Five ways oil can jump-start the economy in 2024

Nigeria, Africa’s largest oil producer, has long relied on crude oil to fuel its economy. However, recent years have seen a decline in global oil prices and production challenges, impacting the nation’s economic growth.

Yet, 2024 could offer a glimmer of hope, with experts suggesting a combination of increased drilling, gas commercialisation, and the incoming Ajaokuta-Kaduna-Kano gas pipeline project, among others, as ways oil can once again jump-start Nigeria’s economic engine.

Cordros Securities Limited, in its 2024 full-year outlook, projected that the economy will remain on a growth trajectory, supported by improvement in the oil sector amid the government’s ongoing efforts to curb pipeline vandalism and oil theft and, gradual recovery from the impact of policy reforms implemented in the prior year, as well as continued resilience in the services sector.

Here are five ways oil can jump-start Nigeria’s economic journey:

Increased drilling activities

Jide Pratt, country manager of TradeGrid, said one of the low-hanging fruits that can improve the oil and gas sector is increased drilling activities.

The country’s rig count, a major index of measuring activities in the upstream sector, dropped month-on-month by 13.3 percent to 13 in October 2023 from 15 in the preceding month.

This revealed that there was limited investment and activities during the period, according to the November 2023 Monthly Oil Market Report of the Organization of Petroleum Exporting Countries.

Gas commercialisation

The Nigerian Gas Flare Commercialisation Programme (NGFCP) is an opportunity for the federal and state governments, industry stakeholders, ethnic nationalities, and local communities to work together to resolve an oil field unacceptable practice, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

Last September, the commission said it had granted 42 firms gas flaring licences in the 2022 Nigerian Gas Flare Commercialisation Programme auction process.

The commission, while announcing the outcome of the bidding exercise in a statement, said issuance of letters of award to the successful awardees was ongoing.

In furtherance of its mandate in Section 7 (e) and Section 105 (2) of the Petroleum Industry Act, 2021, the NUPRC, in the third quarter of 2022, restructured the NGFCP and re-launched the programme to align with the provisions of the PIA, as well as reflect prevailing economic and operational realities.

Refining

Vetiva Capital Management Limited, in its macroeconomic outlook, projected that the refinery projects in the works, including the Dangote refinery and government-owned plants in Port Harcourt, Warri and Kaduna, would help boost the economy.

“While our growth estimate excludes any ramp-up in refining capacity, our models show that an improvement in national refining capacity by 50,000 bpd could add +0.1 percent to GDP.”

Cordros Securities expects the resumption of activities at the Dangote refinery, Port Harcourt refinery, and modular refineries to put an end to the importation of petroleum products into the country in 2024.

The AKK pipeline

The Nigerian National Petroleum Company Limited (NNPC) has said the $2.8 billion Ajaokuta-Kaduna-Kano gas pipeline project being constructed by Oilserve Limited will be inaugurated next month.

According to Pratt, the 614km-long pipeline being developed by the NNPC to transport natural gas from southern Nigeria to central Nigeria will be a key driver when it comes on stream later in the year.

Increased FDI

Investment inflows into the Nigerian economy dipped by 33 percent to $1.03 billion in the second quarter of 2023 from $1.535 billion in Q2 2022.

According to the National Bureau of Statistics (NBS) report, ‘other investment’ topped sources of investment, accounting for 81.28 percent ($837.34 million) of total capital imported in the period and higher than $435.76 million recorded in Q1.

According to Pratt, the increment in foreign direct investment is paramount to actualising investment in drilling activities.

In a report published by Africa Oil & Gas Report, an energy intelligence publication, Austin Avuru, executive chairman of AA Holdings, said that Nigeria’s oil industry is facing a stark reality check as it needs 45 new rigs to reach “normal” production levels of 2.1 million barrels per day (bpd) by 2025.

Avuru said to arrest the natural decline and add 800,000bpd over two years will require 426 wells including 106 exploration and appraisal wells as well as 320 development wells.