In the power sector, obsolete infrastructure and funding gap has exacerbated the grid disruption in realising efficient energy distribution.
Also, in the oil and gas sector similar factors have weakened supply chains especially in the mid and downstream sectors.
Petroleum has remained an important part of both the world’s energy mix and the global economy. It is the keystone of modern energy system, and it also helps to drive the global economy.
Petroleum plays an essential role in shaping our lives from fuelling vehicles and generating electricity to producing a wide range of everyday products.
The petroleum industry involves a wide range of commercial activities from the exploration of reserves deep in the ground to the sale of the final product to the end customer.
The industry is frequently shown in the form of a ‘value chain’, specifically a set of activities performed sequentially in order to deliver a final product, and includes upstream, midstream and downstream sectors.
No doubt the midstream and downstream sectors play critical role in the overall value chain of the petroleum industry.
Thus the optimisation of these sectors is not just an option but a necessity for enhancing efficiency, ensuring sustainability, and maintaining our competitive edge in the global market.
Indeed the nation’s petroleum industry has long been a cornerstone of our economy, contributing significantly to national revenue, job creation, and industrial growth.
However, the evolving energy landscape presents new challenges and opportunities that require a comprehensive and integrated approach.
Technological advancements, regulatory frameworks, and strategic partnerships are key enablers in driving the transformation of the midstream and downstream sectors.
Experts of the view that it important that the country leverages these advancements to enhance the profitability and environmental performance of our industry because by doing so, Nigerian can ensure that her petroleum resources are utilised most efficiently and sustainably.
It has been observed though that the Ministry of Petroleum Resources, the federal government are committed to creating an enabling environment for investment and innovation in the midstream and downstream sectors.
The ministry is obviously and actively working on policies and initiatives to attract local and international investments, foster technological innovation, and ensure regulatory compliance.
One of the ministry’s key focus areas is the development of infrastructure to support the efficient transportation, processing, and distribution of petroleum products.
This includes the expansion and modernisation of pipelines, storage facilities, and refining capacity to meet both domestic and international demand and is also prioritising the adoption of digital technologies and data analytics to improve operational efficiency and decision-making processes in the industry.
This position was confirmed by the Permanent Secretary of the petroleum resources ministry, Ambassador Nicholas Agbo Ella, in his presentation at the 47th Nigeria Annual International Conference and Exhibition (NAICE) 2024, in Lagos.
The theme for the conference, “Petroleum Industry Value Chain Optimization: The Inevitability of Midstream and Downstream Development,” also provided opportunity for key industry operators to highlight other challenges facing the industry.
According to the permanent secretary, the ministry is committed to promoting local content and capacity building to ensure that Nigerian companies and professionals play a leading role in the midstream and downstream sectors.
“We recognise the importance of developing a skilled workforce that can drive innovation and maintain the highest standards of safety and environmental stewardship,” he said.
He commended the Young Professionals’ Workshop and the Women Leadership Programme, highlighted at the conference, which he said aligns with the ministry’s goals of inclusivity and leadership development.
He said that it is essential to equip young professionals and female leaders with the knowledge, skills, and opportunities to thrive in the evolving petroleum landscape.
The collaboration between industry, academia, and government he notes is crucial for achieving our collective objectives and fostering a culture of continuous improvement.
At the same conference, experts at panel sessions observed weak transportation networks to promote distribution efficiency in the sector.
For instance , the general manager (GM) Government Joint Ventures and External Relations of Heritage Energy, Sola Adebawo, made a strong call for an overhaul of the country’s petroleum products transportation strategy to further reduce risks and associated costs.
Adebawo who observed that 98 per cent of refined petroleum products within Nigeria are moved by road transportation said that pattern of products conveyance has led to high cost per unit volume and safety concerns.
He, therefore, challenged authorities to review the system and possibly find a solution to this.
The GM, made the observation during a panel session, which he moderated, at the NAICE organised by the Society of Petroleum Engineers (Nigeria council).
The panel, which was titled: “Unlocking upstream value: developing markets, trade access and facilitating partnerships in the midstream and downstream,” featured seasoned industry professionals.
These included Engineer Oluseyi Afolabi, Principal Consultant & Chief Executive Officer, Reservoir & Facilities Solutions Ltd; Babafemi Onasanya, General Manager, Subsurface, Oando Energy Resources; Dr Goodluck Enimakpokpo, the Major Strategic Accounts, Nigeria & Anglophone WA GE Venoa; Gbite Falade, MD/CEO, Aradel Holdings and Ogbugo Kalu Ukoha, Executive Director, Distribution Systems, Storage, and Retailing Infrastructure, Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).
The panellists examined the crucial role of regulatory frameworks in fostering market access within the oil and gas value chain, analysed policies that streamline trade, incentivise partnerships, and cultivate an environment conducive to market growth.
The panellists also analysed how regulatory frameworks act as dynamic enablers, promoting not only efficient trade practices but also strategic partnerships.
Solutions were proffered to the challenge of attracting capital market to the regional market integration framework and that of sustainability across the value chain.
The chairman, Society of Petroleum Engineers (SPE), Nigeria Council, Salahuddeen Tahir, in his submission states that to ensure sustainability, optimisation of the petroleum industry value chain is necessary, and the development of the midstream and downstream sectors plays a significant role in achieving this optimisation.
The midstream sector involves the transportation, storage, and wholesale marketing of crude oil and natural gas, while the downstream sector focuses on refining crude oil into various petroleum products and distributing them to end consumers.
Without an effective, efficient, and vibrant midstream and downstream sector, investments in the upstream become meaningless and the natural resources which Nigeria has in abundance will forever remain in its raw state.
Overall, the optimisation of the midstream and downstream sectors of the petroleum industry value chain is essential for attracting investments to the upstream, achieving operational efficiency across the value chain, and meeting the demands of the market in a cost-effective manner. It allows for the smooth flow of resources, maximises the value of hydrocarbons, and ensures a reliable supply of petroleum products to consumers.
Interestingly, from observations raised by key speakers at the conference provided insights into the state of the industry, policy direction, and strategy from government decision-makers and business leaders.
Promoting Regulatory Integrity To Strengthen The Sector
One big issue with sustaining operations of the industry and ensuring investment investment in the sector lies with regulatory integrity and compliance.
The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) regulates the industry but has been lately in the picture for not exploring areas of authority as enshrined by the law.
Only recently the management of Dangote Refinery accused the agency of granting myriad of importation licenses for refined products most of which are substandard.
Recently an industry expert Taiwo Ogunleye, in a shared presentation titled: “The Midstream and Downstream Petroleum Industry in Nigeria: The Roles of NMDPRA in ensuring Energy Security,” explained widely the role of regulatory agencies in energy sector to provide energy security and efficiency.
Ogunleye, citing instances notes that “virtually all jurisdictions regulate their energy sector but the variable is the extent to which the regulation is aimed at energy security’.
While producer countries are more concerned with upstream issues, consumer countries tend to focus on downstream issues but then poor regulatory design can be the cause of energy insecurity.’
The law has a role in expressing formal expectations for energy security and it can state the entitlements of citizens in a general sense, and can provide mechanisms for determination more particular service levels. Law can allocate responsibility, and follow it up with formal planning, monitoring, and enforcement procedures.
A regulatory solution is therefore one that is largely aimed at clarifying the rules of engagement in an industry.
He went further to cite a Report issued by the Oil, Gas, and Mining Policy Division of the World Bank which says that Inadequate regulation and enforcement can also harm the efficiency of fuel supply.
Sector regulations that have not been updated in decades, lack sufficient coverage, or list outdated fuel specifications may deter entry of experienced operators adhering to high standards.
An efficient legal framework for the downstream petroleum sector requires legislation that clearly defines and limits the role of the government in order to avoid undue interference and establishes principles and rules for the private and public participants in the supply chain in order to create a level playing field and promote fair, transparent, and healthy competition.
The Report stated further, “All sectors of the economy can benefit from an efficiently managed downstream oil sector that delivers petroleum products in the quantity and at the quality required at least cost. For a given price of a petroleum product on the world market, end-user prices net of taxes are affected by a number of factors which include market size and economies of scale, mode of product transport in terms of cost per liter of fuel transported over land, the least expensive is pipeline transport (in a handful of cases in Sub-Saharan Africa that have the requisite scale economy), followed by rail, and finally by trucks.
Goals For Regulation In Developing Economies
Regulation has as its general purpose to promote efficient markets and to correct for market failures. Regulatory procedures must be predictable, accountable, and transparent.
Regulation needs to focus on certain key principles to support market functioning:Ensuring incentives for investment , Promoting fair competition, Facilitating innovation, Pursuing social fairness and universal service
Protecting public health and safety, and avoiding harm to the environment
Ensuring that even where the private sector takes the lead, services are minimally reliable and networks interoperable.
A regulation is typically understood as a rule backed up by consequences. To implement a regulation, regulators often issue permits or approvals upon an applicant’s demonstration that the criteria specified in the applicable rules have been satisfied.
Regulators also inspect and monitor the behavior of the individuals and entities subject to governmental rules, and they check to ensure that the outputs of that private behavior comply with the rules.
When regulators find that rules have not been followed, they may take a variety of actions to respond, from affirmatively helping the noncompliant entities come into compliance to punitively taking enforcement actions and imposing fines. But regulators are not only rule appliers and rule enforcers. They also take a variety of other actions— from educating to subsidizing to adjudicating disputes, all in an effort to solve the problems they have a responsibility to address.
Midstream petroleum liquid operations means activities downstream of the measurement points of petroleum mining leases, whether or not related to the petroleum mining lease, with respect to the construction and operation of facilities for upgrading of heavy oil, construction and operation of lubricant, petrochemical and fertiliser plants, construction and operation of petroleum liquids transport pipelines, including the related pumping stations; acquisition, operation, leasing, rental or chartering of barges, coastal or ocean-going tankers, railcars and trucks for the transport of petroleum liquids, construction, leasing and operation of tank farms and other storage facilities and export terminals for petroleum liquids, construction and operation of refineries, purchase and sale, trading, bartering, marketing of petroleum liquids and related administration and overhead.
All of these are essential components of what the NMDPRA should take into consideration in its regulatory implementation.
Equally the Downstream Gas Operations means all activities entered into for the purpose of, distribution and supply of natural gas to retail customers, city gate reception terminals for natural gas, stations for the distribution, marketing and retailing of natural gas;
Downstream Petroleum Products Operations means; all activities entered into for the purpose of distribution and supply of petroleum products to retail customers, tank farms for distribution of petroleum products, and stations for the distribution, marketing and retailing of petroleum products.
Experts have essentially noted that the NMDPRA which is a body corporate which is empowered to sue and can be sued in its own name, has the authority
among other things, to regulate midstream and downstream petroleum operations, including technical, operational, and commercial activities and ensure efficient, safe, effective and sustainable infrastructural development of midstream and downstream petroleum operations.
The agency is responsible issuance of licences and permits to midstream and downstream operators, monitoring and enforcement of regulations, standards, and guidelines, ensuring compliance with standards and specifications for petroleum products as well as promoting competition and fair market practices among operators in addition to ensuring the safety of people and the environment in the midstream and downstream operations.
