The Threat to $16bn Egina Project
Having positioned Nigeria as a regional hub for fabrication and integration of floating production storage and offloading facilities in Africa, the $16 billion Egina project does not deserve the recent threat by the Nigerian Ports Authority, as it could s
NPA’s recent threat that it might not allow the Egina FPSO that is due to arrive this January to access the Nigerian waterways due to “the refusal of the parties involved in the project to request for towage and pilotage service as required by law,” will only scare other potential investors and worsen Nigeria’s position in the Ease of Doing Business ranking
There is no doubt that Nigeria’s oil and gas industry has suffered dearth of investments for the past 10 years following the failure of the federal government to conclude the reform aimed at establishing a new set of rules that will govern the sector.
With the non-passage of the Petroleum Industry Bill (PIB), the country’s oil and gas sector is afflicted with a protracted reform, which created uncertainty in the operating environment, and scared investors, especially foreign ones.
The lack of clarity of terms in the operating environment forced many investors to abandon the country and move to other countries where the operating environment is predictable. This development led to loss of investment.
Despite the efforts made by the successive administrations to woo investors, only pockets of projects have been sanctioned since the past 10 years while major projects have either been deferred or cancelled.
According to the Petroleum Technology Association of Nigeria (PETAN), about $10 billion worth of investment is stalled as a result of the non-passage of the PIB.
Also during his ministerial screening by the Senate, the then Group Managing Director of NNPC and now Minister of State for Petroleum Resources, Dr. Ibe Kachikwu,made a mind boggling revelation that Nigeria was losing $15 billion yearly due to non-passage of the reform bill.
Since he assumed office, President Muhammadu Buhari has travelled round the world to solicit for investments but apart from signing MoUs, foreign investors have not actually launched major investments in Nigeria’s oil and gas sector as most of the multi-billion projects have remained on the drawing board.
With the uncertainty in the oil and gas sector, only very few investors have takenthe risk to stake billions of dollars on investments in the sector as a result of their belief in the long term opportunities in the country.
The Egina deepwater oil field being developed at the cost of $16 billion by the French oil major, Total, is the biggest project in Nigeria’s oil and gas industry-sanctioned in the face of the uncertainty in the industry.
While the other international oil companies (IOCs) have put their major investments on hold, pending the passage of the PIB, which will define new fiscal terms for the industry, Total has staked $16 billion to add 200,000 barrels per day of crude oil to Nigeria’s current daily production.
Located at the Oil Mining Lease (OML) 130 offshore, the 200,000 barrels –per-day capacity Egina deepwater field, is being developed by Total Upstream Nigeria Limited (TUPNL).
The capital expenditure (Capex) for the six packages in the oilfield development is $16 billion, and $3.3 billion of this amount is earmarked for building the Floating Production Storage Offshore vessel (FPSO) vessel.
Egina FPSO A major component of the Egina oil field is the FPSO being built by Samsung Heavy Industries Company Limited (SHI) of Korea at a cost of $3.3 billion.
Total awarded the contract to SHI in 2014 after the Korean firm emerged the winner, following a rigorous tendering process.
The Egina FPSO is not the first FPSO to be deployed in Nigeria’s oil and gas industry but the uniqueness of the Egina FPSO lies in the fact that apart from being the largest FPSO in Nigeria, it will also be the first FPSO to be integrated locally in Nigeria, and indeed, Africa.
This is also the first time in the history of the industry that fabrication of FPSO modules will be carried out in-country.
On October 31, 2017, the FPSO left the quay side at Samsung Yard in Geoje, South Korea, on its long anticipated journey to Nigeria.
When it arrives at the SHI-MCI FZE quayside (Samsung Yard) in Lagos after about 90 days’ journey, it will be integrated locally before it sails away to the deep offshore oil field.
Indeed, the Egina oil field has scored first on many fronts.
For instance, in the area of engineering and management, the Project Management Team (PMT) and all the main contractors’ PMT offices are based in Nigeria, with 94 per cent of basic engineering executed in Lagos by Nigerian companies.
Also detailed engineering was done in-country with a consortium of three Nigerian companies with 85 per cent of engineering man-hours expended in Nigeria.
Again, in the area of fabrication and integration, SHI has also set a new record in Nigerian content development, having locally fabricated six modules or about 60,000 tonnes of the equipment out of the 18 modules, representing over 30 per cent of the main packages of the project.
The six FPSO topside modules for Egina FPSO were fabricated in-country across fabrication yards and will be integrated into the main FPSO when the FPSO arrives at the Samsung Yard in Lagos, the first of its kind to be berthed at quayside in Nigeria.
It should also be noted that SHI has invested $300 million in the SHI-MCI yard.
Apart from the fact that the Egina field has the largest FPSO in Nigeria, its FPSO will also be the first to be fabricated and integrated locally in Nigeria, and indeed, Africa.
The assembly of the integrated control and safety system of the FPSO will also be fully performed in-country.
Another first scored by Egina is that it is likely that Buhari and Vice President Yemi Osinbajo will be the first Nigerian leaders to board an FPSO that is integrated locally in Nigeria before it sails away to the oil field located offshore.
A recent threat by NPA It is noteworthy that Total, SHI and the other Egina partners achieved this feat on the Egina project despite the high level of insecurity, long contracting cycle, lack of respect for sanctity of contracts, inconsistency of policies, overregulation and bureaucracy, which have made Nigeria a high risk environment for the oil and gas industry.
NPA’s recent threat that it might not allow the Egina FPSO that is due to arrive this January to access the Nigerian waterways due to “the refusal of the parties involved in the project to request for towage and pilotage service as required by law,” will only scare other potential investors and worsen Nigeria’s position in the Ease of Doing Business ranking.
Having positioned Nigeria as a hub for FPSO fabrication and integration in Africa with its attendant massive inflow of investments that will benefit the NPA and the Nigerian economy, the Egina FPSO does not deserve the kind of threat, according to analysts.
NPA’s General Manager in charge of Corporate and Strategic Communications, Abdullahi Goje was quoted as saying that the refusal of the parties involved in the Egina project to request for towage and pilotage service from the NPA, being the only organisation empowered to provide same in the country, is contrary to the laws of the country and would be resisted.
Goje added that notice has already been given to promoters of the FPSO to the effect that the vessel would not be granted access to Nigeria’s waterways.
He added that the NPA would pursue legal remedies in its determination to ensure that no organisation impedes on the mandate of the NPA as provided in Part II of the Port Act.
Oil and gas industry stakeholders believe it is very important for agencies of the government to defend their mandates and the laws of the country.
Government agencies should ensure that foreign investors operating in Nigeria comply with the country’s laws just the same way they obey the laws of their home countries.
However, the interest of the Nigerian people and the country’s economy should be the motivating factor behind the implementation of the laws and not the desire of an agency to demonstrate its relevance and wield its statutory powers.
Rather than issuing a threat against a project that has enhanced Nigeria’s position as a global player in the world energy dynamics, the NPA should collaborate with NCDMB and other relevant government agencies to provide waivers and other concessions that will not only encourage SHI, Total and LADOL but also serve as a bait to woo other investors.
The Egina FPSO has sailed away from South Korea to Nigeria, where it will be integrated locally and this is the first time it will happen in Nigeria and indeed, Africa.
When the FPSO is integrated in Samsung Yard and Nigeria becomes a hub for FPSO integration in Africa, the Nigerian people, the economy and the NPA will be the greatest beneficiaries.
So, a threat to deny the FPSO access to the Nigerian waterways is not in the interest of Nigeria.
Blocking the FPSO’s access to Nigerian waterways will be a sad reminder of the NIMASA-NLNG saga, where NIMASA resorted to self-help and blocked NLNG vessels, an action for which the court has delivered judgment against NIMASA.
Being the first time such project will be sanctioned in Nigeria and Africa, the local integration of Egina FPSO deserves waivers, concessions and incentives so as to provide assurances and guarantees to foreign investors that Nigeria is a preferred destination for investments.