The investment environment of Nigeria’s oil sector has fallen to its lowest ebb, even as the country’s production outlook has not appeared as uncertain as it does now, global investment banking firm Renaissance Capital (RenCap) and Fitch Solutions, an affiliate of global rating agency, Fitch have said.
In separate reports of Nigeria’s oil and gas sector, RenCap and Fitch raise doubt about Nigeria recording any significant investments in the coming years despite the new Petroleum Industry Act (PIA).
Both reports admitted the PIA has improved fiscal terms across all terrains, but its implementation is slow, a development that has translated to a near halt of upstream investment across all terrains since the pandemic’s outbreak.
According to a new report by RenCap, Nigeria’s oil sector is facing an unprecedented level of under-investment, with declines reflecting a near halt of upstream investment across all terrains since the pandemic’s outbreak.
It noted that most of the production operatorship control in most of Nigeria’s oil fields is set to change hands in onshore and shallow terrains, creating uncertainty with regard to future investment.
“To some extent, the under-investment theme is consistent with other hydrocarbon provinces (in both emerging and developed markets), due to oil and gas financing drying up globally and societal pressures towards decarbonisation driving the investment budgets of the majors and E&Ps alike,” RenCap added.
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Concerning Nigeria’s environment, RenCap said, “the combination of punitive fiscal terms and fiscal uncertainty deterred investment in both upstream development and exploration, especially in onshore and shallow offshore terrains.”
Also, Fitch projected the poor performance of the oil sector, which is Nigeria’s key foreign exchange earner, would keep headline growth weak over the coming years.
“While the PIA will create a more stable operating environment, we doubt that it will have a significant effect on investment this year. It will take time for foreign firms to launch any new projects,” Fitch stated.
The report projected that the poor performance of the oil sector, which is Nigeria’s key foreign exchange earner, would keep headline growth weak over the coming years.
The rating agency said, “We expect that real GDP growth will average just 2.9 per cent between 2023 and 2026. Headline growth will be even weaker in per capita terms. Given the rapid pace of population growth in Nigeria, we expect that average incomes will continue to stagnate.”
However, despite the slowdowns, Fitch predicted that economic growth in Nigeria would pick up slightly from an estimated 3.1 per cent in 2021, to 3.5 per cent in 2022, primarily driven by increased oil production, which will boost export growth. But the firm stated that it expected that growth would slow to 2.9 per cent in 2023, and over the medium term, that the combination of poor economic performance and rapid population growth per capita income would essentially stagnate.
Accordingly, Fitch solutions predicted that the volume of Nigeria’s oil production would rise by 4.1 per cent in 2022, which would be a significant improvement compared to 2021, when it estimated that output fell by 8.1 percent as a result of low investment and OPEC+ cuts.
The report said, “But with the OPEC+ agreement now ending, we think that output will rise, though it will remain below the recent peak recorded in 2020.
