CHIKEZIE NWOSU

Nigeria 2020 | GAS & POWER | VIP INTERVIEW

TBY talks to Chikezie Nwosu, Managing Director of Walter Smith, on established growth strategies, constraints on the gas segment, and Equatorial Guinea.

What are your planned goals and growth strategy for 2026?

Our overall strategy at Walter Smith is to become an integrated energy company that makes a great socio-economic impact. In doing this, we will also ensure the longer term decarbonizing our energy portfolio. Another part of our strategy is to behave like an indigenous independent energy company and not like the typical an international oil & gas company; which means we will not treat oil and gas as commodities for sale, but ensure we use them as 'feedstock' back in the economy of Nigeria to consume more of the energy produced and grow our GDP. That is where the socio-economic impact will come from. We currently operate one marginal field: the Ibigwe field in OML 16. We also have another interest in OML34 in Delta state, where we partner with other companies in what is known as the ND Western Consortium. Our current operational focus is the Ibigwe field, where we have grown production from an initial 500bpd to over 7,000bpd. The first part of our strategy was to convert the oil into consumable products through the refinery, for which the first phase of 5,000 bopd was kicked off in November 2018. For the next phase, we want to increase the refining capacity by 25,000 barrels of condensate per day in addition to kicking off a modular gas-to-power project. This power project will start with roughly 30MW of power and then grow to about 300MW to serve both the refineries and a planned industrial city. Ultimately, our goal is to build an industrial city around the Ibigwe location, where we would provide the infrastructure for other types of industry to come in. Some of the greatest challenges in Nigeria is the cost of doing business for manufacturers, principally around energy costs as well as the accessibility of export routes. Leveraging on some government policies the industrial city can help with easing some of these problems. Following the industrial park (we will create the infrastructure as a first stage - gas, power, water, ICT, security, health services and whatever else is required in a functional manufacturing area), we will build residential areas and both the internal road networks and a link road from to the major Port Harcourt – Owerri Expressway.

What sources of power will you employ for the industrial park?

We have entered into engagements with the United Nations Industrial Development Organization (UNIDO) since it has a concept of eco industrial parks, and that is about decarbonizing the energy used in industrial parks. We have also started an internal concept about replacing the dirtier fossil fuels first with gas (so that oil and coal will be taken off the mix) and later with renewable sources of energy. Even though it is a fossil fuel, gas does to an extent help with decarbonizing the energy produced from fossil fuels; it is not perfect but is cleaner than other fossil fuels. Following that gas phase, we then want to move into solar power. We have strategized about the renewable mix, and solar power seems to be the most obvious one. The next phase of our business, after the industrial city, is to grow up to 500MW of solar power (and maybe as high as 1,000MW).
In all this, the concept is to demonstrate that an independent marginal field producer can build an industrial city on the back of such production, hoping then that if everyone with a marginal field license can replicate the same in the locality where they operate and create such socio-economic impact, then industrial cities will sprout up everywhere in Nigeria.

With Walter Smith being an example of projects for the future of Nigeria, what would you recommend to other players in the field reproducing such master plans?

One of the major constraints is around funding for the modular refineries. The technology is there, and the EPC contractors that we have are one of many, so it is not about the technology. The funding challenge is the ability (or inability) to demonstrate to funding parties that you have access to the feedstock as well as robustness of the demand for your refined products (the offtakers of the refined products). Each individual Refining company must also understand their financial model. Ours is about production security in the area where we operate and the economics of providing a refining solution to this challenge. The production in the area where we operate has security challenges from vandalism, and, hence, there are significant costs in producing each barrel of oil. On Government's enabling policies, if the intent is clear that you actually want to refine crude oil or condensate, instead of getting access to feedstock for sale as a commodity, then our experience is that there are no real challenges or government policies that have hindered us from moving forward.

The gas sector is experiencing some constraints. What can be done to stimulate this sector to its full potential?

There are about five major areas that need to be addressed. First, we cannot have the same fiscal terms in place for all types of gas (dry gas to wet gas and independent of terrain). The fiscal policy must first address the type of gas and its location and ensure the provision of fiscals that enable a level playing field, especially taking into account operators of dry gas assets. Second, not all gas projects have an accompanying oil project from which an advantage can be derived through recovering gas investments from oil revenue (e.g. the associated gas framework agreement and any similar framework for non-associated gas). This must be taken into consideration in the fiscal policy. Third, terrain is also important. In Nigeria, export gas typically attracts higher prices than domestic gas. It is therefore logical (again equitable) that the more expensive offshore gas to develop should be allocated to export and the cheaper onshore gas to develop is allocated to domestic use. Gas swaps are therefore essential for already sanctioned or developed gas projects as we progress. Even within the domestic gas space, an 'aggregation' concept (the reason for setting up the Gas Aggregation Company of Nigeria – GACN) must be properly executed to allow the distribution of gas to power and industry that are only profitable if the unit costs of gas is low. Fourth, domestic gas pricing must quickly move from a regulated pricing mechanism to a 'willing buyer – willing seller' pricing mechanism and it must be clear how this transition will be effected. Fifth, Government has to build the required gas infrastructure to deliver domestic gas to the end users and the recent Ajaokuta-Kaduna-Kano (AKK) line is an example of the Government delivering on the needed infrastructure. Finally, by 'modularizing' the delivery of gas, to power and industry, through the creation of industrial parks / cities around the operational hub of oil and gas assets, significant growth in the generation, distribution, transmission and consumption of these resources will occur with the attendant GDP growth.

What are your key priorities for 2020?

For 2020, the key goals for Nigerian operations of Waltersmith are to commission the first phase of the refinery and start selling products. We then want to start off the second phase of the refinery, which includes our first module of gas to power. We want to make sure that by the end of the year we have made a final investment decision on the second phase of the refinery and the gas power projects. Other priorities include the purchase of the land for the industrial park and starting the technical design work together with UNIDO and other technical parties. In addition, for our Equatorial Guinea operations and after the signing of the Block EG23 PSC, we will quickly mature the block to first oil within 24 months of FID on the first Appraisal/ Development phase. We also want to support the Nigeria 'Year of Gas' and the Equatorial Guinea 'Year of Investment' by working with Government to ensure the enabling environment for successful business investments is created.