Pan Ocean’s multimillion-dollar pipeline to deliver value in 2019

The massive investment that Pan Ocean, a leading indigenous oil and gas sector player has made in its Amukpe-Escravos Pipeline Project (AEPP) is set to begin to pay off in 2019 and beyond as the project enters completion stage.

The 67-kilometer pipeline project was jointly initiated by state-owned oil company, the Nigerian National Petroleum Corporation (NNPC) and Pan Ocean. When complete, it will boost the capacity of crude oil producers to export, especially from Nigeria’s mid-western Niger Delta area and strengthen oil sector related infrastructure.

Started by Pan Ocean seven years ago under the leadership of company managing director, Dr Festus Fadeyi, the project has already gulped several million dollars in finances made available by a consortium of Nigerian banks led by Polaris Bank Limited (former Skye Bank Plc). Implementation was carried out by various indigenous Nigerian oil services firms as the project is supposed to be a symbol of local content and capacity.

“We are glad that finally those who invested in this project are going to reap the benefit of patience and hard work,” company General Manager, Gas/AEPP, David Aboderin said in response to questions sent by mail. “These kinds of projects have long gestation periods, but in the end, investors reap tremendous benefits,” he added.

When fully operational, investors and the Nigerian economy will feel the full impact of the asset as it will significantly reduce pressure on the 87-kilometer Trans-Forcados Pipeline (TFP), an over four-decades-old pipeline system. The last two decades have seen the Trans-Forcados Pipeline struggle as it has experienced several breaches as the system has become easy target for criminal elements and vandals looking to scoop crude oil.

In the period between February 2016 and early 2017, disruptions on the Trans-Forcados Pipeline forced oil producers to lock-in output, a situation which caused the Nigerian government considerable budgetary strains, and for crude oil producers, lean bottom lines.

Trans-Forcados Pipeline was shut down for 305 days in 2016, and more than 182 days in 2017. In the 2006-2007 and 2009 periods, total crude deferred due to downtime of Trans-Forcados Pipeline by Pan Ocean alone was 16.2mmbbls, an equivalent of $812million (assuming a price of $50/bbl). In the 2016-2017 period, total crude deferred due to downtime was 3.7mmbbls, equivalent to $188million. These losses applied to most of the crude producers who are expected to use the Amukpe-Escravos pipeline in the near future.

“The vulnerability and instability of the Focardos pipeline give credence to the project…. The downtime usually experienced by companies that currently use the Focardos pipeline is usually very dire on their financial performance,” says Jubril Kareem, acting Head of Energy Research at Ecobank Transnational, a pan African lender.

According to Kareem, given that the project is only 67km, the amount of time taken to build it so far is definitely longer than usual. However, several considerations have to be considered, the project was awarded in 2011 but does not necessarily mean it was fully funded same year. A lot of factors could be associated with the delay, including financial and security issues. The crash of crude oil price could simply have meant such project take the back seat in company’s CAPEX allocation.

Amukpe-Escravos pipeline has some features which make it less vulnerable to attacks and disruptions. It is a 20-inch,160,000 barrels of oil per day capacity pipeline put in place by Horizontal Directional Drilling (HDD), a drilling method that minimises ecological and environmental disruption during construction and operation.

It is installed 6meters – 45meters underground. The deep underground installation provides additional protection from activities including dredging, ecological erosion and to a large extent, vandalism.

Even though it is designed to transport Pan Ocean crude, the plan is to accommodate other neighbouring Producers (injectors) on Tariff. Possible customers include Seplat, NPDC, Enageed, Summit, Newcross Petroleum, Continental Oil & Gas Pan Ocean PSC all of which have operations in Nigeria’s mid-western Niger Delta.

Pan Ocean has also completed work on two other multimillion-dollar projects which are set for commissioning. The projects include the Ovade-Ogharefe gas processing plant, which will deliver gas for power generation and domestic use, and the Early Production Facility at OML 147.