Oil & Energy
Challenges And Prospects In Nigeria’s Petroleum Industry
Precisely on Sunday, Jan. 15, 1956, Shell D’Arcy Petroleum discovered oil in commercial quantity in Oloibiri in the present day Ogbia Local Government Area of Bayelsa State.
The discovery elicited a carnival-like celebration as it effectively jump-started the development of modern Nigeria, utilizing the vastness of its oil resources.
By the early 1970s, crude oil exploration had reached its peak as an estimated two million barrels of crude oil were produced from the nation’s oil fields daily.
By divine Providence somehow, a son of the Niger delta region of the country , President Goodluck Jonathan, who was barely a year old at the time of the oil discovery — has today become the nation’s Head of State, presiding over the management of the nation’s oil resources, among others.
The occasion of the nation’s 51st independence anniversary has thus afforded perceptive analysts the opportunity to appraise the continued relevance of petroleum resources to the nations’ development despite daunting challenges.
The Group General Manager, Public Affairs Dept., NNPC, Dr Levi Ajuonuma, said recently, for instance, that the efficient management of the petroleum industry had been the key to the economic development and transformation of the nation.
How far this viewpoint goes with Nigeria’s teeming population of analysts is a matter for conjecture but suffice it to say that, no doubt, crude oil remains the highest contributor to the nation’s Gross Domestic Product (GDP).
By a conservative estimate, the contribution of the oil sector is put at 90 per cent, even as Nigeria’s crude oil is highly rated in the international oil market, besides the country being a key player in the affairs of the Organisation of Petroleum Exporting Countries (OPEC) – the club of world’s oil producers and exporters.
While many Nigerian have viewed crude oil discovery as a blessing for the nation, some critics say that it heralded some national drawbacks, especially the drastic decline of agriculture, which had before the discovery of oil been the mainstay of the nation’s economy.
Clearly, therefore, the sector has played a dominant role in Nigeria’s economy as it now accounts for about 90% of her gross earnings. This dominant role has regrettably pushed agriculture, the traditional mainstay of the economy in the early fifties and sixties, to the background.
Since the 1950s when the export of oil started, Nigeria has gradually emerged as a major world supplier of crude oil and an influential member of the Organization of Petroleum Exporting Countries (OPEC).
No doubt, the vast earnings from crude oil has facilitated infrastructural development in the country as well as improved the living standards of the people, though some critics say that more could have been achieved if the revenues from the sector had been judiciously utilized by the nation’s successive leaders since the oil boom years.
Critics have been quick to point to the perceived neglect and the environmental degradation of the Niger Delta region of the nation, where the nation’s oil wealth is derived.
Such discontentment, analysts say, inevitably bred the youth restiveness, insecurity and all manner of social upheavals which plagued the region until very recently.
These, adversely affected the nation’s oil flow and export and by implication led to a downward trend in the nation’s revenue earnings.
The upheavals, nevertheless, culminated in the inception of the Amnesty Programme for Niger Delta militants by the Federal Government under late President Umaru Yar’Adua, which is still ongoing and providing some kind of succor to the aggrieved youths and communities in the area.
Though oil production in the region has picked up since a relative stability has returned to the Niger delta region, the price fluctuations in the international oil market have often created some economic problems for member nations of OPEC, including Nigeria.
Such price instability and security threats in the region have posed serious economic challenges to the country, even as some economists have asked the Federal Government to strive to diversify the economy by reviving the nation’s agricultural sector, which had been neglected.
“The epileptic shifts in the international oil prices and instability in the Niger delta region have made the nation’s economy very vulnerable,” said an economist, Dr Johnson Abejide.
Observers say that despite the multi-billion dollar investments and infrastructural development the sector has attracted over the years, it remained a paradox that the country’s poverty index is still embarrassing to the citizens.
Stakeholders in the oil sector of the economy have alluded to wide-scale corruption and inefficiency in the petroleum industry over the years, which negated the people’s expectations of development from the huge proceeds from crude oil sales.
“There have been lack of transparency, accountability and non-implementation of reforms in the sector over the years and this has limited the nation’s potential in the sector,” said Abejide. That Nigeria has subscribed to the protocols of the Extractive Industries Transparency Initiative, a global organization seeking transparency and efficiency in governance, is somewhat of a development welcomed by many citizens.
In April last year, President Jonathan signed into law the Nigerian Local Content Development Act, which among other things, seeks to develop the indigenous content of the oil sector, with a view to boosting the economic development of the nation. “Expenditure in the industry must transcend returns in terms of revenue and also translate to local capacity, increased technology growth, jobs for Nigerians, capacity to operate and maintain assets and develop critical facilities and infrastructure to support performance of work scopes in Nigeria’’ Jonathan had said.
As one of the immediate gains of the act, the use of made-in-Nigeria pipes for pipeline installations by oil companies is on the ascendancy and this, analysts insist, is capable of enhancing job opportunities in the country. The Minister of Petroleum Resources, Mrs Diezani Alison-Madueke, on her part has vowed to continue with the reforms she initiated in the oil industry, with a view to moving the nation’s economy forward.
Industry analyst express the viewpoint that the strict implementation of all enabling laws for the oil industry, and in particular, the passage of the Petroleum Industry Bill (PIB), still pending at the National Assembly, will go a long way to transforming the petroleum sector for the development of the nation.
As Nigerians continues to celebrate her 51st independence anniversary, stakeholders in the industry challenge the Federal Government to develop the political will to strictly enforce all laws in the industry and thus plug all loose ends the exist.
Jimoh writes for News Agency of Nigeria.
Muyideen Jimoh
The Federal Government has expressed optimism in attracting more investments by International Oil Companies (IOCs) into Nigeria to foster growth and sustainability in the energy sector.
This is as some IOCs, particularly Shell and TotalEnergies, had announced plans to divest some of their assets from the country.
Recall that Shell in January, 2024 had said it would sell the Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance.
According to the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, increasing investments by IOCs as well as boosting crude production to enhancing Nigeria’s position as a leading player in the global energy market, are the key objectives of the Government.
Lokpobiri emphasized the Ministry’s willingness to collaborate with State Governments, particularly Bayelsa State, in advancing energy sector transformation efforts.
The Minister, who stressed the importance of cooperation in achieving shared goals said, “we are open to partnerships with Bayelsa State Government for mutual progress”.
In response to Governor Douye Diri’s appeal for Ministry intervention in restoring the Atala Oil Field belonging to Bayelsa State, the Minister assured prompt attention to the matter.
He said, “We will look into the issue promptly and ensure fairness and equity in addressing state concerns”.
Lokpobiri explained that the Bayelsa State Governor, Douyi Diri’s visit reaffirmed the commitment of both the Federal and State Government’s readiness to work together towards a sustainable, inclusive, and prosperous energy future for Nigeria.
While speaking, Governor Diri commended the Minister for his remarkable performance in revitalisng the nation’s energy sector.
The Federal Government has assured investors in the nation’s gas sector of the security and safety of their investments.
Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, gave the assurance while hosting top officials of Shanghai Huayi Energy Chemical Company Group of China (HUAYI) and China Road and Bridge Corporation, who are strategic investors in Brass Methanol and Gas Hub Project in Bayelsa State.
The Minister in a statement stressed that Nigeria was open for investments and investors, insisting that present and prospective foreign investors have no need to entertain fear on the safety of their investment.
Describing the Brass project as one critical project of the President Bola Tinubu-led administration, Ekpo said.
“The Federal Government is committed to developing Nigeria’s gas reserves through projects such as the Brass Methanol project, which presents an opportunity for the diversification of Nigeria’s economy.
“It is for this and other reasons that the project has been accorded the significant concessions (or support) that it enjoys from the government.
“Let me, therefore, assure you of the strong commitment of our government to the security and safety of yours and other investments as we have continually done for similar Chinese investments in Nigeria through the years”, he added.
Ekpo further tasked investors and contractors working on the project to double their efforts, saying, “I want to see this project running for the good of Nigeria and its investors”.
Earlier in his speech, Leader of the Chinese delegation, Mr Zheng Bi Jun, said the visit to the country was to carry out feasibility studies for investments in methanol projects.
On his part, the Managing Director of Brass Fertiliser and Petrochemical Ltd, Mr Ben Okoye, expressed optimism in partnering with genuine investors on the project.
Crude oil prices recently logged their second monthly gain in a row as OPEC+ extended their supply curb deal until the end of Q2 2024.
The gains have been considerable, with WTI adding about $7 per barrel over the month of February.
Yet a lot of analysts remain bearish about the commodity’s prospects. In fact, they believe that there is enough oil supply globally to keep Brent around $81 this year and WTI at some $76.50, according to a Reuters poll.
Yet, like last year in U.S. shale showed, there is always the possibility of a major surprise.
According to the respondents in that poll, what’s keeping prices tame is, first, the fact that the Red Sea crisis has not yet affected oil shipments in the region, thanks to alternative routes.
The second reason cited by the analysts is OPEC+ spare capacity, which has increased, thanks to the cuts.
“Spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months”, senior analyst, Florian Grunberger, told Reuters.
The perception of ample spare capacity is definitely one factor keeping traders and analysts bearish as they assume this capacity would be put into operation as soon as the market needs it. This may well be an incorrect assumption.
Saudi Arabia and OPEC have given multiple signs that they would only release more production if prices are to their liking, and if cuts are getting extended, then current prices are not to OPEC’s liking yet.
There is more, too. The Saudis, which are cutting the most and have the greatest spare capacity at around 3 million barrels daily right now, are acutely aware that the moment they release additional supply, prices will plunge.
Therefore, the chance of Saudi cuts being reversed anytime soon is pretty slim.
Then there is the U.S. oil production factor. Last year, analysts expected modest output additions from the shale patch because the rig count remained consistently lower than what it was during the strongest shale boom years.
That assumption proved wrong as drillers made substantial gains in well productivity that pushed total production to yet another record.
Perhaps a bit oddly, analysts are once again making a bold assumption for this year: that the productivity gains will continue at the same rate this year as well.
The Energy Information Administration disagrees. In its latest Short-Term Energy Outlook, the authority estimated that U.S. oil output had reached a record high of 13.3 million barrels daily that in January fell to 12.6 million bpd due to harsh winter weather.
For the rest of the year, however, the EIA has forecast a production level remaining around the December record, which will only be broken in February 2025.
Oil demand, meanwhile, will be growing. Wood Mackenzie recently predicted 2024 demand growth at 1.9 million barrels daily.
OPEC sees this year’s demand growth at 2.25 million barrels daily. The IEA is, as usual, the most modest in its expectations, seeing 2024 demand for oil grow by 1.2 million bpd.
With OPEC+ keeping a lid on production and U.S. production remaining largely flat on 2023, if the EIA is correct, a tightening of the supply situation is only a matter of time. Indeed, some are predicting that already.
Natural resource-focused investors Goehring and Rozencwajg recently released their latest market outlook, in which they warned that the oil market may already be in a structural deficit, to manifest later this year.
They also noted a change in the methodology that the EIA uses to estimate oil production, which may well have led to a serious overestimation of production growth.
The discrepancy between actual and reported production, Goehring and Rozencwajg said, could be so significant that the EIA may be estimating growth where there’s a production decline.
So, on the one hand, some pretty important assumptions are being made about demand, namely, that it will grow more slowly this year than it did last year.
This assumption is based on another one, by the way, and this is the assumption that EV sales will rise as strongly as they did last year, when they failed to make a dent in oil demand growth, and kill some oil demand.
On the other hand, there is the assumption that U.S. drillers will keep drilling like they did last year. What would motivate such a development is unclear, besides the expectation that Europe will take in even more U.S. crude this year than it already is.
This is a much safer assumption than the one about demand, by the way. And yet, there are indications from the U.S. oil industry that there will be no pumping at will this year. There will be more production discipline.
Predicting oil prices accurately, even over the shortest of periods, is as safe as flipping a coin. With the number of variables at play at any moment, accurate predictions are usually little more than a fluke, especially when perceptions play such an outsized role in price movements.
One thing is for sure, though. There may be surprises this year in oil.
lrina Slav
Slav writes for Oilprice.com.
