May. 25, 2018


Dikko Atanu

Nigeria

Dikko Atanu

CEO, Neoleum

“Having an integrated supply of gas and power plants that use gas flares will be one of the ways forward in monetizing stranded gas in Nigeria.”

BIO

Dikko Atanu leads the growth strategy of Neoleum, a midstream infrastructure development and gas commercialization platform. He started his international career at the trading division of Credit Suisse, whilst his energy career started at Global Energy, where he was involved in taking the first indigenous-owned and operated 120MMscfd gas processing plant in Africa to First Gas. He was previously the Head of Gas and Business Development at Afren, and was instrumental in key acquisitions and divestments, gas strategy for its assets, as well as various funding initiatives. Atanu holds a BA in economics from City College New York, an MSc from Long Island University, and a Doctorate from the International School of Management.

Can you give us an introduction to the history of Neoleum?

I was previously the business development manager and head of gas business at Afren, which had a peak market capitalization of USD3 billion, in which I was involved in all its divestments and acquisitions over a five-year period. I decided to pursue my passion for gas by launching Neoleum Energy, to fill the gap in small-scale gas development projects that utilize gas flares rampant in the Niger Delta. I went into partnership with a US-based midstream infrastructure company and the aim was to develop small scale LNG and LPG facilities that could monetize gas flares via conversion to LNG for transportation to markets away from the pipeline grid. My aim is to use the LNG for power generation via an integrated fast track end-to-end approach. Having an integrated supply of gas and power plants that use gas flares will be one of the ways forward in monetizing stranded gas in Nigeria. Apart from that we also have an indirect interest in a gas rich asset, and our aim is to monetize the gas there. In the long run, we hope to secure a direct interest in a gas field via Farm-Out, to ensure our source of gas is at the best possible pricing, as opposed to engaging other third-party producing companies. In securing our own asset, the gas resources will leverage our concept of end-to-end gas monetization from inception with zero gas flares. We also have a strong team, which includes a former Special Advisor to the governor of Lagos State who oversaw the execution from inception of 4 out of the 5 existing captive power plant projects in Lagos.

What legislative framework is necessary to unleash the potential of the gas sector in Nigeria?

There are multiple legislative frameworks required, but will center on gas flares framework. In December 2016, at the Nigeria Gas Competence Seminar, the Minister of State for Petroleum Resources unveiled a framework and process; to monetize all the gas flares in Nigeria within two years called the National Gas Flare Commercialization Program (NGFCP). The NGFCP framework pushes for oil companies currently flaring gas to allow third party solution providers, investors or development companies, to access existing gas flares at reduced pricing, and monetize the gas via CNG, LNG or any other solution in two years. A mitigating factor faced by many groups is in securing gas even whilst flared at a reasonable price. In my opinion such a framework that encourages small and midsized companies, to have access to stranded/flared gas at a reduced price will spur further development in the gas sector, and ensuring the projects are commercially viable. In exchange for the gas flares at a revised and fair pricing scheme, the NGFCP framework will see the government earn a royalty, the owners of the gas flares will be paid an agreed offtake tariff and handling fees, and the country benefits from the proliferation of small scale gas projects. The passing of such a legislative framework will have significant economic and social benefits such as increased use of LPG, elimination of millions of tons of carbon emissions, and the ability to generate 2.5GW of power for new and existing power plants. In our case the legislative framework needs a revised pricing framework that caters to third-party companies that want to monetize gas far away from the grid, and to use it for integrated power projects. The current USD2.5 gas price and USD0.80 transportation tariff could work if a company is close to a pipeline but not for companies seeking to transport the gas to locations far removed from the pipeline grid. If a company like ours has to use virtual pipelines that incur greater cost, then the government needs to have a framework that has a gas price that is either USD1 or almost free to incentivize downstream gas companies. Nigeria is one of the largest emitters of flared gas and currently has over 200 gas flares, though not all of them can be commercialized via conventional technology or are centralized to ensure they can be conveniently developed. At Neoleum we seek to capitalize on unutilized flared gas and the NGFCP framework if approved, to monetize the smaller gas flares that cannot be tied into large-scale gas projects or Central Processing Facilities. If the gas is rich in liquids, the LPG can be stripped for local consumption and the residual gas liquefied as LNG, to serve as feedstock for small-scale power plants away from the gas pipeline grid.

How significant is the role of the banking sector to the gas sector?

The banking sector has gone through tough times recently due to low oil prices and its exposure to many oil, gas and power transactions. The last five years saw one of the largest transfers of ownership of oil and power assets in Africa's history to indigenous Nigerian firms; however, most of the financial exposure was with indigenous banks. Resultantly, the banks are limited to their exposure to new projects unless they can see that it can quickly bring in rapid cash flow. The gas sector being capital intensive and in many cases having a long development period, requires a robust banking sector with realistic terms for it to grow. In gas projects, most of the costs are dollar denominated whilst the revenues of gas sales are in the local currency resulting in FX risk exposure. The gas sector requires the support of the banking sector in securing longer moratorium periods on its loans, and FX instruments to provide hedges against adverse dollar exchange rates. Our planned gas projects being modular and fast track, are small enough to tap the local banking sector, and we also work closely with a local private equity group in Nigeria and international investors. Our project cost for each 25-50MW integrated LNG to Power facility costs around USD50 million but can reap returns in the multiples depending on the cost of gas, the richness of the gas feedstock and the ability to displace diesel use with a competitive pricing structure. The project can be commercial in two years from Final Investment Decision, and most banks like to see such gas projects with quick implementation periods and strong cash flows.

What are your expectations and objectives for the year ahead?

We intend to be actively involved in the upcoming marginal field bid process with a focus on monetizing gas resources. Our aspiration is to secure via a Farm-Out, a direct interest in a marginal field with sizeable gas resources, which we intend to develop via a fast track approach. In the upcoming year, we also hope to embark on a feasibility study which includes the preparations of technical studies and reports to determine the energy production, grid connection and right of way requirements, to deploy our first anchor facility in Abuja, which will be a 25-50MW power plant with an end-to-end integrated LNG infrastructure, to cater to third parties. We also hope that in that one-year period, the NERC would have a tariff in place that accurately reflects the cost of gas far away from the existing gas pipeline grid, and factors the revised exchange rate of the dollar in Nigeria. Finally, our expectations are that the Ministry of Power, Works & Housing, continues to put in place constructive policies, that are harmonized with other government entities, and resultantly ensure groups like ours are much more enabled, to support the growth of the midstream sector in Nigeria.

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