Despite initial enthusiasm and key industry innovations towards breaking even in the oil and gas industry, the year 2022 came with mixed results.
There were monumental oil theft, production decline that pushed Nigeria behind Angola.
However, the industry was bolstered with the declaration of “The Decade of Gas,” an initiative designed to ensure Nigeria can take advantage of the global energy transition. The launch comes just as the government is pushing through some major reforms for the sector – notably, its long-awaited Petroleum Industry Bill, PIB, that could see the biggest transformation of Nigeria’s energy industry in decades.
Oil contributes around half of the government’s revenue and most of its foreign exchange receipts making Nigeria one of the countries most susceptible to the global transition to cleaner fuels.
But as Buhari’s latest initiative makes clear, many now believe that Nigeria’s largely untapped, natural gas resources could provide the means for the country to fund its way through the global energy transition.
One of the country’s major efforts here is the Ajaokuta–Kaduna–Kano Natural Gas Pipeline set for completion in 2023.
Spearheaded by the government and funded by China’s Belt and Road Initiative, the government hopes it will connect the country’s gas supply to other planned trans-regional and intercontinental pipelines , such as the Trans-Saharan Gas Pipeline, in order to open up access to Europe.
Lack of infrastructure has historically hampered the Nigerian energy sector, and represents a crucial reason why its gas reserves have been untapped for so long. This pipeline project could fundamentally alter the calculus, and also help the country meet its growing electricity needs in a cleaner, more sustainable manner.
It is expected that Nigeria should fund gas infrastructure development with yearly $2 billion spend.
Losses In The Upstream
Nigeria’s oil production averaged 1.34 million barrels per day in the first 10 months of 2022 against the 2022 Budget benchmark of 1.88 million barrels per day, costing the nation about 161.58 million barrels in lost production.
At an average crude oil price of $95 per barrel it means the country lost about $15.35 billion in estimated earnings.
The Nigerian Upstream Petroleum Regulatory Commission, NUPRC, data showed that total oil production for the first ten months was 409.94 million barrels against the budget provision of 571.5 million barrels.
The data also showed that oil production fell in the first 10 months of 2022 by 21.37 percent when compared to 497.55 million barrels of oil produced over a similar period in 2021.
According to the Budget Office, Gross Oil Revenue amounting to N2,172.35 billion was collected in the first half of 2022 as against N4,684.98 billion prorate budget projection for the period. This denotes a decrease of N2,512.63 billion (53.63 percent) below the 2022 half year budget estimate.
The agency stated that it was, however, an increase of N272.56 billion (14.35 percent) above the actual half year gross oil revenue performance reported in 2021. A breakdown of the revenue by sub-head showed that only Crude Oil and Gas Sales of N489.38 billion surpassed its half year projection of N437.03 billion by N52.35 billion (11.98 percent).
It stated that other Oil Revenue items fell below their respective half year projections. Petroleum Profit and Gas Taxes of N909.56 billion, Royalties (Oil & Gas) of N750.93 billion, Concessional Rentals of N1.88 billion, Gas Flared Penalty of N39.19 billion, Incidental Oil Revenue (Royalty Recovery & Marginal Field Licenses) of N22.04 billion and Miscellaneous (Pipeline fees etc.) of N7.94 billion fell below their half year projections of N2,786.15 billion, N1,277.0 billion, N3.21 billion, N55.27 billion, N97.54 billion and N28.78 billion by N1,876.59 billion (67.35 percent), N526.07 billion (41.20 percent), N1.32 billion (41.26 percent), N16.08 billion (29.09 percent), N75.51 billion (77.41 percent) and N20.84 billion (72.40 percent) respectively.
Also, the Nigerian Bureau of Statistics (NBC) has said foreign investment inflows into Nigeria’s oil and gas sector have dropped by 97 percent.
NBS in its data on Nigerian Capital Importation Report for the second quarter of 2022 revealed that inflows of foreign investments into the oil and gas industry in the country, which stood at $68.6m (N30bn) in the first half of 2021, had crashed to $2.5 million (N1billion) in the first half of 2022, indicating a 97 per cent drop.
According to the Bureau, the flow of foreign funds into the petroleum industry in the first six months of 2022 was also 92 per cent lower than the $33m inflow recorded in the last six months of 2021.
The NBS further stated that the oil and gas industry accounted for 0.1 per cent of the total foreign capital inflows into the Nigerian economy in the first half of 2022, compared with 2.5 per cent and 0.8 per cent, respectively, in the first half of 2021 and the second half of 2021.
A breakdown of the inflows revealed that in the first quarter of 2022, $1million foreign capital was imported into the oil and gas sector, while $2million foreign capital came in during the second quarter of the year.
In comparison, in the first and second quarters of 2021, $57million and $11million foreign capital were imported into the sector, respectively; while in the third and fourth quarters of 2022, foreign capital imported into the petroleum industry stood at $1million and $32million, respectively.
Generally, the NBS noted that the total value of foreign capital imported into the oil and gas sector between January and June 2022 stood at $3billion, rising by 12 per cent compared to $3billion inflow recorded in the same period in 2021.
The NBS in its analysis of foreign investments inflows in the second quarter of 2022 said, “The total value of capital importation into Nigeria in the second quarter of 2022 stood at $1bn from $876million in the corresponding quarter of 2021, showing an increase of 75 per cent.”
The situation has been blamed on fossil fuel, which some experts have hinted was at the edge of chaos, noting that low funding from international oil companies in preference for greener energies was enough sign for the country to consider having an energy transition agenda.
Going by the expert’s view, it means that if oil and gas companies decide to shut down their economies against fossil fuels, the whole world would go into a spin.
It equally suggest that Africa should see opportunity in renewable energy instead of seeing it as a loss.
Upstream Development
Despite government’s ambitious oil and gas development strategies Nigeria lost its crown as Africa’s largest crude producer as Angola surpassed the country for the first time in more than five years.
Angola’s average daily output in August of 1.17 million barrels was more than Nigeria’s at 1.13 million barrels.
The last time that happened was in April 2017 when both nations were pumping about 500,000 barrels a day more.
But nevertheless, authorities were undaunted as key development initiatives moved ahead to restore the lost glory.
One of the key industry turnarounds was the transformation of the Nigerian National Petroleum Company Ltd (NNPC) into an entity that would be regulated in line with the provisions of the Companies and Allied Matters Act (CAMA) which was expected to provide an easier path to unlocking private capital for the state-owned firm that would help finance not only its projects but also bigger national ventures.
With the official unveiling the transition of the NNPC into a limited liability company was aimed at expanding the corporation’s ability to enter into new deals, raise capital from financial institutions to fund projects and tackle funding shortfalls with joint ventures.
The group managing director of the NNPC Ltd, Mr Mele Kyari, explained that the NNPC’s transformation into a CAMA company followed the implementation of the Petroleum Industry Act (PIA).
The Corporate Affairs Commission (CAC) had on September 21 last year completed the incorporation of the NNPC Ltd in accordance with the provisions of the Petroleum Industry Act 2021.
The PIA was signed into law by President Muhammadu Buhari on 16th August, 2021, following its passage by the National Assembly in July of the same year.
Specifically, Section 53(1) of the Petroleum Industry Act 2021, requires the Minister of Petroleum Resources to cause for the incorporation of the NNPC Limited within six months of the enactment of the PIA in consultation with the Minister of Finance on the nominal shares of the Company.
With the registration by the CAC, the NNPC Ltd was floated with an initial capital of N200billion making history as the company with the highest share capital in the country.
From when the PIA was signed into law last year, the management of the NNPC has taken proactive steps to prepare it for the July 1 take-off as a CAMA company.
Speaking on the development, Kyari, said that the PIA has provided better fiscal, commercial and regulatory frameworks to support competitiveness, investment and growth, while creating a fully commercial National Oil Company.
Flowing from the PIA, the NNPC boss said one of the things that will be different as the NNPC transitions is that it is expected to become a commercially oriented and profit-driven national petroleum company that would be the envy of all players in the sector.
He explained further that the NNPC would be managed like a private sector enterprise and unlike previously when it was owned by the government, the NNPC is expected to become more efficient in its operations.
This, he noted, will enable the company to effectively maximize returns on investment for the 200 million Nigerians, ensure returns for shareholders and pay taxes to the government.
President Muhammadu Buhari officially unveiled the new NNPC Ltd on July 19.
One major development in the sector was the flag off of the first integrated Oil Development project in northern Nigeria.
The event took place at the Kolmani OPLs 809 and 810 exploration sites in a border community between Bauchi and Gombe states.
The commercial quantity discovery was the first in the region after eight months of crude oil exploration on the Upper Benue Trough, Gongola Basin in the north-eastern part of the country, according to NNPC.
In the first seven months of 2022, NNPC, expended about N3 billion in frontier exploration services.
The official kick off the drilling of crude oil in the north is coming about two years after the mineral resource was discovered in the region.
The oil discovery in the north is coming at a time crude oil production has dropped to around one million barrels per day in the country, as a result of oil theft and vandalism, thereby hobbling the ability of the country to earn foreign exchange.
Crude Theft
It is stated that an average of 437,000 barrels of oil is stolen on daily basis by oil thieves in Nigeria.
Data shared by the NNPCL, disclosed that between January and July, the country lost an average of 437,000 barrels of oil a day to criminal entities and individuals who illicitly tap pipelines onshore and offshore in the Niger Delta region.
Group chief executive of NNPCL, Mele Kyari, had blamed a section of Nigerian society for complicity that has led to the loss of thousands of dollars in the oil theft, undermining the country’s oil production.
Nigeria recorded lower production in the first seven months of the year. In January the production stood at 1.4 million barrels per day but as of July, the production went lower to 1.1 million barrels per day.
Pipeline fires are commonplace in Nigeria, in part because of poor maintenance but also because of third party infractions who vandalise pipelines to siphon off petrol and sell it on the black market.
Crude oil is tapped from a web of pipelines owned by major oil companies and refined into products in makeshift tanks.
According to industry sources, Nigeria loses around 200,000 barrels of crude to oil thieves, vandals and illegal refining operators daily.
Determined to disappoint critics who had assumed that the present NNPCL is a square peg in a round hole, came boldly out with a shocking revelation, on how an illegal oil pipeline connecting directly to the high sea was recently discovered.
Kyari said the major oil export terminal that had its products diverted into the sea had been operating undetected for nine years.
The four-kilometre or 2.5-mile connection from the Forcados export terminal, which typically exports around 250,000 barrels per day (bpd) of oil, into the sea was found during a clampdown on theft.
“Oil theft in the country has been going on for over 22 years but the dimension and rate it assumed in recent times is unprecedented,” Kyari told the lawmakers.
“But in rising up to the highly disturbing challenge, NNPC, has in recent time in collaboration with relevant security agencies clamped down on the economic saboteurs.
“In the course of the clampdown within the last six weeks, 395 illegal refineries have been deactivated, 274 reservoirs destroyed, 1,561 metal tanks destroyed, 49 trucks seized.
“The most striking of all, is the four-kilometre illegal oil connection line from Forcados Terminal into the sea which had been in operation undetected for nine solid years,” he added.
While thieves often tap land-based pipelines to siphon oil undetected, but an illegal line in the ocean is highly unusual and suggests a more sophisticated theft operation.
Forcados is operated by the Shell Petroleum Development Company (SPDC), a local subsidiary of Shell.
Nigeria has been losing potential revenue from some 600,000 bpd of oil, mostly as a result of shut-ins due to vandalism.
Crude oil exports fell to 972,000 bpd in August for the first time since at least 1990 as a result, starving Nigeria of crucial cash.
Activities at the affected terminal have been stopped since a leak was found from a sub-sea hose at the terminal on July 17.
Shell said last week that it expected loadings to resume in the second half of October.
Nigeria recently took a raft of measures to curtail the oil theft menace, which so far appears to have defied all solutions.
A few of the measures include the renewed deployment of security personnel in the Niger Delta and the real-time monitoring of activities around the pipelines by the NNPCL.
In addition, NNPCL, has introduced the whistle-blower strategy as well as the handing over of a N4 billion monthly surveillance contract to ex-militant, Government Ekpemupolo, popularly known as Tompolo.
The federal government has variously blamed massive oil theft, vandalism of major assets, dilapidated infrastructure as well as declining upstream investment for its inability to drill more of the commodity.
Government Ekpemupolo, popularly known as Tompolo, after winning oil infrastructure protection contract also discovered an illegal crude oil pipeline with the capacity to deliver 400,000 barrels per day.
The discovery was made via Tantita Security Services Nigeria Limited, a company owned by the Niger Delta ex-militant which was contracted for oil pipeline surveillance.
The company reportedly discovered more massive illegal crude oil pipelines attached to Trans Forcados Export Trunkline.
The latest discovery comes a few days after an illegal four-kilometre crude oil pipeline belonging to Shell Petroleum Development Company (SPDC) was exposed.
The discovered of the illegal pipeline revealed that the illegal line was connected to the 48-inch Trans Forcados Export Trunkline in Burutu Local Government Area.
The illegally plugged point is directly located behind a military security post and less than a kilometre to the Forcados Export Terminal in Ogulagha community.
From the point of connection, the illegal pipeline was linked to another abandoned pipeline riser located within the vicinity and owned by AGIP Petroleum Company Ltd.
Through the abandoned AGIP facility, the oil thieves have been ferrying condensed crude oil to the sea for loading into thieving ships at midnight for onward movement abroad.
The Forcados Terminal located in Ogulagha, Burutu Local Government Area, is said to have a nameplate capacity to export 400,000 barrels per day.
It receives crude oil from the Forcados Oil Pipeline System, which is the second largest pipeline network in the oil-producing region, after the Bonny Oil Pipeline System in the Eastern Niger Delta.
There is also information that some International Oil Companies and Nigerian independents operating in the western Niger Delta pump oil to the Forcados Oil Terminal for exports.
The decision by the federal government to suspend implementation of the petrol subsidy withdrawal resulted in chaotic shortages of the product across the country.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, had said that the Federal Government will do away with petroleum subsidy by June 2023.
Petrol subsidy reportedly gulped N2.565tn between January and August 2022.
Also, in the Medium-Term Expenditure Framework, the Federal Government proposed to spend N3.3tn on fuel subsidy between January and June 2023.
She, however, said that the challenge was how to go about removing the subsidy.
“First, we have to engage. We have already engaged with the states and the public before it was approved as part of the medium-term plan.
As marketers could no longer access the product they hinted of a possible pump price hike for Premium Motor Spirit, PMS, also called petrol.
President of Petroleum Products Retail Outlets Owners Association of Nigeria, PETROAN, Dr. Prince Billy Harry, gave the warning in a chat with LEADERSHIP.
Harry said system inefficiency and scarcity of foreign exchange is about to create dysfunctional market operations that would bring about price distortion beyond the control of marketers.
Harry is not alone in this uncertainty as the National President of the Independent Petroleum Marketers Association of Nigeria, IPMAN, Elder Chinedu Okoronkwo sounded similar warning.
Both of them spoke to our Correspondent on phone while blaming independent depot operators as creating precarious market situation.
According to Okoronkwo, the depot operators unilaterally hiked ex-depot price of products in particular petrol.
“We independent marketers source products from these depots and they have refused to sell at regulated government price. What you observe in Lagos is simply a situation where marketers pay higher and then adjust their pump to recover cost and retain customers.
“They are not concerned about profit but to sustain their businesses until government takes a firm stand on deregulating the market “ said Okoronkwo.
Harry, on his part said with exchange rate above N800 a dollar, the public should expect another round of hike in pump price of petrol except exchange rate is stabilised.
According to him, landing cost of petrol to outlets is within the region of N184 to N189 per liter.
“We went round Abuja yesterday and we found out that a liter of petrol in the black market sells for between N350 to N400 a liter. On the other hand our retail outlets sell between N190 to N200 a liter depending on source of procurement.
“We monitor the situation in Calabar, Aba and Port Harcourt as well as Lagos. What we are doing presently is to ensure our members maintain reasonable price band. No one appear to be challenging the system but I want to warn that we may experience another round of price hike as we approach the festive season “ he said.
He warned that deregulation at this point will escalate the situation since the country relies on importation.
Okoronkwo on his part asked for the intervention of government as the ongoing crises is beyond what marketers can handle.
However, both of them said availability may be assured going by their conversation with the Nigerian National Petroleum Company, Limited, NNPCL, but cannot assure of price stability.
The Chairman, Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), Dame Winifred Akpani, has blamed acute shortage of foreign exchange (forex) in the official market as pushing the naira to N860 against a Dollar.
This according to her has broadly altered dynamics for the importation, distribution and marketing of petrol.
Akpani, who disclosed this during a press briefing by its Governing Council in Lagos, called on the government to give petroleum marketers access to foreign exchange at the official Central Bank of Nigeria (CBN) rate to enhance the supply and distribution of petrol across the nation this Yuletide season.
According to her, shortage of Forex coupled with several unauthorised levies, bad roads are among the factors making fuel importation and distribution burdensome for members.
Akpani, said the burden of sourcing forex through the paralell market for transactions domiciled in Nigeria had left petroleum marketers in “dire straits”.
“Accessing USD (dollars) for our operations has been an insurmountable hurdle for petroleum marketers. The difference between CBN exchange rate and the Parallel market exchange rate continues to get wider by the day,” she said.
Akpani noted that in addition to core operational expenses that are denominated in dollars, petroleum marketers also contend with sourcing funds from the parallel market to pay for fees and levies, some unauthorised, that are also charged in dollars.
“For exampe, to charter a vessel to convey 20,000 MT of PMS within Nigeria for 10 days, freight charges are denominated in dollars, that comes to about N220 million at official forex rate of N440 and a whooping N440 million for petroleum marketers who have to source forex from the parallel market at N880. This implies an additional cost of N11 per litre for this transaction due to the FX official/parallel market differential,” she said.
According to her, for the same transaction, Jetty fees, also charged in USD amount to N15.4 million at official forex rates and N30.8 million for petroleum marketers who source from the parallel market.
In addition, Jetty Berth is charged in dollars and comes to N2.2 million at official forex rate and N4.4 million at parallel market rate, while port dues, charged in dollars by the Nigerian Ports Authority (NPA) and Nigerian Maritime Administration and Safety Agency (NIMASA), which are charged in dollars, come to N71.51 million at official FX rate and N142.796 million for marketers who source forex from the parallel market.
“DAPPMAN hereby calls on the government to establish a level playing field in the sector by giving petroleum marketers access to forex at the CBN exchange rate for their operations. This is a passionate appeal to the government as we can confidently state that accessing forex through the CBN window will significantly enhance capacity and facilitate seamless supply of PMS and birth a regime of sustainability in terms of storage, distribution, and supply across the nation,” she added.
The NNPCL, which historically served as the supplier of last resort, is now the major oil downstream company in Nigeria with the acquisition of OVH and has full access to dollars at CBN’s official rates. The NNPC also has access to products through swap arrangements.
Akpani decried the absence of a level-playing field that guarantees access to dollars for all marketers at official rates, noting having the NNPC as the sole importer of PMS was not sustainable, considering the huge consumption of the product.
She said strategic decisions must be made in the industry to ensure Nigeria takes full advantage of expected growth in oil products demand across Africa. “For us in Nigeria, this will include full deregulation of the sector and a deliberate strategy geared towards creating an enabling environment for all petroleum marketers to add value, alongside the NNPC,” she stated.
Akpani said DAPPMAN considers the government’s plan to remove subsidy in 2023 as the right decision that will reposition the sector for sustainable growth and development, while freeing up funds to shore up the capacity needed to transform the health, education, defence, and transportation sectors among others.
“As we approach the Yuletide and transition to the election year in 2023, the nation needs the full involvement of all operators to shore up capacity and ensure product availability at excellent service levels. While there might be fears regarding possible scarcity of PMS, DAPPMAN assures Nigerians of its ability and willingness to work assiduously to ramp up supply as the government addresses the challenges of FX availability in the sector,” she said.
DAPPMAN added that the Federal Government and the Nigerian Midstream and Downstream Regulatory Authority for emerging gains in the sector, especially, following the introduction of the Petroleum Industry Act.
“There have been important meetings aimed at shaping a sustainable future for the sector. These must continue as the success of the sector in the face of the intervening global energy crisis depends on collaboration and consideration of how operators can shore up capacity on the wings of market-friendly policies and a level-playing field,” Akpani said.
Power Sector Grid Collapse
Nigeria’s electricity sector lost a whopping N15.4 billion in the second quarter of 2022 following the contraction of the sector by 11.48 per cent year-on-year in real terms, data from the National Bureau of Statistics has revealed.
According to the latest GDP report for the second quarter of 2022 released by the (NBS), this is consistent with the 11.2 per cent contraction recorded in the first quarter of 2022.
In other words, the sector saw a loss of N15.4 billion from the N134.19 billion recorded in the corresponding period of 2021.
The country has witnessed several cases of national grid collapse which has led to nationwide blackouts in recent times. This year, the country has reported over 7 cases of national grid collapses, although it is believed the figures could be higher.
In 2022 alone, the national power grid collapsed seven times, with the most recent coming on the 20th of July. The national grid failures inevitably led to power cuts, which meant fewer people purchased electricity.
Similarly, the first half of the year was ravaged by high gas prices, which was cited as one of the major factors causing the grid collapses. Gas prices following the Russian-Ukraine war surged significantly across the country, as a result of a drop in supply.
The grid collapse is normally due to low gas supply, poor management, sabotage, and vandalism, among other reasons.
The sector recorded impressive growth in the previous year, following a hike in electricity tariff rate. However, multiple grid disruptions and global energy crisis dampened productivity in the sector.
The Electricity, Gas, Steam and Air conditioning Supply sector contributed 1.39 per cent to the nominal GDP in the second quarter of 2022, a 0.33 per cent-point decrease from the corresponding period in 2021. However, this was an improvement from the previous quarter’s 0.38 per cent.
Energy Transition
In August Nigeria joined global initiative towards the search for clean energy alternative.
The Federal Government in this regard launched an ambitious plan, seeking to raise $10 billion for Nigeria’s energy transition.
Vice President Yemi Osinbajo, said the plan was a decisive action, which the nation cannot afford to delay.
He also said Africa’s increasing energy gaps require collaboration to take ownership of the continent’s transition pathways and the action should be decisive and urgent.
He stated: “For Africa, the problem of energy poverty is as important as our climate ambitions. Energy use is crucial for almost every conceivable aspect of development. Wealth, health, nutrition, water, infrastructure, education, and life expectancy are significantly related to the consumption of energy per capita.”
In a statement yesterday by Laolu Akande, Senior Special Assistant to the President on Media & Publicity, Office of the Vice President, Osinbajo also highlighted the significant scale of resources required to attain both development and climate ambitions. Nigeria would need to spend $410 billion above business-as-usual spending to deliver our Transition Plan by 2060, which translates to about $10 billion per year.
“The average $3billion per year investments in renewable energy recorded for the whole of Africa between 2000 and 2020 will certainly not suffice.”
At the virtual event, Mr. Shubham Chaudhuri, Nigeria Country Director for World Bank said the bank plans “to commit over USD 1.5 billion towards the Energy Transition Plan on renewable energy, on power sector reforms, on clean cooking, and wherever opportunities arise.”
The Federal Government would optimise the country’s abundant gas resource to achieve the transition to low carbon energy sources.
