A simple puzzle posed at Nigerians usually reveals that the Oil and Gas sector is only considered by the majority of the people as a money-making industry; not one in dire need of reforms and repositioning for better performance.
This obvious, albeit wrong, perception of the sector may be simply justified in a situation like Nigeria, where a single sector, among many others of the economy, has survived solely, shouldering the fiscal burden of the government for decades in a manner that seems so seamless.
This has stimulated forgetfulness in our authorities that even as a vehicle meant to drive robust economic growth, the sector will still require an engine in its good condition, well fueled and controlled by someone who has mastered the trade of driving it.
This sums up the case with the Nigerian oil and gas industry today. The ‘easy’ proceeds which is yet not qualified as easy money from the sector have overshadowed the consciousness for the need to always refine its structure and reform its architecture to reflect global dynamics in the sector.
Consequently, the need for aggressive drive towards refocusing the oil and gas industry as a long term strategic tool for national development has never been more pressing for Nigeria as a mono economy depending solely on oil proceeds for about 80percent of government revenue.
This, then, boils down to such issues as the need to pass the Petroleum Industry Bill (PIB) without further delay. Non-passage of the bill has remained a bottleneck to the inflow of investment into the sector. If this assertion is considered irrelevant because of existing investment levels that we already have, how do we meet up with emerging different national and global dynamics of today and tomorrow?
The dillydallying in passage of the PIB alongside various unfavourable fiscal and regulatory frameworks, stakeholders are holding estimated $100 billion worth of projects to ransom in the nation’s oil and gas sector. This must be addressed as quickly as possible to chart the growth path for the sector.
In addition, the country has been shortchanging itself for too long with its lack of functional local refineries. Even if Nigeria was never an oil-producing country, the level of petroleum products consumption in the country should have made a business case for establishment of local refineries.
Note that there are four major refineries in Nigeria, namely; Old Port Harcourt Refinery with capacity to produce 60,000 bpsd, commissioned in 1965; Warri Refining and Petrochemical Company with daily capacity of 125,000 bps, commissioned in 1978; Kaduna Refining and Petrochemical Company, having 110,000 bpsd capacity and commissioned in 1980; and New Port Harcourt Refinery, built with 150,000 bpsd capacity and commissioned in 1989.
Thus, the total installed capacity is 445,000 bpsd. Unfortunately, these plants in the last 15–20 years reportedly had a poor operating record with average capacity utilisation hovering between 15 and 25 per cent per annum; and consequently, 70–80 per cent of the national petroleum products demand is met through import.
For instance, Nigeria imported 19 billion litres of petroleum products in 2019 alone costing more than N1.13 trillion. With this level of consumption and possible rise in coming years, the economy will be denied more benefits from the sector as a long term strategic tool for national development should local refineries remain moribund and as white elephant projects.
Particularly, this will be visible in form of capital and labour flights, as the sector accounts for a paltry 0.01 per cent of employment in Nigeria despite contributing lion shares to government revenue and the country’s foreign exchange wallet.
Although, NNPC’s Port Harcourt refinery ranks third in Africa coming after Algeria’s Skikda Refinery with 356,500 bpsd and Libya’s Ra’s Lanuf Refinery with 220,000 bpsd as first and second on the list, yet this is challenging to Nigeria as Africa’s largest oil producing country, and more so, unbalanced with 80 per cent utilization failure of its old refineries.
It is noteworthy to recognize Dangote refinery’s 650,000-bpsd capacity expected to become operational soon. However, it is still too early to see how this will rescue the country given that the business will run to serve various markets, and most definitely the profitable ones.
Reposition the oil and gas sector is more pressing now because the economy is stagnating, growth is slowing and a recession is imminently dangling upon the global economy like a cloud.
Rising from a recent virtual meeting, experts in the Nigerian oil and gas sector came up with a communiqué, which aptly captures my thoughts on the need to re-invent the sector as a tool for economic prosperity of the country.
The communiqués reads in part: “Crude oil price would eventually stabilise as the global economy gradually picks up this is due to the fact that price volatility is an inherent characteristic of the Oil and Gas industry.”
There is however, a pervasive concern that the nation may not learn from this present experience based on patterns deduced from previous oil price crash scenarios.
The present pandemic-induced economic crisis occasioned by the fall in crude oil price is as a result of obsolete and inappropriate policies that regulate the petroleum industry; lack of ‘will’ by government to use resources from oil and gas to facilitate development of industry value chain & other sectors of the economy; over-dependence on foreign technology; and exportation of raw materials rather than refined products.
Funding of the 2020 national budget in the current crisis is a huge challenge attributed to the fact that Nigeria runs a petro-dollar economy (53 percent revenue of 2019 budget was provided by foreign exchange from oil and gas industry).
The country’s oil and gas industry has not witnessed new exploration in the last decade as critical stakeholders such as investors, host communities and the government remain unsatisfied with the current path the industry threads.
Diversification and re-invention of the economy from a sole petro-dollar source is highly imperative to insulate the country from the effects of future price volatilities.
Without further ado, I believe we are not oblivious of the pressing need to refocus the oil and gas sector to boost Nigeria’s economic future, the questions begging for answers however are: do we have the ‘will’ to take the step? When will it happen?
Olugbenga Abimbola Oredeko
Oredeko is a Drilling Engineer and he works with one of the multinational Oil and Gas companies
