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Kachikwu’s Two Years of Impactful Reforms

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  • Kachikwu’s Two Years of Impactful Reforms

This month, Dr. Emmanuel Ibe Kachikwu will mark two years as the leading policy driver of Nigeria’s petroleum and gas industry under the leadership of President Muhammadu Buhari. He was first appointed Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) by the President and eleven months later, Minister of State, Petroleum Resources was added to his portfolio. In July last year, Dr. Maikanti Baru was appointed GMD of NNPC. This allowed Kachikwu to focus squarely on policy formulation and coordination as Minister of State.

The last two years under Kachikwu’s watch easily qualify as one of the most reform focused periods in the history of the country’s oil and gas industry. He has led with vision and an infectious passion to make a difference. The minister has introduced innovative initiatives and set in motion groundbreaking changes in the sector. These initiatives are helping to manage the fallouts of turbulent global oil prices on the Nigerian economy as well as redefine and adjust the longstanding structures of the industry. They are also laying a stronger foundation for a more vibrant, more efficient and more profitable sector that can contribute sustainably to the national coffers.
A good place to start a review of his track record is the latest target which the minister has set: leading the country to achieve self-sufficiency in local refining capacity and end fuel importation in 2019. Like many of his moves, it has the audacious Kachikwu stamp.

The plan is to seek financing from reputable international oil companies to fund, rehabilitate and jointly operate the three refineries in Port Harcourt, Warri and Kaduna so as to boost them to optimal production capacity. According to a recent report from the NNPC, the refineries, installed to refine 440,0000 barrels of crude oil daily, worked at only 8.55% of their combined capacities from January 2015 to September 2016.

Kachikwu’s plan is to get the refineries to optimal capacity which if achieved would significantly reduce reliance on petroleum imports to meet domestic demand currently put at about 35million litres per day.

Another component of the plan is to support investors in Greenfield refinery projects. The biggest of these is the proposed Dangote refinery which is expected to provide an additional 650,000 barrels per day refining capacity by 2019. The combined refining capacity of the three government refineries at full capacity of 450,000 barrels per day and the Dangote refinery would put the country in the over one million per day category and will enable the country meet 100% of local demand.

This sounds like a tall order. But Kachikwu’s impressive track record of performance, personal credibility and the clear action plan that he has drawn up suggests that with the support of critical stakeholders in the industry, this task would be achievable.

Significantly, the minister has reported that several IOCs have indicated interest in supporting and financing the refinery revamp project. Dangote is on track to deliver on the refinery as scheduled. In spite of teething problems, things seem to be moving in the right direction.

One of the defining features of Kachikwu’s two years at the helm is that, with the support of the President, the minister has progressed the deregulation of the downstream sector which has reduced the cost of running the corporation by 30 percent and taken significant pressure off the country’s finances. It has also opened the sector to investment – local and international. Kachikwu has therefore succeeded in reducing the subsidy burden on the nation’s coffers and saved the country monies that are being re-directed to the financing of critical projects that will impact ordinary Nigerians and strengthen the economy.

As a result, queues have significantly disappeared from filling stations across the length and breadth of the country. “We are currently witnessing a period of calm and predictability in the petroleum industry not seen in the country in over two decades. The fuel queues have literally disappeared. Filling stations are always sufficiently supplied to meet demand” said Mr. Nantim M. Joseph, a public affairs analyst who resides in Abuja.

Kachikwu’s passionate and constant engagement with major stakeholders in the Niger Delta has also helped to foster peace and reduce militancy in the oil producing areas. A notable initiative in this regard was the meeting he organized in November 2016 between the Pan Niger Delta Forum (PANDEF) and the President, Muhammadu Buhari. At the meeting – which served the purpose of breaking the ice and building confidence – the group of elders from the region presented a 16-point list of things they wanted the federal government to address. He has been consistent in facilitating dialogue between key interest groups in the Niger Delta and the federal government to address areas of concerns. This has despite recurring incidents of pipeline vandalisms, significantly helped to increase oil production.

Kachikwu also reversed the opaqueness and outright secrecy which defined the operations of the industry for decades by introducing full transparency into the finances of the NNPC and the entire oil and gas sector. Months into his appointment as GMD of the Corporation, he started publishing full monthly operational accounts of NNPC. With this act, Kachikwu signaled a new era of openness and empowered Nigerians with knowledge about the workings of the industry that is the backbone of the nation’s commonwealth.

Another Kachikwu landmark: for the first time in thirty years, the country is executing a sustainable plan to tackle the perennial problem of inadequate financing for oil and gas operations. This was achieved by the elimination of the old cash call financing scheme. It will be recalled that the National Economic Council (NEC) had approved the proposal of the Petroleum Ministry for a new private sector-led funding regime for Joint Venture (JV) oil and gas operations in the country to be known as Unincorporated Joint Ventures (UJVs). The key objective of the scheme is speed up the development of the sector by allowing International Oil Companies (IOCs) to charge the cost for technical production before sending the net amount to the federation account.

This new funding regime is a huge positive for the growth of the local oil and gas industry. Unlike the previous one, it puts the private sector in the driving seat of financing oil and gas operations. The implication is that the government will no longer directly contribute to the JV projects. Rather its contribution will be funded by banks under an arrangement that will allow the banks to recover their monies; the federal government will only collect dividends from the profits. This will free-up the government from the annual budgetary cash call obligations and increase the funds available for budget financing.

Related to this is the successful negotiation and agreement with IOCs which will see the country reduce the accumulated Cash Call obligation of $6.8bn dollars to $5.1bn. Under the terms of this agreement with the oil majors, Nigeria is to pay Shell, ExxonMobil, Eni, Chevron and Total $5.1bn to cover arrears of exploration and production costs between 2010 and 2015. The balance is to be paid within five years at zero interest from incremental volumes not current volumes.

The net effect of this deal for Nigeria is about $7 – $8bn in savings over 5 years. About $15 billion fresh investment is expected to flow into the country as a result of this measure and will help to reduce the cost of oil production from about $27 to $18 per barrel thereby increasing government revenues. The deal which is to be finalized before the end of the year will bring to an end the protracted dispute over the arrears between the country and the oil majors and create a conducive environment for greater foreign investment in the sector.

Another significant milestone of the past two years is the $15 billion cash-raising oil deal with India to raise foreign exchange to meet the shortfall in national revenues. The Indian government, one of the world’s top crude oil buyers, will upon completion of the deal make upfront payment for future crude oil purchases. This is to be repaid on the basis of firm term crude contracts over some years and in consideration for Indian companies collaborating in the refining sector as well as exploration and production activities on a government-to-government basis.

No doubt, Kachikwu has focused strongly on establishing a structured and sustainable financing scheme to enable the downstream sector to adequately fund itself without putting pressure on the federal purse. It was also to this end that the minister, during an investor roadshow in China, signed Memorandums of Understanding (MoUs) with several Chinese firms totaling over $80 billion in new investments that will span over five years. The deal will cover pipelines, refineries, gas and power, facility refurbishments and upstream financing to bridge the infrastructure funding gaps in the Nigerian oil and gas sector.

Also key are the secured commitments from Sinopec and China National Offshore Oil Corporation (CNOOC) to commit to further investments in Nigeria’s upstream oil sub-sector to the tune of $20 billion. These unprecedented financing deals would cumulatively bring the total amount of prospective investments by Chinese firms over a five-year period to over $100 billion.

The clear progress made possible by Kachikwu’s reforms gives hope that a modern efficient and profitable petroleum industry is possible. His strong track record in the industry, vibrant leadership and “can do” spirit have delivered measurable benefits to the economy and taken the sector many notches higher. He is indeed the game changer.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Brent Crude Oil Approaches $70 Per Barrel on Friday

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Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension

Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.

Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.

Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.

While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.

According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.

“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”

Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.

The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.

I do believe we’re headed for a much healthier supply and demand environment” she said.

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Crude Oil

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

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Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.

OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.

Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”

Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.

Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.

Experts have started predicting $75 a barrel by April.

“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

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Gold

Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin

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Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.

 

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