Oil & Energy
Oil Gas As Critical Areas To Nigeria’s Economic, Social Performance
Oil alone accounts for 40 pre- cent of the country’s GDP, 70 per cent of budget revenue, and 90 per cent of foreign exchange earnings.
With 18 operating pipe
lines and an average daily production of some 1.8 million barrels in 2020, Nigeria is the eleventh largest oil producer worldwide. The petroleum industry accounts for about nine percent of Nigeria’s GDP and for almost 90 percent of all export value.
Nigeria’s dependence on petroleum is much greater than that of many other major producing countries.
Players in the oil and gas environment have said that the industry in Nigeria in the last eight years remains the worst.
They say nearly every measure of industry performance has run against the sector in the last decade.
According to them the level of insecurity, subsidy issues, employment, revenue access, have headed for the worst.
A private sector player in the oil and gas environment, Mr. Emeka Nwaneri, noted that some positives have been recorded in the last eight years, especially the passing of the Petroleum Industries Bill (PIB) in to law.
He regrets, however, that since the bill was eventually passed, it has not translated into the realities of increasing the activities in the oil and gas sector.
He noted that the most recent one is the removal of fuel subsidy, which he stated, was greatly impacting on the economy and oil and gas sector that operates in the economy.
According to him, “organisations like ours run generators 24 hours in our various locations and with the removal of the subsidy, it’s going to increase our realising the fact that the cost of diesel has gone up tremendously in the last two years.
“Between 2018 and 2010 deisel was being sold for N150 per litre, for today, the cost of diesel is over N800 per litre. The impacts of petrol is that some of our operations that we use petrol will also be impacted.
“Now we are getting fuel at not less than N520 if it is not in the NNPC stations. So, invariably, the cost of our services will jump up and our clients do not know how much they are able and willing to accommodate, so it is invariably going to impact on our profit line as it increases our cost of production, which would invariably lead to job loss”.
Nwaneri explained that when cots of production becomes too high, the business owners look for windows to reduce cost and one of the ways is reducing labour costs.
He said, “it might affect employment in the sense that the employer might see the cost of labour as a quick substitute to cushion the effects of the cost of petrol. So, when workers are affected in terms of laying off workers, then generally it will impact on the economy and the workforce”.
Another positive for the oil and gas sector is the convertion of some flared gas into domestic use. However, this has also not translated to low prices of gas, he noted.
He stated that this has a challenge of leadership in Nigeria, “there has always been the issue of transparency and accountability. Of a truth, the fuel subsidy happens to be a huge cost to government.
“However, we have also seen situations where money is borrowed from various bodies and this monies instead of improving on infrastructure are diverted into private pockets.
“Just recently, I read about the case of the Central Bank of Nigeria (CBN) Governor spending well over N5.2 billion to produce N2.1 billion. It doesn’t make any economic sense.
“So, it means that when you are undertaking a project like the currency swap, it was meant to be undertaken at a minimal value. It is expected that it shouldn’t have cost more than the value of the currency we are exchanging.
“So, if we’re going to get a new currency at N2.4 or N2.1 billion as the case maybe, the total cost of getting that should not even get to N1 billion.
“I’m not relating this to oil subsidy, but government has said that there’s going to be a lot of savings that is going to cushion the effect of governance, but because of past antecedents and real analysis that has been done, the public is not convinced that the subsidy removal will translate into the economic well-being”.
He explained that there were ways the government could do it such that it does not adversely affect the people if the government was sincere.
“If the government is sincere, there are ways they can do it in such a manner that the common man on the street will begin to see the positive impact of the subsidy removal.
“First, is providing an employment support for those that are not employed. Secondly, ensuring that there is steady power in the country, where you don’t need to use generator to generate private power.
“If there is adequate power supply, you don’t need to buy fuel to run your own private power generating set, then you’ll be saving so much cost and also the government needs to look at the common masses that are not even employed with either the government or private sector.
“They are self-engaged, they have their own small private companies so they need to survive and the government needs to look into how to translate the benefits to them”, he added.
For Mr. Patrice Onogu, CEO, Fracserve Africa Ltd. “the past eight years in Nigeria, the oil and gas industry, has been suffering and smiling, even as you have got the PIB Act signed.
“Yeah, it’s a good thing it has been there for many years, but unfortunately it was together only a few months back and it was signed into law, it’s a good thing but unfortunately again, the International Oil Companies (IOCs), those are the international investors, seem not to be very receptive about that, so in one hand it has affected the industry.
“Secondly, instability in terms of foreign exchange made a lot of oil companies, that is the IOCs, not to invest in the sector and that has really cost so much in terms of job loss and economywise. So, all those put together have not really made the sector to fare very well”.
Additionally, he said the removal of Fuel Subsidy means different things to different people, “the oil subsidy removal is different strokes for different people: you know, some people are happy, some people said no it is bad, while some people argue that we do not really have oil subsidy”.
Onogu stated that the Managing Director, NNPC, Mele Kyari, claims that within a few weeks of subsidy removal, the nation made trillions of naira, wondering who is who?.
He corroborated the previous respondent that, “employees are going to suffer because now officially things will skyrocket, prices will go up, landlords will hike their rents, the average food seller in the market will increase their prices and it’s not going to go well for an average employer or employee”.
He emphazised that there would certainly be job loss, noting the economy had not picked up “before this bang happened”.
He observed that there were countries, including Dubai, which produces more crude than Nigeria, where petroleum products are not cheaper, “but the thing is because of the fraud that is involved in our own scenario, it makes it a lot different, but people are arguing, which is also a very valid point that if we had had the palliative in place, the rail system working, the bus system working, power sector working, and you increase it there’s no problem.
“An average hairdresser now will hike the price from 500 to 1000 because of petrol, they don’t have power regularly. So, definitely the multiplier effect is going to be huge. There’s no doubt about that”.
He also complained about the poor condition of the roads, saying, “the condition of the roads have always been an issue. You know the tanker drivers, today they are on strike, tomorrow they have called off, because either the police is harassing them on the road or their trunks are falling off the road plus cost of maintenance and replacement of tires. So, if the Federal Government would fix the roads that will be great”.
He suggested the use of rails and flow stations to get petroleum products to other parts of the country for ease of transportation and product security and safety of the populace.
Miss Jessica Uzonwanne, a dealer in fabric in Port Harcourt, complained about the hike in transportation, saying that prices have more than doubled, which has affected the price of commodities.
She said, “everything has gone really high it is surely going to affect everything. For us in the fabric markets we just have to sell off our goods because it’s not something you would keep, fashion keeps changing and so we must sell with very little profit margin.
“If you add too much, your customers will just complain that the price is too high and you find yourself losing customers and losing business, which will likely lead to you closing shop.
Uzonwanne also said the cost of running generator has also doubled as the price of fuel has gone up from N87 to N 520 in the last eight years.
According to her, “cost of running generator now is very high as against previously when we can just buy one or two liters with little money, but now we have to budget seriously for private power generation and it’s not funny.
Another respondent, Cheif Executive Officer, Tinafac limited, an Oil and Gas logistics company, Mr. Timikeyi Bubagha, simply said “in the last eight years, everything has been crazy: cost of doing business has increased tremendously, especially for the past 2 weeks, everything has skyrocketed.
“Formally, for a truck to enter into Port Harcourt from Onne Port, it would cost N230, 000, but today it is N350,000.
Bubagha noted that the incessant increases in price of petroleum products in the last eight years have made nonsense of the ease of doing business policy in the country: “the hike in the fuel prices have terribly affected our businesses, because currently, so many companies are now thinking of buying their own trucks and doing their trucking themselves so you can imagine how many jobs and businesses that will be lost in the industry”.
He observed that with the high cost in transportation business, the workers in the industry would be asking for a raise, noting that they also pay transport to work.
“However, Bubagha pointed out that if the employer is not able to accommodate such raise in salaries, they would downsise”, which he stated, would lead to increase in unemployment.
He called on the authorities concerned to quickly do something, especially in multiple taxation, “because you pay for a lot of things so many taxes, so many things that we pay for.
“For instance, we pay heavily for private power generation. If we stay 10 hours in the office per day, we use diesel throughout and we all know the impact of that on business owners.
“You buy fuel for logistics vehicle, for your personal car, for generator both at home and work place. This is utterly crazy if you ask me. If they can give us light for 15 hours per day, it will help us in our business.
“Oh, and the roads are so bad that they affect us in so many ways. The other day an importer was coming into Port Harcourt with a trailer load of bathroom wares and because of the poor condition of road, the trailer tipped and fell over and all the bathroom wares fell out that were shattered. That importer has lost millions of Dollars.
“So, two most important things the government must do is to fix our electricity supply and fix our roads”, he suggested.
By: Soibi Max-Alalibo &Tonye Nria-Dappa
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.