Thanks to a combination of relative higher oil production and favourable average oil price of $70 in second Quarter of 2019, Nigeria’s oil sector finally snapped four consecutive quarters of negative growth.
According to data from National Bureau of Statistics (NBS), Nigeria’s oil sector grew by 5.15 percent quarter on quarter against -1.46 percent in Q1 2019.This is the first and biggest growth recorded since Q1 2018 were the sector recorded a GDP growth of 14.02 percent.
Gbolahan Ologunro, a research analyst at Lagos-based CSL Stockbrokers said the growth recorded in Q2 2019 was driven more by environmental stability, relative peace in Niger delta and mild increase in oil production.
“No major export pipeline was shut down due to leakages or maintenances which also aided production during the period,” Ologunro told Businessday.
Ologunro noted that in the absence of any major shock in price or production Nigeria will likely sustain this trend of growth in the remaining quarters of this year.
Although the oil sector had improved quarter on quarter since Q3 2018, Q2 2019 however improvement can be termed ‘significant’ when compared to prior periods at 6.61 percentage points from -1.46 percent q/q.
Adeola Martins, research analyst at Caritas Capital said the relative calmness in Nigeria’s
export terminals, peace in Niger delta and increase in indigenous oil production is responsible for the improved performance.
“How can we sustain and build on this momentum is the major challenge,” Martins asked.
In Q3 2018, the oil sector recorded a negative growth of 2.91 percent, an improvement by 1.04 percentage points (pp) from previous negative growth of 3.95 percent; Q4 2018 improved by 1.29 percentage points while Q1 2019 improvement slowed by 0.16 percentage points to -1.46 percent.
In Q2 2019, Nigeria recorded average daily oil production of 1.98million barrels per day (mbpd), or 7.6percent higher than the daily average production of 1.84mbpd recorded in the same quarter of 2018 but slightly less than output recorded in Q1 2019 ( 1.99mbpd- revised from 1.96 mbpd).
In Q2 2018, crude oil prices averaged approximately $70 against $60 in same period of 2019. Also, when compared with growth in oil price in both periods, while in oil price rallied by 18.37 percent in Q2 2018, there was an inverse movement in Q2 2019 as price dipped 3.56 percent.
“The non- diversification of the Nigerian economy makes it vulnerable to these cyclical ups and downs that are completely out of the control of the country’s economic managers,” Charles Akinbobola, energy analyst at a Lagos-based energy firm Sofidam Capital said.
Despite decades of attempts to diversify, Nigeria remains dependent on oil for 90percent of its export earnings, which owes partly to the fact that almost two-thirds of the economy remains in the informal sector. The large informal sector also causes the country’s tax to be remarkably small as tax revenue last year was less than ten percent of GDP. What’s more, economic growth has remained sluggish despite a rapidly growing population.
“Nigeria’s GDP growth of 1.94 percent was an underwhelming performance which just reflected the fact that there is still need for urgent and fiscal reforms to accelerate the pace of growth to eliminate the rhetoric about poverty, unemployment can be resolved,” Ologunro told Businessday.
Experts in the oil and gas sector ranked reforming fiscal and regulatory terms by passing into law a competitive petroleum industry bill as the most urgent task needed to make an oil sector record a two digits growth rate. Next is domesticating the value chain and also ensuring the oil and gas sector provides linkages across the economy.
Nigeria’s oil and gas industry, remains it’s most lucrative and viable investment opportunities as stakeholders believe that the oil and gas sector offers consistent opportunities in solving Nigeria’s dwindling revenue.
Today, Nigeria is only capable of pumping some 2.5 million barrels of crude oil per day despite sitting on more than 40 billion barrels of proven reserves with its mid-stream and downstream infrastructure are arguably in worse shape than upstream production.
“In the past, the executive left the industry bill to the legislature, they need to show more interest this time around,” Taiwo Oyedele, head of Tax at PWC Nigeria said.
Since 2008, Nigeria has been attempting to pass the Petroleum Industry Bill (PIB), which seeks to incorporate and update 16 different laws that regulate the sector and enable the government reform its oil and gas legal framework.
The non-passage of the PIB has continued to create uncertainties that have delayed billions of dollars in potential investment in this sector. The National Assemble has now split the Bill into five sections and passed it as the Petroleum Industry Governance Bill (PIGB), which is expected to be ratified by the Presidency.
