• Monday, February 26, 2024
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Nigeria’s oil sector suffers consecutive lost decades

Oil Mining Licence (OML) 130

Nigeria’s crude oil sector has suffered a silent growth crisis in the last 20 years even though average crude oil price was $51.55 and average daily oil production was 2.24 million barrels per day during the period.

Between 1999 and 2018, average annual growth in Nigeria’s oil sector was -0.5 percent and in the years between 2009 and 2018, average oil sector growth was -3.1 percent, according to data compiled from Central Bank of Nigeria’s 2018 Statistical Bulletin.

For the largest oil producer in Africa, the oil prosperity story has turned sour in recent times. Nigeria’s oil sector re-entered its second recession in three years in the third quarter of 2018 after the sector reported negative growth for the second consecutive quarter. In Q2 2018, oil sector contracted -3.95 percent and in Q3 2018, it contracted -2.91 percent. In Q1 2019, the sector reported its fourth consecutive negative decline with a contraction of about -2.4 percent, according to data compiled from National Bureau of Statistics (NBS). The crude oil sector had earlier exited a year-long recession in Q2 2017.

“Nigeria’s crude oil sector has now been in a recession for over a year which could be very catastrophic for the economy. Even though its contribution to GDP has been in decline for years, the Federal Government is still heavily reliant on oil export earnings to finance Nigeria’s budget,” said Maju Eldad, a lecturer of Economics at Federal University of Kashere, Gombe State, in the country’s northeast region.

Since 1999, an estimated $801 billion worth of crude oil has been produced in Nigeria with at least half of the oil production revenue accruing to the government through oil tax royalties. This translates to average annual oil production revenue of $20 billion for Nigerian government since 1999. This year, Nigeria projects to produce about 2.3 million bpd at a benchmark price of $60, translating to a total revenue of around $50.3 billion, or $25 billion for the three tiers of government, yet oil sector growth performance has continued to dwindle with the sector contracting by -2.4 percent in the first quarter of 2019.

The crude oil sector was the mainstay of the Nigerian economy before the move to democratic leadership in 1999 but the super sector seems to have lost its fire over the last two decades as its contribution to GDP has tumbled from as high as 29 percent in 1999 to just 9 percent in 2019.

Still, even with oil losing its firepower, Nigeria’s government’s over reliance on crude oil earnings hasn’t got any better as the country expects to generate more than 50 percent of its budgeted revenue from oil sales.

According to Udo Udoma, Nigeria’s immediate past minister of budget and national planning, the Federal Government’s overall revenue performance was only 55 percent of the target in the 2018, creating a budget deficit of around N3 trillion.

Oil revenue deficit alone was almost N700 billion in 2018. According to the former minister in his public presentation of the 2019 budget in May, the poor government revenue performance in 2018 was due to some one-off items, such as the N710 billion from Oil Joint Venture Asset restructuring and N320 billion from revision of the Oil Production Sharing Contract legislation/terms, are yet to be actualised and have thus been rolled over to 2019.

The outlook for the oil sector remains bleak as the world gradually moves away from its reliance on fossil fuels for energy to renewable and sustainable energy sources. Brent crude oil price traded around $64 on Monday, down from $78 a year ago. If Nigeria’s crude oil sector can’t grow at $60 oil price, it’s shocking what could become of the sector if oil prices decline further, analysts say.

Meanwhile, as the Nigerian National Petroleum Corporation (NNPC) hopes for a new growth era with Melo Kyari assuming full responsibilities as the new group managing director of the corporation on Monday, July 8, 2019, the new helmsman at the corporation has set a target of 2023 to ensure all Nigerian local refineries operate at optimal capacity.

“Before 2023, we will work hard to deliver all Nigerian local refineries to perform optimally, and become a net exporter of fuel. This is a target we have set for ourselves and we would achieve it,” said Kyari, the new NNPC GMD, in an acceptance speech at the corporation’s headquarters in Abuja after he was officially handed over the mantle of leadership of the corporation.

Kyari said that the corporation would work to deliver an oil company that 200 million Nigerians would be proud to be shareholders of.

“NNPC under my watch will not be opaque, and we have the responsibility of being accountable to avail information to about 200 million Nigerians who actually own the company. We will work with the press to ensure more transparency,” he said.

The new GMD said the corporation would work with global transparency bodies such as Extractive Industries Transparency Initiative (EITI), alongside the Nigerian Extractive Industries Transparency Initiative (NEITI) and the global Open Government Partnership which President Muhammadu Buhari signed on to as a commitment to Nigeria’s stance in fight against corruption.

Kyari noted that there would be no corruption where there was no discretion.

“We are going to work with EFCC to take out discretion in our system. What does it tell you that the chairman of an anti-corruption agency is attending the retirement of the chief executive of an office people see as corrupt? It means that the NNPC has changed. We are going to work more closely with him,” he said.

Speaking on collaboration with International Oil Companies, Kyari said, ‎”We are going to work with the IOCs to grow productions, grow reserve and ensure a win-win situation.”

In his earlier valedictory remarks, Maikanti Baru, immediate past GMD of NNPC, said the corporation is in safe hands with Kyari at the helm of affairs, urging him to surpass any target set by him in his 1099 days as the GMD.

He listed some key achievements to include increased and sustained crude oil and gas production to above 2 million barrels (2.3 million barrels per day as at July 5, 2019) and gas production of 8,000MMscfd.

“Reduced contracting cycle from 24-36 months to 9 months. Revitalised, improved and sustained NPDC equity production from 22kbopd in 2016 to 165kbopd in 2018; actively renegotiated the cash call arrears repayment and exit. Lead the PSC disputes resolution and PSC terms’ renegotiation. Focused on supporting the various financing syndications and successfully delivered the over $10bn raised; structured the transition from JV to IJV and set up the asset management structures in NPDC and NNPC JVs,‎” he said.