Nigeria’s oil and gas industry, the source of much of the country’s foreign receipts and more than half of government revenues finds itself on shaky ground in 2023 as chronic underinvestment and rampant crude oil theft threaten to erase gains from subsidy removal or refinery renaissance.
The pain of this large-scale theft and vandalism, as well as decades of under-investment in infrastructure, was so severe that in April, the country produced less than one million barrels of oil daily, far below its 1.8mn bpd Organisation of Petroleum Exporting Countries quota.
“It’s a classic case of two steps forward, one step back,” lamented Aisha Mohammed, an energy analyst at the Lagos-based Center for Development Studies. “Nigeria’s oil production did inch up marginally this year, but the gains are illusory when you consider the rampant theft and the abysmal state of critical infrastructure.”
Mohammed pointed to dilapidated exporting terminals, creaking pipelines riddled with illegal taps, and a near-total absence of fresh exploration and development activities as stark indicators of the underlying rot.
“When was the last time we had a replica of the Egina project in Nigeria?” Mohammed asked.
Other experts wondered why Nigeria’s energy sector has continued struggling to attract new investment to boost oil production more than two years after the Petroleum Industry Act (PIA) was signed into law.
“Political interference and deliberate refusal to adhere strictly to the law have worsened fortunes of the sector to the pre-PIA era when opacity, graft and tardiness reigned unchecked,” a source said.
Data sourced from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) showed that out of 57 Petroleum Prospecting Licences (PPL) in the country, about 33 are non-producing oil blocs.
The situation is not much better in the gas sector. A price ceiling on the domestic market, according to analysts, has discouraged investment.
The export market is stronger, though, especially since the Russia/Ukraine war has left the EU shopping for gas around the world.
According to Matthew Baldwin, deputy director-general of the energy department of the European Commission, Nigeria provides 14 percent of the gas imported by the EU and ships 60 percent of its liquefied gas to Europe.
Despite this opportunity of a global energy hunger, Nigeria’s LNG export facility at Bonny has remained under force majeure more than a year after it was first declared with output from the six-train plant having fallen below 50 percent of its nameplate capacity, Nigeria LNG (NLNG) Limited said Nov. 8.
Nigeria LNG (NLNG) declared force majeure on Oct. 17 last year after flooding impacted the ability of gas suppliers to feed gas to the facility and remains in place due to continued disruption to gas feedstock supply.
A company statement quoted as saying that gas supplies to the Bonny plant continued to be disrupted due to recurrent sabotage attacks on pipelines and low production from aging wells.
“The company is facing difficulties in getting adequate gas supply and the result is under-production at below 50 percent of total installed capacity,” Philip Mshelbila, NLNG managing director said in a statement.
Disruption to gas supply had already reduced production at the plant to 68percent of its nameplate capacity last year, BusinessDay’s findings revealed
In 2022, Nigeria’s total LNG exports reached around 14.7 million metric tons. However, in 2023, the figures stand at 12.5 million metric tons so far, based on data from S&P Global Commodity Insights.
In the downstream sector, President Bola Tinubu, in his inaugural address, announced the removal of almost 50 years old o petrol subsidy regime.
Following the announcement, the Nigerian National Petroleum Company (NNPC) Limited directed its outlets nationwide to sell fuel between N480 and N570 per litre, an almost 200 per cent increase from the initial price below N200, leading to a significant increase in transportation fares and prices of goods and services.
The pronouncement was trailed by panic buying and gridlock across filling stations in many parts of the country, even as regulatory bodies called for calm amid the chaos.
Again in July, petrol pump prices rose to about N617 per litre at various outlets of the NNPC Ltd in Abuja and many parts of the country.
On July 18, the NNPC Ltd attributed the rise in prices to ‘market forces’.
Mele Kyari, group chief executive officer, NNPC Ltd explained that with the deregulation of the oil sector, market realities will force the price of petrol up sometimes and at other times force it down.
Since ending the subsidy this year, 56 private firms have been licensed to import petrol, and 10 of them were expected to start deliveries in the third quarter 2023. The NNPC had previously been the sole importer of petrol using crude swap contracts.
On 19 July, Emadeb Energy Services Limited imported the first batch of petrol of about 27 million litres into the country.
“The value of this cargo here, you cannot find it in the market just like that. It is over $17 million, and you can’t, in any way, with what the FX is today. Today, we have imported 27 million litres of PMS, but local refining is the way forward for us in this country,” Adebowale Olujimi, CEO of Emadeb Energy said on Arise TV in July.
BusinessDay’s findings showed there have been speculations that the government had partly reintroduced petrol subsidy, unannounced, to keep the pump price at N617 given the continued fall in the value of naira against the dollar and the price of crude oil in the international market.
For instance, Festus Osifo, the national president of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Festus Osifo, on October 6, insisted that the Nigerian government had restored the subsidy on petrol, despite the official government policy of ending the subsidy regime.
Osifo, who is also the president of the Trade Union Congress (TUC), one of Nigeria’s two largest workers union coalitions, while featuring on a Channels Television programme, Politics Today, said due to the cost of crude oil in the international market and the exchange rate, the government still pays subsidies on petrol.
“The government has to come clean. In reality today, there is a subsidy because as of when the earlier price was determined, the price of crude in the international market was somewhere around less than $80 a barrel. But today, it has moved to about $93/94 per barrel for Brent crude. So, because it has moved, then the price (of petrol) also needed to move,” Osifo said in October.
In its reaction, NNPC Ltd however said the Nigerian government has not resumed payment of subsidy on petrol.
“No subsidy whatsoever. We are recovering our full cost from the products that we import. We sell to the market and we understand why the marketers are unable to import,” Kyari told State House correspondents on October 9 after a meeting with the president at the Presidential Villa, Abuja.
