The present administration needs to embark on an urgent rescue mission to put the Nigerian economy back on its track. In this report, FESTUS OKOROMADU examines the prospect of strengthening the oil and gas industry to enable it work for the interest of all Nigerians.
Despite claims by financial and economic experts that Nigeria possesses humongous potentials, the country’s current reality leaves many citizens wondering what went wrong.
With a debt portfolio of N87.91 trillion at the end of third quarter of 2023, additional borrowing of N8.2 trillion to fund the 2024 budget, apart from N7.5 trillion Ways and Means while core inflation keeps escalating, hitting a 27-year-high of 28.92 percent in December 2023, many Nigerians seem to be at a lost what the future holds for them.
Even the global financial institutions are not helping matters. For instance, the International Monetary Fund recently revised its 2024 GDP growth projection for Nigeria downward to 3.0 percent further compounding the situation.
However, IMF’s citing of the adverse impacts of high inflation on consumption and suboptimal oil and gas production as the key factors for downgrading the nation’s GDP is a pointer to what can be done to reverse the looming economic crisis.
Crude oil production
Nigeria’s oil production in the month of November 2023 reached an average of 1.25 million barrels per day, a decline of 7.41 percent when compared to the 1.35 million barrels per day recorded in October 2023.
Although the figure is lower than the country’s all-time highest crude production of 2.5 million barrels per day recorded in November 2005, it is higher than 1.02 million barrels per day in September 2022, the lowest ever.
In lieu of the precarious financial situation the country currently finds itself in, one cannot but agree with the Chief Executive Officer of Cowry Asset Management Limited, Johnson Chukwu, who said that the quickest way for the Nigerian economy to be revived is to increase crude oil production.
Addressing investors during a webinar on the Nigeria’s financial and economic outlook for 2024, Chukwu said that the Federal Government must do everything possible to boost its crude oil product, stressing that the country can achieve up to 2 million barrels per day in 2024 if the government is committed to the fight against crude oil theft.
“The reduction in reserves is a result of decreased dollar inflows from oil revenue, stemming from reduced oil production, oil theft incidents, increased debt service payments, and foreign exchange swap transactions”
While emphasizing the urgency of increasing crude oil production to the Nigerian economy, he blamed it for the decline in the country’s external reserves as well as unavailability of foreign exchange.
“The reduction in reserves is a result of decreased dollar inflows from oil revenue, stemming from reduced oil production, oil theft incidents, increased debt service payments, and foreign exchange swap transactions,” he said.
He added that, “Factors like reduced revenue from crude oil sales, contributed to the depreciation of the naira and an increase in the exchange rate.”
Also speaking on the need for Nigeria to increase its crude oil production, a lecturer with the University of Abuja, Dr. Olanrewaju Aladeitan said it is the shortest cut to salvaging the ailing economy.
“The Federal Government must as a matter of urgent importance create a conducive environment for increasing crude production. The fact that Nigeria cannot even meet its OPEC production target is a thing of serious concern.
“Government reforms are not delivering expected results because of the numerous lapses in managing the oil and gas sector which is the mainstay of our economy.
“The way out on short-run is to curb crude oil theft and increase production. Apart from meeting OPEC’s quota we have to meet demands of local refineries, now that the Dangote Refinery and Petrochemical has commenced operation and the Port Harcourt Refinery is expected to follow soon there is the need for an increase in crude oil production.
“In short, the government must target the 2005 era so local refineries can have enough crude while we still meet our OPEC quota. If this is done, the country will have enough foreign reserves to meet all her foreign transactions and still have enough to diversify the economy from dependence on fossil fuel production in the long-run,” he told The Point in a telephone conversation.
Olanrewaju’s review resonated with what Chukwu perceives as, “The anticipated commencement of operations at Dangote Refinery in the first quarter of 2024, along with the Port Harcourt Refinery, could be pivotal moments for Nigeria’s petroleum sector.”
Chukwu insisted that, “Given that fossil energy remains central to Nigeria’s economy and the African Energy Chamber’s projections of a potential drastic fall in Africa’s crude oil production; these refineries could play a crucial role in alleviating supply concerns for the nation and its citizens.”
Crude oil theft as an albatross
The Group Chief Executive Officer of the Nigerian National Petroleum Company Limited, Mele Kyari, last week gave an instance into the humongous challenge posed by crude oil theft.
Speaking at the 2024 Faculty Lecture organised by the Faculty of Science of the Obafemi Awolowo University, Ile-Ife, Kyari said the twin challenges of pipeline vandalism and crude oil theft has impacted the company and indeed Nigeria negatively.
He stated that from 2021 till Wednesday last week, over 5,686 illegal refinery sites were destroyed while 4,480 illegal connections were discovered and removed.
It is on record that, Kyari earlier said that Nigeria loses about 200,000 barrels of crude oil to these nefarious criminals who many industry stakeholders believe are the reasons for the International Oil Companies declining investment in exploration and production in the onshore sector of the industry in recent times.
IOCs dump onshore business in Nigeria
Meanwhile, there are indications that almost all the IOCs have perfected plans to quit the onshore exploration and extraction of crude due to a number of reasons.
Some of these include the burdening of meeting the dictates of the Petroleum Industry Act 2021, such as the host community requirements, rising campaign against the IOCs for environmental degradation vis-à-vis win of lawsuits in the home countries and the financial implications, as well as the threat posed by pipeline vandalism and oil theft.
Last Tuesday, British oil giant, Shell announced its plans to sell its Nigerian onshore subsidiary, The Shell Petroleum Development Company of Nigeria to Renaissance, a consortium of five companies.
The deal which is worth a total of $2.4 billion will see four local operators namely ND Western, Aradel Energy, First E&P and Waltersmith and an international firm, Petrolin take over the assets.
Shell said the move was to allow it to focus on offshore (Deepwater) and integrated gas exploration activities. This is coming after about 88 years of SDPC’s operation in the Nigerian onshore oil and gas industry.
However, the transaction is awaiting government’s approval as required by PIA which introduced new rules demanding that sales or transfer of oil licenses can only be executed after the oil minister has been advised by the regulatory agency.
Shell is not alone in this asset sales venture as Seplat Energy has also perfected a similar purchase deal of ExxonMobil’s onshore assets for $1.3 billion in February 2022, though the deal is still awaiting regulatory approval till date.
Similarly, Oando recently secured an $800 loan for the purchase of 100 percent of the shares of Nigeria Agip Oil Company Limited.
Need for swift approval
Industry experts are of the view that the President Bola Tinubu government must expedite action on the approval while ensuring due process and transparency.
For instance, the African Energy Chambers in a statement urged the Federal Government to take a fast-tracked approach to approving the Shell assets sale, insisting that delaying the transaction will impact the growth of the industry.
Speaking of the plan Shell onshore assets sale, executive chairman, AEC, NJ Ayuk said, “The AEC strongly urges the government of Nigeria to approve the transaction, thereby transferring the onshore assets into the capable hands of the local consortium.
“Local Nigerian companies will lead the next phase of the country’s energy industry transformation and we look forward to the success the consortium will have in the onshore market.”
However, experts are worried over the delay in granting approvals citing the Seplat Energy and ExxonMobil situation as one that is not good for the industry and the nation in general, more so, now that the need for fresh investment into the sector is required to drive crude oil production.
NUPRC plans new bid rounds
On its part, the Nigerian Upstream Petroleum Regulatory Commission has announced plans to conduct another mini bid round for additional 12 deep offshore blocks in a bid to increase the nation’s production capacity.
The Chief Executive Officer of NUPRC, Gbenga Komolafe, disclosed this on Thursday while meeting with members of the Oil Producers Trade Section and the Independent Petroleum Producers Group, at the commission’s Lagos Regional Office.
Speaking of the proposed 12 oil blocks to be auctioned during the upcoming mini bid round, Komolafe said, “Let me seize this opportunity to announce that in line with the provisions of Section 73 of the PIA, the commission will conclude the 2022/2023 Mini-bid Round and as well, conduct a new bid round of 12 blocks located in the Continental Shelf and Deep Offshore.
“We hereby call on investors to participate in the bid round process that will commence soon for shared prosperity.”
While emphasizing the need for greater collaboration between the Commission and the two associations of the Nigerian oil and gas industry, the NUPRC Chief Executive, said the Commission values collaboration and partnerships toward the promotion of stability, growth and sustainability of the industry in line with the government’s aspirations.
“As we drive our collective response to the changing global energy dynamics, the Commission recognises the value of regulatory stewardship anchored on proactive agenda setting, mutual engagements and participatory oversight to engender positive change for the benefit of industry participants – majors and independents alike,” he stressed.
Komolafe also revealed that the Commission will be engaging certified metering experts to conduct a technical integrity audit of the metering facilities in the Nigerian upstream sector to ensure that metering facilities function at best practices and industry allowable limit of error.
He intimated that the Commission has equally put in place a robust framework to guide issues of divestment and implementation of Decommissioning and Abandonment and Host Community Development Trust, saying, “In the weeks ahead, the Commission will be conducting a tour of upstream facilities in Nigeria.”
Reiterating the Commission’s commitment to pursuing a proactive agenda toward deepening trust and entrenching regulatory clarity in 2024 and beyond, Komolafe assured participants of the resolve of the present administration to improve the business environment and the political ecosystem to attract investments and deepen participation in the key sectors of the Nigerian economy.
“In furtherance of Mr. President’s vision, and in recognition of the imperative for a robust and viable oil and gas sector, the Commission is unwavering in its determination to expand opportunities for existing players and facilitate the entrance of new entities”
“In furtherance of Mr. President’s vision, and in recognition of the imperative for a robust and viable oil and gas sector, the Commission is unwavering in its determination to expand opportunities for existing players and facilitate the entrance of new entities.
“Riding on the charge of Mr. President, we believe that the time is indeed ripe for Nigeria to position itself as a global hub for oil and gas industrial activities,” he added.
On the recent efforts to improve operational standards in the industry, Komolafe said, “In May 2023, following a comprehensive assessment of industry performance and the identification of critical levers required to unlock value, the Commission unveiled the NUPRC Corporate and Regulatory Strategy (2023-2033). The 10-year strategic outlook outlines the broad plans which will guide the Commission activities to achieve its mandate as enshrined in the PIA for the Nigerian Upstream Oil and Gas.
“We have maintained this strategic focus because we recognise the enormous pressure currently being faced by the industry occasioned by climate concerns, net zero emissions targets and the attendant defunding of oil and gas projects. The dynamics in the global energy arena necessitate that Nigeria, a country long dependent on the exploitation of oil and gas as the mainstay of its economy, must re-examine its policy to secure its energy future while meeting global climate goals and commitments to the comity of nations.
“Against the foregoing, the Commission has set forth a clear agenda for the upstream petroleum sector, consistent with the PIA and bordering on aspirations of the government. Our objective is to cultivate an environment that fosters efficiency and ensures that every industry participant, including members of OPTS and IPPG, thrives in a virile, functional, and profitable sector. Our mantra is: “When you succeed; Nigeria succeeds.”
The Federal Government must as a matter of urgency focus on harnessing the potentials of the oil and gas industry through increased production, curbing corruption, pipeline vandalism, crude oil theft and every other issue bedeviling the sector to rescue the nation’s economy.
