IHS Global Insight Perspective | |
Significance | Total will bring its offshore Akpo oilfield on stream in April and production should reach 175,000 b/d by the end of the year, reaching a plateau of 225,000 b/d next year |
Implications | It has taken almost a decade to go from discovery to first oil for Akpo and the project has required huge commitment. Associated gas from Akpo will be piped to a processing hub and then used as feedstock for LNG exports at Bonny Island |
Outlook | It has been noted that these offshore mega projects can only be developed when the price of oil is higher than US$40/b. Most of Nigeria's production growth is expected to come from offshore but the technological challenges in developing the reserves mean that only the large NOCs and supermajors will be able to extract the resources |
Akpo in April
French supermajor Total will bring its offshore Akpo oilfield onstream in April, according to the new general manager of Nigeria’s NOC Nigerian National Petroleum Corporation (NNPC), Mohammed Sanusi Barkindo. Discovered in 2000, the Akpo gas and condensate field is located around 200 kilometres offshore Port Harcourt in water depths ranging from 1,100 to 1,700 metres. Total was given authorisation in May 2005 to begin developing the offshore Akpo field. The field development will see 22 producing-wells, 20 water-injection wells, and two gas-injection wells, tied back to a floating production, storage and offloading (FPSO) vessel with a storage capacity of 2 million barrels. It is believed that Akpo will reach 175,000 b/d by the end of the year. In 2010 Akpo will reach peak production of 225,000 b/d of which nearly 80% will be condensate. The condensate will be exported via a buoy located 2 kilometres from the FPSO vessel, while the gas will be piped 150 kilometres to the Amenan-Kpono gas export project (AKOGEP) located some 30 kilometres off the coast in the eastern part of the Niger Delta. Valorisation of the Akpo field's gas also enhances environmental protection by eliminating flaring, and will be sent to the Bonny Island liquefaction plant as feedstock for Nigeria LNG's (NLNG) Train Six which came online last year.
US$40/b Oil Needed for Offshore Development
Much of Nigeria's future production will come from large-scale offshore projects as vast commercial reserves of hydrocarbons have been discovered in the deep waters and there is great expectation that more will be discovered with future exploration. These megaprojects are necessary to sustain and increase oil production in Nigeria and the size of reserves these projects are targeting attracts the supermajors and state-backed NOCs. These offshore oil projects have long lead times and in Akpo's case, almost a decade from discovery to first oil. Four years of this goes towards development of the field, a hugely expensive task to undertake. While these megaprojects are a huge success for the country and oil companies involved, they only make financial sense to develop when the price of crude remains reasonably high. Reuters reports NNPC’s general manager Barkindo telling a conference this week that "deepwater developments in the region, particularly in the ultra-deep, require a sustainable crude price in excess of $40 per barrel to support continued production, exploration and development". Barkindo added that due to the current economic downturn, the oil industry "needs to examine ways of achieving a steep reduction in costs". In addition, costs for construction, labour, and security have risen significantly in the last few years for domestic and international oil companies operating in Nigeria.
Outlook and Implications
The added production from the Akpo field will be a welcome boost for Nigeria, which has suffered for so long with production problems in the Niger Delta caused by militant activity and operational difficulties which often lead to oil being shut-in. The location of the offshore oil installations makes it far more difficult to disrupt, although there have been a couple of incidents where well-funded militants have used speedboats to reach and board offshore facilities. Security will remain a priority for these new projects. Last July, U.S. supermajor Chevron brought its offshore Agbami oilfield onstream which should reach peak output of 250,000 b/d before the end of 2009.
Total has other projects lined up offshore Nigeria including the Usan field which was launched in February last year after the government approved converting the acreage it was discovered in—OPL 222— to oil mining licence 138. Discovered in 2002, the Usan oil field is located around 100 kilometres offshore in water depths ranging from 750 to 850 metres. Usan is due onstream in 2011 and has plateau production of 180,000 b/d. In addition, development studies are ongoing for Egina, also located in OML 130, the same block as Akpo. Christophe de Margerie, Total’s president of Exploration & Production has stated his belief that these projects demonstrate Total's ability to meet the technological challenges of operating offshore.
Akpo is a great success story for Total and Nigeria. It has taken a considerable amount of time from first discovery to project development and when first oil is produced in April, a major milestone will have been reached. Despite the ongoing difficulties of operating in Nigeria, the commitment shown by Total is evidence that the reserves on offer are worth pursuing. The increase in oil production will boost the country's production capacity, but it is the monetisation of the associated gas which will boost the performance of NLNG and also please the government, which is putting in place a gas master plan to utilise its vast gas resources after decades of burning off and wasting its reserves. This holistic approach of utilising all available hydrocarbons should be the model for all future offshore projects in Nigeria. Total holds a 24% interest and is the operator in OML 130, alongside NNPC, Petrobras, and Chinese NOC, China National Offshore Oil Corp (CNOOC) Limited. CNOOC purchased a 45% stake in OML 130 at the start of 2006, when it paid domestic firm South Atlantic Petroleum US$2.3 billion.