The oil sector grew at an average of 4 percent over the three quarters of 2019, compared to 2.4 percent in 2018, indicating a potential to help Nigeria burrow out of an impending economic turmoil.
But analysts say the Nigerian government needs to be intentional to leverage the sector to achieve growth.
Already, the indices appear positive. Average daily oil production level rose to its highest in the last three years, reaching 2 million barrels per day (mbpd) in 2019 when condensate is included, compared to 1.8 mbpd in 2016, and 1.9 mbpd in both 2017 and 2018.
Some analysts recommend passing the critical Petroleum Industry Bill (PIB), holding new bid rounds, completing the Gas Flare Commercialisation Programme to deepen gas investments, tightening regulation by reining in the Department of Petroleum Resources whose regulations are sometimes at variance with government’s objectives, and reducing interference in the sector.
“The PIB is long overdue and is needed to complete the overhauling of the sector that most recently saw the Deep Offshore and Inland Basin Amendment Act (DIBPSA) that passed at the end of last year,” Desmond Ogba, energy lawyer and partner at Lagos-based Templars Law firm, said.
“The minister [of state for petroleum resources] announced on 1st January, 2020 that the Bill would be passed by mid-year 2020. It won’t solve all the problems but it will give certainty which has been lacking for over 12 years now,” Ogba said.
The passage of the PIB will provide the clarity on a fiscal framework required to organise a bid round. Timipre Sylva, minister of state for petroleum resources, has said it would be passed in June.
The Muhammadu Buhari administration has balked at holding an oil bid round despite having over 200 fields lying fallow. It has quietly renewed dated licences of block holders and under his administration the Nigerian Petroleum Development Corporation (NPDC) has played a larger role in ramping indigenous oil production.
However, the new Deep Offshore and Inland Basin Amendment Act, while capable of increasing royalty rates in the short term, has the potential to stifle investments in projects that are being planned based on the old royalty rates, said Ogba. So, a new bid round allows the government to have a basket of new projects to apply the terms.
The Oil Producers Trade Section (OPTS), a group of oil producers, has warned that the new rates will stifle investments and make Nigeria unattractive for new investments. A pliant legislature provides Buhari the legal cover to pass new petroleum sector but analysts say it needs have professionals at the table.
Ayodele Oni, energy lawyer and partner at Bloomfield law firm, warned that government could engender trust by reducing interference in the sector.
“There is a need to reduce political interference in the energy sector and let the right people with the right professional qualifications and capacity hold the technical positions in the sector,” Oni said.
A bid round with more assets would increase interest from new entrants and existing players, increase government revenue from the bid prices, offer some possibility of attaining NNPC’s production goal of 3 million barrels of crude oil/day and, if marginal fields are included, increase the number of indigenous operators, Ogba said.
Greater attention is shifting to cleaner energies and gas looks to emerge the winner but Nigeria is yet to place a premium on its vast gas reserves, estimated to be the ninth largest in the world. Enacting forward-looking fiscal terms for gas and holding bid rounds to develop gas fields are actions other countries have taken to drive gas investments.
Nigeria’s plan to sell flared gas, launched in 2016, has been praised as a positive step but it is yet to gather steam.
“After a recent drop in gas flared, 2019 saw an increase and we are still one of the world’s top gas flaring countries, basically burning money every day,” said Ogba.
Justice Derefaka, programme manager, Nigerian Gas Flare Commercialisation Programme (NGFCP), said the programmes is proceeding according to plans.
Ogba said the process “needs to be completed and bidders enabled and incentivised to commence their projects as soon as possible as gas utilisation has the potential to earn more revenues for the country than crude oil production”.
The Nigeria Liquefied Natural Gas finally took final investment decision on its seventh train on December 27, 2019 after years of negotiation. Derefaka said the “milestone” reinforces the Federal Government’s “commitment to the acceleration of the gas revolution in line with the June 28, 2017 approved National Gas Policy which essentially builds on the ministerial mandate and policy goals & initiative”.
But analysts say the government should commence and complete, as soon as possible, the Ajaokuta-Kaduna-Kano ensure that the DPR supports the FG’s policy on LPG penetration rather than work against same because of vested interests.
“Some of the DPR’s new policies are at cross purposes with the FG’s overall gas policy and strategy. Federal Government ministries, departments and agencies must be coordinated and work for the success of the overall policy of the FG,” Oni said.
The DPR recently begun sterner enforcement of its regulation requiring entrepreneurs applying for licences to open a Liquefied Petroleum Gas (LPG) plant to include land titles as part of their application. It said it would soon send away operators inside petrol stations, raising the ire of operators.
ISAAC ANYAOGU
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