A couple of weeks ago the jinx surrounding the sale of nation’s once Cash-Cow was seemingly broken with the eventual sale Nitel/ Mtel. But DAVID AGBA writes that there is still a lot of unresolved issues which the Nigerian people are anxious to get explanation.
It all started in 2005, when Nigeria’s oil and gas industry came under dwindling fortunes as oil and gas workers and installations came under militant attacks in the Niger Delta.
It took the ingenuity of late President Umar Musa Musa Yar’Adua’s amnesty programme to salvage the industry from the hands of the various militant groups in the region, which came under the coalition of the Movement for the Emancipation of Niger Delta (MEND) that had almost halted oil and gas production for repentant militants in 2009.
The Amnesty Programme effectively curbed destructive attacks of oil facilities as well as kidnapping of expatriate oil workers for ransom.
However, the twin-evil of oil theft and pipeline vandalism became the bane of the oil and gas industry, effectively leading to production losses and inability of the country to meet her set targets on daily oil production and crude oil reserves.
Lack of sustained investments to salvage the situation, due to what investors called the unpredictability of the operating environment, aggravated the already precarious situation.
More lately, the issue of falling oil prices and Nigeria’s loss of the United States’ market worsened the country’s economic woes, threatening the implementation of the annual budgets of the various years, with 2015 potentially being the worst hit.
The greatest single factor that hindered investments in Nigeria’s oil and gas industry in 2014 was what operators described as the general uncertainty in the operating environment. This was given impetus by the non-passage of the Petroleum Industry Bill (PIB).
This air of uncertainty, which dominated 2014, was created by the reform initiated by the federal government to change the face of doing business in the sector.
Unaware of the possible outcome of the reform and particularly uncertain about the provisions of the Petroleum Industry Bill (PIB) and their impact on the profitability of new investments, the international oil companies (IOCs) operating in Nigeria continued to hold on to world-class investments, citing uncertainty of the operating environment.
Unfortunately, despite the endless promises to pass the reform bill by the President Goodluck Jonathan-led executive arm of government, as well as the National Assembly, 2014 has passed without the passage of the all-important legislation.
As Nigeria was witnessing dwindling investments other countries especially in the West and East Africa made large discoveries of oil and gas, providing alternative choices for investors.
This development has no doubt forced Nigeria to lose its traditional status as the final destination for investments in the sub-region.
With investors’ perceived uncertainty in Nigeria’s operating environment and the acquisition of oil and gas –producing status by other countries, investors started relocating to other destinations where the environment is seen to be predictable and investor-friendly.
Lack of sustained investments on giant projects by the international operators took its toll on oil production, crude oil reserves and employment generation as all the deliverables in these areas were not achieved.
The reform of Nigeria’s oil and gas industry started when former President Olusegun Obasanjo on April 24, 2000, set up the Oil and Gas Reform Implementation Committee (OGIC), headed by his Honorary Special Adviser on Energy and Strategic Matters, the late Dr. Rilwanu Lukman, to carry out the first comprehensive reform of the oil and gas industry.
The beginning of the reform signaled the dwindling fortunes of Nigeria’s oil and gas sector as the deep-pocket multinational companies started to increasingly cut their investments due to the uncertain outcome of the reform.
Unfortunately, the reform dragged on until Obasanjo left office without implementing the National Oil and Gas Policy (NOGP) report of the Lukman’s committee.
However, the imperatives for reform in the sector prompted the late President Umaru Musa Yar’Adua to reconstitute a new committee, also headed by Lukman, on September 7, 2007.
Lukman’s new committee, which submitted its report on August 3, 2008, was mandated to “transform the broad provisions in the NOGP into functional institutional structures that are legal and practical for the effective management of the oil and gas sector in Nigeria”.
The PIB, which seeks to replace about 16 obsolete legislations in the oil and gas sector, was a product of Lukman’s committee.
The passage of the PIB, which was first sent to the National Assembly during Yar’Adua’s administration, was unduly delayed until Yar’Adua died and the tenure of the sixth National Assembly expired.
However, following criticisms of the initial draft of the bill sent by the late Yar’Adua by Nigeria’s business partners, President Goodluck Jonathan, on assumption of office withdrew the bill to enable the executive address contentious issues and ensures all stakeholders are carried along. On July 19, 2012, Jonathan sent to both chambers of the National Assembly a revised version of the PIB for consideration and passage into Law.
But exactly 29 months after the bill was submitted to the National Assembly, this administration has not passed it into law.
As a corollary to this, with the increased domestic production of shale oil, the US slashed crude oil imports from a peak of almost 14 million barrels per day in 2006, to slightly above 7 million barrels per day.
Crude oil import from Nigeria, one of the principal sources of light crude, was also slashed from more than 1 million barrels per day in 2010 to zero in July 2014.
With the zero importation by the United States, Nigeria had to explore alternative markets in the Asia, particularly India, which emerged as the highest importer of Nigeria’s crude.
But it is feared that Nigerian crude may need to be priced at a discount to go to new markets in Asia because of the long distance involved in shipping the product to Asia.
It is estimated that the federal government and the oil and gas producing companies may have lost an estimated $11.5billion to the drop in the price of Brent crude oil from $115 per barrel in June to less than $60 per day.
This has forced the federal government to introduce a raft of measures to shore up its revenue in the face of dwindling earning from crude oil, its main revenue source.
Worried that the price would tumble below $80 per barrel, the federal government revised the 2015 budget benchmark to $65, which is below the $77.50 used in 2013.
Abundant supply of crude oil to the international market by the member countries of OPEC and the big jump on US crude stockpiles are said to be some of the factors responsible for the current downward slide in the price of crude oil.
With shale gas/oil boom in China and the US, there is falling demand of imported crude oil by the two countries which used to be the major buyers at the international market.
The current volatility in the prices of crude oil at the international market escalated, after the Organisation of Petroleum Exporting Countries (OPEC) refused to cut output, despite what is seen as a supply glut.
Saudi Arabia blocked calls from poorer members of the OPEC to cut production to stem a slide in global prices.
The Director of Emerald Energy Institute for Petroleum and Energy Economics, Policies and Strategic Studies, University of Port Harcourt, Professor Wumi Iledare told THISDAY that the falling prices of crude oil at the international market may force oil companies operating in Nigeria to cut investments and downsize operations.
He however, stated that the drop in the prices of crude oil is an opportunity to reduce wastages and take greater risks by embarking on aggressive implementation of projects.
According to him, since the costs of oil and gas projects are high during high price regime, this period of low price regime is a good opportunity for the companies to manage their operations at profitability.
Crude oil theft and vandalism also impacted negatively on Nigeria’s oil and gas sector in 2014.
The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala; the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke and the then Governor of the Central Bank of Nigeria (CBN), Mallam Lamido Sanusi Lamido had raised the alarm several times on the impact of oil theft on the country’s oil revenue.
Even President Goodluck Jonathan had called for international efforts to curb oil theft, stressing that if foreign refineries would stop buying stolen crude, it would discourage oil thieves.
The Executive Vice President for Sub-Saharan Africa in Shell Exploration and Production Africa Limited, Mr. Ian Craig stated that 150,000barrels of crude oil was stolen daily in the country.
Craig acknowledged that onshore, the amnesty programme had a major impact as security had improved, but pointed out that his company’s production was still below pre-militancy levels.
He noted that crude theft and its associated criminality “drive away talent, both Nigerian and international, increases cost, reduces revenue to both investors and the government and results in major environmental impacts”.
“The volume of oil, which is stolen is difficult to estimate, but is probably in the region of 150,000barrels per day,” he said.
Unlike the previous years when some IOCs took bold decisions to launch new projects to add to the country’s production, 2014 has ended without any significant project being launched by the IOCs.
In 2013, some IOCs had managed to launch few projects to boost reserves and production, even though these projects were not significant when compared to projects in their investment portfolios.
For instance, Esso Exploration and Production Nigeria Limited (EEPNL), a subsidiary of ExxonMobil had in 2013 awarded few contracts for the Erha North field, exactly seven years after the company commenced production in its Erha field, the company’s first deepwater oil field in Nigeria.
Erha North was one of the several oil and gas projects stalled for several years due to the inability of the NNPC and the IOCs to reach an agreement on their costs estimated at over $30 billion.
Total Exploration & Production Nigeria (TEPN) had also in 2011 ignored the non-passage of the PIB and commenced the ambitious development of the Ofon Phase 2 project.
Total Upstream Nigeria Limited had also launched the development of Egina deepwater field, and awarded contracts to Saipem SpA and FMC Technologies for the subsea development of the field in June 2013.
Under a contract valued at $3 billion, Saipem providing engineering, procurement, fabrication, installation and pre-commissioning of 32 miles of oil production and water injection flow lines, 12 flexible jumpers, 12.4 miles of natural gas export pipelines, 50 miles of umbilicals, and the mooring and offloading systems.
Shell Nigeria has stated that it is pushing forward to have the Final Investment Decision (FID) of the $12.5billion world-scale Bonga South West deepwater project ready soon.
Despite Nigeria’s abundant gas resources, the absence of sustained investments in the sector in recent years have also affected the federal government’s Gas Master Plan, designed to attract $30 billion investment in the sector.
Gas production increased from 6.3 to 7.8 billion cubic feet per day and decrease in gas flare to less than 11 per cent compared to 30 per cent in 2010.
Though gas sales rose by over 70 per cent to an average of four billion standard cubic feet per day, the government’s initial plan to further increase power generation by additional 40 per cent to 6,000 megawatts in 2014 could not be achieved due to insufficient supply to the power sector.
Apparently hopeful that the outcome of the reform, which resulted in the drafting of the PIB would boost investments in the sector, the Obasanjo’s administration had set a production target of four million barrels per day and reserves of 40 billion barrels by 2010.
With the coming on stream of the deepwater Bonga field in 2005, daily production hit 2.5 million barrels during the pre-Niger Delta militancy years, with Shell alone accounting for about 999,855 barrels daily.
But with protracted reform, which discouraged investments and militancy, daily production was on decline, averaging 2. 4 million barrels in 2014, representing about 100,000 barrels less than the daily output during the pre-militancy years and 1.6 million barrels less than the 2010 target.
With the protracted reform, only few IOCs have managed to embark on new projects and the quantum of projects being launched is not even too significant when compared to the large number of projects in their investment portfolios in the country.