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The Nigerian CABOTAGE ACT and the Oil & Gas Industry: Issues and Policy Recommendations

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Considering the main drives of the Nigerian economy, the oil and gas sector has strongly accounted for almost 90 per cent of the foreign exchange earnings. In fact, Nigeria primarily exports crude oil and imports refined petroleum products. However, the mobility and transportation processes of both the exportation crude oil and the importation of the refined products are largely dominated by major international shipping and maritime companies. This process contradicts a section of the CABOTAGE Act of 2003;

PART n.-RESTRICTION OF VESSELS IN DOMESTIC COASTAL TRADE

3. A vessel other than a vessel wholly owned and manned by a Nigerian citizen,Built and registered in Nigeria shall not engage in the domestic coastal carriage or Cargo and passengers within the Coastal, Territorial, Inland Waters, Island or any Point within the waters of the Exclusive Economic Zone of’ Nigeria,

Coastal and Inland Shipping (CABOTAGE Act, 2003 p A79)

It is well documented that, Nigerian National Petroleum Corporation (NNPC) trades the country’s Crude Oil on a cost and freight basis (CFB).  This implies that, the NNPC is the total authority charge of the transportation of Crude Oil to the prospective buyers and none of these shipments are been carried out by any of the indigenous shipping companies. Furthermore, the economic implications demonstrate depicts that, Nigeria loses an additional 10 per cent of the country’s revenue to international freighting of its oil and gas. This amounts to the sum of $6.57 (USD) billion annually.

The history of foreign shipping corporation within the Nigerian maritime sector dates back to the 19th Century when steam engine boats were in use to move people and loads of agricultural products such as cotton, timber, and cocoa from Nigeria to other parts of the world.

In the late 1980s, the United States of America Congress moved to protect their domestic maritime industry by amending existing maritime laws. This was due to the restructuring bill of the maritime sector that proposed asking the government to strategically expand the concept of the country’s maritime regulations (Jones Act, 1920) to significantly redefine the perception of the then existing maritime laws.

This was also proposed in order to restructure and abolish the unfriendly foreign competition/participation within the US maritime industry. Moreover, this proposal was strategically embraced by Congress and has increased the level of productivity, recognition and profitability of the US maritime industry on a global scale.

The introduction of the CABOTAGE Act of 2003 within the Nigerian maritime sector was aimed at preserving the Nigerian costal shipping area for local maritime companies. The primary goal of this Act was to reserve the commercial transportation of goods, products and service within Nigerian coastal and inland waterways to vessels flying Nigerian flag and owned by people with Nigerian citizenship. 

In fact, the CABOTAGE Act and the Local Content Act were adopted by the Nigerian maritime industry to empower the indigenous shipping companies to increase their involvement in the exportation and transportation of crude oil and the importation of refined petroleum products for economic development. 

However, the Nigerian CABOTAGE regime is yet to produce an effective solution to the problems being faced by the maritime crude oil and gas transportation industry in Nigeria since the introduction of the CABOTAGE Act in 2003. These problems can be related to the inadequate understanding of basic requirements of the CABOTAGE Act by the regulators and the governmental will power of implementing the CABOTAGE regime can also be seen as a major problem.  

Due to the weak implementation of the CABOTAGE regulatory Act by the Nigerian maritime sector and the federal government, this has led to an annual loss of over $6 billion US dollars to foreign maritime operators due to the lack of indigenous participation in the maritime transport system. 

This implies that, the lack of strong implementation of the CABOTAGE regime has made the indigenous maritime operators to be unable to attain their full potential. A 2017 report of the National Bureau of Statistics/Nigerian Ports Authority (NPA) opined that, the ship traffic statistics around the Nigerian ports projected that a total number of 19,833 vessels berthed at the various ports between 2013 and 2016.

Similarly, 543,842,425 tonnages were registered within the period under review. The repost shows that 98 per cent of freights are been carried out by foreign shipping companies. This confirms the outrageous involvement and participation of foreign shipping vessels within Nigerian territorial waters.

One of the most effective strategies for promoting and protecting the Nigerian maritime industry is to prohibit the 100 per cent intervention of foreign vessels from participating in domestic coastal or ‘CABOTAGE’ shipping. In addition, this supports the primary motives behind the CABOTAGE Act. 

Secondly, the government must implement and encourage a high level of maritime protectionism.

Thirdly, the involvement of local shipping participants which helps contribute to the Nigerian maritime sector must be given serious consideration and implementation by the government. 

In view of all these recommendations, if the CABOTAGE Act of 2003 is effectively implemented within the maritime sector; Nigeria will be able to maintain jobs and skills in an industry which will be of meaningful importance to the economy. This will significantly contribute to the economic GDP of the nation and possibly make unemployment a thing of the past if effectively implemented.   

Another workable strategy for the Nigerian maritime industry is building an effective regulatory structure for the industry, beyond the simple issues of making a technical design of the most appropriate regulatory instruments. For instance, a constructive legal framework, which will entail well-structured regulatory institutions, and a proactive regulatory institution.

In other words, having a well-structured implementation strategy in place will enhance the positive control of any regularity outcome within the maritime industry.

In conclusion, the key solutions to strengthening the CABOTAGE Act include inter alia: the significant involvement of the Nigerian Ship Owners Association of Nigeria (NISA), Ship Owners Association of Nigeria (SOAN) and other stakeholder in the official consultation process of granting waivers “Cabotage Vessels Finance Fund” (CVFF) to shipping firms, effecting the full implementation of the Cabotage Act within the maritime industry, resolution of CABOTAGE dispute between both the SOAN group and foreign shipping company.

Also Read Interview: African Energy Chamber Executive Chairman, NJ Ayuk on Transforming Africa’s Energy Sector

Author

Dr. Akinseye Olatokunbo Aluko,

Deputy Programme Leader in Oil and Gas Management

University of East London, Stratford, London, United Kingdom.

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Egypt records highest investment rate in petroleum sector by $30B

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CAIRO – 12 September 2019: Egypt recorded investments of $30 billion in the petroleum sector, recording the highest rates ever, according to Petroleum Minister Tarek el-Molla.

Molla clarified in a statement on Sept. 12 that the sector has achieved the largest contribution to GDP by about 25 percent, in addition to its contribution of 44 percent in foreign direct investment (FDI).

This came during his speech on the sidelines of the launch of the first strategic dialogue in the field of energy between Egypt and the United States.

Petroleum Minister Molla referred to the rate of production of natural gas and crude oil during June that hit about 1.9 million barrels of oil per day, marking the highest rate in the history of Egypt.

Molla affirmed that the huge achievements in the natural gas sector enabled Egypt to achieve self-sufficiency at the end of September 2018 and return to export. This is in addition to delivering natural gas to more than 1.2 million housing units in 2018, which is the highest rate of gas delivery to homes.

Also Read Interview: African Energy Chamber Executive Chairman, NJ Ayuk on Transforming Africa’s Energy Sector

The minister pointed out that the main objective of the program is to unleash the full potential of the sector as a sustainable development engine to enhance Egypt’s role as a pivotal center for gas and oil trade in the region.

Minister Molla added that the program is concerned with all the details and areas of work in the sector and has succeeded in improving the performance of research, exploration, production, refining and petrochemical activities through the implementation of several projects, in addition to developing the regulatory side of the sector.

Egypt Today

 

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Oil and Gas

With first oil target set for 2027, Somalia is keen to showcase its untapped potential to the world

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As part of its efforts, Somalia is expected to honour most legacy contracts

LONDON, United Kingdom, September 9, 2019 – Following the signing of a new Petroleum Law and Revenue Sharing Agreement in May of this year, as well as the unveiling of its first ever offshore licensing round (15 blocks covering 75,000 sq. km), the Horn of Africa nation is keen to show the world that it is open for business.

The law breathes new life into a dormant Somali oil and gas sector – several concessions were awarded to the majors in the late 1980s, but Civil War erupting in the country led to a force majeure declaration. Since the government collapse in 1993, insecurity and lack of infrastructure have largely rendered the region a no-go for western companies, leaving local warlords and militias to claw out territories.

Almost 30 years later, Somalia is ready to shake-off past woes and attract global participation. This effort is being spearheaded by Minister of Petroleum and Mineral Resources, Abdirashid Mohamed Ahmed, who recently commented, “this year is a landmark in the development of Somalia’s natural resources…the Ministry has worked successfully with the federal member states to create an equitable and transparent framework to develop natural resources for the greater good of Somalia”.

As part of its efforts, Somalia is expected to honour most legacy contracts. An agreement has already been reached with Shell and ExxonMobil to settle rental fee payments for offshore blocks (part of a dormant joint venture). However, it does not seem that either company is rushing back into the country, with Shell stating that “the payment does not affect force majeure status, which remains in place”.

Also Read Interview: African Energy Chamber Executive Chairman, NJ Ayuk on Transforming Africa’s Energy Sector

Despite this, Mr Ahmed has reason to hope that investment will begin to flow into Somalia. Seismic surveys conducted by British companies Soma Oil & Gas and Spectrum Geo suggest the country has promising offshore oil reserves of up to 100 billion barrels. What’s more, recent oil finds in Uganda and huge gas discoveries offshore Tanzania and Mozambique mean that oil companies have flocked to East Africa in recent years – Somalia could well become a beneficiary of this trend.

Mr Ahmed is attending Africa Oil Week 2019 in Cape Town this November. He will use this opportunity to lay out the future vision and objectives of the Somali national oil and gas sector in front of financiers and operators. The summit’s Director of Government Relations, Paul Sinclair, commented, “we are working closely with the Minister to ensure that the global private sector benefits from exclusive opportunities going live in a Somali National Showcase at Africa Oil Week”.

Africa Oil Week

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African Liquefied Natural Gas (LNG) to attract $103 Billion in 2019

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Nigeria, Egypt, South Africa, Mozambique, Senegal and Mauritania lead investment across supply and demand driven projects

MALABO, Equatorial Guinea, August 21, 2019 – Africa is an exciting frontier in the global natural gas sector. The continent holds 7.1 percent of proven global gas reserves (http://bit.ly/2KKgTgQ) and is expected to contribute nearly 10 percent of global production growth through to 2024 (http://bit.ly/30murnZ).

On the demand side, Africa’s large, urbanized and industrialized societies of the future will require reliable and sustainable power generation. With greenfield investments in Nigeria, Egypt, Mozambique and elsewhere reaching nearly $103 billion this year (http://bit.ly/30oTBSU), it is clear that liquefaction is viewed as the most profitable strategy for realizing Africa’s gas potential.

Record investments on the supply side

Nigeria accounts for over 50 percent of current LNG production capacity on the continent (https://bloom.bg/2KLS18A). With October 2019 seeing a final investment decision on the $12 billion expansion of the country’s liquefaction plant at Bonny Island in Rivers State.

The Train 7 expansion project would increase Nigerian LNG production capacity by 35 percent, from 22 million tons per annum to 30 million. Current indications point to a positive verdict (http://bit.ly/2Mu0wXT). The twenty-year-old facility is owned and operated by a consortium which includes NNPC, Shell, Total and Eni (http://bit.ly/2Z8aftm).

In North Africa, Egypt has successfully re-established itself as an important investment destination following the downturn in the gas sector in 2014. In the first half of 2019, the behemoth Zohr offshore gas field produced 11.3 billion cubic meters – 3.6 times more than it did in 1H2018. The success is set to continue with reports earlier this year of a new Eni discovery in the Nour North Sinai Concession (http://bit.ly/2NoHsd8). Evaluation is ongoing but there are hopes that the new field could rival the Zohr, which would open significant opportunities for investment in new liquification plants. In February, the Egyptian Natural Gas Holding Corporation awarded five new gas exploration concessions to Shell, ExxonMobil, Petronas, DEA and Eni in which it expects to see 20 wells drilled (https://reut.rs/2ZiMCO7).

In June, Anadarko gave its final approval for a $20 billion gas liquefaction and export terminal in Mozambique. The Area 1 project is the single largest LNG project ever approved in Africa (https://reut.rs/2zaK0Dd). And, it could be closely followed by Exxon’s $14.7 billion Area 4 development – FID is expected before the end of the year (http://bit.ly/30oTBSU). Political stability and access to east Asian markets could see Mozambique become a major global gas market over the next decade.

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Investors are also paying attention to smaller projects in countries like Mauritania, Senegal and Cameroon. Operators have been successfully able to deploy floating liquefied natural gas (FLNG) technology to realise the value of smaller assets in these markets and this could be a continuing trend in 2020 and beyond (https://bloom.bg/2KLS18A / http://bit.ly/31Qrr3E). Eni and partners are considering a $7 billion FLNG for the Coral South field in Mozambique (http://bit.ly/31Qrr3E).

South Africa’s LNG diversification play

In terms of African demand for LNG, South Africa – the most industrialized economy on the continent – could be an influential market.

Heavy coal consumption and unreliable power generation make natural gas an attractive solution to diversify its power generation base. In 2020, Transnet – a state-owned freight logistics firm – will launch a tender for the development of an LNG import terminal at Richards Bay Port. The World Bank’s International Finance Corporation has committed $2 million to fund the project planning (https://reut.rs/2ZiUtr4).

These and other recent developments reflect a growing and diverse African LNG sector. From top-tier greenfield developments to faster-to-market, agile FLNG operations; massive new discoveries to expanding existing liquefication infrastructure. It is an exciting time to be involved, as demonstrated by the high-profile speakers taking part in this year’s Gas Exporting Countries’ Forum, be hosted by Equatorial Guinea in Malabo.

Learn more and register here (http://bit.ly/2P5Gkh5) to attend the 5th GECF Summit Heads of State and Government.

Credit: Africa Oil & Power Conference

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