After sluggish growth in the first three months of this year, Nigeria’s petroleum industry has crawled into negative growth mode thanks to COVID-19 induced shut-down of world economies, and recovery requires quickened reforms in the sector.
In the three months ending June, real growth in the oil sector contracted by 6.63 percent year-on-year, indicating a decrease of 13.80 percent points relative to the rate recorded in the corresponding quarter of 2019, according to the gross domestic report released by the National Bureau of Statistics (NBS) on Monday.
Growth decreased by 11.69 percent point when compared with three months ending March 2020, which reported 5.06 percent growth rate. Quarter-on-quarter, the oil sector recorded a negative growth rate of 10.82 percent in the three months ending June 2020.
The sector contributed 8.93 percent to total gross domestic product in the second quarter of 2020, down from figures recorded in the corresponding period of 2019 and the preceding quarter, where it contributed 8.98 percent and 9.50 percent, respectively.
A combination of volume restriction by the Organisation of Petroleum Exporting Countries (OPEC) and lower oil prices as economic fallouts from the impact of COVID-19 have meant lower revenues for operators and for Nigeria, in terms of rent. This had the attendant consequence of slower growth in both the oil and gas sector and the gross domestic product during the second quarter of 2020.
This has also made the case for urgent economic and export diversification and rapid reform of the oil and gas sector urgent if Africa’s most populous country is to become the giant it has the potential to be.
To cushion the effects of lower revenues and profits, operators have had to cut down on their capital expenditure. “When you cut down on your capital expenditure, it means you are terminating contracts and letting contractors go,” Austin Avuru, former CEO of Seplat Petroleum plc, said at BusinessDay’s Digital Dialogues titled ‘A National Conversation: Mapping Nigeria’s Response to COVID-19’ in June.
Seplat Petroleum’s experience and response to COVID-19 are typical examples for operators in the sector. In this instance, the company billed to operate four to five rigs drilling about 18 wells. But the company had to cut that down to seven wells, one rig now on contract, meant three to four rigs have been let go.
“Each of those rigs will probably have 200 personnel on board. That is the number of staff whose jobs are at risk. The entire multiplier effect will be job losses and lower revenues for both the operators and the country,” Avuru summarised.
In addition to COVID-19 slowing global demand for oil, Nigeria’s oil and gas sector has been losing foreign investment thanks to a slow reform of the sector. For close to 20 years Africa’s biggest oil producer has been unable to pass the Petroleum Industry Bill (PIB) designed to drive transparency, accountability and competitiveness. The continued delay in achieving this has stunted the sector’s growth and shut out investments.
“We do not have six months to wait for the National Assembly to pass the PIB. The bill needs to be passed like yesterday. They have to come back and get to work so that we can get things going,” Bismark Rewane, CEO, Financial Derivatives Company, said on Channel TV’s Business Morning on Monday.
Limited consultation with the private sector, resistance to change from those used to the status quo and institutional failures are some of the reasons responsible for this delay, people familiar with the sector say.
The continued delay in the reform of the Nigerian petroleum industry has resulted in the loss of at least $20 billion indirect investments annually, the Nigeria Natural Resource Charter (NNRC) stated during a webinar in June.
