Despite the divestment, the federal government through the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), wrapped up a series of strategic engagements with fifteen leading international and independent Oil and Gas Companies operating in Nigeria.
The deal was sealed after a detailed review process by NUPRC and Chevron, Total, Shell, NAOC, Exxon Mobil, Seplat, Heirs Holdings, Waltersmith, First E&P, among others.
A key objective of the discussions was to advance a Presidential Initiative aimed at addressing the nation’s revenue emergency whilst contributing to stabilising Nigeria’s economy.
According to results of these talks significant investment opportunities with an estimated $55.2 billion in investments projected by 2030, of which $13.5 billion is expected to be invested by these companies within twelve months.
During these consultations, participating Operators shared insights into the challenges and barriers affecting their investment strategies and the swift rollout of planned projects.
Collectively, they also pinpointed key strategies that will ensure the delivery of 2.1 million barrels by December 2024, positioning Nigeria well ahead of President Tinubu’s campaign promise of the 2.6 million barrels by 2027.
The proposed measures are also expected to cause a 100 per cent increase in gas production by 2027, exceeding President Bola Tinubu’s campaign pledge of 20 per cent growth in that sector.
President Tinubu from date of inauguration remains committed to overcoming these challenges, making Nigeria the top choice for energy sector investments.
Commenting on this initiative, Mrs. Olu Verheijen, Special Adviser to the President said, “We are faced with a revenue crisis which is impacting all Nigerians. To urgently address this, President Bola Tinubu is actively seeking ways to grow revenue and forex to stabilise our economy and currency; and the oil and gas sector remains critical to our ability to do so despite current production levels falling significantly short of our potential.”
She added, “These strategic, high-level engagements with oil and gas producers will help fast-track bold reforms that will unlock investments required to restore and grow oil and gas production in the short, medium, and long term. President Bola Tinubu is dedicated to enhancing the investment environment in Nigeria, positioning us as the preferred destination in Africa for the energy sector.”
With the conclusion of these consultations, it is anticipated that the USD 13.5 billion in short-term investment components, currently in the pipeline, will pave the way for the delivery of 2.1 million barrels per day production by December 2024, barring any unforeseen challenges.
Overall, the global oil and gas industry experienced significant disruption in 2022, but despite these challenges, crude oil production continued to rise, driven by increased output from major players such as the US, Canada, Russia, and Saudi Arabia. However, despite having the second-largest proven crude oil reserves in Africa, Nigeria faced significant disruptions that hampered upstream oil and gas operators in the same year. Nigeria’s crude oil production witnessed a decline in 2022, reaching an average of 1.1 million barrels per day (mbpd).
This decline can be attributed to the persistent challenges arising from crude theft and vandalism that have plagued the upstream Nigerian oil and gas industry (the Industry). These challenges have not only impacted production but also deterred foreign direct investment (FDI) and delayed final investment decisions (FIDs) for major greenfield projects.
Recognising the need to take decisive measures, the government has implemented initiatives, in some cases partnering with adversely affected upstream oil and gas operators to address the issues facing the Industry. These initiatives include establishing a pipeline surveillance program and improving security in the Niger Delta region, where most of the country’s crude oil infrastructure is located.
Some operators have also invested in theft-proof pipelines and alternative evacuation channels to mitigate losses from theft, albeit with significant cost implications.
The government’s initiatives and Industry responses have started yielding some results, as Nigeria’s crude oil production rose steadily to reach 1.3 mbpd in March 2023.
The outlook on production in 2023 is more optimistic compared to the previous year, especially since the Ikike field, Madu field, and Bosi field, amongst others, are expected to contribute to production growth. These developments indicate a potential turnaround in Nigeria’s oil production trajectory.
Although investments in crude oil are dwindling, the country has continued to increase emphasis on developing the gas segment in line with global trends. However, challenges such as weak domestic infrastructure and non-market-based pricing models for major gas consumers, particularly power companies, continue to hinder progress. It is evident that significant progress in the gas sector requires substantial infrastructure improvements and a fully deregulated market to attract more investors.
Nigeria has been named among three top countries in terms of highest oil reserves discovered owing to 2023 investments, according to a research conducted by Rystad Energy.
Also, global spending on conventional oil and gas exploration will hit over $50 billion in 2023, according to an energy research company.
Upstream companies are strategically directing their investments towards offshore projects, focusing on lucrative regions that have a robust geological understanding.
Rystad Energy said 95 per cent of the total expenditure in 2023 is allocated to offshore initiatives.
Production Failures
The Nigerian oil and gas industry was totally sidelined by foreign investors in Q2 2023 for the first time on record, as the once lucrative sector attracted no capital inflow in the review quarter.
This is according to analysis of data from the National Bureau of Statistics (NBS).
Nigeria recorded a total of $1.03 billion as capital importation in Q2 2023, slightly lower than the $1.13 billion recorded in the previous quarter, which is also 32.9 per cent lower than the $1.54 billion recorded in the corresponding period of 2022. It is also worth noting that the Q2 2023’s figure is the lowest since the second quarter of 2021.
A further breakdown of the data from the NBS indicates that most of the foreign inflows during the period came into the country as loans, accounting for 74.9 per cent of the total capital import. Meanwhile, foreign direct investment which was $86.03 million accounted for 8.4 per cent, while foreign portfolio investment with $106.85 million accounted for 10.4 per cent, of the total.
Nigeria has endured significant pushback from foreign investors in recent times, evidenced by the recurrent declines in capital importation numbers. A development that has had severe implications for the general economy as FX illiquidity continues to drive exchange rate depreciation.
A more troubling statistics however is that lack of investment in the Nigerian oil and gas sector, which is a major sector accounting for about 6 per cent of the economy and a major source of government revenue.
Notably, the sector attracted no investment from foreign investors in the review quarter. A list that was led by the manufacturing sector with $605.04 million, banking ($194.58 million), and shares with $68.63 million.
Data from the Nigerian Exchange shows that foreign participation in the Nigerian stock market has crashed significantly. Year-to-date to September 2023, foreign investors only accounted for 9.51 per cent of the total market activities, a decline from 16.3 per cent recorded as of the same period of 2022.
Reforms Yet To Yield Results
In May 2023, President Bola Tinubu announced the full deregulation of the downstream oil sector, in line with the Petroleum Industry Act signed by former president Buhari. The announcement which is premised on the expectation of increased competition and investment in the local industry is yet to incentivise foreign investors towards the Nigerian oil sector.
Instead, foreign investment in the sector has dwindled over the years and has worsened in recent times. Notably, international oil companies are divesting their operations from Nigeria to other neighbouring countries.
Recently, Italian company, Eni agreed to sell its subsidiary Nigerian Agip Oil Company (NAOC), to Oando. Research by Wood Mackenzie, a British research and consulting firm, indicated that divestments by international oil firms in Nigeria amounted to £871 million since 2020.
The deteriorating state of the FX liquidity in the country has deterred foreign investor participation in the Nigerian economy as several foreign investors are unable to repatriate their proceeds due to lack of foreign exchange.
Deregulation Of Downstream Sector Pushes For Domestic Refining
In his inaugural speech in May this year, president Bola Tinubu announced removal of subsidy in the petroleum sector signaling deregulation of the downstream sector.
In a reaction the Crude Oil Refinery Owners Association of Nigeria (CORAN) threw its weight behind the removal of fuel subsidy.
The group also renewed its call on the Central Bank of Nigeria to create a window of intervention Fund for its members to enable them complete their modular refinery plants; address the problem of guaranteed supply of crude to the refineries with naira payments, guaranteed offtake of the products and removal of bureaucratic bottlenecks from the regulatory bodies are some urgent issues for resolution.
The CORAN, a registered association of modular and conventional refinery companies in Nigeria, congratulateS Tinubu on his election and successful swearing in and commended his bold steps taken in keeping with his campaign promises, to effect the deregulation of the downstream sector of the Petroleum industry in Nigeria.
The CORAN chairman executive committee, Mr Momoh Jimah Oyarekhua and secretary Olusegun Ilori, said the bold steps would not only save the country huge amounts of resources hitherto spent on subsidies at a critical time when the country is grappling with revenue shortfall, but also open a new vista for Economic growth and revenue expansion through increased local and direct foreign investment.
Also, Nigeria’s huge oil refinery built by Aliko Dangote in preparation for full operations announced that it has received its first crude deliveries, in the last quarter of the year in review, in the latest step to starting up the delayed megaproject.
Billed as Africa’s largest of its type, the 650,000 barrel-per-day Dangote refinery could be a game changer for Nigeria’s economy when fully operational by helping ending the country’s reliance on fuel imports.
Dangote Petroleum Refinery received an initial shipment of one million barrels of crude from Agbami deepwater field and began loading on Friday, the company spokesman said Saturday.
The initial run will be for production of diesel and aviation fuel before moving on to petrol output.
Dangote gave no date for the actual start of refinery production.
Though one of Africa’s largest oil producers and the continent’s top economy, Nigeria relies almost totally on imported fuel and diesel because of a lack of refining capacity.
Nigeria swaps crude worth billions of dollars for petrol that it had subsidized for years to keep prices cheap for its domestic market.
Fuel imports and subsidies caused a huge drain on foreign exchange when Nigeria was struggling with dwindling oil revenues and foreign currency shortages.
“Dangote Petroleum Refinery can meet 100 per cent of Nigeria’s requirement of all refined products, gasoline, diesel, kerosene, and aviation jet, and also have a surplus of each of these products for export,” the company said in a statement.
The facility sits on 2,635 hectares (6,500 acres) of land at the Lekki Free Zone on the edge of Lagos city and cost an estimated $19bn, according to local media.
The refinery, first scheduled to open in 2021, was officially inaugurated by then president Muhammadu Buhari earlier this year and was supposed to begin operations in June.
Since coming to office in May, President Bola Ahmed Tinubu has ended the long-standing fuel subsidy and floated the naira currency in economic reforms he says will attract foreign investment and build long-term growth.
The former Lagos governor has called on Nigerians to be patient with his reform program as the initial impact saw fuel prices soar, a sharp fall in the value of the naira and an increase in the cost of living.
Power Sector Moving In Right Direction
The federal government embarked on a transformative journey by conducting an extensive review of the Electricity Power Sector Reform Act (EPSRA) 2005.
This comprehensive evaluation was aimed at addressing the persistent challenges in the power sector, harnessing new opportunities, as well as propel Nigeria toward a future of reliable, affordable, and sustainable electricity supply.
The Electricity Bill was enacted into law as the Electricity Act, 2023 on the 8th of June 2023.
The Act establishes a thorough legal and administrative framework for the operation of Nigeria’s fully privatized electricity market.
The Act prioritizes the implementation of tariffs that accurately reflect the cost and service provided, as well as promotes competition in the electricity sector through the use of contracts and rules. The main objective of this law is to enhance the efficiency and effectiveness of Nigeria’s electricity industry.
The Electricity Act, 2023 which was enacted into law on June 8, 2023, among others aims at, Consolidating the Laws Pertaining to the Nigerian Electricity Supply Industry, Establish a thorough legal and institutional framework for the Nigerian power sector, covering electricity production, transmission, system operation, distribution, supply, trading, and enforcement of consumer rights and obligations, Establish a comprehensive integrated resource plan and policy that acknowledges all sources of electricity generation, transmission, and distribution, as well as the incorporation of renewable energy sources into Nigeria’s energy mix, and that aims to attract investments, Prioritize the implementation of tariffs that accurately reflects the cost and services provided, Promote competition in the electricity sector through the use of contracts and rules.
It is crucial to highlight that before the enactment of the Electricity Act 2023, there existed multiple independent legislations about the power sector, which were not consolidated. However, with the enactment into law of the Electricity Act 2023, all these legislations concerning the Nigerian Electricity Supply Industry (NESI) were harmonized and the challenges faced after privatization were all comprehensively addressed.
While the Nigerian Electricity Regulatory Commission (NERC) is retained as an independent regulatory body overseeing the power sector at the federal level.
The consolidation of these electricity-related Legislations led to the repeal of the existing independent multiple legislations and saw to the creation of the National Power Training Institute to be saddled with addressing the concerns and difficulties experienced in the power sector. Under the new electricity regime, both the Nigerian Electricity Management Services Agency and the Rural Electrification Agency (REA) were retainable.
