Transforming the Nigerian Economy through Energy Projects. Presentation by Wale Tinubu Group Chief Executive February 2011

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1 Transforming the Nigerian Economy through Energy Projects Presentation by Wale Tinubu Group Chief Executive February 2011

2 Agenda 1. The Global Energy Environment 2. The African Upstream Environment 3. The Nigerian Economy - Overview 4. Global Impact of Energy Projects on Economic Growth 5. The Nigerian Energy Sector 6. Case Study Petrobras, Renaissance & Tata 7. The Oando Story 2

The Global Energy Environment Oil & Gas Reserves by Region Middle East 56% Asia Pacific 3% Global Oil + gas

11% North America 5% Africa 2% North America 28% South & Central America 15% South & Central America 5% 30 25 20 15

gas production 131MMBOE/D Projected Growth in Energy Consumption History Projected United States China India North

3 The Global Energy Environment Oil & Gas Reserves by Region Middle East 56% Asia Pacific 3% Global Oil + gas 2,500MMBOE Global GDP Contributions Middle East 3% Asia Pacific 29% Europe & Eurasia 33% Africa 10% Europe & Eurasia 11% North America 5% Africa 2% North America 28% South & Central America 15% South & Central America 5% Oil & Gas Production by Region Middle East 24% Asia Pacific 12% Europe & Eurasia 26% Africa 10% Global Oil + gas production 131MMBOE/D Projected Growth in Energy Consumption History Projected United States China India North America 5% South & Central America 7% Source: BP Statistical Review of World Energy

The African Upstream Environment Trends International Oil Companies (IOC s) dominate.

1BN barrel discoveries offshore Africa. Major African Players Oil Reserves by Country Tunisia 0.

% Egypt 8% Equatorial Guinea 1% Gabon 2% Country Crude Oil (bbls) Natural Gas (tcf) Algeria 12.0 159.0 Angola 9.5 9.6 Libya 44.0 - Nigeria 37.0 187.

4 The African Upstream Environment Trends International Oil Companies (IOC s) dominate. Algeria, Angola, Libya & Nigeria lead the continent in reserves and production. Significant investments offshore West Africa in Exploration and Development. 1BN barrel discoveries offshore Africa. Major African Players Oil Reserves by Country Tunisia 0.26% Sudan 3% African Reserves: 204MMBOE Nigeria 32% Algeria 19% Libya 24% Oil Production by Country Other Africa 4% Angola 6% Chad 0.4% DRC (Brazzaville) 1.% Egypt 8% Equatorial Guinea 1% Gabon 2% Country Crude Oil (bbls) Natural Gas (tcf) Algeria Angola Libya Nigeria Others Total Source: BP Statistical Review of World Energy IHS Sudan 5% Tunisia 1% Other Africa, 1% Nigeria 21% Libya 17% Gabon 2% African Oil Production: 9.7MMBBL/d Algeria 19% Egypt 8% Angola 18% Equatorial Guinea 3% Cameroon 1% Chad 1% DRC (Brazzaville) 3% 4

5 Oil Production vs Consumption Nigeria, Angola, India & China Nigeria s Oil Production and Consumption, India s Oil Production and Consumption, Thousand barrels per day 3000 Thousand barrels per day 2500 Total Oil Production Crude Oil Production Consumption Net Exports Source: EIA, International Energy Annual, Short Term Energy Outlook June Source: U.S. Energy Information Administration Net Imports China s Oil Production and Consumption, Angola s Oil Production and Consumption, Thousand barrels per day Production Consumption Net Imports Forecast Thousand barrels per day Total Production* Crude Production Net Exports Consumption Source: EIA, International Energy Statistics, Short Term energy Outlook Sept Source: EIA, International Energy Statistics, Short Term energy Outlook 5

Energy Consumption and Economic Growth 12 10 8 6 4 2 0 12 10 8 6 percentage Capacity Consumption GDP 2008 2009 2010 2011f 2012f 2013f

Population is expected to grow from 1.34bn to 1.38bn over the period.

05% per annum between 2010 and 2015,. Population is expected to grow from 1.17bn to 1.25bn over the period.

6 Energy Consumption and Economic Growth percentage Capacity Consumption GDP f 2012f 2013f 2014f 2015f percentage Capacity Consumption GDP China Average real GDP growth expected to be 7.92% per annum between 2010 and Population is expected to grow from 1.34bn to 1.38bn over the period. GDP per capita and electricity consumption per capita forecast to increase 74% and 34% respectively. India Average real GDP growth of 8.05% per annum between 2010 and 2015,. Population is expected to grow from 1.17bn to 1.25bn over the period f 2012f 2013f 2014f 2015f Source: BMI GDP per capita and electricity consumption per capita forecast to increase by 123% and 36% respectively. Massive energy investment required to sustain GDP growth of 8% until

Energy and Economic Growth - Africa Energy Consumption per Capita (toe) GDP per Capita (US$) 3.5 percentage 000 16 3.0 2.5 2.0 1.5 1.0 0.5 0.

7 Energy and Economic Growth - Africa Energy Consumption per Capita (toe) GDP per Capita (US$) 3.5 percentage f 2012f 2013f 2014f 2015f Nigeria S. Africa Egypt Kenya Algeria Source: BMI f 2012f 2013f 2014f 2015f Nigeria S.Africa Egypt Kenya Algeria 7

8 Current State of Affairs in the Nigerian Energy Sector

Affiliated 2% Suppliers 0% Issues Issues Owned 87% Over 90% of gas transmission lines 100% of refineries 100% of

9 Sector is Dominated by the Government Ownership of National Oil & Gas Infrastructure Power Generating Capacity Others, 13 % Asset Power Ownership Generating Capacity Integrated Suppliers 35% NNPC 63% Gov't Upstream Suppliers Affiliated 2% Suppliers 0% Issues Issues Owned 87% Over 90% of gas transmission lines 100% of refineries 100% of electricity transmission lines Inefficient Pricing Infrastructure gap Supply shortfall 100% of electricity distribution 9

s Sub-optimal infrastructure development Restricted 3 rd party access to

10 Prevalence of IOC s in Sector Activities Operatorship of National Reserves Affiliated Suppliers 9% Upstream Suppliers 5% NNPC 1% IOCs 85% 85% of E&P assets operated by IOC s Sub-optimal infrastructure development Restricted 3 rd party access to infrastructure Minimal downstream interest Skewed towards exports as opposed to domestic market 10

11 The Nigerian Energy Sector - Power Infrastructure & Refinery Capacity Existing Power Infrastructure is by far less and sub-optimal to identified National need Generation Available 3,600 MW Need 10,000 MW Transmission Capacity 5,838 MVA 9,340 MVA Distribution Capacity 8,425 MVA 15,165 MVA Nigeria s existing Refinery capacity operates at <25% efficiency Refining Capacity Today 115kbbls/d 445kbbls/d 11

12 Regional Density Oil & Gas Pipeline Infrastructure Gas Master Plan Blueprint 12

13 Drivers for future growth in the Upstream The PIB in Nigeria will provide clarity for investment decision making. Relinquishment clauses in place for Proved undeveloped fields. Short Term Local legislation grants indigenous independents a competitive advantage. Sustained curtailment of militancy and political strife in oil and gas producing areas Continued global economic recovery which ease capital markets and improve smaller independent producers access to funding. Medium Term Demand growth from BRIC countries and emerging markets Power sector reforms increase gas demand and boost Nigeria s domestic gas industry Progressive energy policies from producing countries Long Term Technology transfer to indigenous independents as a result of partnerships with IOCs Liberalisation and consistency of government policies Emergence of listed NOC 13

14 Drivers for future growth in the Midstream Short Term Implementation of the 1 st Phase of the Gas Master Plan to deliver gas to the domestic market. Remove obstacles to private sector involvement e.g. Introduction of cost- reflective pricing framework. Differential sector-based pricing with full market-led play. Disintermediation of current NGC to transport company through separation of play NGTC (midstream) and marketing company. Medium Term Introduction of specific regulation and government agencies for midstream operations. Completion of LNG projects (OK,Brass), CPFs (Central, Eastern Franchise) and CAP, OB3, AKK pipelines. Full implementation of Open Access under the NGMP framework Long Term Ensuring enabling environment for private sector participation. Liberalisation and consistency of government policies. Refurbishment of the crippled power sector 14

15 Drivers for future growth in the Downstream Passing into law of PIB; commercialization of NNPC, NNPC Retail, PPMC etc Short Term Enabling environment: will allow for re-investment in the downstream; new pipelines, new stations, jetties, storage, refineries Deregulation Medium Term Government support for the construction of Refineries. Long Term Policy to encourage local refining 15

16 Case Studies: Petrobras, Tata Power & Reliance

17 Petrobras(Brazil) NNPC someday? Today 100% Govt. owned Monopoly of Upstream Oil E&P Operations Partial Privatization 55.7% Govt. Equity Oil Exploration world record of 1,877m below sea level Achieved Brazilian self sufficiency in oil Highest earnings of about US$ 13billion Raises US$70 billion in 2010 in largest share offering ever 8 th biggest global company in market value and the biggest in Brazil. $164.8Bn Entrance of Competitors in 1997 Expanded portfolio across 28 countries: Africa, North & South America, Europe and Asia Total assets of $133.5Billion 17

18 Reliance Refineries Today Commissioned integrated refinery complex World s largest grass root refinery Reliance started commercial production of 27 million tpa refinery, the 5th largest in the world Reliance Industries Ltd and Reliance Petroleum Ltd became India s largest companies Merger created largest private sector company in India Refinery ranked best in Shell Benchmarking for three consecutive years in energy and loss 1 st Private sector company to record $1Bn in net profit Commenced construction of 580,000 barrels per day refinery Commissioned new refinery, increasing processing capacity to 1.24 Million Barrels per day India s largest private sector enterprise Yearly revenues in excess of $44Bn Fortune Global 500 Company 18

19 Tata Power Company Limited (India) Oando Gas & Power someday? Today First Hydro-Electric power station First 160MW Thermal Unit First 500MW Thermal Unit Flue Gas desulphurization plant using sea water 220Kv cable transmission network 220Kv transmission lines in 4 circuit tower India s largest private sector electricity generating company with an installed generation capacity of 3000MW First 220Kv gas insulated substation for India First Storage unit in the country of 150MW

20 The Oando Story

21 Upstream Division Midstream Division Downstream Division Exploration & Production Energy Services Gas & Power Marketing Supply and Trading 21

Key Assets Description Downstream Division Marketing Supply & Trading Nigeria s leading retailer of refined petroleum products with 18% market

5mL storage capacity Largest indigenous supply and trading player in the sub-saharan region ~20% market share in private PMS importation in 20010

22 Key Assets Description Downstream Division Marketing Supply & Trading Nigeria s leading retailer of refined petroleum products with 18% market share Large distribution footprint with access to over 1,980 trucks and 159.5mL storage capacity Largest indigenous supply and trading player in the sub-saharan region ~20% market share in private PMS importation in retail outlets in Nigeria also Ghana and Togo Eight terminals 3 Aviation fuel depots Two lube blending plants Seven LPG filling plants Trading desks in Nigeria and Bermuda Trading consultants in the UK and Singapore 22

Key Assets Description Midstream Division Gas & Power First private sector company to enter gas distribution in Nigeria Consists of Gaslink Nigeria Limited, Akute Power and East Horizon Gas

23 Key Assets Description Midstream Division Gas & Power First private sector company to enter gas distribution in Nigeria Consists of Gaslink Nigeria Limited, Akute Power and East Horizon Gas Company Limited 128 km gas pipeline in the East of Nigeria spanning Akwa Ibom and Cross River States 100 km gas distribution pipeline in Lagos (110+ Connects) Akute Captive Power Plant RivGas 23

Development & appraisal: OML 134, OML 90, OPL 236 Exploration: OPL 278, OPL 282 as well as assets acquired through

24 Key Assets Description Upstream Division Exploration & Production Energy Services Rapidly expanding business Primary assets are located in Nigeria Asset class include, land, swamp, & deep water Producing assets: OML 125, OML 56 Development & appraisal: OML 134, OML 90, OPL 236 Exploration: OPL 278, OPL 282 as well as assets acquired through EEL acquisition. Largest swamp drilling fleet in Nigeria 5 swamp rigs Drill bits and engineering services Fluids management 24

Let's get non-technical: An economist's take on the past, the present, and the future of the industry

Let's get non-technical: An economist's take on the past, the present, and the future of the industry Erkal Ersoy e.ersoy@hw.ac.uk www.erkalersoy.co.uk Agenda» The market > The petroleum industry > Supply