Investment Opportunities in Nigeria’s Downstream Oil and Gas Value Chain

By

Diezani Alison-Madueke (Mrs.) CONHonourable Minister of Petroleum Resources

July, 2012 1

Investment Opportunities in Nigeria’s Downstream Oil & Gas Value ChainNigeria in Perspective

• Politics• Presidential System (Democratic

since 1999)• Bi-cameral Parliament• Federation: Three tiers of

government (Federal, state and local government)

• 36 states and Federal Capital Territory

• Land Mass Area - 923,768 sq km

• Natural Resources (Capacity)• Oil – 37 Bln bbls• Gas – 187 TCF • Coal & Lignite – 2.7 billion tonnes• Tar Sands – 31 bln boe• Hydro Power – 14750 MW• Solar – 7.0 Kwh/m2/day• Wind – 2-4m/s at 10m height• Biomass – 320 mln hectars

• Economy• GDP (PPP) - US$418 Bln (The 2nd

largest in Africa)• Ranked 31st largest in the world

• GDP growth rate – 7.2%• Ranked 27th largest in the world

• Population – 160 million (the largest market in Africa

•

• Electricity consumption per capita – 120.51 kwh

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Investment Opportunities in Nigeria’s Downstream Oil & Gas Value ChainScope of Investments in Nigeria

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Investment Opportunities

Exploration & Production

Midstream & Downstream – Refining & Petrochemicals& Fertilizer Plants

Gas & Power Services

• Oil block acquisition

• Drilling Rig Leasing and drilling related services

• Engineering services

• Heavy Equipment leasing

• Seismic Acquisition and processing

• Refinery optimization

• Greenfield refineries• engineering, construction

• New Petrochemical Plants

• New Fertilizer Plants

• Pipeline production and laying

• Remote pipeline monitoring and control devices

• LNG design, fabrication etc.

• Gas Metering and Monitoring devices

• Power Plant engineering, construction and operation

• Gas Processing

• Haulage and logistics services

• Equipment leasing

• Pressure vessel fabrication yards

• Turbo-machinery – procurement, servicing

• Spare parts fabrication• Financial Services• Manufacturing of LPG

cylinders/Accessories

3

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Investment Opportunities in Nigeria’s Downstream Oil & Gas Value ChainMidstream & Downstream – Refining & PetrochemicalsDownstream Industrial Park / Gas Hub Concept

Petrochemicals FertilizerPrivate Power

Plant (PPP)

Sea Port

RefineriesRefineries

Each facility to be an independently owned Venture Roll out of 3-Industrial Parks viz.:

• South West • East Niger Delta • Northern Area (Along Trans Nigeria Gas Pipeline Route & Excl. Refinery)

Investment Opportunities in Nigeria’s Downstream Oil & Gas Value Chain Nigeria’s Gas Resources Confers Significant Opportunities for Investment

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Variety of gas uses that can generate economic development

Gas is a viable resource to spur economic development through use in power generation and industry…

SOURCE: Team analysis

Power

Industry

Gas-fired power generation (OCGT and CCGT)▪ Relatively low capex and

mature power generation technology

▪ Clean fossil fuel in terms of CO2 emissions per unit power generated (compared with hard coal or lignite)

▪ Flexible (back-up for RES)

Gas-intensive industries:▪ Feedstock (e.g., fertilisers,

petrochemicals, methanol)▪ Heat and power (e.g., cement,

steel)Gas light-industries:▪ Used as secondary input

and/or heat generation (e.g., paper, glass)

Gas has attractive fundamentals for the economic development agenda

▪ Compared with oil which has a “liquid” global market, gas is primarily a local or regional energy source (although it is becoming more easily transportable with LNG)

▪ Gas is difficult to store and, in the absence of a stable off-take position, is flared or re-injected

Investment Opportunities in Nigeria’s Downstream Oil & Gas Value ChainNigeria’s Gas Resources Confers Significant Opportunities for Investment (2)

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…and an abundant natural resource in Nigeria

SOURCE: BP Statistical Review of World Energy June 2011

159

187

193

213

273

283

284

Algeria

Nigeria

Venezuela

United Arab Emirates

US

Saudi Arabia

Turkmenistan

Qatar 894

Iran 1,046

Russian Federation 1,581

Prov ed gas reserves1

2010 Trillion cubic feet

1 Generally taken to be those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions (predominantl y conventional gas reserves)

Top 10 gas-rich countries

Investment Opportunities in Nigeria’s Downstream Oil & Gas Value Chain Gas & PowerStrategic Framework for Nigeria’s Gas Industry

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The Gas Reform is anchored on a robust strategic framework that is focused on maximum economic impact through gas. Aims to drive linkages with agriculture, manufacturing and dispersed small enterprise through Power

GAS TO POWER“… By 2014, we would have positioned Nigeria firmly as the undisputed regional hub for gas-based industries such as fertilizer, petrochemicals and methanol.”

GAS BASED INDUSTRIALISATION HIGH VALUE EXPORT

STRATEGIC FRAMEWORK FOR NIGERIAN GAS

Consolidate Nigeria’s position and market share in high value export markets Targeted LNG export

opportunities

Regional gas pipelines that help consolidate nation’s footprint and influence

Deliver on President’s Gas

Revolution Agenda to: Position Nigeria as the

regional hub for gas-based industries such as fertilizer, petrochemical and methanol

Transform gas sector to value adding sector

Significantly increase gas supply to the Power Sector

Focused delivery plan to support existing and ongoing power plants by PHCN and NIPP

Deliver Gas for at least 12GW by 2015

LNGRegional Pipelines

Investment Opportunities in Nigeria’s Downstream Oil & Gas Value Chain Midstream (Gas) & Downstream (Power)Policy Initiatives

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• Legal basis for gas supply to domestic market now in place− The underpinning Regulation was put

in place in 2008− Incorporation in Petroleum Industry Bill

(PIB) also ongoing• DPR issued the first set of supply

obligations to all IOCs in 2009• Recent supply growth fully linked to the

respective DSO obligations of the suppliers – the concept is essentially now institutionalized

• New and more sustainable domestic gas pricing to Power and other sectors now in place

• World class contractual frameworks for supply, transmission and Network access now in place

• World Bank revenue securitization scheme in place to mitigate risk of payment failures for gas supplied

• Gas Aggregation Company of Nigeria established to manage DSO and price aggregation

• Good progress being made in Negotiations and execution of various gas supply agreements (GSAA) ongoing

• Infrastructure Blueprint approved by Federal Executive Council (FEC) in 2008 and being rolled out—anchored on a network of critical pipelines and 3 CPFs

• Critical pipelines identified and development in progress for some• Investors assembled for the Central Area CPF and have commenced project

development• Feasibility study concluded for the Western Koko CPF

Scalable Gas Infrastructure

Blueprint

To support the agenda, a set of enabling policies were approved by His Excellency, Dr. Goodluck Jonathan. These are being rolled out and have created a major boost and jumpstart for the sector’s agenda

Investment Opportunities in Nigeria’s Downstream Oil & Gas Value Chain Gas & PowerInvestments in Nigerian Gas Infrastructure System

Over 5,000km of gas pipelines to be laid

At least 3 gas processing facilities (about 1bcf/d capacity each) to be designed and built

Aggressive Timeline Anticipated for delivery

Numerous gas utilization projects to be developed concurrently – LNG, fertilizer, Power etc.

Future of Nigerian Gas Infrastructure When Completed

Investment Opportunities in Nigeria’s Downstream Oil & Gas Value Chain Opportunities for Gas Investments In Nigeria

SOURCE: OECD; US federal statistic of f ice; Team analysis

Energy competitivenessMmscf gas used per m$ output, Nigeria(2)(3)

110

100

90

80

70

60

50

40

30

20

10

0

Total job impactTotal jobs created per mmscfd of gas used, Nigeria1

2,4001,1001,0009008007006005004003002001000

Power generationLNG export

Methanol

Cement

Petrochemicals (ethylene f rom LPGs)

Nitrogenous fertilizers

Pulp

Aluminium

Synthetic rubber

Iron & Steel

Corn

Paper

Downstream plasticsGlass

1 Estimate based on USA impact and x3-4 ratio for job creation and x1,2 energy ef f iciency between developed and developing countries2. Ethylene feedstock in Nigeria would be LPGs, consumption of natural gas is only utility needed for conversion vs feedstock. Downstream

plastics, only non-ethylene energy required is taken into account not initial feedstock needs.

Absolute import to Nigeria (2009, Mn USD)

Illustrative, relative mapping of Power and Export

Investment Opportunities in Nigeria’s Downstream Oil & Gas Value ChainMidstream & Downstream – Refining & PetrochemicalsDownstream Assets - Historical Perspective

Refining Capacity Current NNPC Supply & Distribution Infrastructure

5,120 kilometers Of Pipeline Network 21 Petroleum Products Depots 9 LPG Depots Atlas Cove Terminal PPMC Escravos Terminal Bonny Export Terminal MT Oloibiri/MT Tuma

1963/1972

1978

1989

1979

Simple …. Complex …. State of the Art 445,000BPSD

Algeria Egypt Libya Nigeria S/Africa0

4

8

1.37

0.960000000000001

6.17

0.3 1.11

Refining Capacity Per Capita, %

CRUDE850,725m3

Downstream Infrastructural Growth Plateaued In The Early Nineties. FGN Is Re Strategizing To Face Current Consumption Challenges & Preparing For Additional Product Volumes From Envisaged New Refineries

New

Ref

iner

ies

Bayelsa Refinery Kogi Refinery Lagos Refinery

TOTAL PROPOSED NEW CAPACITY 750,000BPSD

0.81%

NNPC Current National Holding Capacity

PMS1,202,01m3

DPK578,238m3

AGO748,398m3

Linkage To Existing Backbone Mandatory

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Investment Opportunities in Nigeria’s Downstream Oil & Gas Value ChainMidstream & Downstream – Refining & PetrochemicalsRefineries, Pipelines and Depot Infrastructure

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• Close to $3 Billion required in upgrading pipeline Infrastructure• The PIB to prescribe the Commercial tariffing models for pipelines

Investment Opportunities in Nigeria’s Downstream Oil & Gas Value ChainMidstream & Downstream – Refining & PetrochemicalsRefinery Rehabilitation

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Strategic objective of the TAM is to drive up average utilization of refineries to 90%, thus creating domestic self sufficiency in HHK and AGO, whilst significantly reducing imports of PMS

• Greenfield Refineries• Build three (3) Refineries in Lagos,

Bayelsa and Kogi States with a combined capacity of 750KBPD & Fertilizer plant along the Trans Sahara Gas Pipe line corridor, subject to Technical and Commercial viability.

• Near Term Impact• Expected Investment estimated at

US$23 billion.• Save about US$10.0 billion spent

annually on importation of White Petroleum Products.

• Engage about 15,000 construction workers at peak and 2,000 fulltime plant operators for the three Refineries.

• Status of Implementation• Secured 1500 Ha of land in Lekki Free

Zone from Lagos State Government for the Refinery and Industrial Park.

• Secured 324Ha of land in Oloibiri from Bayelsa State Government for Refinery.

• Location Studies for Kogi State ongoing.• Negotiations for Project Funding from

Chinese ongoing.

• Long Term Impact• Achieve self sufficiency in supply of

Petroleum Products by 2018, and eliminate importation of Petroleum Products completely.

• Save over US$2.5 billion annually in subsidies on Petroleum Products.

• Become a major exporter of PMS in the energy market

• Trigger the switch from firewood, charcoal and kerosene to LPG

Investment Opportunities in Nigeria’s Downstream Oil& Gas Value Chain Greenfield Refineries Project

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Investment Opportunities in Nigeria’s Downstream Oil & Gas Value Chain Economic Benefits of Downstream Non-Fuels Industrial Developments

Investment Opportunities in Nigeria’s Downstream Oil & Gas Value Chain Service SectorService Sector Opportunities

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Engineering Design• Over $500 Mln/year will be spent on Engineering Design projects in the next 5 yrs

Fabrication & Construction• Over $8 billion/year earmarked for fabrication scope in the upstream for the next 5 years• Need for new fabrication yards / dry docking facilities and expansion of existing yards

Materials, Manufacturing & Equipment Leasing• About $25bn to be spent on procurement of materials over the next 5 years• Some equipments and materials to be assembled/manufactured in Nigeria are Valves, fittings, heaters, static equipment, pumps and other rotating equipment

Banking & Insurance• Financing of low risk Oil/Gas projects through direct funding and venture capital• Partnering of Local insurance firms in the Insurance and Reinsurance of small Oil and Gas projects

Shipping & Logistics• Partnership with Nigerian shipping companies unlocks over $ 600 million annual spend on international transport of crude

Investment Opportunities in Nigeria’s Downstream Oil & Gas Value Chain Conclusion

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• Nigeria as the largest market in Africa offers unique opportunities for investment in refining, storage, transportation, distribution and marketing of petroleum products.

• The downstream oil and gas value chain is the focus of government intention in creating the necessary business environment through price liberalisation and strong independent regulation.

• The PIB offers fiscal rules of general application and open access regulations for the domestic oil and gas activities.

• Nigeria plans to upgrade existing refineries, build new refineries, build new gas infrastructure (pipelines and central processing facilities), power plants, petrochemicals, fertiliser etc. in order to enhance linkages between the oil and gas sector and the wider Nigerian economy.

• Nigeria is open for business.