A combination of perennial problems such as weak midstream capacity and policy mishmash is causing more pain to Nigeria’s oil and gas sector at such an unprecedented pace worrisome enough to threaten the country’s economic health.
The government’s many failings with attracting foreign direct investment, most especially in the oil and gas sector, have meant Nigerians have grown poorer as economic growth is slower than population growth.
Considering Nigeria’s reliance on the oil and gas industry, one would expect that the Federal Government would do everything to ensure 100 percent productivity in the sector. However, the reverse has been the case, with the situation getting worse with each passing year.
This is why Nigeria should position itself as a refining hub in sub-Saharan Africa, experts say.
“Nigeria needs to expand the midstream capacity through policies and market-based incentives to position itself as a refinery in the sub-Saharan African region to cater for the countries’ growing energy needs,” Oneal Lajuwomi, founder & CEO at Wavelength IPS, said at BusinessDay’s 2020 law and development summit.
He noted that refining makes an integral part of the oil and gas value chain that delivers products to consumers as refineries produce value added products from crude oil.
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Investing in downstream petroleum products can create an industrial base that adds value to our petroleum output as part of Nigeria’s strategy to diversify the economy and drive growth, which is why countries without oil such as France, Germany, Italy, Japan, Netherlands, South Korea, Spain and Turkey referred to as non-producing consumer nations invest massively in refineries.
“Nigeria also needs to expand the petrochemical sector through market enablers, incentives for the inflow of private capital and provide legislative backing to the recent downstream deregulation to spur more investments,” Lajuwomi said.
He called for more support towards local content policy to promote production as opposed to outsourcing and to improve domestic technical capacity.
Other experts at the event said Nigeria needs to be more deliberate on how to maximise its exploitation of hydrocarbons through policy and improved technical methods.
Layi Fatana, managing director, Niger Delta Exploration and Production, said Nigeria’s story has been a one-way story of not taking full advantage of the value chain of its rich hydrocarbon resources since its first discovery in the 1950s.
Soji Awogbade, founding partner of Aelex, said Nigeria needs to employ the right skill in policy formulation or implementation in order to reap the optimum benefits of its rich oil and gas sector.
“How will Nigeria domesticate a sector where 96 cents of its spending are in dollar terms?” Awogbade asked.
Nigeria is desperate to increase its oil reserves as a fall in investment in the last year has put some strain on the country’s oil and gas sector.
Data compiled from the breakdown and highlights of 2020 budget performance presented by the Minister of Finance, Budget and National Planning, Zainab Ahmed, showed that in the first seven months of 2020, Nigeria recorded N2.5 trillion in revenue and spent about N6.25 trillion, creating a record budget deficit of N3.7 trillion.
This development will not only threaten the financial stability of Nigeria’s 36 states who are heavily reliant on federal allocations to pay their bills, but also significantly hamper the implementation of the federal budget, putting an already battered economy in worse shape.
Modest gain such as removal of petrol subsidy, policy reforms for gas monetisation or flare out and conducting of marginal bid round are still being eroded by old perennial problems such as non-passage of Petroleum Industry Bill (PIB), non-privatisation of state-owned Nigerian National Petroleum Corporation (NNPC) and loss-making refineries.
