According to recent analysis by the Reuters news agency, Nigeria will earn less for its oil and struggle to replace reserves unless it can end years of industry stagnation, at a time its biggest customer, the United States of America, is becoming self-sufficient and African rivals are boosting supplies with improved refineries and far better technology.
Investigations have revealed that a domestic energy boom in the United States has already sharply cut demand for Nigerian oil, while legal uncertainty, political wrangling, corruption in the oil sector including oil bunkering at the highest official level and insecurity plague Nigeria’s oil industry which is still Africa’s biggest. In addition, rivals on the continent – both East and West – are fast catching up, and hungry for returns to boost their smaller economies thereby tempting foreign oil and gas companies with better terms and fewer bottlenecks than Nigeria.
Clearly, Nigeria has multiple problems in the oil game – it has failed to meet reserve growth and production targets for many years – while competition grows worldwide. High crude oil prices have shielded Nigeria of late – but this may not last forever, and its reputation as the proverbial Land-of-No-Tomorrow continues.
With oil accounting for around 80 percent of government revenue and 95 percent of foreign exchange reserves, Africa’s second largest economy is vulnerable to any negative shifts in oil and gas prices and demand. The U.S. accounted for 35 percent of oil exports from Nigeria in 2011. But it imported around 40 percent less last year, taking purchases from Nigeria to their lowest in over 20 years, according to data from the Energy Information Administration (EIA), a U.S. government agency.
This drop in demand has already resulted in Nigerian barrels selling for around 40 cents lower than its official selling price and left dozens of cargoes unsold and rolled over to future months, according to research by Africa’s Ecobank. This is indeed a very dangerous signal for the future of a country that is largely dependent on oil revenue while the sector that earns the money (NNPC) has become notorious over the years as the centre of Nigeria’s corruption story.
For the country to meet up the challenges, the leadership must sanitize the corrupt oil industry, tackle incessant cases of oil bunkering and acquire latest equipment that will ease oil exploration. DESERT HERALD also believes that the monopoly of the Nigerian oil sector under largely foreign companies is not in the interest of the nation because in Nigeria today and without the services of the likes of Shell, Chevron etc the country’s oil industry will be no more. We have the capacity and human resources as a nation to develop and offer same or even better services the likes of Shell, Chevron etc can offer. We believe that for the nation to survive and emerge stronger from the global competition in the oil sector, it must make increased efforts to capture more of the rapidly growing Asian market.
A big issue is that the growing East African oil and gas industry will prove to be a serious competitor, especially given its proximity to key Asian markets compared to Nigeria. There have been around 70 discoveries in sub-Saharan Africa in the last five years with the majority coming in East African countries like Tanzania, Uganda and Mozambique. Around 250 trillion cubic feet of natural gas may lie off those three countries alone, the US Geological Survey estimates.
Several East African LNG plants are expected to come online in the next 5 years, while Nigeria with similar gas reserves has stalled a new LNG project for the last 8 years, seeing oil major partners Chevron and Conoco give up stakes. Another dangerous signal for Nigeria is that a giant oil company, Shell, has sold its onshore oil blocks in Nigeria but is seeking to expand elsewhere in Africa. West African neighbour, Ghana, recently became an oil producer.
Certainly, there is a finite amount of money to be invested by oil and gas majors in the short to medium term, and Nigeria needs a slice of that cake. Therefore the competitive landscape has changed … Nigeria cannot afford to miss the boat. Oil Minister Diezani Allison-Madueke looked to ease concerns last week when she told bankers and oil firms that Nigeria was entering “a new dawn to boost investment and production.”
As part of the old promises Alison-Madueke said Nigeria would fix its ailing refineries, expand oil and gas output, tackle insecurity in the Niger Delta and ensure the passage of a landmark energy law, which would make it competitive with rival producers. The minister made similar promises when she took office in 2010 but many targets have been missed.
Nigeria loses $6 billion annually to crude theft, offshore piracy is on the rise and oil majors say it’s operating costs are among the most expensive globally. Energy consultants, Wood Mackenzie, forecast Nigeria’s oil production could drop by 20 percent by 2020 because years of delay to a Petroleum Industry Bill (PIB) have blocked tens of billions of dollars in exploration investment. Oil majors say they can’t invest in major new projects until the PIB is passed and if it is passed as it stands with higher taxes, then new investment will be deterred.
The Chinese have some interest in Nigeria through Addax, owned by Sinopec, which has said it wants to buy more onshore fields. Two Nigerian oil firms last week said they did not think the PIB will ever become law because of vested interests blocking progress and an insurmountable gulf between oil firms, lawmakers and the oil ministry over terms. Nigeria state oil firm, NNPC, is at the centre of the country’s energy business but is blighted by under-funding and corruption, according to several government probes including the recent one by the Nuhu Ribadu committee.
But around half of sub-Saharan oil output still comes from Nigeria and oil firms say it could comfortably double crude production and unlock the world’s ninth-largest gas reserves if Allison-Madueke comes good on her promises. Changing global oil dynamics still offer an opportunity.”Declining U.S. demand provides yet another incentive for the Nigerian government to conduct the reforms needed to reduce the losses, leakages and general dysfunction,” said Roddy Barclay, West African analyst at Control Risks.
(If not taken) DESERT HERALD believes investor appetite will remain muted by the array of complex political, operational and security risks that will continue to characterize Nigeria’s oil sector. It is now time for the leadership of the country, particularly those at the helm of affairs in the oil sector, to act and stop deceiving Nigerians with useless and unrealistic statistics that never work.