Nigeria’s oil sector stands at a precipice

The revelation that Nigeria’s National Petroleum Company Limited (NNPCL) lacks the funds to overhaul its crumbling pipeline infrastructure underscores the deep dysfunction within the country’s energy sector. At the 2024 Energy and Labour Summit, Nigeria’s Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, offered a stark assessment: pipelines, many dating back to the 1960s and 1970s, have become a significant vulnerability in the nation’s energy security.

Nigeria’s oil sector has long been crippled by inefficiency, corruption, and mismanagement, allowing critical infrastructure to deteriorate. Despite the potential to produce over 1.7 million barrels of crude oil daily, the country struggles not with production but evacuation. The pipelines, corroded and long past their lifespan, have become prime targets for vandals, compounding losses in an already embattled industry.

Read also: Nigeria’s oil sector turns ghost town as FDI vanishes

Lokpobiri’s solution—a shift toward public-private partnerships (PPPs)—is not new. The call for private sector intervention to salvage public infrastructure reflects a broader failure of governance. Successive administrations have failed to develop a sustainable strategy for managing Nigeria’s oil wealth. Now, the government turns once again to external investors to make up for decades of neglect.

 “The pipelines, corroded and long past their lifespan, have become prime targets for vandals, compounding losses in an already embattled industry.”

But Nigeria’s track record in attracting foreign investment remains bleak. Investors are wary of a landscape marred by political instability, policy inconsistency, and systemic corruption. While Lokpobiri’s optimism is notable, the reality is that without fundamental changes to Nigeria’s investment climate, new partnerships may fare no better than past efforts.

Adding to the complexity is the ongoing smuggling of fuel across Nigeria’s borders. Lokpobiri noted that NNPCL’s practice of importing petrol below cost effectively subsidises smuggling operations. It is an indictment of the country’s internal controls that security forces, many complicit in these illegal activities, enable the bleeding of national resources. Smuggling not only deprives Nigeria of much-needed revenue but also destabilises its energy supply chain.

Meanwhile, the challenge of supplying crude to domestic refineries, including the much-anticipated Dangote Refinery, looms large. Without significant increases in production, these refineries risk underutilization, forcing Nigeria to continue relying on imported refined products, even as it struggles to maintain its status as a leading crude exporter. The irony is painful: a nation rich in energy resources is unable to meet its own needs due to systemic inefficiencies.

The administration’s ambition to ramp up production for both local refineries and international markets will face significant hurdles. While recent improvements in output are commendable, they are insufficient to meet the needs of a growing economy and an energy-hungry continent. Supporting local refineries is undoubtedly a step in the right direction, but it requires more than rhetoric. The government must ensure that the necessary feedstock is available and that the refineries are equipped to process it efficiently.

Read also: Platform Petroleum sees PIA changing investment climate in Nigeria’s oil sector

Nigeria’s oil sector is at a crossroads. The potential for revitalization is undeniable, but it hinges on factors that have long eluded the country. Genuine political will is essential. The government must prioritise the oil sector as a strategic asset, free from the shackles of corruption and mismanagement. Significant investment is equally crucial. Attracting both domestic and foreign capital requires a stable and predictable investment environment, something that has been lacking for far too long.

A reckoning with the structural issues plaguing the industry is long overdue. Addressing the root causes of pipeline vandalism, improving security, and reforming the regulatory framework are indispensable steps. Transparency, accountability, and efficiency must form the backbone of these reforms.

Until the government demonstrates a tangible commitment to these changes, Lokpobiri’s vision of a resurgent oil sector will remain a distant dream. The time for rhetoric has passed. Decisive action and concrete results are now imperative. The future of Nigeria’s economy and its energy security depend on it.