The Nigerian oil and gas industry did face a topsy turvy 2019, with very critical issues pointing to the direction 2020 would take; BENJAMIN UMUTEME reports.
The Nigerian oil and gas industry is not an island in itself. Over the years, it continues to be impacted by both global and local factors. However, militancy is almost becoming a tale told especially with a relatively strong amnesty deal.
Despite the relative stability in the local oil market, regulatory uncertainties persist and represent a key deterrent to investments.
Nevertheless, a possible solution to cash call burdens has been provided through a number of alternative funding strategies such as forward sale structured financing and contract financing. The federal government’s plan to divest some Joint Venture assets, may also provide opportunity for better managed work programmes at various oil fields, especially incremental production.
By virtue of a higher level of untapped reserves, offshore production will shape the Industry’s prospects and possibly enable a growth beyond the 2million barrels per day mark.
However, this will be contingent on strong oil prices, implying a stable global oil market in favour of low-cost producers like OPEC. Successful alternative funding arrangements, minimal disruption in the oil-rich Niger Delta as well as favourable regulations, are also key enablers for growth.
The OPEC cuts
With an oil market that was beginning to return to 2014 situation, the Organisation of Petroleum Exporting Countries (OPEC) and its non-OPEC allies led by Russia were ld with no choice than to take the option of a production cut in 2016 as a glut in the market would be damaging to the interest of all concerned. However, Nigeria’s inability to meet its projected revenue due to oil theft, pipeline vandalism, under declaration of data by oil companies and added to it, compliance with OPEC’s agreement on production cuts by all its members.
OPEC agreed to further trim oil output by asking over-producing members Iraq and Nigeria to bring production in line with their targets as the group strives to prevent a glut amid soaring United States production and a slowing global economy.
Nigeria assured that it would begin full implementation of the agreement in 2020, especially with Minister of State for Petroleum Resources and Timipre Sylva, noting that in fulfilment of that pledge, Nigeria’s compliance level has witnessed tremendous progress, month by month, since last August resulting in one hundred percent compliance in November 2019.
With implementation starting this month, meeting budget projection of daily crude production in this year will further dim.
Neiti report
The report released by the Nigeria Extractive Industries transparency Initiatives (NEITI) in the last quarter of 2019 showed that 692 million barrels of crude oil were produced in the country in
2017.
In its report, ‘Pilot study on commodity trading for 2017′ and released in Abuja, the agency stated that “The total crude oil production for 2017 was 692 million barrels. Out of this volume, the share that went to the federation was 240.9 million barrels representing 35 percent of the total crude oil
production for the year 2017.
“A trend analysis for the year under review shows that the 2017
federation share was four percent higher than the 231.6 million
barrels in the same category for 2016 but was 19 percent lower than
the 297.8 million barrels for 2015.’’
According to the report, it shows a slight improvement on the figure
for 2016, a year characterized by vandalism and sabotage of oil
facilities.
It noted that crude production for 2017 was about a fifth less than
the 2015 level.
The report further showed that out of 240.9 million barrels federation
share for 2017, Domestic Crude Allocation (DCA) had 105. 9 million
barrels or 44 percent while FIRS Liftings got 57.3 million barrels or
24 percent of the share.
Also, federation export got 50. 2 million barrels or 21 percent of
federation share.
Third-Party financing, 17.6 million or 7 percent of federation share
and DPR liftings was 9.9 million barrels or four percent of federation
share.
On the 105.9 million barrels DCA crude assigned for local supply of
refined products, Direct Sale Direct Purchase (DSDP) got 72. 8 million
barrels or 69 percent.
Refineries got 26. 5 million barrels or 25 percent, Product Exchange
received 4.7 million barrels or four percent while Export (an
unutilized portion of DCA) got 1.9 million barrels or two percent, the
report said.
“The total revenue from the sale of the federation share of oil and
gas for 2017 was 14.5 billion dollars—13.18 billion dollars or 90.8
percent from crude oil and 1.32 billion dollars or 9.1 percent from
gas.
“NNPC deducted N297 billion from earnings from the Domestic Crude
Allocation as costs and losses,’’ it added.
A breakdown of the deduction indicated that N141.6 billion was for
under-recovery on petroleum products, N25 billion for crude and
product losses and N130.4 billion for pipeline repairs and
maintenance.
“The Sum of N77.92 billion was under-remitted by NNPC to the
Federation Account from Domestic Crude Allocation in 2017.
“NNPC acknowledges the under-remittance and states that there is an
on-going reconciliation to net off the N77.92 billion from the
established Federation indebtedness to the Corporation of N797bn
arising from KPMG Forensic audit of the Corporation at the instance
of the Federation,” it noted
On crude destination in 2017, the reports showed that the federation
crude went to 29 destinations.
Pipeline vandalism
It was a shocking statistics from the Group Managing Director, Nigeria National Petroleum Corporation (NNPC), Mele Kyari. Speaking at an event organized by the Pipelines Professionals Association of Nigeria (PLAN), Alhaji Kyari disclosed that a total of 45,347 pipeline breaks on its downstream pipeline network was recorded between 2001 and half year 2019. This has kept tongues wagging especially with fiscal authorities crying about the country’s revenue crises.
Even oil major, Shell Nigeria called a stakeholders’ meeting to fashion out ways to curb the incessant vandalism of crude oil-bearing pipelines, Speaking at a Media Workshop on Pipelines Right of Way Encroachment and Vandalism, General Manager, External Relations of The Shell Petroleum Development Company (SPDC), Mr. Igo Weli, concerted efforts was needed to curb pipeline sabotage will save lives, secure communities and protect the environment.
“Since 2017, sabotage spill rate has risen steeply and crude oil theft from SPDC JV’s pipeline network averaged 11, 000 barrels per day in 2018, an increase of about 20% over previous year. The number of sabotage-related spills increased in 2018 to 111 compared to 62 in 2017 and, since 2012, SPDC has removed more than 1,160 illegal theft points,” he said.
In his September financial report, NNPC did however note that pipeline vandalism reduced in the month under review compared to previous month.
Whether this will be an issue in the industry in 2020 remains to be seen?
Oil theft
Nigeria has lost more than 505 million barrels of crude, and 4.2 billion litres of products, from 2009 to 2018, according to Nigerian Extractive Industries Transparency Initiative (NEITI). The cost to the country comes to $40.06 billion and $1.84 billion respectively, equivalent to $11.47 million per day for 10 years.
The problem is “neither hypothetical nor episodic. It is real and endemic,” the report said.
There continues to be a lack of transparency in Nigeria’s oil sector. The government relies on operators to provide data and there is no independent verification. The country launched a case in 2016 accusing companies of under declaring oil shipments and seeking $12.7bn in compensation.
NNPC’s continues to be a major player
The Nigeria National petroleum Corporation (NNPC) is continued to play a leading role in the oil and gas industry. This is evident in the various agreements it entered into with various business concerns with a view of addressing some inherent challenges in production, distribution and sale of petroleum products. Even though there was a change of baton at the towers, it did no dampen the spirit of those at helms of affairs of the state run oil corporation to not only change the perception of Nigerians towards the Corporation but also set the stage for the country to derive maximum benefit from its abundant oil and gas deposits.
2020: The year of gas?
In the closing stages of 2019, December to be precise, Nigeria took a significant step in its bid to improve revenue from gas which has been abysmal, with the signing of the deal for the construction of the $10 billion Train 7 of the Nigeria Liquefied Natural Gas (NLNG) with Shell, Total and ENI.
The NLNG Train 7 project would not only rake $20 billion in revenue into the federal government account it will also create 10,000 direct and 40,000 indirect jobs.
For NNPC GMD Mele Kyari, the investment was a vote of confidence in the Nigerian economy as a prime investment destination by the International Oil Companies.
“It also signifies that there is a renewed confidence by our international investors, particularly our partners who we have known for a long time, to still agree to put money back into this country to move this project forward
“We need to do more, and we can do more. This FID has opened the gateway for doing more great things. We will work with our partners to bring in more projects that will add value to this country in the Upstream, and particularly in the gas processing sector”, he said.
