewhere, and it is clearly better to get oil and gas here at home than from a foreign state with weak environmental safeguards."

One of the key points the study makes clear is that the ban, though it did not stop companies that already have leases from drilling, is still impacting jobs and spending, Milito said. That's because activity starts long before companies even bid on Gulf leases.

The typical deepwater project takes about 30 years from start to finish, the study says. Throughout that lifecycle, the project results in about $8.8 billion in spending and $3 billion in direct wages. An average of 1,435 people are directly employed by the project over that time, along with another 2,200 indirect jobs.

On a single deepwater project, about 80 people are directly involved in the first two years of planning and preparation, jobs that include engineers, attorneys, data scientists, geologists and others, the report says.

With Gulf lease sales in limbo, much of that activity is on hold, Milito said.

Among other study highlights:

More than 200 different job titles are involved in the typical deepwater project in the Gulf.

The average wage for the Gulf oil industry, $69,650 a year, is 29% higher than the national average.

Every U.S. state has jobs and investments tied to the Gulf oil industry.

Throughout its 30-year lifecycle, a typical deepwater project supports about 3,640 direct and indirect jobs combined. But the number of jobs varies greatly over the project's various stages, peaking at 14,500 during the most active years.

"Offshore energy projects are capital and labor intensive," he said. "It's all the different types of economic activities throughout throughout the country. There is little appreciation for the fact that this industry builds a city in the middle of the ocean, in the middle of the Gulf of Mexico, and they maintain that city for 30 years. And that city requires billions of dollars of investment and thousands upon thousands of workers throughout the life of that of that project."

U.S. Economic Recovery Hinges on Oil & Gas Industry: Study

July 26, 2021

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America’s natural gas and oil industry will need to serve as a vital driver of the nation’s post-pandemic economic recovery, according to a new study.

The industry counts as critical to every sector of the U.S. economy and supports millions of jobs across all 50 states, says a study by PricewaterhouseCoopers that compiles the latest available government data.

The 134-page study, which explores the economic impact of the oil and natural gas industry, found that the business supported 11.3 million jobs and contributed nearly $1.7 trillion to the U.S. economy in 2019.

The study authors reported that the impacts are the result of three channels:

​•​ Direct impacts from the employment and production within the oil and natural gas industry.
​•​ Indirect impacts through the industry’s purchases of intermediate and capital goods from a variety of other U.S. industries.
​•​ Induced impacts from the personal purchases of employees and business owners both within the oil and natural gas industry and its supply chain, as well as from the personal spending by shareholders out of the dividends received from oil and natural gas companies.

In addition to supporting well-paying jobs, the natural gas and oil industry, directly and indirectly, contributed an estimated $1.7 trillion to the U.S. economy in 2019, representing 7.9 percent of the U.S. gross domestic product.

Researchers found through wages, taxes, capital investments, and support to other industries, the economic impact extends beyond traditional natural gas and oil-producing states.

“Every state in the nation has a stake in continued access to U.S. natural gas and oil reserves, which are critical for the nation’s economic recovery,” the study authors wrote.

In short, as the nation continues to recover from the pandemic and the economic downturn that resulted, the natural gas and oil industry will serve as an engine for long-term growth.

“The industry continues to create good-paying jobs and deliver reliable American energy to enterprises, including health care, retail, manufacturing, education and more, in communities across the nation,” researchers concluded.

According to the findings, in 2019, the natural gas and oil sector directly and indirectly:

​• ​Supported more than 11.3 million total jobs or 5.6 percent of total U.S. employment.
​•​ Generated an additional 3.5 jobs elsewhere in the U.S. economy for each direct job in the U.S. natural gas and oil industry.
​•​ Produced $892.7 billion in labor income, or 6.8 percent of the U.S. national labor income.
​•​ Supported nearly $1.7 trillion to U.S. gross domestic product, accounting for 7.9 percent of the national total.

The U.S. Energy Information Administration noted that global oil and liquid fuels consumption is expected to surpass 2019 levels in 2022, as economic activity and travel patterns normalize.

“This represents an opportunity for the U.S. to meet the world’s rising demand for affordable, reliable fuels with homegrown natural gas and oil,” American Petroleum Institute President and CEO Mike Sommers wrote in an email.

“That said, America’s economic outlook depends on federal and state policy proposals that incentivize resource development, modernize energy infrastructure and streamline burdensome regulations,” Sommers wrote. “The nation’s hard-fought energy security and GDP growth are at stake, even as the natural gas and oil industry continues to drive the nation’s post-pandemic recovery.

“As America’s economy comes back, the natural gas and oil industry will serve as the foundation for long-term growth and prosperity,” he said. “Every state across the country — both blue states and red states — rely on American energy to fuel each sector of the economy and support millions of U.S. jobs. This study reinforces that America’s economic outlook is brighter when we are leading the world in energy production, and it serves as a reminder of what’s at stake if policymakers restrict access to affordable, reliable energy and make us more dependent on foreign sources.”

Click here to view the full report.

API 

GREENWASHING BEFORE SHILLING

Legislators affirm commitment to Texas gas, oil industry while pushing for clean energy future

by Lindsey Carnett

August 18, 2021

U.S. Rep. Henry Cuellar (D-Texas) and Texas Sen. Roland Gutierrez (D-San Antonio) toured CPS Energy's Calaveras Power Station Wednesday. Credit: Scott Ball / San Antonio Report


Just days after Bexar County officials learned that the county will face new air quality regulatory requirements and intensified federal oversight, two legislators pledged their support to the oil and gas industry.

Following a private tour of CPS Energy’s Calaveras Power Station Wednesday, U.S. Rep. Henry Cuellar (D-Texas) and Texas Sen. Roland Gutierrez (D-San Antonio) said they are committed to protecting the state’s oil and gas jobs, but would also like to see Texas become a leader in clean energy.

The lawmakers fielded questions from reporters after their tour about the future of Texas’ grid and what they are doing to strengthen the state’s energy infrastructure. CPS Energy denied reporters’ requests to join the tour, citing short notice.

Cuellar and Gutierrez saw some of the $20 million worth of improvements CPS Energy made to its power plants following the deep freeze across Texas in 2011. That freeze almost caused the Electric Reliability Council of Texas to implement the rolling blackouts it enacted in February during Winter Storm Uri.

The utility has “already begun to address some weatherization measures that include additional heaters, temporary enclosures, and insulation” following February’s freeze, said Christine Patmon, a CPS Energy spokeswoman, but it is waiting for the Public Utility Commission of Texas to issue new standards.

“My concern is that we aren’t doing the things that we need to do at the state level,” Gutierrez said, “which is to increase capacity and … look to tying into the eastern and western grids of the United States.”

Gutierrez said he and Cuellar met with officials from the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation while in Washington D.C. recently about that possibility.

The lawmakers said their focus on clean energy doesn’t mean they’re out to “attack” out to get the oil and gas industry.

The Trump administration was “very good at attacking Democrats” when it came to oil and gas, claiming they were “trying to kill all the jobs,” by promoting clean energy, Cuellar said. Cuellar said he and Gutierrez support the oil and gas industry because it sustains thousands of jobs in the state.

Allowing these jobs to remain means allowing oil and gas facilities to continue operating; allowing them to keep operating means allowing them to continue emitting ozone-forming emissions, a reporter pointed out. Ozone is a key ingredient of smog that irritates and damages the lungs and has been tied to chronic conditions such as asthma.

Because efforts to reduce smog and improve air quality locally over the past three years have been insufficient, Bexar County will be bumped from “marginal” to “moderate” ozone nonattainment likely in early 2022, U.S. Environmental Protection Agency and the Texas Commission on Environmental Quality officials said Monday.

The new designation means San Antonio will face new air quality regulatory requirements with intensified federal oversight. Despite state data showing CPS Energy’s power plants have lowered their emissions between 2014 to 2019, they are still among the top sources of ozone-forming emissions in the region.

Cuellar said that as a member of the Appropriations Committee, he’s “added millions and millions of dollars for technology” focused on clean energy goals such as carbon capture and storage, to further reduce emissions.

“Can we do better? Of course we can, and I’ve sat down with the energy folks and said, ‘Guys, we’ve got to do better,’” Cuellar said. “Hopefully when we do the big reconciliation, we look at clean energy. I’m hoping that natural gas can be part of that clean energy, but again, let’s do it in a way that we don’t attack the oil and gas industry.”

Gutierrez said he and Cuellar are not only focused on oil and gas though; they would like to see the state further diversify its energy sources. Texas is already a leader in wind energy, and has the potential to become one in solar energy as well, Gutierrez said.

Cuellar said he will continue to work with Gutierrez and his state counterparts to “modernize [the] electric grid,” and “build energy resilience” to keep Texans safe during extreme weather events. In a press release Wednesday, Cuellar boasted that he helped secure $100 million in Build Back Better Challenge Grant funds to go toward national power infrastructure and clean energy technologies.

LINDSEY CARNETT is the general assignment reporter for the San Antonio Report.

More by Lindsey Carnett

Oil and gas industry is on the decline in Texas. What does that mean for state’s future?


BY HALEY SAMSEL
AUGUST 12, 2021 

Play Video Duration 1:03
Sign of the times: See dozens of oil tankers off California coast as demand plummets
Dozens of oil tankers anchor off the Californian coast near Los Angeles and Long Beach as the reduced demand for oil takes hold. The tankers are acting as storage tanks for oil as demand has reduced throughout the coronavirus pandemic. 

Video: 4/23/20 BY U.S. COAST GUARD VIA STORYFUL

It’s no secret that the Texas oil and gas industry took a massive hit from the COVID-19 pandemic, leading to the loss of nearly 60,000 jobs last year. Trade groups have trumpeted the importance of supporting energy production as part of the state’s economic recovery plan, highlighting the $411 billion that oil and gas generated for Texas in 2019.

But a new independent report is challenging some of the tried and true wisdom that “what’s good for oil is good for Texas.” The analysis from the Institute for Energy Economics and Financial Analysis found that the oil and gas industry is responsible for 10 percent of the Texas gross domestic product, down from 21 percent in 1981.

While Texas oil and gas companies continue to dominate in refining and petrochemical production, their contributions to tax revenue, employment and overall economic growth across the state have been in decline for decades, according to report co-author Trey Cowan.

“What’s happened is that other industries are growing much faster than the oil and gas industry,” Cowan told the Star-Telegram. “Oil and gas has been replaced as far as contributions to the economy goes by services, which has taken its place as number one.”

The “services” industry includes professional and business services, computer systems, healthcare, food services, entertainment and educational services. Complementing Texas’ surge in population and employment, services industries account for 28 percent of Texas’ economic production — growing by 17 percent since the 1980s.

Oil and gas companies no longer provide the same tax revenues that could be expected 30 years ago, when the industry accounted for 28 percent of total revenue. That number has lingered beneath 10 percent for more than two decades, according to Cowan’s analysis.

Cowan hopes the report will draw attention to Texas’ economic realities and other “red flags” facing the industry, including growing competition from foreign producers and the disruption caused by renewable technologies, including solar, wind and electric.

Policymakers need to “recognize the potential risks of continuing to buoy an industry that faces” unprecedented challenges, he said.

“We’re trying to address that misconception that oil and gas is the be all, end all for Texas,” Cowan said. “If we start looking at all these other industries that are contributing to the growth of Texas, maybe we can come up with an economic development plan for the future so that we don’t see communities suffer like coal communities like in West Virginia or Kentucky.”

Cowan and environmental advocates like Virginia Palacios, who runs a nonprofit organization urging reforms at the Railroad Commission, are concerned about the futures of communities reliant on oil and gas jobs.

Where drilling jobs once boomed and producers paid high percentages of property taxes, hotels housing oilfield workers are vacant, Palacios said.

“State leaders have a chance to invest in these shale communities and diversify their economies,” Palacios wrote in the San Antonio Express-News. “This shift in investment requires acknowledging oil and gas are in decline.”

Oil and gas advocates have produced their own reports in an effort to persuade Texas lawmakers to continue their support for the industry. Just last month, the Texas Oil and Gas Association and the American Petroleum Institute released a data analysis showing that their industries directly and indirectly supported more than 2.5 million jobs across the state in 2019.

“As America’s economy comes back, the natural gas and oil industry will serve as the foundation for long-term growth and prosperity in Texas,” Mike Sommers, president and CEO of the institute, said.

He added that the industry study serves as a reminder of what’s at stake if “policymakers restrict access to affordable, reliable energy and make us more dependent on foreign sources.”

Cowan’s report, which draws different conclusions from government datasets, isn’t meant to knock the oil and gas industry, he said. Instead, Cowan wants his research to be used to spur action that will prevent the downfall of communities dependent on oil and gas jobs.

Detailed plans have been produced for towns affected by military base closures, and Cowan envisions similar blueprints for rural areas to pivot to other industries and strengthen their tax bases in the process.

“Oil and gas is going to be a much smaller piece of the pie going forward,” Cowan said. “People need to measure how they conduct themselves as far as policies that they’re setting for the next several years based on that reality instead of basing it on some myths about what used to be.”

A new independent report is challenging some of the tried and true wisdom that “what’s good for oil is good for Texas.”

 JOYCE MARSHALL TNS

HALEY SAMSEL
covers environmental issues across North Texas for the Fort Worth Star-Telegram. Her position is supported by Report for America and a grant from the Anita Berry Martin Memorial Fund at North Texas Community Foundation. Samsel grew up in Plano and graduated from American University in Washington, D.C., where she served as the editor-in-chief of the student newspaper, The Eagle. A shortlist of her interests include the Mavs, K-pop and stand-up comedy.

Australia risks taking the wrong tack at Glasgow climate talks

When the world tries to agree on a response to climate change in Glasgow Australia's only power is to set an example, not be the slowest follower.

THE CONVERSATION
17 AUG 2021 


Buried within the prime minister’s response to the latest report from the Intergovernmental Panel on Climate Change is just about everything we’re at risk of getting wrong at the Glasgow climate talks in October.

After slamming China — whose emissions per person are half of Australia’s — for not doing more to cut emissions, Scott Morrison said the Glasgow talks were the “biggest multilateral global negotiation the world has ever known”.

If he treats the talks as just another (big) negotiation, we’re in trouble.

The way the Department of Foreign Affairs and Trade usually treats negotiations is to hold something back, hold out the prospect of “giving it up,” and then only make the concession if the other side gives something in return. Even if holding back damages Australia.

Cars are a case in point. From an economic point of view, there is no reason whatsoever to continue to impose tariffs (special taxes) on the import of cars — none, not even in the eyes of those who support the use of tariffs to protect Australian jobs. Australia no longer makes cars.

Yet the tariff remains, at 5%, making it perhaps A$1 billion harder than it should be for Australians to buy new cars (although nowhere near as hard as it was in the days when the tariff was 57.5%).

The tariff seems to be in place largely to give the Department of Foreign Affairs and Trade something to negotiate away in trade agreements: for use as what the Productivity Commission calls “negotiating coin”.

Here’s how it worked in the 2014 Australia-Korea Free Trade Agreement. Australia agreed to remove the remaining 5% tariff on Korean cars, “with consumers and businesses to benefit from downward pressure on import prices”.

But Australia didn’t remove the tariff on car imports altogether, which would have given us a much bigger benefit but denied the department negotiating coin.

The next year the department did it again, agreeing to give up the tariff on imported Japanese cars in the Japan-Australia Economic Partnership Agreement (but not on other cars) so Australians could “benefit from lower prices and/or greater availability of Japanese products”.

Two years later, it did it again, with cars from China.

When the UK and European agreements are negotiated, it’ll do it there too.
Australia holds back reforms

Eventually, Australians will get what they are entitled to. But the point is that rather than advancing the cause of free trade, the department has held back, treating a win for the other side as a loss for us, when it wasn’t.

The Centre for International Economics believes the much bigger earlier set of tariff cuts lifted the living standard of the average Australian family by A$8,448.

Had our trade negotiators been in charge, we would still be waiting. Instead, the Hawke and then the Keating governments pushed through unilateral reductions, asking for nothing in return.

This is the most sobering report card yet on climate change and Earth’s future. Here’s what you need to know

The Intergovernmental Panel on Climate Change has released its long-awaited report. From accelerating emissions to intensifying disasters to rising sea levels, its authors lay out the new findings.

The Conversation

Joelle Gergis

As former Trade Minister Craig Emerson put it, this gave Australia “credibility in international trade negotiations way beyond the relative size of our economy”.

Does that sound like the sort of thing Australia might need at Glasgow, to have enough credibility to urge even bigger emitters to deliver the kind of cuts on which our futures and future temperatures depend?
It won’t work with China

The prime minister is right to say that China is the world’s biggest greenhouse gas emitter, even though its emissions per person are low. Its high population means it accounts for 28% of all the greenhouse gases pumped out each year. The next biggest emitter, the United States, accounts for 15%

But China’s status is new. Until 2006 it pumped out less per year than the United States. Because the US has had mega-factories and heating and so on for so much longer, it is responsible for by far the biggest chunk of the greenhouse gasses already in the atmosphere: 25%, followed by the European Union with 22%.

China might reasonably feel that countries like the US that have done the most to create the problem should do the most to fix it.

Like Australia, the US pumps out twice as much per person as China and has much more room to cut back.

On the bright side, China knows that being big means it is in a position to make a difference to global emissions in a way that other countries cannot on their own. And that’s a position that can benefit its citizens.

China’s latest five-year plan, adopted in March, commits it to cut its “carbon intensity” (emissions per unit of GDP) by 18%. If it beats that five-year target by just a bit (and it has beaten its previous five-year targets) its emissions will turn down from 2025.

It is aiming for net-zero emissions by 2060.
Australia needs China’s help

The Intergovernmental Panel on Climate Change finds that Australia is especially susceptible to global warming. We’re facing less rain in winter, longer heatwaves, drier rivers, more arid soil and worse droughts.

We are right to want China to do more, but the worst way to achieve it is to say “we won’t lift our ambition until you lift yours”.

Hardly ever a worthwhile strategy, it is particularly ineffective when we don’t have bargaining power.

Climate change has already hit Australia. Unless we act now, a hotter, drier and more dangerous future awaits, IPCC warns
Australia may warm by 4℃ or more this century, the IPCC has found. As these IPCC authors explain, there is no going back from some changes in the climate system.

The Conversatin Joelle Gergis

The only power we’ve got is to set an example, unilaterally, as we did with tariffs. And to ramp up our ambition.

If Australia said it would do more, and didn’t quibble, it might just count for something.

It’s all we can do, and it’s the very best we can do.

Peter Martin, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Main image: Bushfires below Stacks Bluff, Tasmania. Source: Matt Palmer on Unsplash

AUSTRALIA

Forrest dumps Kimberley fracking on climate concerns

Andrew Forrest's Squadron Energy is pulling out of plans to frack the Kimberley for gas citing climate concerns, but the minor partner may continue the work.

PETER MILNE
17 AUG 2021 •



EXCLUSIVE

Andrew Forrest's Squadron Energy is abandoning plans to frack the Kimberley for gas a year after acquiring new exploration acreage, but Squadron's partner may continue the work.

Squadron and its 20 per cent equity partner Goshawk acquired the 5300 km2 EP 499 exploration permit in August 2020. The partners planned a six-year $3.75 million work programme of seismic surveys and two exploration wells.

The effort appeared in conflict with Forrest's concerns about climate change and the commitment of iron ore miner Fortescue that he chairs to net-zero emissions by 2030.

In June, Forrest criticised Australia's two largest gas companies – Santos and Woodside – for their contribution to greenhouse gas emissions.
"Only a fossil would back long-term fossil fuel in today's world," Forrest said.

A spokesperson for Squadron Energy said the company continuously reviewed its investments to ensure they were aligned with its climate policy and actively supported the transition to a low carbon economy.

"As part of this ongoing review, Squadron Energy has made the strategic decision to exit from our limited Canning Basin permits," the spokesperson said.

"This process is in advanced stages."

However, Squadron's exit does not necessarily mean the exploration will stop.

Boiling Cold understands Goshawk, which operates EP 499, continues to progress the work program independent of Squadron's exit.

Reprocessing of seismic results costing about $1 million is planned for the next 12 months, followed by a $3.5 million seismic survey.

Forrest's five years in the Kimberley

Squadron first partnered with Goshawk in 2016 to apply for 220,000km2 of permits.

"We believe that developing WA's onshore petroleum resources responsibly is a key part of delivering value for WA, such as employment opportunities and energy security," a Squadron spokesperson said in 2015.

Squadron and Goshawk had extensive permits in the Kimberley that were affected by fracking restrictions announced by the McGowan Government in late 2018.

The two companies held numerous special prospecting authorities, an early-stage permit, that were excluded from permission to perform hydraulic fracturing, or fracking. These SPAs are now listed as expired on the WA Government's Petroleum and Geothermal Register.

Some exploration permits held by the companies were affected by a ban on fracking on the Dampier Peninsula.

Privately-owned Goshawk is run by Andrew Leibovitch and Will Barker, who also control Western Gas that is trying to monetise Carnarvon Basin offshore acreage bought from US-major Hess for a nominal amount.Western Gas, an ineffective regulator and a $US100M clean-up bill

If Western Gas’ Equus LNG project does not take off in these tough times neither the small company nor regulator NOPTA have an answer to how making safe the wells is paid for.

Boiling ColdPeter Milne


Environs Kimberley executive director Martin Pritchard congratulated Forrest on the decision.

"He's recognised that the Kimberley is one of those special places in the world that has to be protected from industrialisation," Pritchard said.

"Other companies would be wise to follow suit,

"There is no doubt that the shale oil and gas in the Canning Basin is going to be a stranded asset as opposition to fracking continues to mount, and the world becomes increasingly constrained in terms of carbon and methane emissions."
Big players leave the Kimberley to small fry

Forrest's Squadron Energy has joined a long list of companies that have invested time and money trying to develop oil and gas in the Kimberley and then left the region.

ConocoPhillips and PetroChina withdrew in 2014, leaving the acreage to junior New Standard Energy that was suspended from the ASX five years later for not including rehabilitation liabilities in its financial reports. In 2020 New Standard Energy said it did not have the money to plug and abandon four exploration wells.

In 2015 South West alumina producer Alcoa, one of the State's largest gas consumers, killed a $40 million deal with Buru Energy to fund gas exploration and production.

Apache Energy farmed into permits held by Buru Energy and Mitsubishi in 2013, funding two exploration wells. Quadrant Energy bought Apache's Australian interests in 2015 and pulled out of further involvement in the Kimberley.

In 2017 Buru and Mitsubishi dissolved their joint venture, with Buru taking control of the oil-focussed permits and Mitsubishi retaining gas acreage.

Mitsubishi sold exploration permit EP 371 to a subsidiary of Houston-based Black Mountain Oil and Gas in 2018, ending seven years of activity in the Kimberley.

In a move counter to the last decade's trend in late 2020, Origin Energy farmed into two permits held by Buru Energy and Rey Resources with a $35 million commitment to fund seismic work and two exploration wells over two years.

In August, Black Mountain subsidiary Bennett Resources submitted initial environmental approval documents for exploration wells that use fracking to the Environmental Protection Authority. The EPA's assessment will be its first since the State Labour Government lifted a complete moratorium of fracking in 2018 and added a requirement for EPA approval.


Main image: Andrew Forrest at an FMG iron ore mine in the Pilbara. Source: Fortescue Metals Group.

Peter Milne
I worked in oil and gas commercial and engineering roles for two decades. Since 2016 I have written on energy for The West Australian, The Saturday Paper, RenewEconomy and now mainly Boiling Cold.

AUSTRALIA

BHP and Woodside deal will not escape tougher decommissioning laws

If Woodside absorbs BHP's oil & gas assets new laws ensure the massive decommissioning liability falls to one of the companies, not the Australian taxpayer, unlike the Northern Endeavour.

PETER MILNE
16 AUG 2021 • 

A corroded hulk floating in the Timor Sea and legislation making its way through Parliament in Canberra will loom large in financial assessments of BHP offloading its oil and gas assets to Woodside.

Federal Resources Minister Keith Pitt said he was notified of the talks between BHP and Woodside that the two companies confirmed today.

Pitt said the negotiations were a commercial matter for the two companies.

Legislative changes Pitt introduced in response to the Federal Government being landed with an up to $1 billion cost to decommission the Northern Endeavour mean the Minister will not have to directly intervene in this deal to protect the interests of Australian taxpayers.

Northern Oil and Gas Australia, the owner of the Northern Endeavour, went into liquidation in early 2020, less than five years after buying the Timor Sea oil project off Woodside.

Pitt said any company buying into Australia’s offshore industry should be aware of the Government’s proposed legislative and regulatory changes to strengthen Australia’s decommissioning regime.
“These changes will ensure a higher level of financial scrutiny on transactions relating to title transfers, an extension of existing financial assurance provisions and the introduction of a trailing liability regime as a last resort to ensure decommissioning costs do not fall to Australian taxpayers,” Pitt said.
“Should the amendments pass, the new trailing liability provisions will apply to all titleholders from 1 January 2021 and will capture any changes…after this date but prior to commencement of the new provisions.”

With bipartisan support, there is little doubt the proposals will become law. Application from January 1, 2021, will prevent a speedy agreement escaping the measures.
The multi-billion-dollar liability transfer

A successful deal would see Woodside double its stake in the North West Shelf LNG project to a third and take 50 per cent of the ExxonMobil-operated Bass Strait facilities.

The two projects were the start of a significant offshore oil and gas industry in Australia. However, both are now sprawling collections of ageing assets with declining production and massive fast-approaching decommissioning bills for both offshore and onshore facilities.

In May, the offshore safety regulator NOPSEMSA ordered 180 wells in the Bass Strait to be plugged and the dismantling of ten platforms within a prescribed schedule. This is just the start of the bill Woodside would have to pay half of.

A Federal Government commissioned study released in May estimated the cost to decommission Australian offshore oil and gas facilities to be $US40.5 billion ($55 billion).

The Gippsland Basin, which is predominantly ExxonMobil/BHP assets, accounted for 26 per cent of this cost, putting BHP or Woodside’s share of the bill at about $7 billion through to 2050.

An enlarged Woodside would also bear onshore decommissioning costs in Victoria and double its present exposure to cleaning up the North West Shelf project.
The bill that must be paid, not delayed or dodged

NOPSEMA’s new proactive and prescriptive approach to decommissioning has stopped the constant delay to decommissioning that has been the industry’s default practice to date.

The legislative amendments before Parliament will close the other escape route that Woodside used in 2015: selling to a buyer attracted by the upside of a bargain price but unable to afford the downside when things went wrong.

A transfer of offshore assets from BHP to Woodside will require Federal Government approval, and Woodside will be scrutinised to ensure it can afford its decommissioning costs over coming decades.

Woodside in 2021 is more capable and financially stronger than Northern Oil and Gas Australia, but in the longer term, it may find itself in a similar position.

No rational observer now regards hydrocarbon production as a steady-state business. Eventually, production and revenue will fall, and decommissioning costs will rise.

When the future value of production falls below the cost of decommissioning, an oil and gas company will be essentially worthless.

At that point, there are three ways decommissioning could be paid for.

The oil and gas company could have diversified into clean energy and then use part of that revenue to clean up its legacy.

Woodside may be in this position next decade if it can completely pivot its business while absorbing the new assets from BHP. If Woodside, or another partner in the joint venture, cannot pay the burden falls on the partners that are still solvent.

Alternatively, money may have been put away for decommissioning while the fields were profitable, but Australian legislation does not allow for this.

The option of last resort is trailing liabilities that would see the Federal Government chase previous owners of the Bass Strait and the North West Shelf for the bill.

For both projects, there will be no juicier company to squeeze than fossil-fuel-free BHP. The energy transition will most likely boost its mining revenue while the cash flow of oil and gas companies shrinks.

BHP shareholders of the 2030s will hope Woodside is successful; otherwise Canberra will be diverting some of their dividend stream to clean up the miner’s petroleum past.

Please support Boiling Cold to keep yourself and others informed about energy, industry and climate in WA.

Update 17 August: Added that other joint ventureres are liable if a company cannot meet its decommissioning liability. Only after that do trailing liabilities come into play.

Main image: Federal Government controlled Northern Endeavour oil vessel rusting in the Timor Sea in mid-2021. Source: Anon.

Peter Milne
I worked in oil and gas commercial and engineering roles for two decades. Since 2016 I have written on energy for The West Australian, The Saturday Paper, RenewEconomy and now mainly Boiling Cold.

GREENWASHING THE CHINESE WAY

CNOOC plans more green investment as H1 profit more than triples

That doubles a previous target of 5% of spending on green projects as the firm seeks to cut its carbon footprint alongside a strategy that focuses on lifting the share of natural gas in its output portfolio.

Reuters
August 20, 2021, 

BEIJING/SINGAPORE: China's top offshore oil and gas driller CNOOC Ltd said it would channel up to 10% of annual spending to green energy by 2025, and announced interim net profit more than tripled from last year as oil prices rebounded.

That doubles a previous target of 5% of spending on green projects as the firm seeks to cut its carbon footprint alongside a strategy that focuses on lifting the share of natural gas in its output portfolio.

CNOOC said on Thursday it plans to expand into onshore wind and solar power from an earlier focus on offshore wind, aiming to build at least 5 gigawatts of combined solar and wind capacity by 2025.

It said U.S. sanctions imposed on the company in early 2021 had not had a substantial impact on its business and urged Washington to lift the "unreasonable" measures.

CNOOC's first-half net profit reached 33.33 billion yuan ($5.13 billion), up 221% from a year ago and from 25.48 billion yuan in 2019. It was the highest profit since the first half of 2014.

Revenue in the first half of 2021 jumped 48% from a year earlier to 110.23 billion yuan.

Benchmark WTI prices, which plunged to below zero at one point in April last year, hovered near $70 a barrel in the second quarter of 2021 as the global economy recovered from the pandemic fallout.

CNOOC, one of the industry's lowest-cost explorers and producers, said its all-in production cost was $28.98 per barrel, up from $26.34 in 2020, due to "rising commodity prices and other factors".

Oil and gas production hit a record of 278.1 million barrels of oil equivalent (boe), up 7.9% year on year, boosted by several new projects in Bohai Bay and the South China Sea, such as the ultra-deep gas project Lingshui 17-2.

First-half capital expenditure was 36 billion yuan versus 90-100 billion yuan planned for the full year, the highest annual budget since 2014.

NIGERIA

Petroleum Industry Act (PIA): Socio-economic and political perspectives

by Ekundayo
August 22, 2021

“In any moment of decision, the best thing you can do is the right thing. The worst thing you can do is nothing.” – Theodore Roosevelt

Hurrah! The Petroleum Industry Bill (PIB) that has been much debated and discussed over several years, beginning from as early as 2009 till date, has been finally assented to by President Muhammadu Buhari on Monday, 16th August 2021 having been earlier passed by the 9th National Assembly in July 2021. The way to the assent by the president was not rosy; similar to a beautiful rose with thorns! The host communities felt short changed and were vehement and vociferous for anyone to hear. The executives sitting at the saddle in the southern states were not silent but shouted to the rooftops that the oil producing states deserved better and wanted the National Assembly to do more in jacking up the 3% to 5% of the operation expenditure in the prior year as the accrual to the Host Community Trust Fund. The governors demanded and desired a better deal which the president discountenanced in assenting to the bill. It is pertinent and salient to state that this columnist in aligning with the stand and stake of President Muhammadu Buhari could vividly recollect that while in business school, it was said that “a bad decision is better than indecision”, whether in business or government. This aligns with the belief of erstwhile American President, Theodore Roosevelt, who opined: “In any moment of decision, the best thing you can do is the right thing. The worst thing you can do is nothing.” Hence, to Mr. President, the best thing, rather than dithering, is to consent and assent to the submission, without further moderation, of the lawmakers of the green and red chambers. Despite contention and dissension from certain quarters, the Buhari administration deserved a pat on the back as the oil sector will now be better regulated, “competitive, balanced, fair, reasonable and realistic” (KPMG). How will the operationalization of the PIA ensure this in reality? The coming months will give the industry watchers, analysts and stakeholders a glimpse as the proof of the pudding is the eating!

Pedigree of the PIB

The only existing act regulating the oil industry was outmoded as it dated back to 1969. The Petroleum Industry Bill (PIB) was actually a consolidation of four bills. Why has it taken such a long time to reach a consensus between the executive and legislature? Previously, the bill was lampooned as not competitive enough for investors, the main target of the PIB; ownership was also not properly defined; there was the issue of misaligned interests between the legislature and executive; great opposition by the host communities as they felt they were not properly inputted into the crafting of the bill ab initio; and also, incidence of possible erosion of ministerial power. However, it was the belief of both the executive and legislature of the 9th National Assembly that these identified bottlenecks have been seemingly factored and filtered into the lengthy legislative process culminating in the enacting of the Petroleum Industry Act 2021 (PIA). Why so much attention on the oil industry in Nigeria? The oil sector accounts for a humongous 90% foreign exchange earnings; 60% of total income; and 10% of the country’s GDP (Source: KPMG). All said and done, the PIA will bring sanity and credibility into the oil industry through legal, governance, regulatory and fiscal frameworks which hitherto have been lacking in the sector resulting in a lot of loss and damage to the government, country, stakeholders and especially the host communities. For instance, gas flaring is now punishable under the Act while granting or cancelling of licenses, authorizations and permits is now transferred from the Minister to the headship of the Midstream and Downstream Regulatory Authority. This is a giant leap in warding off red tapism in the operations in the oil sector as it will incentivize investors in the midstream and downstream sectors.

Wearing socio-economic lens at PIA

The PIA, as envisaged and enacted, is meant to be a game changer in the oil and gas industry. It is supposed to be but little attention is paid to the paradigm shift the major stakeholders in the industry are leaning towards – renewable and clean energy. Particularly and pointedly, less attention is devoted to the vital issue of gas deregulation in the PIA. The country stands to gain more in the gas sector as the Nigeria Liquified Natural Gas (NLNG) is presently doing well. Moreover, the host communities are taken care off in the PIA as 3% of the Annual Operating Expenditure in the prior year will be consolidated into the Host Community Trust Fund to develop jointly agreed capital projects within their communities. There is the need for clarification here. Many seemingly do not read and comprehend the section of the Act as it does not relate to the operation profit but expenditure in the prior or previous year. This aspect needs to be clearly understood by the host communities and the Governors of the oil producing states as well. We all need to pay attention to details not just of the matter of PIA but all other issues pertaining to governance. It should be stated that PIA will definitely bring in investment, jobs, and income for the government and people of Nigeria if properly operationalized in line with modern Monitoring, Evaluation, Accountability and Learning (MEAL) framework ab initio. MEAL will establish baselines, milestones, key performance indicators (kpis), targets and will help to decipher ‘what works’, ‘what does not work’, and ‘what changes need to be brought on board’ to hit milestones or targets.

Political Perspectives of the PIA


This columnist perceives this is the vital part of the PIA that the Muhammadu Buhari administration has to properly manage so that the gains of the PIA could be consolidated and sustained. Without mincing words, the Federal Government has not done much in reaching out politically to the southern governors who objected to the 3% of the Operating Expenditure in the prior year to be given to the host communities. Their agitation was for 5% to be granted. In addition, much of the yearnings and longings of the host communities were not factored in even though the Act dealt with environmental remediation, particularly gas flaring. Not much was stated about oil spillage! Going forward, the Federal Government, under President Buhari’s watch, should endeavour to reach out more in dialogue and discourse as we are in a democracy. The process may still ultimately result in the government having her way while the people have their say but in the final analysis, the stakeholders will feel relevant, regarded or recognized to be allowed to express their emotions as expression not vented could turn to depression! Moreover, the government at the centre as a political chess master, could even diplomatically reach out to the aggrieved stakeholders with possibly some other dividends of democracy to assuage their angst or emotions. It is all part of politics. The Buhari administration needs to step up in this regard so that the citizens will not see this government as tending to autocratic or dictatorial and/or denigrating democracy.

Conclusion

As of the time of going to the press, the President appealed to the host community to accept the 3% as a fair deal while some stakeholders from the Niger Delta are saying that the Federal Government was not equitable with the 30% operating profit to be deposited in the Frontier Exploration Fund; 75% of which will be invested in the Upstream operation of prospecting for oil as the main goal of the PIA is for Nigeria to attain 40 billion barrels reserve and 4 million barrels production per day. However, will OPEC give this quota to Nigeria or will global demand for oil justify this gigantic investment instead of investing more in the gas sector as the world shifts to clean and renewable energy? This columnist will want the Minister of State for Petroleum Resources, Mr. Timipre Sylva, to ab initio take into cognizance the inculcation of Monitoring, Evaluation, Accountability and Learning (MEAL) framework into practice as the head of the implementing body of the PIA if truly the loss of $50 billion dollars in the last 10 years (according to President Buhari) will be attuned for and sanity will be restored to the oil sector. Moreover, in the face of growing angst and agitations in the Niger Delta, the Senate President, Dr Ahmed Lawan, stated that there is room for amendment of the PIA. This is aligning with the opinion of an American writer, Wilferd A. Peterson who stated thus: “Decision is the spark that ignites action. Until a decision is made, nothing happens … Decision is the courageous facing of issues, knowing that if they are not faced, problems will remain forever unanswered.” In essence, both the Senate President, Dr Ahmed Lawan, and the President of the Federal Republic of Nigeria, Muhammadu Buhari, are saying with the passage and assent to the bill that action must be taken irrespective of dissenting voices as the onus lies on leaders to develop spines in making tough decisions rather than dithering as past political leaders had failed to demonstrate the political will to get the PIB into becoming an Act. The coming years will determine the timeliness and suitability of the action taken by this administration. Will Nigeria and Nigerians gain from it? Will it attract investors as postulated? Will the host communities be better off? Will it be sustainable? Time will tell!

Dr. Ekundayo, J. M. O., leadership researcher, and consultant, can be reached via 08155262360 (SMS only) and drjmoekundayo@hotmail.com

PIA: A Revolutionary Law and its Many Controversies
August 22, 2021 



In a historic move last Monday, President Muhammadu Buhari signed into law the Petroleum Industry Bill, a piece of legislation that will serve as the framework for operations in the oil and gas industry. Having suffered several setbacks for close to 20 years, the bill passed the most tortuous journey in the history of law-making in the country. Emmanuel Addeh writes that the Petroleum Industry Act is a major feat for the current administration but many questions remain unanswered as government begins full implementation of the new law

Having faced many impediments in its long walk to consummation, mainly due to key stakeholders’ failure to build consensus, the new petroleum law, now tagged the Petroleum Industry Act (PIA) would go down in the annals of Nigeria’s history as one of the most controversial ever.

Even in its passage into law, the issues that have dogged it have refused to subside, but have become more pronounced since the president assented to it a few days ago.


For the whole period that players failed to forge a common front and build consensus, seemingly almost always sticking to their old rigid positions, the country’s oil and gas resources literally bled.


Indeed, so frustrating was the process at a point that the Senate President, Dr Ahmad Lawan, concluded that some “demons” were behind its non-passage.

A Brief History

On September 28, 2020, President Muhammadu Buhari sent the bill, an offshoot of the Oil and Gas Sector Reform Implementation Committee (OGIC), which was inaugurated on April 24, 2000 under the chairmanship of the late Dr. Rilwanu Lukman, who was the then the Presidential Adviser on Petroleum and Energy, to the national assembly for consideration.

Twelve years earlier, precisely in 2008, ever before the president made the move, discussions that ensued on ways to strengthen the OGIC had produced the Lukman report, which recommended a new regulatory and institutional framework to guarantee greater transparency and accountability in the oil sector.

Eventually, the report formed the basis of the first Petroleum Industry Bill (PIB) that was submitted in 2008 as an executive bill under the late President Umar Yar’adua. Since then, the bill had hit several roadblocks.

Thereafter, on the 18th of July 2012, then President Goodluck Jonathan presented a new version of the PIB to the seventh session of the national assembly for consideration and enactment, further throwing it into the front burner of national discourse.

Although it was subsequently split into Petroleum Industry Governance Bill (PIGB), Petroleum Industry Administration Bill (PIAB), Petroleum Industry Fiscal Bill (PIFB) and Petroleum Host Community Bill (PHCB), for easy passage, it still did not see the light of day.

To ensure at least some headway, the PIGB version was eventually approved by the national assembly at some point, but it couldn’t sail through presidential assent and was thereafter returned to the legislature for further work.

Like now, the percentage to be allocated to host communities in the Niger Delta has largely been a sore point in the passage of the bill.

Although the late Yar’Adua proposed 10 per cent, it was rejected by lawmakers predominantly from the north in the 7th National Assembly.

When Jonathan took over the reins of government, he retained the same 10 per cent , but it was again rejected by the national assembly. It was brought down to 5 per cent in the 8th Senate, it still wasn’t passed into law due to further divergence of opinions.

The recent passage of the bill by the National Assembly Assembly and Monday’s presidential assent has rekindled hope for the oil and gas industry.

At least, some part of the losses established by the Nigeria Extractive Industries Transparency Initiative (NEITI) at over $200 billion cumulatively, may be recouped before oil finally goes into extinction.

In a similar assessment of the industry, Financial Derivatives Company Limited (FDC), had in a note indicated that Nigeria’s oil and gas industry was losing as much as $15 billion in investments annually due to the delayed passage of the legislation.

Forty eight hours after signing the legislation into law, Buhari approved a steering committee to oversee the process of its implementation, stressing again that Nigeria lost an estimated $50 billion worth of investments in just 10 years, created by the uncertainty of non-passage of the PIB.

Part of the grouse against the bill is that a ‘paltry’ three per cent is allocated to the oil producing communities which bear the brunt of production and exploration, while 30 per cent was approved for finding oil in the frontier basins, which many literally interpret as the northern area.

This has further polarised an already divided nation.

Highlights of the New Law

Under the new law, its framers and indeed most Nigerians believe the oil and gas industry will have a new opportunity for growth.

A major highpoint of the newly-signed law is that it mandates the federal government to conclude the commercialisation of NNPC, which has been described as a behemoth, by February 2022.

Despite all the agitations, the Act retains three per cent for host communities and a whopping 30 per cent for frontier basins.

It creates two regulatory agencies for the oil industry, from which the upstream commission would collect rents, royalties and production share.

It mandates the midstream and downstream authority, the second leg of the two new bodies to collect gas flare from midstream.

The new law imposes one per cent levy on wholesale price of petroleum products, while oil companies will be sanctioned for understating profits and overstating losses.

In all, the new legislation repeals 10 existing laws, stipulates that the Board of Trustees (BoT) and executive members of host communities board may not be indigenes. It provides that oil producing areas must distribute funds for capital projects (75 per cent), reserve (20 per cent), admin (5 per cent), with the fund to be set up within 12 months.

In addition, the new law deems all employees of NNPC as new staff of NNPC limited, which is to be set up, while board appointments will thereafter be made by shareholders and not the president alone.

Further to that, host communities will henceforth forfeit their entitlements from the funds in the event of vandalism. This implies that if it takes N10 to fix the leak, it will be deducted from the monies available to the areas where the incident took place.

According to the legislation, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) shall be responsible for the technical and commercial regulation of upstream petroleum operations.

It will ensure compliance with all applicable laws and regulations governing upstream petroleum operations in a manner to minimise waste and achieve optimal government revenues as well as promote healthy, safe, efficient and effective conduct of upstream petroleum operations.

Also, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) is to be set up for the technical and commercial regulation of midstream and downstream petroleum operations in the petroleum industry.

Also to be floated is the Midstream and Downstream Gas Infrastructure Fund (MDGIF), which shall be funded from 0.5 per cent of the wholesale price of petroleum products and natural gas sold in Nigeria as well as well as grants accruing from multilateral agencies, bilateral institutions and related sources.

It will further see the scrapping of the Department of Petroleum Resources (DPR) as it currently exists as well as the Petroleum Products Pricing Regulatory Agency (PPPRA) and Petroleum Equalisation Fund (PEF).

On the NNPC, it shall cease to exist after its remaining assets, interests and liabilities other than its assets, interests and liabilities transferred to NNPC Limited or its subsidiaries under subsection (1) shall have been extinguished or transferred to the government.

The new law will generally see the deregulation of the sector and ensure strict environmental implementation of policies, laws and regulations for midstream and downstream petroleum operations.

Initial Industry Reactions

In his reaction to the promulgation of the new law, the former President, Nigerian Association of Petroleum Explorationists (NAPE) and current President, European Association of Geoscientists and Engineers (EAGE), Dr. Mayowa Afe, explained that aside the argument over the three per cent or five per cent for host communities, the bill is a foundation that can be built upon in the future.

“It’s good news that the president has come all the way from his holiday and on his first day of work assented to the bill. It is good news for all of us. It has been there for 20 years although it’s not perfect. No law is perfect, but we can begin to work on it from here, particularly the three per cent or five per cent for the communities.

“Now, we have a law regulating the oil and gas industry and the ones that are not up to what we want, we begin to work on it and there will be a lot of advocacy concerning this,” he said.

In his remarks, President of the Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN), Dr Billis Gillis-Harry, stated that although the bill was largely unfair to the Niger Delta, it wasn’t a bad place to lay a solid foundation for the sector.

He noted that the country’s scarce resources that were being used to fund the petrol subsidy regime will now be used for developmental purposes, saying that the organisation had always supported deregulation.

“As for the three per cent, it is unfair to the Niger Delta that bears the burden of oil production in the country to be so unfairly treated. When you compare this to 30 per cent of NNPC profits even as a private company, being reserved for the frontier exploration, it doesn’t add up.” he said.

Chairman, Petroleum Technology Associated of Nigeria (PETAN), Mr Nicholas Odinuwe, in his remarks expressed joy that the bill had been signed into law, adding that the views of the organisation were taken into consideration in the process of consultations.

To Remove Subsidy or Not?

If there’s any matter of public interest that has lingered for decades, it is the petrol subsidy issue. But even with the new law, the federal government has said that it is not immediately embarking on its removal.

Minister of State, Petroleum, Chief Timipre Sylva, noted that although desirable, operationalising the free market regime will require that a lot of economic shock absorbers will be put in place, advising that it would not be advisable to suddenly remove it.

“It (deregulation) is something that is desirable, which I have always said. I’ve never deviated from that. Deregulation is desirable because that is the sustainable way out of where we are. But also, the reality is that deregulation is going to come with some changes.

“And of course, when people have been used to certain behaviours, behavioural patterns which means you’ve been used to subsidy for this long, and you want to change that, you have to have some kind of change management process in place.

“You cannot just change the policy on everybody without looking at some of the problems that this might create. One of which is that we know that this is going to entail increase in price. How do we alleviate the problems that will come with this increase?

“This is not a mindless government. It is a government that really, really cares about the Nigerians. So, we have to really look at all these possibilities of how to at least alleviate the pains and the problems that this increase might occasion. And that’s why we are taking our time. And that’s why it will not happen overnight.

“But I’m just telling you that there is a provision in PIA that will make this happen, that we have to jointly ensure that we’re able to come up with a workable way of making this happen. And that process is already ongoing,” he stated.

The Frontier Basin Controversy

Not a few individuals have argued that the monies allocated to the frontier basins will basically be a slush fund for the areas that are meant to benefit from it.

But the minister who also took time to explain the frontier exploration fund, noted that the frontier territories are not only in one area of the country.

“There are frontier territories in Cross River, in the North-east and in the South-west. So, when people just locate frontier territories in one part of the country and settle on that, then there’s a problem,” he argued.

He maintained that Nigeria has had about 37 billion barrels reserve for the past 10 years and has not added to it since then and therefore needs to bring some vigour into this industry. “Nigeria is the ultimate beneficiary,” he noted.

As noted earlier , one area of divergence for the whole time the bill lasted in the coolers was the issue of what should fairly accrue to host oil communities who feel the direct impact of oil exploration and exploitation.

In trying to explain this, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, said the grumbling from a cross-section of oil producing communities in the Niger Delta was unnecessary.

According to him, the three per cent approved under the new petroleum act could even be bigger than what the Niger Delta Development Commission (NDDC) currently gets when computed.

Kyari noted that given about $16 billion total expenditure by the oil and gas sector last year, host oil communities would earn as much as $500 million yearly if the trend continues.

The GMD noted that whereas the oil-producing communities could not determine what projects will be located in their areas before now, from now on, the new legislation will ensure that they largely control their funds and projects in the communities.

“And three per cent of your operating expenditure is a huge number. Many people argue around whether it should be 10 per cent or five per cent or three per cent. But percentage of what? I think that’s what most people don’t understand today,” he stated.

Free Market with Restrictions

Aside the pending subsidy matter, an area that has also generated heated debate and is indeed seen as contradictory is the part that practically hands over products importation to a very tiny cabal.

In one breath, Section 205 (1) of the new PIA states that: “wholesale and retail prices of petroleum products shall be based on unrestricted free-market pricing conditions.”

Yet in another breath, Section 317 (8) of the same mandates that: “The Authority shall apply the Backward Integration Policy in the downstream petroleum sector to encourage investment in local refining.

“To support this, a licence to import any product shortfalls shall be assigned only to companies with active local refining licences,” it said.

But not a few believe that this part was literally lifted from a presentation by a top official of a major refinery owner in the country, who requested when some members of the National Assembly’s Joint Committee on the PIB made a working visit to the construction site of its ongoing refinery, asking that importation rights for petrol should be restricted to licenced and active refineries in the country.

The new policy will simply enrich a small group of importers, discourage new market entrants and hold Nigerians to ransom, according to the argument.

A Mixed Bag

Depending on who’s talking, the new legislation has met with stiff criticisms, cautious optimism and praises. While some persons and organisations like the Organisation of Petroleum Exporting Countries and the Nigeria Extractive Industries Transparency Initiative (NEITI) have spoken laudably about it, others have simply condemned it as another piece of law that cannot be implemented.

Describing it as a mere ruse, to do irretrievable violence to Nigeria’s progress, a Senior Advocate of Nigeria (SAN), Chief Mike Ozekhome, said the Act constitutes a direct assault on age-long cherished principles of federalism and the doctrine of separation of powers.

He argued that the Act seeks to attack the provisions of section 162 of the 1999 Constitution, which states that all revenues accruing to the Federation shall be paid into a Federation account from which sharing shall be made amongst the three tiers of government – the federal, government, the 36 states and the 774 local governments.

He maintained that the NNPC ought to be totally unbundled to make it more viable, but said that as it is, it has further strengthened NNPC’s hand of non-accountability.

Is the Upstream Regulator Delving into Commercial Operations?

Another contentious issue with the PIA was a remark on Wednesday night by Sylva that with the implementation of the new PIA, handling of the sale of crude oil that goes into the federation account, will now be done by the upstream regulatory commission.

He stated that because NNPC limited will be a company that will be operating commercially, it will no longer be dependent on government and the corporation would stop being the custodian of the crude oil as currently obtains.

“That will no longer happen because NNPC will be a commercial venture, completely decoupled from government and will be operating commercially. So, for the average Nigerian, he will be seeing a more serious NNPC and a more professional NNPC.

“Monies will still accrue to the federation account, but NNPC will now have to give the federation crude to the upstream regulatory commission, and NNPC will no longer be in charge of the federation crude, they will be in charge of their own crude.

“The commission will sell that crude and pay to the federation account, so the federation of course will still get their crude, but it will no longer be through the NNPC,” he said.

Some persons’ understanding of that statement was simply that the regulator was moving gradually into the commercial space, a phenomenon that has been criticised in the past.

But the minister clarified on Thursday that although the NNPC may still lift the federation crude, it will however, route the money to the joint account through the commission at a fee. Even at that , the issue still remains very controversial.

Governors Make Demands, List Pitfalls

The Nigerian Governors’ Forum (NGF,) has also had its take on the PIA, picking at least six holes in the new law they described as a recipe for disaster.

In a letter signed on their behalf by Chairman of the NGF, Ekiti State Governor Kayode Fayemi, the governors identified Sections 9(4) and (5); 33; 53(2), (3); (4); 54 (1) and (2); 55 (1); and 64(c) as some of the areas they are opposed to. But that was days before the bill was signed into law.

The state chief executives contended that the law will deny states their fair share of the federation account because it favours the federal government and the NNPC.

They said rather than reforming the sector, the Act has made the NNPC Limited a more powerful oil company and faulted the removal of the requirement to transfer payments into the federation account as unconstitutional.

“In a previous communication with the leadership of the national assembly, we had noted that Section 53 of the bill provided for the incorporation of the NNPC Limited under CAMA to carry out petroleum operations on a commercial basis.

“In our said letter, we observed that the wording of (3) suggested that only the federal government would have shares in this company and stated that ownership of all the shares in the company shall be vested in government and held by the ministry of finance on behalf of government.

“We observed that excluding states from this arrangement precluded them from having a voice in the running and administration of the company and excludes them from sharing in the distribution of dividends when they become due,” the governors maintained.

Generally, the governors raised fundamental issues bordering on the removal of the requirement to transfer fiscal payments to the federation account; 30 per cent profit oil and gas as frontier exploration funds; and on the issue of gas flare penalties.

“We do not believe that in passing this bill, the national assembly gave adequate consideration to every relevant facet of our federation, and this can be a recipe for disaster,” they said.

Ayade Cries Out

Although a strong supporter of the Buhari administration, even the Governor of Cross River state, Prof. Ben Ayade, could not hold his displeasure with the law, stressing that the law seeks to perpetuate injustices that the state has suffered over the years.

Ayade said the law failed to address the concerns of the state in spite of the presentation he made to the relevant senate committee of the National Assembly.

“Cross River State bears the brunt of production, but today the PIB is signed into law, insensitive to the oil impacted communities to which Cross River state belongs.

“In the same PIB, 30 per cent of revenue is set aside for frontier exploration, luckily the Calabar basin which they refused to recognise in that category which stretches from all the mountain basins, cutting across the whole of Bakassi, Biase Odukpani, Okuni, Ogoja, Yala is heavily impregnated with hydrocarbons,” he said.

After nearly two decades, Nigeria has finally taken a huge step to unleash the full potential of its hydrocarbons. Hopefully, implementation may not that long to commence.

PIA: A Revolutionary Law and its Many Controversies | THISDAYLIVE

NIGERIA

Federal Government’s Funding for Priority Projects in Oil Industry Hits $1.54trn Deficit in June

August 17, 2021 


Emmanuel Addeh

The federal government through the Nigerian National Petroleum Corporation (NNPC) may have been unable to fund its priority projects in the oil and gas industry to the tune of $1.54 trillion, according to a document presented by the corporation to the Federation Account Allocation Committee (FAAC) in July.

In the document sub-headlined “Statement of Joint Venture (JV) Cost Recovery and Government Priority Projects for June 2021”, the government stressed that the shortfall was between January and June this year.

Cost recovery refers to a mechanism through which a party to an oil and gas project can recover most, if not all, of its capital and operating costs out of a specified percentage of production called ‘cost recovery oil’.

Whereas the total 2021 “calendarised” financing obligation was put at $3.21 trillion, with a monthly tranche of $536 trillion, the data showed that actual dollar equivalent funding stood at $846 million as of June this year, leaving a deficit of $1.545 billion.

A breakdown of the figures seen by THISDAY showed that $196.1 million of the budgeted $536 million was released in January, $168.5 million was released in February, while in March $128.101 million was made available for funding the projects.

In addition, $167.2 million was pumped into the projects in April; in May it was $172 million, while June saw the release of a meagre $14.2 million.

Some of the ongoing projects in the budget of the NNPC include a handful of national domestic gas development initiatives, frontier exploration, renewable energy and the Nigeria/Morocco pipeline.

Others include the Gbaramatu IPP/Excravos environs power plant, upgrade and rehabilitation of Delta IV, upgrade of Oben metering, Sapele metering station, Ajaokuta metering station as well as construction of Egbin 500mmscfd gas facility.

There’s also construction of the West Niger Delta project, Asa north Ohaji project, Excravos/Lagos pipeline expansion, OB3 supply lines as well as the Ajaokuta-Kaduna-Kano (AKK) project.

The figures showed that in January, the NNPC recorded a deficit of $259.6 million, $283 million in February, $228 million in March, $296 million in April, $148 million in May and a whopping $333.7 million in June.

Coupled with sundry other issues besetting the national oil company is the issue of subsidy which it has shouldered in last few months, sometimes affecting its obligations and contributions to the joint federation account.

Earlier in the year, the NNPC Group Managing Director, Mallam Mele Kyari, opened up on the state of affairs at the corporation, saying that at the time, the government was subsidising petrol with about N120 billion monthly.

He said the NNPC could no longer afford to bear the cost and Nigerians would have to pay the actual cost sooner or later, as market forces must be allowed to determine the pump price of petrol.

“Today, NNPC is the sole importer of petrol. We are importing at market price and we are selling at N162 per litre today. Looking at the current market situation today, the actual price could have been anywhere between N211 and around N234 per litre.

“The meaning of this is that consumers are not paying for the full value of the petrol that we are consuming and therefore, someone is bearing that cost. As we speak today, the difference is being carried on the books of the NNPC and I can confirm to you that the NNPC may no longer be in the position to carry that burden and because we can longer afford to carry it on our books,” he had said.

In June, he noted that the NNPC was paying subsidy on over 103 million litres of petrol daily, including the one smuggled through the borders because of the cheapness of Nigeria’s fuel compared with the price it is sold in neighbouring countries.