Government lethargy and Nigeria’s underperforming oil sector

Nigeria’s oil and gas sector which used to be the brightest spot in the economy, helping to fuel growth and employment is now in decline and underperforming as other fast growing sectors leave it behind.

The stark reality of this can be seen in the bureau of statistics rebased GDP figures which show that the value of oil and gas production for 2013 declined to N11.55 trillion post rebasing compared to N13.75 trillion in the old data series.

It was one of the few areas where total measured output and the sector as a percentage of GDP both fell post rebasing.

Oil’s contribution to GDP fell to 14.4 percent from as high as 32 percent earlier.

This compares with telecoms which rose to 8.7 percent of GDP from less than 1 percent in the earlier series; with total output for telecommunications also rising to N6.9 trillion in 2013 from N364 billion in the old GDP time series.

Government interference and lethargy as growth inhibitor

The Nigerian Governments interference in the oil sector as well as its inexplicable lethargy in passing the Petroleum Industry Bill (PIB) is perhaps the greatest growth inhibitor for the sector.

Other factors threatening the sectors growth include an upsurge in crude oil thefts and force majeures, resulting in frequent production shutdowns and massive oil leakages.

While Nigeria is still Africa’s largest oil producer with an average output of 1.9 million bpd in 2013, the country’s oil production may fall by 40 percent by 2020 without
new investment over the next 10 years if the government fails to provide a conducive investment environment a senior official of ExxonMobil’s Nigerian producing unit said in last year.

Investment of at least $28 billion in Nigeria’s oil sector has been lost or deferred since 2010 as a result of non passage of the PIB with the beneficiaries being other producers in the sub-region such as Angola and Ghana, according to estimates from the Senate committee on the upstream oil industry.

Nigeria’s target of producing 4.0 million barrels a day of crude oil and having 40 billion barrels in reserves by 2020 will remain a mirage, unless the country reverses the significant lack of investments by oil majors.

The problem is again evident as Angola an upstart in oil exploration and production which just emerged from a civil war may eclipse Nigeria as Africa’s largest oil producer.

Total’s is investing $16 billion in the Kaombo oil project in ultra-deep waters off the coast of Angola.

Kaombo has estimated reserves of 650 million barrels of oil and a projected daily output in the vicinity of 230,000 bpd.

A further 300,000 bpd is about to come on stream over the next 18 months from other projects in the basin.

One of them, CLOV – operated by Total in Block 17 – is expected to start extraction in May 2014 and will likely yield 160,000 bpd, according to Moody’s.

Excluding Kaombo, these projects alone are likely to propel Angola’s total oil output to two million bpd by the end of 2015. Kaombo will ensure that production remains above 2 million bpd until 2020,

The Nigerian government should shake off its perplexing lethargy and take the growth of one of the key sectors more seriously like the Angolan the government, which has auctioned several licenses for rights to explore pre-salt blocks, of which seven discoveries have already been made.

PATRICK ATUANYA & BALA AUGIE