• Thursday, July 25, 2024
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2015 Nigerian oil and gas industry outlook


Prediction is difficult especially if it’s about the future” – Niels Bohr

The oil and gas industry seems to take much delight in mocking forecasters and ‘experts’. Consider the credibility that have been damaged around forecasts on peak oil, US production decline, crude oil and gas prices, frontier discoveries. The industry both globally and locally is very dynamic making projections about the immediate future a hard task.

In Nigeria, the combination of unstable crude oil prices and a potentially keenly-contested national election throws into the mix other factors that exacerbate policy and market uncertainties in the near term. However, it’s still prudent to ponder the issues that would shape the oil and gas industry in Nigeria in 2015.

Crude oil prices

The remorseless slide in crude oil prices of recent months once again reminds stakeholders that the determination of crude oil prices is not solely dependent on demand and supply fundamentals. Supply glut, geo-politics, US Fed Quantitative easing have all been adduced for the price descent. Would any of these factors significantly change in 2015 to reverse the slide? Sans all the exogenous variables, the price of oil is supposed to be determined by the marginal cost of extraction. What’s the global marginal cost of extraction? Experts do not have a consensus. Ergo, to address the uncertainties around the prices of oil, stakeholders, investors, service firms (especially local firms) might need to adjust offerings to the new realities but craft agreements that are flexible enough to benefit from the possibility of price upsides or gyrations. We might still get $70/barrel in 2015, though that might be too optimistic given the current situation.

Nigerian independents

Years 2010 – 2014 were the years of the Nigerian Independents as most rose on the wings of IOC divestments to establish strong footholds in the industry. Different financing methods, development stage of assets and corporate governance profile means that some are more capable of surviving the impending challenges of 2015 than others. Many of the independents acquired the assets at what some experts regarded as market premium even in an $80/bbl market but at today’s prices, those purchases might now be regarded in retrospect as egregious. Also note that most of the Independents especially the ex-IOC class are non-operating partners.

If the low oil prices persist, we should expect a raft of debt restructuring, refinancing and divestitures of holdings by some of the independents. Would this be an opportunity for the Indian and Chinese NOCs, Middle Eastern investors, Oil traders who have been on the sidelines? It should not be a surprise if some of the Shell 2014 divestiture class balk at the earlier agreed prices. Furthermore, the pressure on the independents and government revenue drive might also spur a reconsideration of decision to giving the Right of First Refusal and operatorship to the state Exploration and Production Company.

Marginal fields

The 2005 class of Marginal fields would reach a regulatory milestone in 2015. The regulator, Directorate of Petroleum Resources (DPR) is expected to wield the big stick against companies who have defaulted in the statutory requirements (work programme commitments) but considering the political and economic realities around local content issues, the likelihood of discretionary extensions are high.

Also, the fate of the bid round for marginal fields earlier scheduled for 2014 now depends on the February elections. If the current administration wins another term, the bid round would likely be fixed for later in 2015 but with a new government, the possibility of having a marginal bid round in 2015 is very remote.

Petrol and Kerosene subsidies

The singular disruptive factor expected in otherwise predictable downstream oil and gas industry is the removal of subsidy on PMS (Petrol) and DPK (Kerosene). Baring a spike in crude oil prices, subsidies are expected to be removed in 2015 whatever the outcome of the February elections. Removal of subsidies would significantly alter the downstream market as competition intensifies and customer attitudes and consumption changes. Brand differentiation, diverse product offerings and a ‘FMCG culture’ might become more prevalent.

Gas to Nigerian market

In 2015, the recent fiscal policy changes will continue to encourage gas producers’ investments further addressing the gas to power supply constraints of recent years. Substantial production are expected as gas plants project mature and higher prices incentivize allocation of capital to developing ‘low hanging’ gas resources especially in this low oil price environment. Baring the recurrent power evacuation restraints bedeviling power generating plants, new near term capacity might be able to add between 1GW – 2GW.

Gas infrastructure

An often understated loop in the gas to power value chain is the adequacy and flexibility of gas infrastructure. With gas supply been addressed, 2015 is the year of gas infrastructure. It would be prudent to watch the progress on major projects; Escravos-Lagos Pipeline System 2, Ob-Ob3 interconnector, Trans Nigeria ‘Anchor’ Pipeline and the Northern Option Pipeline (NOPL). If these projects continue to lag behind schedule, the gas to power challenges might endure. Most of the projects are largely immune to political change but renewed executive attention could provide impetus to the project’s progress in the near term.

LNG projects and Delta Gas Plant

BrassLNG, NLNG Train 7, Delta Gas Plant;  Varying challenges – gas sources, government preference for domestic supply, strategic fit, and shareholder exits are dogging these huge gas projects. However, of all, NLNG Train 7 might regain some momentum and possibly an approval considering the recent reduction in revenue from oil. LNG Market dynamics are changing too fast for Brass LNG not to resolve its ownership and technical issues in 2015. The Delta Gas Plant is not expected to accelerate in the nearest future.

LPG industry

LPG consumption has increased by over 150 percent in the last seven years largely due to improved certainty of supplies from NLNG and Niger Republic. In 2015, there is a likelihood of a structural shift in the industry as supply sources become available from LPG fractionating plants located onshore. Onshore supply would provide cheaper alternative compared to the marine logistics associated with the NLNG supply. If all of the plants scheduled to be available can produce optimally, we might witness reduced offtake of NLNG LPG and lower prices in the near term.

Petroleum Industry Bill

It has been seven years since the Petroleum Industry Bill was first submitted to the National Assembly. Energy laws are difficult to enact anywhere as Brazil, Mexico, Mozambique has proven but the progress of the PIB has only been dogged by avoidable controversies and lackluster executive drive. Would that change before June 2015? Very unlikely. And with a new legislature expected to be comprised of largely fresh parliamentarians, the fate of the bill might not radically change in the near term.

Regulator enthusiasm

A surprisingly understated but significant policy shift in 2014 was the approval for DPR, the regulator to retain 4 percent of collected revenues. The consequence of this is that in 2015, we should expect a regulator more incentivized to exert its powers more frequently than have been witnessed in the industry. Government relations and compliance units of companies operating in the industry should be ready to intervene and mitigate the raft of fines that were once overlooked by the regulator.

Mergers & Acquisitions

The M & A space in Nigeria oil and gas sector have been quite dynamic in recent years. In addition to the IOC divestitures, there has also been some less publicised farm-ins across the industry. Seplat, Seven Energy, Lekoil, Eland were involved in deals in 2014. Most of these deals were at $100.bbl market. If low prices persist, would we witness attempts to renegotiate terms of farm-ins in line with new market realities?

Downstream, there are plans by Oando to divest? Who gets to buy? Forte Oil, Aiteo or another non-descript company? The status of subsidy removal would likely determine the pace of M & As downstream in 2015.


Year 2015 would be a dynamic year for oil and gas industry in Nigeria as the low oil prices continue to test the resilience of stakeholders and tasks managerial capacities. Surprises might be many especially if new divestments by the IOCs proceed.