Jack Derickson, Managing Director, The West Africa Gas Pipeline Company
David’s Introduction: My guest is from the West Africa Gas Pipeline Company Limited (WAPCo). As you know, this project began in the 1980s; I recall doing interviews many years ago as a journalist on this fantastic project that was going to provide cheap gas from
David: Jack, Thank you for coming. You have been Managing Director of WAPCo for the last four years. Are you familiar with
Jack Derickson: Yes, I started work in the Nigerian and Angolan business units for Chevron back in 2001, so I’ve been around
David: Is Chevron the principal shareholder in the West Africa Gas Pipeline project?
Jack Derickson: Yes, there are six shareholders altogether, and Chevron is the largest, with about 36% stake.
David: This project has been around for a very long time; so recently when I discovered that there was gas from
Jack Derickson: Yes, these are very exciting times for the West African Gas Pipeline Company. We’ve been flowing steadily for the last five weeks, and this is the first phase of our operations. The flow rate now is about 30 million cubic feet a day which is used to generate some 110 megawatts of electricity from the Takoradi Thermal Power Plant.
David: Is that significant?
Jack Derickson: Yes it is, although that is still a fraction of the flow that we’ll be getting to eventually. This is the first phase; we call it the Free-Flow or Interim Gas Sales. Currently, we are just flowing based on the pressure in the Nigerian system. We were flowing a year ago, but that was interrupted due to supply disruptions down in the Niger Delta. The other exciting thing is the second phase, which is getting all the facilities built, including the Compressor Station in
David: Who buys your gas?
Jack Derickson: The foundation customers for the whole project are VRA; they’ll need about 120 million cubic feet of gas a day. The other two customers are in
David: Do you think
Jack Derickson: Yes, the main thing about this project is that it is a fuel switching project. Right now, the thermal power plants are running on crude oil, which is very expensive. On the other hand, natural gas is less expensive; it’s about 40% to 50% of the fuel costs compared to crude, depending on the price of crude.
David: So what we are hoping to do in
Jack Derickson: Well, a project like this requires three things: supply, transportation (that’s us) and then customers. However, one of the main risks is supply. As it stands now, there is only one source of supply. The gas is taken from
David: Is that why it is late?
Jack Derickson: That’s part of the reason delivery of the flow is late.
David: But the pipeline itself was delayed too.
Jack Derickson: Yes, the pipeline itself was in place about two years ago. It had been delayed for a number of reasons, but really, the primary one had to do with contractor issues. We had some good performing contractors and some poorly performing ones. One of them is really the primary cause of our issues. You’ve heard this story before, work stops and they demand more money, you re-negotiate; then work stops again; and so finally that contractor had to be terminated. So we brought in someone else to pickup the pieces and finish it. That was a significant blow to us. It’s been a rough road over the last few years. There have been a lot of ups and downs. Things are much better now, and it’s an exciting time for our company.
David: When the idea of the West African Gas Pipeline was conceived,
Jack Derickson: You are absolutely right about that. At the time, there was a view that there was all this gas flaring in
Jack Derickson: Well, we are in place now and we are flowing gas. It’s going to take a couple of years before there is gas flowing from Jubilee. Also it’s not going to be cheap or free. This is because it’s going to cost money to install the pipeline infrastructure, the gas plant etc, so the gas price to customers will be structured to recover that cost.
David: So you mean there is no need, and we might as well use your pipeline?
Jack Derickson: Sure. I think it will be very competitive, but that’s the way gas pricing typically is. At least in our case, it’s very regulated, in order to pay back the cost of doing the installation.
David: But you agree with me that ultimately, the discovery of gas in the Western Region has to be factored into the equation for a company like yours?
Jack Derickson: It does, but really, what I’m saying is that there is plenty of demand in the sub-region to absorb both Jubilee gas and what we can ultimately put out from the West African Gas Pipeline.
Jack Derickson: Actually, that is the sort of situation we are in now, because production hasn’t grown. But it is proven that there is a lot of gas in the ground in
David: I have some questions to you not at the MD of the pipeline company but as a professional in the industry. There are a lot of nice plans about gas and energy. Do you think that in the West African sub- region, we’re doing the right things to ensure that gas will be available and at completive prices? Are things going to get better?
Jack Derickson: Yes, I think so. Like I said, it’s a less expensive fuel. We have our infrastructure project in place, and I think it’s going to continue to grow as the offshore fields continue to develop. It is a less expensive fuel for generating power.
David: Are there big risks like explosions that we must be wary of?
Jack Derickson: There are risks in anything, and gas pipelines have their own risks. Our systems are built to very high standards. The onshore sections of our lines in
David: So that people avoid accidents? Are the pipes not in deepwater?
Jack Derickson: The pipes are laid on the ocean floor. We have one long pipe with three laterals linking
West African Gas Pipeline Authority (WAGPA), which is our regulator, in conjunction with the West African Gas Pipeline Company, have put in place some damage protection programmes, which include a one-mile pipeline protection zone. This restricts anchoring, and trawler and boat fishing activities within that one mile protection zone. So when you talk about endangering the pipeline, it is danger from third party interventions.
David: Do fishermen pose problems?
Jack Derickson: It depends on which kind; the guys on the canoes are not a problem, unless they are throwing dynamite into the ocean. But the big trawling boats are the problem. This is why we spend so much money on awareness creation. In 2007, just as we were finishing the laying of the pipe, it was torn offshore
David: Was this just an ambitious project?
Jack Derickson: There were a lot of risks; which were of huge concern to the shareholders – whether to invest in this or not. In the end, they did take the risk, but everyone knew it was very risky to begin with, and we are seeing some of those risks.
David: The other thing is that in the end it took as long as it did and I’m talking about expectation management. I have to say there was a time when it seemed like the West African Gas Pipeline project would solve our energy problems in a couple of years. Now here we are, and I don’t know whether it’s making that big impact. Is the impact going to grow, hopefully?
Jack Derickson: Yes it will. And again, these fuel savings are huge and significant. We’re talking millions of dollars a month. You saw what happened to the price of fuel a couple of years ago; that was a real blow to VRA and everyone. They had to keep the lights on, but they were spending more than they were bringing in. It was a very difficult a situation. I remember all the pressure about when the gas was coming. Meanwhile, we were having contractors walking off; so it’s really been a rough road and it took a lot of perseverance and hard work by our people to keep it going.
David: Do you keep track of
Jack Derickson: You have to commend those companies who took the risk to drill those kinds of wells. Some of the big majors like Chevron often don’t take those big risks. So big risks bring big rewards. This is a very impressive quick turnaround in getting a production facility out there. That production helps fund the rest of the development.
David: What about value addition? In this case, I mean refining the product. Is that important to do?
Jack Derickson: Yes it is. It helps create jobs and other export products, and that’s another good thing about our gas. Once our gas is onshore and we have bigger volumes, people are going to start building manufacturing plants that need gas and heat, thereby creating employment opportunities, which lead to development as well.
David: So really, there is a lot of potential for
Jack Derickson: Yes; it’s a very exciting time for
David: In your estimation as a professional in this business, would you say the
Jack Derickson: I would say it is. It is very rich in very high quality crude and gas.
David: Are we getting the business partnerships right?
Jack Derickson: The industry is in its infancy, and again I’m not that close to the management of Jubilee, GNPC and so on. But I think they’re doing the right thing by considering how other countries are doing it. I understand they are adopting the
David: Jack, thanks for coming
David’s closing remarks: I’ve been speaking with the Managing Director of the West Africa Gas Pipeline Company, Jack Derickson. The construction of the West Africa Gas Pipeline has been completed and much as I speak about disbelieving it, it appears we now have a cheaper source of energy available. Over the next few years, it’s going to be critical what happens in that regard. Join us again
First Broadcast 15th May 2010, TV3