Nigeria’s energy sector in 2020 was challenged by the outbreak of COVID-19, which led to the shutdowns of factories and airlines, and consequently a crash of oil prices, sending the creaking economy into a tailspin.
Oil majors and local companies struggled, workers were laid off and dwindling oil income tore a hole through government’s revenue, forcing the government to think about market-led policies.
Timipre Sylva, minister of state for petroleum resources, declared 2020 as the ‘Year of Gas,’ signalling intention to drive the country’s economy with natural gas away from crude oil dependence.
This informed the launch of the National Gas Expansion Programme (NGEP) in the first quarter of 2020 to promote domestic gas use.
Under the NGEP, four areas were said to be key: Autogas – Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG) – for automobiles and other prime movers; domestic LPG expansion; CNG for power/electricity, and Gas Based Industries (GBI) revitalisation.
In June, the Federal Ministry of Petroleum Resources inaugurated a committee to review the gas pricing framework, a key constraint against deepening commercial gas locally.
“It is sad to note that we sell gas cheaply to investors while the price is high in the domestic market to the extent that some Nigerians say diesel is cheaper than gas,” Sylva said.
In August, the National Gas Transportation Network Code (NGTNC) – a contractual framework between the gas transportation network operator and gas shippers specifying guidelines – went live. It could increase local gas delivery to the domestic market by making access to gas transport infrastructure easier.
On December 1, President Muhammadu Buhari launched the National Autogas Roll-out Initiative.
In August too, the Central Bank of Nigeria launched an ambitious N250 billion intervention fund for gas-projects, especially in CNG and LPG.
Temporary reprieve in P&ID suit
In September, Nigeria secured an extension to prove its case against the $9.6bn judgment awarded in the case with P&ID. The case revolves around an agreement signed in 2009, where Nigeria agreed to provide gas to a processing plant that would be built by P&ID in Cross River State. Nigeria reneged on the agreement and P&ID sued for loss of future profits and won a $9.6 billion judgment.
Nigeria filed an appeal claiming the project was marred by fraud and was granted time to prove the case by a London-based court on September 4.
Development of new gas projects
Scheduled to be completed within a 24-month timeline, the 614km Ajaokuta-Kaduna-Kano (AKK) gas pipeline was commissioned in the second quarter of 2020. It represents the first phase of the 1,300km-long Trans-Nigerian Gas Pipeline (TNGP) project.
Expected to boost domestic natural gas utilisation for Nigeria’s economic development, the AKK pipeline will run from Ajaokuta, in Kogi State and traverse Abuja (FCT), Niger, Kaduna and terminate in Kano.
The project will have the capacity to transport 3,500 million metric standard cubic feet per day (mmscfd) of dehydrated wet gas from several gas gathering projects located in Southern Nigeria.
Similarly, Nigeria LNG signed the engineering, procurement and construction (EPC) contract for Train 7, its major gas expansion plan. The long-awaited project is expected to boost Nigeria’s LNG output by more than 30 percent.
Deregulation of the downstream sector
In 2020, the Federal Government finally bowed to long-standing pressure to restructure the downstream segment of the Nigerian oil industry through the deregulation of the downstream sector and the removal of subsidies on refined products, especially the Premium Motor Spirit (PMS) – petrol.
In March, the government announced the approval of the deregulation process, and in April, the price of petrol was allowed to slide in tandem with the fall in crude oil prices.
Brent crude averaged $26.63pb in April compared to $63.68pb recorded in January. Since then, marketers have begun pricing petroleum products to reflect global oil price trends, exchange rate and refining costs.
For instance, the retail price of petrol has risen from N121.50-N123.50 per litre in June to N140.80-N143.80 per litre in July and then N148-N150 per litre in August.
While the deregulation of the downstream oil sector remains an important free-market reform required to ease pressure on government finances as well as boost profitability of the operators in the downstream sector, some industry operators are concerned by the government’s continued intervention in petrol prices as seen in its recent capitulation to labour demands.
NNPC reforms
The Nigerian National Petroleum Corporation (NNPC) made history this year with the publication of its group-level audited financial statement for the first time in the corporation’s 43-year history.
These were published alongside the 2019 audited accounts of its subsidiaries, following the disclosure of the 2018 audited accounts in June.
Some of the biggest revelations from the audited accounts is that a few subsidiaries including Integrated Data Sciences Limited (IDSL), Nigerian Petroleum Development Company (NPDC), and the National Petroleum Investment Management Service (NAPIMS) were highly profitable but the refineries were a loss-making operation and there was material uncertainty over NNPC’s corporate future.
In August, NNPC became an EITI supporting company, joining a group of over 65 extractive companies, state-owned enterprises (SOEs), commodity traders, financial institutions, and industry partners who commit to observing the EITI’s supporting company expectations.
Oil price war
The Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC members including Russia failed to agree on export curbs to shore up prices in March and producers began pushing insane volumes into the market, setting off a price war between Russia and Saudi Arabia, which rankled Nigeria’s wobbling economy.
The coalition known as OPEC+ agreed to the largest single output cut in history back in April, but that reduction of 9.7 million barrels per day was subsequently scaled back to 7.7 million in August and 7.2 million bpd at the start of 2021.
As a result of the output cut, Nigeria’s oil production was pegged at 1.412 million barrels per day, 1.495 million barrels per day, and 1.579 million barrels per day for the corresponding periods in the agreement; as against the 1.829 million barrels per day of dry crude oil that was the reference production in October 2018.
Higher OPEC cut and perennial challenges due to lack of reforms sent Nigeria’s oil GDP to -13.89 percent, the lowest since Q3 2016, while Nigeria’s economy had slipped into recession for the second time in four years.
Oil companies cut spending budgets, workforce
In response to the virus-induced low oil demand and price crash, oil companies slashed off an estimated $35bn in their capital expenditure for 2020, and projects, including in Nigeria, were halted and sacked thousands of workers.
“Large new projects will be put on hold and short-cycle discretionary investment will be dialled back to the bare minimum,” said Mhairidh Evans, along with other analysts at Wood Mackenzie.
Shell said it was firing 10 percent of its workforce and ExxonMobil laid off thousands of workers. Many oil workers in Nigeria took pay-cuts or quit to hedge their loss with juicy termination bonuses.
Marginal field bid round
In June, investors were allowed to bid for marginal fields, the first one since 2003. It was part of the government’s strategy to raise revenue.
However, the government is yet to notify winners and sources say successful bidders may be merged to increase the chances of developing the abandoned fields. This will boost jobs in the sector and help local operators hone their technical skills.
Power sector saw a rash of new policies
A reconciliation of the monthly invoices and payments between the Nigerian Bulk Electricity Trader (NBET) and electricity distribution companies (DisCos) revealed that the 11 DisCos owed a combined sum of N622.4 billion while government ministries and departments owed DisCos a cumulative sum of N45.8 billion.
This led to the introduction of a Service Reflective Tariff system where customers will pay based on the duration of power received. Customers were grouped into five bands with the highest getting about 20 hours and the lowest less than 4 hours.
The plan, which was opposed by labour groups, stirred investors’ interest into Nigeria’s power sector. For example, a Cairo-based pan-African multilateral trade finance institution, AFREXIM Bank, said it was willing to open a credit line of $100 million to complete the Geometric project in Aba.
The Federal Government, in October, began distributing electricity meters to customers in Kano, Lagos and Kaduna under the National Mass Metering Programme (NMMP).
The NMMP is to roll out 6 million meters for all connection points on the grid without meters over the next 18 to 24 months. It is estimated that this will impact 30 million consumers.
In September, the Federal Government as part of the Economic Sustainability Plan (ESP) said it aims to achieve the roll-out of 5 million new solar-based connections in communities that are not grid-connected, thereby creating a N7.5 trillion annual market opportunity.
The programme, which took off December 1, seeks to rapidly scale pay-as-you-go (PAYG) off-grid technologies to generate an additional N7 billion increase in tax revenues per annum and $10 million in annual import substitution. Operators say the programme requires clarity on how to facilitate the loans.
Other measures implemented by the Rural Electrification Agency including energising schools and markets with off-grid power have helped to galvanise the renewable sector in Nigeria.
Grants by investors like All On and Bank of Industry have seeded small companies to provide power to rural communities without grid connections.
The sector also secured loans from the World Bank and talks on the Siemens deal continued.
