Nigeria’s Energy Boom: Indigenous growth, global impact

Nigeria’s energy sector is experiencing a renaissance, driven by the rise of indigenous oil companies and a renewed focus on policy reforms. This resurgence is particularly evident in the recent activities of Nigerian independents like Seplat, Oando, and Chappal, who are benefiting from the Federal Government’s initiatives to improve the investment climate within the oil and gas industry. These initiatives have earned the government commendation from industry stakeholders.

These independent companies are led by experienced professionals, many of whom are alumni of international oil majors. They stand poised to elevate the industry, offering Nigeria a significant opportunity to achieve its goals of increased oil and gas production, energy security, sustainability, and broader industrial development.

The need for industry reforms has been widely recognised, with stakeholders advocating for addressing long-standing institutional challenges that have hindered growth and competitiveness. President Tinubu, in his capacity as Minister of Petroleum Resources, has demonstrated a commitment to this reform agenda. His issuance of three presidential executive orders in 2024, designed to incentivise energy investments, gas development, and ease of doing business, underscores this commitment.

The government’s recent approvals of divestments involving indigenous companies further exemplify this new approach. These approvals, even following lengthy and costly delays, signal a shift towards supporting investments that can stimulate growth and contribute to Nigeria’s socio-economic well-being. Experts and analysts have voiced their support for these reforms, emphasising the importance of aligning Nigeria with current global oil and gas industry dynamics.

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Olu Verheijen, special adviser on energy to President Bola Tinubu, affirms the President’s commitment to unlocking Nigeria’s abundant energy resources through strategic policy and regulatory frameworks. Verheijen highlights the establishment of a dedicated Energy Office within the Presidency, tasked with designing and implementing reforms to position Nigeria as a leading global investment destination.

“Within weeks of assuming office in May 2023, he (President Tinubu) established a dedicated Energy Office in the Presidency – which I am privileged to lead as his Special Adviser – with a mandate to design and coordinate the implementation of bold reforms to reposition Nigeria as a top global investment destination,” Verheijen stated.

She clarifies that recent divestments by international oil companies (IOCs) represent a strategic shift towards deepwater projects, rather than a complete exit from Nigeria. This move allows a new generation of ambitious local companies to invest in onshore fields and drive production growth.

She declared: “The improved regulatory environment created by these reforms has also helped clear a backlog of pending regulatory approvals for divestments of onshore and shallow water operations by IOCs. Some observers erroneously misread these divestments as an exit by the IOCs from Nigeria, but this is not the case. Instead, it is a strategic shift towards larger scale deepwater projects, freeing up the onshore fields for investment by a new generation of ambitious local companies who are enthusiastic to grow production.

We have a situation in which everyone wins; the IOCs can concentrate on the deepwater fields where they have the needed experience and enthusiasm, the independents can build their expertise on these onshore and shallow water projects, and Nigeria benefits from increased production in as many fields as possible.”

The evolving market dynamics will heavily rely on the capabilities of indigenous firms, with Renaissance identified as a key player, particularly after it acquires Shell’s onshore assets. These companies will be tasked with increasing oil and gas production for both domestic consumption and export. The newly commissioned privately-owned 600,000 MBD capacity Dangote Refinery, along with existing and planned modular refineries such as WalterSmith and Aradel, and the historically problematic government-owned facilities in Port Harcourt, Warri, and Kaduna represent crucial infrastructure for this objective.

Reinforcing the government’s commitment, the Chief of Defence Staff (CDS), General Christopher Musa, recently urged stakeholders to collaborate in achieving the President’s daily production target of 2.5 million barrels per day. He acknowledged recent progress, with current output exceeding 1.8 million barrels per day, but emphasised the need for continued collective effort.

He stated that oil production was critical for the country’s socio-economic development, and regretted that in the past, numerous factors significantly diminished the production output, with dire implications for the economy.

The CDS said, “Recently, significant strides have been made towards ramping up our oil production, as evident in our current output of over 1.8mbpd. This achievement is a testament to the unwavering commitment of all stakeholders here and I commend you all. Notwithstanding the notable achievements, much more collective effort is still required to achieve the overall intent of meeting Mr President’s directives of a production output of over 2.5mbpd.”

These initiatives are expected to yield numerous positive outcomes, including increased oil and gas production and exports, greater foreign exchange earnings, a stronger Naira, higher tax revenues, and improved GDP. They also aim to enhance gas feedstock for power generation, address challenges in the electricity sector, and boost power supply for small and medium-sized enterprises. Furthermore, increased competition in the midstream and downstream sectors could potentially lead to lower prices for petrol and other refined products.

The government’s focus is on ensuring that divested onshore assets are utilised effectively to expand national oil and gas reserves and production capabilities. In line with this objective, the Federal Government has approved five major divestments, with IOCs shifting their focus towards offshore operations. These transactions involve:

· Shell Petroleum Development Company (SPDC) to the Renaissance Group

· Mobil Producing Nigeria Unlimited (MPNU) to Seplat Energy Offshore Limited

· Equinor Nigeria Energy Company Limited to Project Odinmin Investments Limited

· Nigerian Agip Oil Company Limited to Oando Petroleum and Natural Gas Company Limited

· TotalEnergies EP Nigeria Limited to Telema Energies Nigeria Limited

The Renaissance Group’s acquisition of Shell’s onshore assets, valued at $1.3 billion, is considered the most significant of these transactions. Analysts believe that Renaissance, with its experience, workforce, and access to funding, holds the potential to transform Nigeria’s energy sector.

This wave of indigenous companies is stepping in to take over onshore assets from multinationals who are focusing on deepwater projects. This transition occurs amidst concerns about the government’s ability to meet its crude oil supply obligations (300,000 barrels per day) to the Dangote Refinery due to pre-existing commitments unless there is a significant increase in domestic oil output.

Despite these challenges, other refinery projects are underway, including the 200,000 barrels per day BUA crude oil refinery in Akwa Ibom which is expected to produce Euro-V fuels, including diesel, petrol, jet fuel, and polypropylene, as does the Dangote project.

Minister of State for Petroleum Resources, Heineken Lokpobiri also recently disclosed that a South Korea consortium has concluded plans to build four 100,000-barrel capacity refineries in various locations in Nigeria. These developments, if effectively coordinated, could significantly reshape Nigeria’s position in the global oil market, boosting foreign exchange earnings and reducing import dependence.

A general consensus exists that these divestments mark a pivotal moment for Nigeria. Indigenous companies have the opportunity to sustainably grow capacity, increase local participation, attract investments, and accelerate technology transfer. This will ultimately benefit Nigeria and its people, driving growth and development in the energy sector and beyond.