Nigeria’s oil production has been struggling in recent months, with output falling to 1.2 million barrels of oil daily, far below its 1.8 million bpd quota. Some have blamed this decline on oil theft, but experts say that underinvestment is the real culprit.
Nigeria has Africa’s largest oil reserves, but its oil industry is plagued by aging infrastructure, underinvestment, and insecurity. This has made it difficult and expensive for oil companies to invest in new production.
Investment in the upstream sector declined by 74 percent from $27 billion in 2014 to as low as $6 billion in 2022, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
Analysts blamed the development on the lack of confidence of the international oil companies (IOCs) in the reforms by the federal government amid climate commitments and oil theft.
“The biggest factor for IOCs leaving is that despite the reforms in the sector, they have not translated to the extent of growing and developing the sector,” said Chinedu Onyegbula, an energy professional.
According to him, once there’s confidence that reforms are being implemented and done equitably, transparently, and competitively, then there’s an incentive for investors to stay. “Otherwise, countries that are providing a better enabling environment will take advantage of Nigeria’s misfortune to make it work for their benefit.”
The NUPRC said increasing competition from regional peers has led to a decrease in the proportion of overall upstream investment attracted by Nigeria.
Gbenga Komolafe, chief executive officer of the commission, said at the recent Nigeria International Energy Summit that most of the IOCs deprioritised Nigeria in their portfolios, leading to the redirection of capital expenditure to other countries and attendant dwindling investment in Nigeria’s upstream sector.
He said: “This underinvestment is also reflected in the country’s rig count. On average, Nigeria had 17 active oil rigs in 2019, representing one of the highest counts on the African continent as of then.
“Nigeria’s average rig count declined to 11 in 2020, seven in 2021, and 10 in 2022, but recently grew to 24 in April 2023, a positive signal of new investments trickling into the country.”
The latest oil market report by the Organization of Petroleum Exporting Countries revealed that the oil rig count for Nigeria stood at 18 in August, up from 14 in July.
Last year at the 45th Nigeria Annual International Conference, Austin Avuru, the executive chairman and founder of AA Holdings Limited, identified increasing disinvestments by multinationals as reasons for Nigeria’s struggling crude oil production.
“The result of that decline in investment is what we are seeing in the decline of our oil production,” he said. “There is crude theft (it is there) but the main reason for our 1.3 million barrels production today (shortfall of 600,000 barrels per day) is the decline in investment.”