Nigeria’s revenue from crude oil may be on course to slumping this year as the abundant supply of shale oil to the global market is expected to lead to a reduction in oil price, amidst less tax revenue from international oil companies (IOCs) that have divested some of their assets in the country.
Analysts from KPMG Professional Services, a member of KPMG International, in a discussion on ‘Shale gas and its implications for Nigeria’ in Lagos at the weekend, said shale oil production from the United States (US) posed a risk to Nigeria as increased volume will put oil price on a downward trajectory.
They also stated that the divestment of assets by IOCs would lead to reduction in government tax revenue as indigenous firms that acquired the assets, are given
pioneer status, with a 5-year tax holiday. Michiel Soeting, global head of KPMG’s energy and natural resources practice, said: “The impact of shale oil on energy prices is in the early stages. With more supply in the market, prices will go down. Clearly there will be more volume.”
He stated that one third of the gas in the US is already linked to the shale oil.
The shale oil is a double- edged sword. China, Argentina and South Africa are potentially shale gas
producers. The hunger for countries to achieve energy security is high, especially in China, which is now seeking investments from IOCs. “With shale resources,there is now increased competition for resources by IOCs. The IOCs now have better opportunity to make choices about where to invest.
It is more choice for them. Nigeria has to consider whether it wants to attract investments from IOCs or not,” Soeting said.
Dimeji Salaudeen, partner, risk consulting head, Africa oil and gas sector, KPMG, said Nigeria had slipped from the third largest supplier of crude oil to the US to sixth position, impacting on the revenue profile of the country.
Nigeria supplies the world with Bonny Light, a sweet crude, most preferred in many parts of America before the discovery of shale oil in the US. Shale oil’s low sulphur content positions it as a direct competitor to the Bonny Light.
“Government has been able to move very quickly by taking measures to counteract some of the headwinds.
It has been successful in finding alternative markets in Asia such as India, China and South Korea. But to what extent is this measure sustainable because some of these countries, like China, are sitting on large resources. What would happen when they begin to produce? We need to begin to look for more sustainable, longer-term solutions,” said Salaudeen.
Victor Onyenkpa, partner and head, tax, regulatory and people services, said: “Nigeria’s crude reserves have remained more or less the same for the past ten years and oil companies are waiting for the PIB before making final investment decisions. There are now more opportunities (resources) than there is money to invest.”
He stressed the need for competitive fiscal terms in the Petroleum Industry Bill (PIB) to attract investments to ramp up crude oil production in the country.
“Nigeria needs to produce more, and to produce more, we need to attract investments bearing in mind that we are competing with other countries. We need to have very competitive fiscal terms. It is important that we get the right fiscal terms into the PIB that is currently in the National Assembly,” said Onyenkpa.