• Friday, July 19, 2024
businessday logo

BusinessDay

Oil industry emerges biggest loser

oil-field

The rebasing of Nigeria’s Gross Domestic Product (GDP) has underscored the decline in the contribution of the oil and gas industry to the GDP in recent times, as the industry emerged the biggest loser from the exercise.

Before the rebasing, the share of crude oil and natural gas to the nominal GDP was 40.86 percent in 2011, 37.01 percent in 2012 and 32.43 percent in 2013. According to the rebased figures, the share has declined to 17.52 percent, 15.89 percent and 14.40 percent for 2011, 2012 and 2013, respectively.

The contribution of the services industry, which was the top gainer from the rebasing, increased to 51.59 percent in the rebased 2013 GDP figure from 29.04 percent in the old GDP series, while the oil industry, which traditionally dominated the economy, saw a dip from 32.43 percent in 2013 pre-rebasing to 14.4 percent in the total 2013 rebased GDP.

The share of the telecommunications sector in 2013 increased from 0.89 percent pre-rebasing to 8.69 in the old series. Manufacturing also increased from 1.94 percent to 6.83 percent.

According to Yemi Kale, statistician-general, National Bureau of Statistics, the results indicate that the structure of the Nigerian economy has changed significantly, with stronger diversification of the Nigerian economy than earlier reported.

But industry analysts say it also exposes the lethargy that has gripped the vital oil and gas industry in the past few years, with exploration and production limited by several factors including rising oil theft, pipeline vandalism and regulatory uncertainty.

Nigeria is at a vantage position, as it has the largest conventional reserves in Africa and is in the top 10 globally for oil reserves, with significant heavy oil yet to be tapped in the Benin basin, which is one of the world’s largest heavy oil belts in the world after Canada and Venezuela.

The majority of reserves in the country are found along the country’s Niger River delta and offshore in the Bight of Benin, the Gulf of Guinea, and the Bight of Bonny. Current exploration activities are mostly focused in the deep and ultra-deep offshore, with some activities in the Chad basin located northeast of the country.

Bisi Sanda, partner, transaction and advisory services, Ernst & Young (EY), said although the rebasing of the GDP did not show any major change as regards the oil industry, it brought to fore the decline in its contribution to the economy.

“As a consequence of the attacks on oil companies’ facilities, which have not been completely overcome, Nigeria’s daily output has dropped below 2 million barrels per day. Investment by international oil companies has been affected by this sabotage. Also, because the PIB has been lingering for long, it has affected international investors in terms of committing capital in the industry because it has created uncertainty in the industry. Investors want to be able to calculate their risks. No investor wants to operate in an unclear environment,” he added.

For Oladiran Ajayi, senior associate and energy expert at Templars law firm, “In statistical terms, however, the rebasing has already ‘impacted’ the oil and gas industry by reducing its share of GDP from 32.4 percent to 14.4 percent. This is good news for Nigeria, as it shows a more diversified economy. In psychological terms, it could also have a feel-good effect on policymakers and the public as it implies that efforts by governments over the years to diversify the economy are producing tangible dividends. Investors will also look more favourably at the opportunity that they may not have hitherto known.”

Ajayi said there was no direct negative impact on the industry as rebasing the economy takes an accurate measure of what is on the ground and does not create new facts, adding that reform of the oil industry would help to increase crude oil production as well as its contribution to the economy.

The long-delayed Petroleum Industry Bill (PIB), which is expected to overhaul the industry and expand investment, is still stuck in the legislative pipeline.

Aside from the PIB, rising security problems related to oil theft, pipeline sabotage, and piracy in the Gulf of Guinea have curtailed oil exploration projects and impeded the country from reaching its target to increase oil production and reserve base.

Nigeria hopes to increase proven oil reserves to 40 billion barrels in the next few years. However, exploration activity levels are at their lowest in a decade and only three exploratory wells were drilled in 2011, compared to over 20 in 2005, according to the Energy Information Administration (EIA), the statistics arm of US Energy Department.

Over the years, industry analysts have raised concerns over the dwindling performance of the sector, which has been attributed to structural gaps in its regulatory, fiscal and business practices.

Nigeria, Africa’s top oil producer, has seen its crude oil reserves decline from 37 billion barrels to 35 billion barrels, according to the Department of Petroleum Resources (DPR).

The GDP rebasing, which is the first in 24 years, shows that the size of the Nigerian economy is now estimated at N80.3 trillion ($510 billion) for 2013, surpassing South Africa as the largest economy in Africa.

FEMI ASU