As global oil prices edged-up to the highest mark since 2014 when Goodluck Jonathan was President, Nigeria is struggling to swing the rally in its favour due to the inability to attract investments for active exploration and perennial operational issues that have curbed production.
Typically, Nigeria, a country of about 210 million people, facing both a revenue crunch and a debilitating foreign exchange shortage would be celebrating with Brent crude trading above $88.69 on Wednesday. This is after the disruption to the Iraqi oil movement took out crucial supplies from an already tight market.
This development is expected to help the three levels of government earn more money, shore up the nation’s foreign debt position and inadvertently strengthen the stability of the exchange rate.
But the dynamics of oil are much deeper.
“Current oil rally means nothing because Nigeria’s oil production is bleeding over 1 million barrels per day,” Joe Nwakwue, former chairman of, Society of Petroleum Engineers (SPE), told BusinessDay.
Although data from the central bank reveal Nigeria earned about $11.3 billion from crude oil and gas exports in the third quarter of 2021 when oil prices averaged $75 per barrel, the country’s crude oil production has been languishing at only two-thirds of its full capacity, especially many of its large oil fields in the Niger Delta.
The country told OPEC that its oil output lost about 78,000bpd, leading to 1.19 million bpd in December, according to the cartel’s latest report released on January 18, 2022.
Dolapo Oni, an international oil and gas expert familiar with Nigeria’s petroleum industry, says Nigeria’s top 10 oil fields over the last decade have shed over 25 percent of output.
“These top oil fields were mostly replaced with many smaller oilfields, which were not fully optimised, therefore not sustainable,” Oni states in a tweet.
OPEC’s data also show Nigeria’s rig count declined further in December 2021 to six from seven recorded in November 2021.
On a quarterly basis, the rig count averaged 10 units in Q3 ‘2021 but fell to seven in Q4 ‘2021 to average seven units in 2021, which is considerably farther away from the 16 units recorded in 2019 and 11 units recorded at the height of the pandemic in 2020.
“When was the last time a 100,000 barrels field came online in Nigeria?” Oni asks.
Experts say most of Nigeria’s oil fields are currently facing challenges ranging from purely oil-related supply disruptions and oil spills to just casual violence making it really hard for oil companies to maintain a solid Environmental, Social, and Governance (ESG) profile there.
In one of the most recent episodes of the latter, a group of forestry specialists contracted by the Italian major ENI were shot as they were working on a mangrove restoration project in Bayelsa State while trying to remediate the negative environmental impact of oil production.
“The sad twist to our above-ground issues is that we’re likely to see $100 oil again soon and we might not enjoy it as much as if we had our 2.4 million bpd back,” Kelvin Atafiri, who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector, states.
Findings by BusinessDay also reveal demand for Nigerian grades has waned over the course of this year due to incessant disruptions.
For instance, ever since Brass River exports were jeopardised by a pipeline explosion in November 2020, exports levels dropped from their previous level of 100,000bpd to an average of 50,000bpd, despite ENI (the field operator) allegedly repairing all damages last year.
For no apparent reason, further findings show loadings from the Erha FPSO stopped for almost two months last October-November and still do not look particularly convincing.
“Forcados experienced a month-long disruption earlier in H2 2021, proving that Nigeria’s recurring difficulties of maintaining stable production come from systemic faults that are not just merely unrelated ad-hoc events,” Atafiri said.
Despite current production travails, Nigeria is right in the middle of implementing all the regulatory changes stipulated by the Petroleum Industry Act (PIA).
“The PIA overhauls how companies in the sector are taxed and introduces a more progressive fiscal structure, emphasising royalties over profits. However, operating costs for onshore and shallow-water basins in Nigeria are high, exacerbated by instability,” an analysis from the Economist Intelligence Unit notes.
Read also: Brent oil hits highest since 2014, here’s why
Two months ago, the Federal Government also created two new regulatory agencies such as the Upstream Regulatory Commission (NURC) and the Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).
“Progress on arguably the hardest part of revamping Nigeria’s notoriously opaque oil industry, the creation of a leaner and more transparent national oil company from NNPC is difficult to gauge,” Gerald Jansen, an independent freelance energy analyst based in Rotterdam, the Netherlands, states.
He notes that oil majors are still wary that the new NNPC might unilaterally write off debts collected over a substantial time horizon, though Nigerian authorities insist that it would include them on the new entity’s balance sheet.
But global rating agency, Fitch Ratings, says the impact of the newly signed Act will depend on details of implementation, and “the bill is unlikely to have a significant near- to medium-term impact on Nigeria’s creditworthiness.”
Fitch adds, “We expect the PIA could boost oil-sector investment, helping to stabilise the sector, which has long suffered from underinvestment and potentially reverse the downward trend in oil production.”
Beyond lower oil production, Nigeria has not been able to get the full benefits of rising oil prices because a large portion of the revenues it gets from there are used in paying for huge petrol subsidy.
To put this in proper context, in the first 11 months of 2021, subsidies rose to N1.16 trillion, according to the latest data from the Nigerian National Petroleum Company (NNPC) Limited.
With public revenues at dangerously low levels and lower production output, stakeholders say the Federal Government must overcome its inertia, safeguard critical infrastructure, and pull out of the downstream oil sector to concentrate on its security and regulatory roles.
