Nigeria’s oil production is facing significant challenges, with a potential worsening of the situation as investors and international contractors shy away from the country’s hostile operating environment.
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) reports a production shortfall of over 3.011 million barrels in the first five months of the year, leading to a revenue loss of more than $264.97 million (approximately N400 billion), based on an average Bonny Light price of $88 per barrel.
Against an OPEC quota of 1.5 million barrels per day, Nigeria’s oil output has dropped to around 1.2 million barrels per day. This marks a steep decline from the peak of 2.5 million barrels per day in the early 2000s. Industry experts warn that if current conditions persist, the production shortfall could push oil revenue losses to N1.0 trillion by year-end, significantly impacting the government’s budgeted revenue of N15.7 trillion for 2024.
The federal government has already indicated that the proposed revenue estimates for the fiscal year may not be achieved due to the underperformance of the oil sector. The ministry of finance’s “Accelerated Stabilisation and Advancement Plan (ASAP)” noted that maintaining oil production 27.0 per cent below budget could risk achieving the 2024 budgeted revenue increase of 77.4 per cent from the previous year.
Nigeria’s oil industry struggles with infrastructure decay and a lack of investment in exploration and production. Data from NUPRC showed fluctuating monthly average oil production: 1.43 million barrels per day in January, 1.32 million in February, 1.43 million in March, 1.28 million in April, and 1.25 million in May.
Industry leaders emphasised the need for urgent measures to address these challenges. Chairman of the Independent Petroleum Producers Group (IPPG), Abdulrazaq Isa, highlighted Nigeria’s substantial hydrocarbon resources, including over 37 billion barrels of proven crude oil reserves and significant gas reserves.
He noted that current production levels are significantly below capacity, with a daily output of about 1.3 million barrels of oil and 8.5 billion cubic feet of gas.
Isa outlined four priority areas for improvement: concluding pending IOC divestment transactions, resolving deepwater development issues, adopting a national value-retention strategy, and developing Nigeria’s gas resources.
NNPC Limited’s group CEO, Mallam Mele Kyari, also cited lack of investment, oil theft, and an obsolete pipeline network as major challenges. He stressed the need for comprehensive pipeline replacement and better rig utilisation practices.
Chevron Nigeria’s chairman and managing director, Jim Swartz, called for government action to attract deepwater projects, noting the high costs and uncertainties involved.
Addressing the root causes of the oil production decline, experts emphasised the need for comprehensive reforms, including tackling oil theft, pipeline vandalism, and creating a conducive environment for private sector investment. Without decisive action, Nigeria’s oil industry faces continued challenges, affecting the country’s economy and energy security.
Nigeria’s refining capacity has long been a topic of concern. Despite significant investments, including the high-profile Dangote Refinery, the country struggles to meet its refining needs. Factors such as low crude production, inadequate maintenance of existing refineries, and the preference of International Oil Companies (IOCs) to export crude rather than supply local refineries all play a role.
The government has made some strides in allowing modular refineries to pay for crude in naira, aiming to make local refining more viable. “However, these efforts are still in the early stages, and it will take time before they can significantly impact the fuel supply landscape,” cautioned a financial economist at Nnamdi Azikiwe University, Dr. Felix Echekoba.
The national president of the Petroleum Products Retail Outlets Owners Association of Nigeria, Billy Gillis-Harry, said the scarcity crisis is mainly supply-based, which largely rests in the powers of the NNPC.
According to development and energy economist at Adeleke University, Professor Tayo Bello, these should include improving road networks and developing effective rail systems for fuel transportation. Bello also cited that there is a need to ensure that refineries are operational and capable of meeting domestic demand, as well as implementing stringent measures to protect pipelines and reduce illegal activities.
The president of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Festus Osifo, highlighted the broader issues within Nigeria’s oil and gas value chain. He noted that the lack of functional oil depots across the country means that there are no reserve stocks to cushion against supply disruptions.
On his part, the president, Independent Shareholders’ Association of Nigeria (ISAN), Moses Igbrude, hinted at creating a conducive environment for private sector participation in the oil and gas industry. He said until these reforms are effectively implemented, Nigeria’s fuel crisis is likely to persist, affecting both the economy and the daily lives of its citizens.
“The government must take bold and decisive steps to address these deep-rooted issues, ensuring a stable and reliable supply of fuel for the country,” he said.
Oil and gas governance expert, Henry Adigun, highlighted persistent issues within Nigeria’s energy sector, attributing investor reluctance to factors such as oil theft and pipeline vandalism. He stressed the urgent need for the government to address these challenges to restore confidence and attract major investments essential for meeting domestic and export demands.
In a recent development, President Bola Tinubu’s administration has been proactive in addressing Nigeria’s oil production challenges, working toward stabilising the country’s energy sector.
Speaking on what President Bola Tinubu’s administration had done to improve the operating environment, the special adviser to the president on energy, Mrs. Olu Verheijen, highlighted the issuance of three Executive Orders in February 2024. These orders include the Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc.) Order, 2024; Presidential Directive on Local Content Compliance Requirements, 2024; and the Presidential Directive on Reduction of Petroleum Sector Contracting Costs and Timelines.
Mrs. Verheijen noted that these directives aim to instill confidence and stimulate the economy by making Nigeria’s energy environment more appealing for investment.
She emphasised that the first order established a clear and transparent regulatory framework, crucial for unlocking Nigeria’s untapped potential in the energy industry. The second directive focused on providing fiscal incentives for oil and gas projects to enhance competitiveness and attract investments, particularly in midstream gas utilisation and non-associated gas projects.
According to her, the government has also conducted a comprehensive assessment of Nigeria’s deepwater competitiveness compared to 13 peer countries, aiming to attract more investments. New fiscal incentives tailored to facilitate deepwater projects are being developed, critical to Nigeria’s goal of reaching four million barrels per day in oil production.
In an effort to boost activities and improve production, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has added 17 new deep offshore oil blocks to the 2024 oil bid round, increasing the total blocks on offer to 36. These blocks, spanning across the onshore Niger Delta, continental shelf, and deep offshore areas, are expected to bolster Nigeria’s oil reserves and production capacity.
Additionally, NUPRC has recently unveiled 12 new acreages for the 2024 bid round, alongside reopening the commercial bid for the 2022/2023 licensing round. This move allows investors to leverage improved fiscal incentives approved by President Bola Tinubu, who also serves as the country’s minister of petroleum resources.
