Full Market Deregulation will Eliminate Significant Inefficiencies in Energy Supply- Farouk
In his Keynote Speech at the Oil Trading and Logistics (OTL), Africa Week 2023 conference currently ongoing in Lagos, the Authority Chief Executive of Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), Engr. Ahmed Farouk, made it known to delegates and participants that OTL has been a veritable gathering of industry players to discuss issues related to the midstream and downstream sectors of the Petroleum Industry.
He said over the years, the conference has provided an avenue to explore topical issues, exchange ideas and proffer solutions to emerging challenges.
According to him the 2022 edition of OTL focused on the theme “Regulating Downstream Energy Transition” and the key outcomes have supported the industry to sustain impactful regulatory oversight of the sector for creation of optimal value for all our stakeholders.
The theme for this year’s conference being “Energy, Synergy and New Beginnings” aligns with the policy direction of the present administration and strategic realities of the industry, which include the need for collaborations to harness huge potentials of the Africa’s energy resource, addressing the endemic challenge of energy poverty, and critical need for project financing to bridge the deficit in infrastructure.
“Our industry has continued to be pivotal to guaranteeing the global, and national socio-economic development. The past twelve months have been more momentous in the Nigerian Petroleum Industry with the introduction of key policies and growth initiatives that will upscale the performance of this sector.”
Removal of Subsidy on PMS
Farouk was of the view that the most impactful policy shift last year is the removal of subsidy on PMS. This bold decision of government was necessary to deepen the full deregulation of the downstream sector as provided for in the Petroleum Industry Act (PIA) – 2021.
The deregulation of this energy segment is a key driver and enabler of growth in the sector. Implementation of the objectives of full market deregulation will eliminate significant inefficiencies in the energy supply chain and redirect government revenues for delivery of critical socioeconomic development aspirations of Nigerians.
Strategic measures are being implemented by the government to ensure that the required objectives of this key policy are fully supported.
NMDPRA has continued to collaborate with all its stakeholder to ensure that relevant regulatory enablers are emplaced for the success of the deregulation of the Petroleum Product supply chain.
Energy Security and Market Competition
On Energy Security, he said within the space of the deregulated industry, it becomes imperative to pay more attention to energy security. This comprise of sufficient volumes, strategic storages, efficient distribution systems and affordable prices.
“Our data reveal that after the announcement of deregulation, an average volume of 44.3 million liters per day was evacuated for distribution nationwide which implies a 33.58% reduction from the 66.7 million liters per day before the deregulation.
The supply of Premium Motor Spirit (PMS) and other Petroleum products have all maintained average land sufficiency levels above required thresholds. Our market intelligence regulatory role shall continue to be strengthened to ensure that all provisions of the PIA with respect to establishment of strong competitive environment are fully implemented.”
The Authority Chief Executive disclosed that Ninety-Four wholesale suppliers were issued permits to import PMS into the country. Eight suppliers delivered 8 cargoes of PMS totaling 251,000 MT within the period June – September 2023. This low performance was due to the challenge of forex illiquidity which has constrained the Oil Marketing Companies’ ability to import the product.
“But we are hopeful that the necessary efforts being taken by government to improve the stability of harmonized forex market will support the importation of PMS by more Oil Marketing Companies alongside NNPCL.”
NMDPRA will continue to play its roles of ensuring energy security for the country, through the issuance of relevant regulatory approvals and guidelines. Supply of Petroleum products is expected to be further enhanced and secured by the coming onstream of Dangote Refinery and the rehabilitation of NNPCL refineries in the short to medium term.
The Authority has also developed a framework for operationalizing the National Strategic Stock (NSS) as required by the PIA. When fully operational, The NSS will guarantee availability of petroleum products nationwide and help in stabilizing market prizes, especially during supply chain disruptions.
Energy Transition
On energy security, “As a Nation and Industry player, we are focused on ensuring that the overall National Energy Security of the country is administered in a manner that optimizes our position within the complex global energy dynamics. We are guided by the compelling cases of available, affordable and sustainable energy in the drive for our overall energy transition. This transition must align with emerging market realities, global geo-politics, technological advancements, and sustainability requirements.”
“A critical pillar for pursuing a structured energy transition in Nigeria is the adoption of gas as a transition fuel and the emplacement of strategic gas development frameworks through the Decade of Gas
Program (DOGP). The DOGP will ensure the accelerated growth of gas processing, storage, transportation, retail, and utilization in Nigeria within the decade. The program has optimal industry inclusiveness and is making steady progress in the implementation of all its strategic objectives, initiatives and projects.”
“While harnessing our rich gas resource base of over 208 TCF, as being coordinated by the DOGP, gas derivatives are expected to provide cleaner and cheaper alternatives to other white products.”
Farouk stated that full deregulation of the sector has further enhanced capacity to adopt CNG as a more sustainable and affordable alternative automotive fuel.
He reiterated that President Bola Ahmed Tinubu has launched Presidential initiative on CNG (PiCNG), with the focus of providing immediate and long-lasting infrastructure for modern mass transit systems.
The PiCNG has already commenced work and is adequately supported with all necessary tools including required funding to meet its aspirations.
Enhancing Clean Fuels
“One of the most pressing concerns of the moment is the reduction of harmful emissions from petroleum production and utilization. For our industry to remain viable, we must deploy measures that would protect the environment and promote sustainability. This is to be achieved through the reduction of emission of carbon, sulfur, and BTEX compounds (benzene, toluene, ethylbenzene, and xylene) amongst others.”
For carbon, the net-zero target determines NMDPRA strategies, while for sulfur and others, Nigerian Industrial Standards (NIS) and the ECOWAS Clean-Fuels roadmap guides industry actions. “We are working with all stakeholders especially our licensees and SON, in revising the NIS provisions for PMS and Automotive Gas Oil (AGO) to comply with global and regional expectations.”
“We therefore project gradual enhancements of our products quality from the current requirements to Afri-6 specifications, within a framework that is carefully managed through our extensive collaborations.”
Introducing Biofuels into the Energy Mix
Achieving net-zero target for carbon requires gross carbon emission to equal gross carbon sinking. Existing and emerging Carbon Capture Storage and Utilization (CCSU) technologies may not effectively provide the petroleum industry with sufficient means of achieving this net zero target. Therefore, the introduction of the biofuels industry into the energy mix becomes a viable mechanism for carbon sinkage.
The Authority is working with industry experts and studying other economies that have adopted biofuels. It is also developing required guidelines to enable the practical adoption of E10 / D20, and eventually higher ratio ethanol and biodiesel into PMS and AGO blends.
In addition to the carbon credit of these blends, other significant advantages of adopting E10 and D20 include reduction in cost of litre, enhancement in octane rating and major growth in national agriculture business with attendant job creation.
“We remain conscious of the potential conflict between the bio-fuel industry and National food security. These two competing demands are clearly balanced in the National Energy Policy as approved by the Federal Executive Council (FEC) in 2017 and the National Biofuels Policy gazette in 2007, which will guide the smooth introduction of biofuels into our energy mix.
The other major concern with biofuels is the readiness of our infrastructure with relation to the corrosive and hygroscopic nature of the biofuels. This and other key intricacies will be thoroughly addressed by the robust engagements with stakeholders and guidelines that will be rolled out before their introduction into the fuel mix.”
Growing the Industry
Farouk said one of the main focus NMDPRA has been to enable the growth of the Industry, in line with the provision of the PIA. The Authority is issuing relevant licences for the establishment and operationalization of midstream and downstream, facilities.
Significantly, the 650,000 bpd Dangote refinery complex has been pre-commissioned and issued Licence to Introduce Hydrocarbon, while a combined capacity 29,500 bpd modular refineries are operating & supplying various petroleum products in the Country. In addition, existing NNPC refineries with combined capacity of 445,000 bpd are currently being rehabilitated. We believe that Nigeria will achieve a net export position of products in the near term when the planned and rehabilitated refineries become operational.
Meanwhile, in order to ensure adequate supply of products through importation, for guaranteed energy security, the Authority has developed and released set of guidelines that are transparent with fully automated application platform that guarantees efficient processing and issuance of licences and permits.
NMDPRA Industry Sustainability Initiative (NISI)
The Authority is also taking proactive measures to build and promote sustainability in the industry. It has introduced Industry Sustainability Initiative (NISI) that will steer policy initiatives to address the institutional framework needed for the sustainable development of the midstream and downstream petroleum industry.
This initiative aligns Nigeria’s commitment to achieving net-zero carbon emissions (carbon neutrality) by 2060, and improvement of the sustainability credentials of Nigeria’s Midstream and Downstream sector with the Sustainability Development Goals while taking into cognizance Nigeria’s economic development peculiarity, without compromising compliance with international best practices in our corporate governance culture.
The Authority intends to engage more with stakeholders in a collective effort to move the midstream and downstream sector into a clean-fuel network that enables decarbonization across the value chain while meeting the critical energy needs of affordability, safety and reliability.
Success in reducing emissions will depend on the efficacy of a policy environment that uses market forces to enable low Green House Gases (GHG) innovation and deployment with accurate and cost effective emissions measurement, verification, and reporting.
HSEC Expectations
On the crucial topic to compliance to Health, Safety, Environment, and Community (HSEC) in its operations, the expectations are not merely regulatory but also moral and ethical imperatives that shape responsibility to society, employees and families.
NMDPRA operations holds significant potential for environmental impact, safety of employees and public is paramount to the government.
In 2022, the Industry subsector recorded 33 incidents leading to 32 fatalities and 49 injuries, whilst in 2023; regrettably 30 incidents have been recorded resulting in 28 fatalities and 17 injuries.
Farouk said the primary obligation of the Authority must be to attain an incident free operation by ensuring that the health and safety of workplace is prioritized. This means providing a safe working environment, proper training, and the necessary protective measures to prevent accidents and injuries.
Downstream operations have had substantial environmental consequences, from emissions to waste disposal, and it is our responsibility to minimize these impacts through rigorous compliance with environmental regulations. It is in this regard that we have developed and published the three regulations on environment, Safety and environmental remediation fund.
However, compliance isn’t static. Regulations evolve, technology advances, and best practices change. We therefore call upon the industry stakeholders to commit to continuous improvement, staying current with industry standards and adopting the latest technologies and practices towards a sustainable midstream and downstream sector.
Effective Collaborations and Stakeholder Engagements
The Authority remains committed to strategic stakeholder collaborations and engagements.
“Our regulatory activities would remain focused on enabling businesses based on clear industry requirements aligned with international best practices and pragmatic national objectives.
We shall therefore continue with our periodic engagements with the industry whence we collectively shape the growth of each subsector.
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The NMDPRA shall also continue to support the OTL and other platforms that facilitate industry growth and collaboration.”
Farouk assured the industry of the Authority continued dedication to effectively delivering the PIA mandates and continuing necessary engagements with stakeholders to finalise the revision of domestic base price of natural gas and shall soon be releasing the revised Gas Transportation Network Code; Guidelines for National Strategic Stock; and; Launch the NMDPRA Industry Sustainability Initiative (NISI)
