By Chibisi Ohakah, Abuja
Analysts believe that the year 2022 may turn out a make or mar year for Nigeria, with the country facing a race against time to implement reforms needed to bolster exploration and checkmate declining oil production. They say it will be year the country will fight the wave of divestments from international oil firms.
Researchers at the S&P Global Platts in a recent analysis said the signing into law of the long-delayed energy legislation called the Petroleum Industry Act, previously known as the Petroleum Industry Bill, in August this year may not spell Uhuru to Nigeria’s oil sector.
Rather, Nigeria is likely to contend with a gale of divestments by major oil companies to reduce operating, security challenges and the huge costs of battling with the pandemic, the global energy agency quoted industry officials and analysts.
The landmark PIA was signed into law Aug. 16 and was expected to turn the NNPC to a private company within six months in order to make it easier for the struggling company to raise funds for oil exploration and production. But impact of this bill has so far been barely felt several months after.
The agency noted that the PIA could be hugely beneficial, but government officials have lacked professionalism in putting it into place, a close industry observer told S&P Global Platts.
“The fact is that this Petroleum Industry Act is coming a little too late as it has been delayed for too long,” the source said.
“Those who were rightly placed to pioneer the implementation are not the people in government now. So, I expect to see more divestment by oil majors from selected assets because things are not working as they should be.”
Many oil majors are starting to divest legacy oil and gas assets in Africa as they target net-zero carbon emissions while hanging onto their most efficient and often largest oil projects, Platts noted.
Nigeria could be the worst hit as Shell, Chevron, and ExxonMobil are close to selling their onshore assets in the West African country. Nigeria is under pressure to implement the PIA as soon as possible, the agency quoted Mike Sangster, managing director of TotalEnergies in Nigeria.
“The window for investments into fossil fuels is narrowing. Very few years would remain for access to urgent funds to develop the Nigerian petroleum industry,” he said at a recent industry event.
All these come at a time when Nigerian is struggling to produce at even two-thirds of its total capabilities. Nigeria has the capacity to pump around 2.2 million b/d of crude and condensate, but in 2021 output has been languishing near 1.55 million b/d due to a slew of operational and technical issues.
Platts notes that the Nigerian government is aiming to attract much-needed investment to bolster oil exploration and production and increase reserves and output to 40 billion barrels and 3 million b/d, respectively, by the mid-2020s, but these targets are starting to look unattainable, the agency said.
The pandemic and the acceleration of the energy transition away from fossils fuels do not bode well for Nigeria, which is desperate to kickstart its exploration and production programs.
Also projects like Shell’s Bonga Southwest/Aparo, TotalEnergies’ Preowei and Exxon’s Bosi are all at risk of never being developed. These fields have the potential to add a total of around 400,000 b/d to Nigerian oil production.
“Investment decisions are billed to be taken on these landmark projects around next year to arrest Nigeria’s sagging oil production volumes,” S&P Global Platts quoted an official from the Nigerian Upstream Petroleum Regulatory Commission.
“But there are dark clouds hovering around sanctioning these projects now due to the emergence of the new COVID-19 variant.”
Ongoing field and pipeline issues, fiscal stress and insecurity in the Niger Delta are likely to continue to threaten the growth outlook for Nigerian oil output, according to S&P Global Platts Analytics.
Bonny Light, Escravos and Forcados have all faced production issues in 2021, while the output of other key grades, such as Qua Iboe, Brass River, Agbami, Akpo, and Egina, has also remained consistently low this year.
Nigerian oil supply will grow to 1.7 million b/d by April 2022, down from levels of 1.9 million b/d in April 2020, Platts Analytics said in its recent forecast.
Platts also wonders how Nigeria’s government will navigate its policy of ending gasoline subsidies from July 2022. Nigeria imports almost all the gasoline it consumes locally, estimated at 1.25 million mt/month, due to the poor performance of the four state-owned refineries.
The government’s subsidy is the difference between the landing cost of gasoline and the regulated pump price. The removal of these costly subsidies is domestically viewed as unpopular and politically sensitive, with opposition parties and labor groups urging the government to reverse decision.
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