Experts offer options for scaling funding barriers for fossil-based projects in Nigeria 

Oredola Adeola
Major players in the oil and gas value chain in Nigeria have been urged to heighten their environmental, regulatory consciousness, and sustainable development plan to be able to access debt and equity financing options for capital expansion, amidst the sustainability threat posed by the global war against fossil fuel production.

This was part of the major issues presented by experts at the second session on the theme: “Africa’s fuels and the future of refining” 16th Oil Trading and Logistics, OTL expo in Lagos.

EnergyDay gathered that most oil and gas industries in Nigeria and Africa at large, are battling with the reality of the global push for decarbonisation.

Some of these fossil-based companies have been facing financial issues to expand their operation because  international financial institutions and other equity firms have restricted funds to carbon-exposed transactions and projects, with very strict conditions.
 Nigeria’s economy which depends on oil and gas revenues, is also threatened by the stance of the global community against developing its oil and gas reserves.

Oluwatoyin Aina, First Bank, Head Energy, Downstream, and International Oil trading, in her presentation charged operators in the downstream sector to develop the right operational strategy. She charged them to focus on the attainment of net-zero goals in order to acquire needed funds to run capital projects.

The Energy Advisor urged oil and gas companies to be intentional in the way they report their commitment to environmental/sustainability plans, by reflecting it in their annual and quarterly financial records.

She said, “Fossil-based companies will attract funds when they deliberately show that they are running their businesses in a sustainable manner.

“To obtain longer tenured financing, fossil-based companies need not take environmental and sustainability practices for granted. The companies need to focus on de-carbonising and modifying their operations with a commitment to carbon neutrality.

“It is now a new trend for most retail and operational sites not to run on diesel. They power most of their facilities with the solar system and other renewable energy sources, which further earns them carbon credits.

“There are international agencies that are responsible for calculating these carbon credits. The carbon credits are then converted to funds for the oil and gas company’s capital.

“Oil and gas companies can dispense off tons of planet-warming carbon over their lifecycle, and completely offset that impact by purchasing carbon credits.

“The carbon credit is another form of financial instrument generated by fossil-based firms that are deliberate about averting greenhouse-gas emissions through carbon sequestration including tree plantings or installations of solar power farms.

“The fossil-based firm can then use these credits to make claims of offsetting their carbon emissions.

“Investment in the natural ecosystem and carbon sequestration enhance the bankability of your hydrocarbon projects,”  Finance professional said.

She also encouraged the oil companies to do more in their host community relations, improve operational efficiency and be deliberate about reporting environmental impact assessments in order to attract foreign capital for business expansion.

First Bank, Head Energy said, “International finance organisations are not interested in releasing their funds to countries that do not comply with reduction of carbon emission and sanctity of contracts. These are means by which regulations can support access to capital for oil and gas companies operating in Africa.

“Investors need assurance that contracts would be respected.  They also need confidence that their funds can be easily repatriated to their countries.

“The vast majority of African countries are into fossil fuels, but we need to redirect our investment goals towards sustainability. The only solution is an energy mix, which is a combination of fossil fuel, green energy, and bioenergy.

She however urged the Nigerian government to focus on low-carbon emission projects including gas pipelines, explorations, and gas infrastructure. She added that the country does not have the level of financial robustness and deep pocket required to finance some of these projects, insisting that Nigeria needs international funding.

According to Oluwatoyin, Nigeria must focus on promoting projects that are environmentally friendly and sustainable. She noted that commercial banks in Nigeria and international development organisations are requesting HSEQ, in order to convince their funders (who possess the universal character of the SDGs) that their monies would be deployed into environmentally sustainable projects and transactions.

Clement Isong, Executive Secretary/Chief Executive Officer, Major Oil Marketers Association of Nigeria(MOMAN) while speaking during the session on downstream operations,  challenged major players in the sector to prepare for potential investment challenges amidst a very tight and strict regulatory environment focused on entrenching sustainable goals.

According to him, oil and gas companies in Nigeria need to review and update their services and product deliveries in a manner that is more sustainable and environmentally friendly in alignment with global reality.

He insisted that operators cannot not continue to do things in the conventional and traditional ways, any longer, adding that there is a new industry trend which focuses more on mitigation measures to reduce risks and instill sustainability goals across the entire value chain.

He noted that owners of oil and gas companies must ensure the suitability of equipment and personnel, and deploy necessary best practices across operation areas.

The MOMAN ES further said that the Nigerian Midstream and Downstream Petroleum Regulatory Authority(NMDPRA)  which now encompasses a merger of three defunct regulatory agencies, the Petroleum Products Pricing Regulatory Agency (PPPRA), Petroleum Equalization Fund (Management) Board (PEFMB), the Midstream and Downstream Divisions of the Department of Petroleum Resources (DPR), has taken time to restructure, reorganised and rebuild human capacity, over the last one year, towards entrenching a culture of health, safety, environment and quality (HSEQ) with right sanction across the oil and gas industry.

He said,  “The staff of the Authority has now acquired the right skill and knowledge to deal with HSEQ regulations and enforcement. If they do not have it before, they have acquired the requisite knowledge in preparation for the future of this country.

“Necessity begat necessity. If you don’t upgrade your operations, the Authority will come for you. We are all aware of the things that needed to be done in compliance with HSEQ because we were fully involved in the structuring of those regulations and guidelines. So, we do not have a place to hide.

“Deregulation is coming and it will be faster than we ever expected. You simply need to do what you need to do and beat all these regulations and guidelines to avoid being sanctioned or overwhelmed by the impact of industry consolidation.

“We also need to agree with the provision of the Petroleum Industry Act(PIA) which recommends the adoption of AFRI 6 standard fuels(10 ppm for  gasoline and diesel),” Isong noted.

The MOMAN CEO insisted that the quality of service delivery and product will be an issue in the new transition era.  According to him, we will all be under pressure to trade premium quality products.

He said, “The NMDPRA is meeting with the modular refineries and other greenfield refineries with the intention of ensuring that their products are of the right quality and meeting national standards.

“For us at the retail end, we need to learn how to manage different stages of our operations. We must follow our processes and procedures with discipline.

“If you have water in your tanks, you will have problems with your customers. The Authority will come for you. Your  Environmental Impact Assessment (EIA) must be solid.

He also emphasised training and retraining of staff and executives of oil firms. According to him, the best asset any company can have is the quality of its staff.

Mr. Isong said,  “You need to maintain and make sure they are updated with the new industry standard.

He also noted that consolidation in the downstream sector has taken off, adding that this will continue as the oil and gas industry prepares for the final take-off of the full deregulation. He disclosed that only the smartest and financially-strongest companies will survive the new era.

Mr. Isong said, “ In the period of deregulation, only companies that understand how to save costs will survive.

“Access to funds will determine how we will be able to solve most things. Access to long-term loans from banks, equity markets, and institutional investors will be determined by the competency of the management and compliance with sustainability plans.

“How you manage your products, risk, reputation,  and assets at the retail end, are key  considerations that financial institutions will review before releasing funds to players.

The MOMAN ES however noted that the world is changing, urging all his members and other industry players within the midstream and downstream sector to be deliberate about adjusting to the new operational trend.

Huub Stokman, Chief Executive Officer, OVH Energy, in a conversation with EnergyDay during the event, revealed that the rebranded NNPCL is committed to building an image that is sustainable and integrated to attract the right investments which guarantees operational efficiency.

According to him, NNPC will be governed by corporate discipline that makes it more transparent to attract financing for its businesses.

He said, “I am not worried about the corporate governance structure of the new NNPCL. The company will comply with international benchmarks for good governance best practices, which will put it in a good place to attract offshore financing.

He however noted that natural gas would play a major role in Nigeria’s energy transition through biomass and autogas.

He said the consolidation of NNPCL through the acquisition of OVH Energy’s Oando- branded retail service stations, will pave the way for NNPCL’s integrated retail outlets which would be retrofitted to provide Piped-Natural-Gas (PNG) connections to domestic households and Compressed Natural Gas (CNG) networks for vehicle refilling.

Mr. Stokman revealed that he is convinced that the staff of NNPCL will be trained and equipped with the technical capability to cater to these special responsibilities.

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