Nigeria is rightly signing up for the energy transition, but it must be on a just basis. The most populous black nation must be allowed to grow as a nation.
This was disclosed by Roger Brown, Chief Executive Officer of Seplat Energy Plc, during an interactive session on Friday. According to him, the nation must balance the E (environment) and the S (social) in tackling the transition. He said, “From a social aspect, you see that what happens in the West is not the same as the case in the developing world. So you have to address the E but must do so by addressing the S at the same time. We must do this by looking at all the stakeholders.”
Nairametrics participated in the session and noted a few critical remarks from the interview. Below are the excerpts.
How would you assess energy transition from the Nigerian perspective?
The world’s energy investments are now driven by ESG, environmental, social, and governance. Also, look at the COP26 of the Paris Agreement; there is a heavy focus on the E-environment.
The world is driving towards a low carbon future, and Nigeria signed up to the Paris Accord and has committed to a lower-carbon future. Nigeria, rightly so, and many emerging economies and consumers say it has to make sense to the emerging economies. The developing nations need to be allowed to create what we call a just transition. There has to be a transition. Nigeria is rightly signing up for that transition, but it must be on a just basis. Nigeria must be allowed to grow as a nation. We must balance the E (environment) and the S (social).
I always give an example that if you’re sitting in the UK, it’s highly unlikely that you will be going into the woods in the forests to cut down trees to cook but turn on your gas or your electricity because that’s what you have. So from a social aspect, you see that what happens in the West is not the same as the case in the developing world. So you have to address the E but must do so by addressing the S at the same time.
We must do this by looking at all the stakeholders. For Seplat, it is looking at our communities, our governments, our employees and how we grow as a business.
Hydrocarbons are a significant source of development income in communities. They rely heavily on it, and we have got to make sure that we address that.
The way we see it is, gas is the perfect transition fuel. The government’s going through its decade of gas, rightly so. If you look at it, in reality, gas is just the transition fuel in the world. What makes up the majority of the UK grid today is gas. In Nigeria, 80 per cent of the energy usage in the country is biomass.
Many people use charcoal or wood, which is one of the most significant energy sources in the country, creating deforestation. So if you bring in LPG, one of the areas Seplat Energy is looking at, LPG will then displace that need to use firewood and charcoal, which reduces deforestation, which has a huge benefit to the planet. When people say hydrocarbons are bad, actually hydrocarbons have a role to play in this transition.
What about the rest of the energy used in the country?
Let’s take a look at electricity today; the grid system in Nigeria is 12 megawatts of grid effect, three gigawatts is hydro, nine gigawatts is gas. Of that gas, very little, probably about somewhere between a third to half of that is effective on a daily basis. And what happens today with power is of interest to everyone in Nigeria because we have diesel generators everywhere.
And for the generators, we are importing diesel from overseas, in Europe and elsewhere in the world. Until the refineries work here, you’re importing diesel at an incredible cost. And there are carbon emissions from diesel generators that make up about 80 per cent of electricity in the country. Diesel generation is very high in CO2 emissions and greenhouse gas emissions, and there are health disadvantages to having generators everywhere.
So, what solves the problem?
By bringing gas to the market and displacing the diesel-generated power from diesel generators, we, today, not tomorrow, but today, we are reducing carbon. We are improving the health benefits today, and we’re laying the path of the future, which allows a bigger scale transition onto the gas, which is cleaner and more efficient. And that gas transition then allows us to do bigger scale renewable energy. So, Nigeria will address the world’s environmental problems, but it will do it in order.
What we have done as a business is, we’ve laid out a three-pronged strategy. Our strategy is deliberately laid out. The first prong, the upstream oil and gas, really is about let’s be efficient, reduce the cost of extraction of oil and gas, and regenerate the profits we make from it into the communities and grow the communities. We have a number of our programmes we can talk more about. Let’s use that gas for the displacement of deforestation and everything else.
Pillar two is then the gas processing business and really, what we want to do is continue to increase that. We are probably the second biggest in the country at the minute. And when ANOH comes on-stream, we’re going to be one of the biggest next to the government, the biggest gas processor in the country. So we want to do more gas processing business.
We are looking to go down the gas value chain. What we want to do is to look at the gas to power opportunities. For us, we want to be a willing buyer and willing seller. It fits our model better. Also, do LPG, CNG – Compressed Natural Gas, LNG at some point. We want to be able to do that. It’s all part of our pillar Two energy business.
And then, we move into our pillar three business, doing renewable energy on a bigger scale. And I think, in this country, that’s going to be Solar predominately. There will be some wind opportunities and other renewable opportunities, and geothermal potentially. But the reality, I think is going to be Solar. What we will like to be able to do is to look at a bigger scale solar. Solar can either be on a small scale with solar panels on the roof of a house, which is more retail opportunities. But what we want to do is bigger scale solar projects. For that bigger scale, you see all over the world, you have got a baseload of reliable energy, and it’s either going to be gas.
In Germany, it’s coal, and in other countries, it’s nuclear. So we need a baseload to allow for a more extensive scale of renewable energy. For us, Nigeria, that baseload is gas. And so, there’s a lot of benefits that we can see today because of that gas strategy. So, what Nigeria must say to the world is that we have a vital role to play because we have the fastest-growing population in the world. And that population growth is going to be the third biggest population by 2050 in the world. So, Nigeria will deliver an energy transition that addresses carbon reduction but must focus on addressing the social aspect of a fast-growing population alongside. That’s the message we’ve got to tell you.
The transition is essential, but the social is much more critical as the people have to eat. So in this instance, what do you suggest?
So if you think about it, the world over, employment is crucial, particularly in fast-growing populations. You know, if you want social rest or equality or whatever way you want to look at it, you’ve got to give people jobs, and you have to give the future. In Nigeria, it is critical. We need to find jobs for people; you need to provide them with education and health care; you need to give people a sense of well-being and future. If you can do that, you can then grow. We can’t try to do that on a big scale with expensive energy.
For electricity price in Nigeria, we did a study recently. The diesel generators or PMS generators generated price in the country was somewhere between 50 cents to 60 cents kilowatts per hour compared to 18 cents in the UK. So we have incredibly expensive electricity energy in this country. For the on-grid gas prices today, the higher end of that is 10 cents kilowatts per hour. The off-grid gas prices are also high at roughly 30 cents kilowatts per hour. So how do we then give social development? How do we give people energy, power to create businesses, and education to develop people when it’s so expensive? We can’t do it. It’s almost impossible to do it without reducing the cost of energy.
And that’s what we want to do, and that’s why we are developing the gas, and gas will boost that social development. Without that social development, it’s hard to stabilize a country and get people a future. Over time, you could get social unrest, particularly when you go to a growing population where the average female has five to six children. With that level of growth, it’s going to be very difficult without giving people social aspects of things. It is more important.
Let us look at the sustainability of the entire business approach. You are moving slowly, gradually from full-time upstream operation to newer, cleaner energy to the future. And of course, the transition fuel is there, and you are gas-intensive in terms of investment. So how are you trying to plug into operations that would sustain gas feed into your future business and operations?
That is a very good question. Yes, you need the upstream feed. There are two prongs to what we are doing. One is what we call our own equity–gas business, and that with the government where we have our working interest and equity gas supply from the upstream; so you look at the ANOH gas plant, which we’re going to bring on-stream middle of next year. We own a stake in OML 53, which is unitized with OML 21, a Shell-operated field. It’s one of the biggest onshore gas fields in the country. Now that gas will supply the ANOH gas plant for 20,30, 40 years, and maybe more. So that’s an equity gas feed, but of course, you have to keep investing and getting more and more upstream gas.
We are drilling what we call non-associated gas wells. With that, we’re actually drilling more non-associated gas into our gas reserves. That’s one prong that we’re doing, and we will add more and more gas assets as we build our gas expansion.
The other prong is what we call tolling to set up a gas plant facility with additional capacity in that gas plant, allowing other people from neighbouring fields to drill and then pipe that gas to our gas plant and then process gas for them. We either buy that gas from them as wet gas or charge them a tolling charge to process that.
So it’s a two-pronged approach. And one thing about Nigeria is that Nigeria is a gas province, so there’s more gas here, more than oil. And I think everyone in the last 50, 60 years there has been a big focus on oil. So you’re going to have oil still, but you’re going to see a much bigger investment into gas.
What’s the outlook for this year, with the demand in oil price increase?
I think everyone’s got their own view here. If you talk to the market participants, the traders, the financers, the users of hydrocarbons, I’ve not heard one person say the oil price will fall. OPEC is having a big impact, at this level. it looks like it’s going to continue. It could come down a little bit. I think what worries us more than anything else is that you have to invest in this sector. So, if you are in the oil sector, you have to invest in mitigating the average 10 to 15 per cent decline in oil every year.
And so, if you got 100 billion barrels, you get a 10 per cent decline, you lose some 10 million barrels a year. You’ve got to invest money to come back up and replace 10 million barrels. If the oil demand is growing, you can invest more. And we lost 2020. Very few people invested in 2020. You have the compounding effect. Seating at this end of it, you can see that if we don’t get back to investment back into the sector, you can see much, much higher oil prices as a result. That’s not so good for us as producers because it is good short term, but long term, it’s not. It’s not good for the consumer. And so, you really want oil to be a stabilized commodity. I think even on these levels. But I can see an element next year going up, not because I have a crystal ball. I just look at the metrics of how you run an oil business, and investments is critical.
The company’s new mission statement talks about ‘accessible, affordable and reliable energy. How critical is the exploitation of gas for making power more available and affordable and also a centrepiece of Nigeria’s energy transition?
That’s really what the crux of this is, you know, affordable; reliable energy will transform Nigeria. Put it the other way; if you don’t have affordable and reliable energy, we will not be able to transform. This is the centrepiece of the work we are doing. When you look back to the concept of ESG, which goes back to Kofi Annan, who came up with this in the early 2000s, he called it socially responsible investment, SRI. And that was where ESG can from, and what it was meant to do, was to match up not just making an investment purely money but for you to be socially responsible when you make an investment. So you address the environment, social, and governance, which drives the investment decision.
He didn’t think big about the E. SRI is not all about environmental reduction at all. Right, E is part of that mix. It is the social aspect. As you see around the world, the rule for 18, 20 years later is no more hydrocarbons. That’s not what SRI was about at all. The focus is now on the E and not on S. And our big argument to the world is, we’re being socially responsible in how we are investing because we are developing the S and at the same time addressing the E. That’s why gas is very important. It’s been that centre baseload to delivering it.
Recently, the chairman resigned and another director. Do you think that this is something that investors should worry about and the future of Seplat?
You use the word worry, no the word should be celebrated. And the reason is that right from inception Seplat set itself up to the highest level of governance and even goes higher than its regulations. So part of the governance and highest level of corporate governance is an independent chairman.
And that’s not a requirement for a standard listed company; that’s a requirement for a premium listed company in the UK. We said from day one that we will always go above what the regulations say and which regulation is more stringent in the markets we operate, we will adopt that regulation.
So having an Independent chairman has always been the plan and therefore, the chairman notifying us that in May 2022, he will step down as chairman of the board and that will be replaced by an independent chairman is an even stronger ESG, even stronger governance. And it’s quite a statement to make into the market that Seplat is now lifting it up to a higher level. And I think that rather than be worried or scared about it, it actually should be embraced as a very big positive.
The strategy is clear. There is a board system with directors and changing directors. We had an orderly CEO succession, and now we have a new CEO in place. These are attributes that companies need to have, to survive and thrive and grow. And this is what Seplat wants; it’s not an issue. The other director that stepped down last week, the statement is clear that he did this for his own personal reasons. That’s why he stepped down. The board will always refresh and bring on new directors; this is what a living, breathing, striving company with the highest level of corporate governance would do.
And then the future, I think certainly for us, I would say, our strategy is absolutely correct. And I think for the future of the indigenous sector within Nigeria, it is a bright future. I think you’re going to see assets changing hands from international oil companies. I think that’s, in my view, a positive. This is where Nigerian companies should own assets and important assets in Nigeria. And I think the future is very, very good. For companies like Seplat, we’re alone; we are the only one listed in London and premium board Lagos, Nigeria, but I think you’re going to see more companies like us over time.
Many industry players have complained about the resurgence of vandalism and oil theft, affecting operations. What’s your take?
The challenges through vandalization are not impacting our operations other than that you get the odd flare-up on the pipeline system, not our pipeline. Where we operate, we’ve had peace in terms of our assets, blocks that we operate. We may get the odd flareup in and around the export pipelines, and this is why you need alternatives. But it’s something we treat extremely seriously. We have a process by flowing barrels on the pipelines. We have enjoyed peace since inception, with our local rulers. Of course, the local rulers’ job is to fight for their areas, and they request rightly so for Seplat to reinvest in their regions.
So we have a Global Memorandum of Understanding which lays out the reinvestment plans. We spend a lot of time with them to sit and listen to what they really require of us. Employment is probably the biggest thing, not directly with Seplat. But it is actually reinvestment in the areas that can generate jobs that can then employ the community youths. That’s very important.
Social programs are critical in hospitals, schools and we have a lot of programs. We recently provided a constant supply of electricity to Oben Cottage hospital in an area where we operate. This was at the late Dr. Aisien from the area. He was the oldest living person from the area and, as a doctor, a lifelong lover of health care, when we went to see him, he requested that we provide the Oben Cottage Hospital with a reliable power source. Today, we’re supplying power to the hospital from our Oben facility in the area, and we will do more. We’re looking at solar solutions that can do that long term. It is something small, but it is listening to communities. I think the biggest thing will be the provision of employments because, with employment, communities can then thrive.
Fitch Ratings upgraded Seplat Energy Plc’s Long-Term Issuer Default Rating to ‘B’ from ‘B-‘, can you explain what this means to the company?
It’s a confirmation of our credit metrics as a business, it sees us as having a strong balance sheet, strong for business. If you look at the Fitch report, it shows that we had another shutdown in the pipeline, yet that Seplat has the muscle to pull through and we continue through that. I guess it’s just confidence. We are rated by three agencies, all three, Moody’s and S&P as well; they’re in on the same level. So, delighted we did. I think the announcement on the back of that just reaffirms the underlying business of Seplat, which is very strong from a credit metrics perspective.
From what is happening with all the IOCs divesting, do you see opportunities there for you?
There are a lot of growth opportunities happening. At Seplat, we strive to balance organic growth and an excellent organic portfolio and then look at the right opportunities. Nigeria, probably one of the vast subsurface, has the best quality, and there’s a lot of opportunities here, so we look at that. I think it’s fair to say that the market is shifting from a seller’s market to a buyer’s market, which will benefit indigenous companies. But it’s certainly always been part of our strategy, and in terms of growth opportunities, in the 50,000 barrels a day, when ANOH comes on-stream, you’ll see when we drive the gas condensate. That is why we’re excited to get that project up and running next year.