Here is why Nigeria’s oil GDP is at the lowest since 2016

Nigeria’s oil and gas sector is currently at its lowest ebb since 2016 as a delay in implementing key legislative reforms compounds problems for a sector still reeling under the weight of Organisation of Petroleum Exporting Countries (OPEC)+ output cuts and the impact of the coronavirus.

Latest data from the National Bureau of Statistics (NBS) showed Nigeria’s oil sector moved from a positive of 4.59 percent in 2019 to a contraction of -8.89 percent in 2020, which is the lowest since 2016 of -13.65percent.

Further breakdown showed before COVID 19 struck, Nigeria started the year on a positive note of 5.0percent thereafter slumped to -6.63percent in Q2, while Q3 and Q4 slide further to -13.89percent and -19.76 percent respectively.

Ademola Henry Team leader at the Facility for Oil Sector Transformation (FOSTER) said a continued global shift in focus away from fossil fuels to cleaner energy sources and the resolve of global oil cartel to keep production in check in order to stabilize prices will likely extend the downward trend in Nigeria’s oil and gas sector.

Nigeria’s crude and condensate production slumped to around 1.56 million bpd last year from 2.0 million bpd in 2019, according to an NBS report.

This was the lowest output since 2016 when Niger Delta militants repeatedly attacked key oil infrastructure pushing the country’s production to as low as 1.6 million-1.5 million bpd at points that year.

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Charles Akinbobola, an energy analyst at Lagos based Sofidam Capital said 2020 was a stormy year for Nigeria’s oil and gas sector following a sharp drop in output and depressed global oil prices.

“We are being squeezed to produce at 1.5 million bpd against a capacity to produce 2.3 million bpd. Now the oil industry is in turmoil,” Akinbobola said.

Under the latest OPEC+ deal, Nigeria has committed to keeping its crude output at 1.52 million bpd for January, 313,000 bpd below its baseline under the deal of 1.829 million bpd.

Platts Analytics expects Nigerian crude production to grow from 1.4 million bpd in December to over 1.7 million bpd in April, and then holding at around 1.9 million bpd in the second half of the year.

But Nigeria’s production growth is threatened by fiscal stress, which may pressure amnesty payments to former militants, Platts Analytics added in a recent note.

A presidential amnesty program for militants to maintain peace in the Niger Delta, the country’s main oil producing region, remains in place but there are concerns that militancy might be picking up again.

Oil and gas remains the mainstay of the Nigerian economy. However, analysts say Nigeria has not been able to draw on its huge gas resources to bail it out from the economic woes, after passage of the landmark energy reform legislation the Petroleum Industry Bill (PIB) stalled.

“The non-passage of the PIB is the biggest problem, creating uncertainty and eroding confidence in our industry. It is not an industry problem, but a national problem,” Akinbobola, said.

Hopes were raised that the PIB would be passed by parliament in 2020 but it is now expected to be passed into law by first quarter of 2021, according to Nigeria’s oil minister Timipre Sylva.

This key legislation, which is meant to completely overhaul the Nigerian oil industry and provide new fiscal incentives to producers, has been in the works for more than a decade.

The country’s parliament has continued to stall in debating the oil-sector reform bill, while key projects including new licensing rounds for shallow offshore and deep offshore oil blocks remained on the drawing table.

The OPEC member is also very keen to grow its gas resources as its oil export revenues continue to taper.

Nigeria is currently ranked as having the ninth-largest global gas reserves with over 200 Tcf but it has not started up any new gas projects recently.

“The question is how many greenfield gas projects have come up in Nigeria in recent times. We need to remain focused to get the best out of the Nigerian gas resources,” added Akinbobola.

The government says it has launched ambitious programs to harness the gas for use in the domestic market and for exports and turn the country’s economic fortunes around.