Following the rise in global oil prices, Nigeria has continued to miss out on the rare global oil boom opportunity.
Crude oil prices have for months stayed above $100 per barrel in the international market, a development rarely seen, ironically, it has not led to any positive impact on the Nigerian economy.
This is also coming after the country endorsed the much- awaited Petroleum Industry Act (PIA), which was expected to restore sanity in the industry.
Unlike many oil-producing countries, this is an interesting time for them, as they are gaining excessively from the current oil boom.
A number of issues have been linked to declining output from Nigeria.
On one hand is third party infringement on production assets causing leakages in terms of theft in large volumes.
The second is apathy on the part of major oil marketers that are divesting their assets due largely to lack of friendly operating environment and poor fiscal policies.
Oil major’s divestment began about 2010, when they began to witness assets sabotage, community unrest, insecurity, oil theft and the recent withdrawal of financing of fossil fuel businesses.
There are reports indicating that international oil companies, IOCs operating in Nigeria had divested assets worth about N20 trillion.
According to reports energy giant Shell had planned to offload asset in value of $2.3 billion, ExxonMobil considering $15 billion in asset divestment while Italy’s Eni indicated plans to divest about $5 billion in assets.
Many of the oil majors as well as indigenous oil companies did not invest much in oil exploration in Nigeria in August 2022.
This perhaps has led to a gradual reduction as exploration continues to drop in rig count. The country’s rig count began this year at a very low point of 6 slightly progressing upward to 11 around April, a level it sustained till July, before dropping in August.
According to the Organisation of Petroleum Exporting Countries (OPEC), the rig count is a major index for measuring exploration and other activities in the upstream sector of the petroleum industry globally.
The organisation did not disclose the factors responsible for the drop in exploration in its September 2022 Monthly Oil Market Report, MOMR.
However, the report showed that Algeria was the highest deploying nation with 33 rigs while Equatorial Guinea came last with no rigs whatsoever.
This also means that the impacts of the Petroleum Industry Act, PIA, expect to be positive on investment, exploration, and production have not yet been felt.
Last month, the director of Nigeria Employers Consultative Association (NECA), Mr. Wale Oyerinde, disclosed that Nigeria can’t benefit from the global surge in crude oil prices due to the burgeoning cost of subsidies on petroleum products in the country.
He further disclosed that until the country had significant alternative sources of foreign exchange and starts exporting more than they import, revenue challenges might continue to linger.
Oyerinde said, “We acknowledge the revenue challenge currently faced by the nation. As it is well known, a major quantum of Nigeria’s foreign exchange comes from crude oil sales.
“Unfortunately, the price of crude oil is not within our control and we are not even meeting our quota of crude allotted to us by OPEC by about 600bpd.
“While the price of crude went up as a result of the Russia-Ukraine war, we were not able to benefit revenue-wise because of the bourgeoning cost of subsidy of petroleum products.
“Until we have significant alternative sources of forex (non-oil), export more than we import, and reduce wastages, revenue challenges might continue for a while.”
It is disheartening that during this period when the country should be raking millions and billions of dollars from the oil boom, it continues to borrow massively in spite of what ordinarily should be a boom period for the economy and foreign exchange inflow.
The country has the challenge of having to buy petroleum products for use because it does not have functional refineries, which eats into the revenues it would have otherwise realised.
Despite its huge oil reserves, Nigeria has one of the lowest production per capita among oil-producing countries in the world, producing less than a barrel per 100 people.
Unlike its oil-rich counterparts, Nigeria seems to be lagging as other oil-producing countries are making excessive gains during this period.
Due to the global oil boom caused by the Russian-Ukraine war, Saudi Arabia is now so rich from the global oil boom that the country is planning a new futuristic city called Neom in the desert reaches along the Red Sea.
For every USD 10 rise in the price of a barrel of oil, Saudi Arabia stands to make an additional USD 40 billion a year.
Research by Mitsubishi UFJ Financial Group (MUFG) in February showed that Gulf Cooperation Council (GCC) countries are likely to see a GDP surge of 6.1 per cent in 2022 on the back of increased oil prices, as well as fiscal surpluses for the first time since 2014.
The GCC consists of Saudi Arabia, Oman, United Arab Emirates (UAE), Kuwait, Qatar, and Bahrain. But meanwhile, Nigeria has continued to struggle to even meet her OPEC quota.
Culmination of these factors, caused Nigeria to lose its crown as Africa’s largest crude producer as Angola surpassed the country for the first time in more than five years, in August.
Angola’s average daily output in August of 1.17 million barrels was more than Nigeria’s at 1.13 million barrels, according to Bloomberg’s survey of monthly OPEC output. The last time that happened was in April 2017 when both nations were pumping about 500,000 barrels a day more, the same data show.
Nigeria’s production has declined steadily since 2020 and has reached multi-decade lows this year. The government has blamed massive levels of theft on the pipelines that crisscross the oil-rich Niger Delta in southern Nigeria.
Libya produced 1.08 million barrels of crude a day in August, according to the survey, and could soon overtake Nigeria if the West African country continues on its current trajectory.
Statistics published by the Nigerian Upstream Petroleum Regulatory Commission paint a bleaker picture, with output at only 972,000 barrels a day last month. That figure rose to 1.18 million barrels when condensate a light hydrocarbon that is exempt from OPEC quotas is included.
Unlocking Fresh Potential
The good news now is that Nigeria’s deepwater projects which are expected to come on stream between 2025 and 2030 will have the capacity to add at least 2.3 billion barrels of crude oil to Nigeria’s existing reserves, S&P Global Commodity Insights, a market intelligence agency reports.
In a just-released report, S&P stated that deepwater projects hold the key to Nigeria’s production growth and ultimately stability, explaining that if properly implemented , the Petroleum Industry Act (PIA) could transform the fiscal side of the Nigerian oil industry.
“The deepwater projects that are due to start up between 2025 and 2030 are estimated to hold recoverable resources, of 2.3 Bbbl. Without the sanctioning and commissioning of currently unsanctioned projects, Nigeria’s overall production will likely decrease from the end of the decade.
“It’s the deepwater projects that can provide this extra production required to offset the expected production decrease. Therefore, unsanctioned deepwater projects are seen as the prime target area for fiscal and regulatory improvement which is thought to have occurred if the assets convert to the new PIA fiscal terms,” it stated.
A number of oil companies have recently begun to exit Nigeria’s shallow waters as well as divesting their onshore assets for the deepwaters as a result of frequent attacks on their facilities in the Niger Delta.
According to the report, some of the deepwater projects on legacy terms upon conversion will see their combined Net Present Value (NPV) increase by as much as 89 per cent.
According to the firm, this is positive news for the projects and their operators and has spurred some of them and other joint venture (JV) partners to release news that the changes in the fiscals have stimulated progression towards a possible Final Investment Decision (FID).
“An example is Preowei, where operator TotalEnergies announced that it is to accelerate the development with a possible early conversion to the PIA terms due to the new fiscal structure which contains tax advantages,” S&P said.
It listed one of advantages of the document as the new incremental production-based royalty which went from a 10 per cent for water depths of greater than 200m to either 5 per cent for less than 50,000 bpd or 7.5 per cent when greater.
“These projects should remain an area of particular focus for the government. Indeed, they could become stranded if the terms available are not acceptable to licence holders.
“However, as the May 2021 renegotiation of the Bonga Southwest PSC terms demonstrated and the subsequent August 2022 renegotiation of a further six blocks including OML 125 & 130, if the government and international oil companies (IOCs) are able to find common ground on such projects, this could raise Nigeria’s production outlook towards the end of the decade, which would also likely help to secure the country’s output over the longer term,” the report said.
Further important large projects that are key to Nigerian production remaining steady, it said, are the deepwater producing Agbami field which has also benefitted from the new terms.
If implemented, it stated that this will have an NPV increase of around 50 per cent as well as the deepwater producing Erha field which would see an NPV increase of over 400 per cent.
Titled: “A Deepwater Dive: Has the PIA unlocked the key to Nigeria’s long-term production stability?” the report stressed that the PIA seeks to provide a regulatory, legal, fiscal and governance framework for the Nigerian petroleum industry as well as funding the development of host communities.
According to S&P, the new PIA has attempted to improve the country’s fiscal attractiveness by altering many facets of the regimes that apply to oil and gas assets, including royalty tax as well as Petroleum Profit Tax (PPT).
“One area of particular interest and that is crucial in preventing Nigerian production from declining is the sanctioning and timely construction of new deepwater projects such as Bonga south-west and Owowo.
“These increases are significant and illustrate the intentions of the government, moving forward, that on its designing of the PIA they have put project partners and fiscal attractiveness at the forefront.
“The trajectory of Nigeria’s future oil and gas production largely hinges on the PIA and if it is considered to be sufficiently favourable to investors. This is widely unknown as operators and partners have remained generally silent apart from the announcements made by the Preowei and Bonga development JVs,” it added.
However, it stated that it remains to be seen if Nigeria’s boldest attempt to overhaul the country’s petroleum sector will work, but stressed that it has been a positive step which so far has been commended and should help retain and attract further investment ultimately benefitting the country.
