Nigeria’s oil and gas industry is so badly mismanaged by the Federal Government which has total control over it, that even a free-fall in oil prices has been unable to get the bureaucrats and politicians overseeing the sector to advance long needed reforms.
Brent crude, the international benchmark, plunged 28 percent since June to $82.95 a barrel Friday, as the shale boom lifted U.S. production to the highest in at least 31 years and global demand slowed.
U.S. crude production expanded to 8.97 million barrels a day through Oct. 31, the Energy Information Administration said on Nov. 5, which is the most in weekly data going back to January 1983, according to the Energy Department’s statistical arm.
That compares with Nigerian production of 2 million barrels a day in October.
U.S crude production has grown 46 percent since 2010, while Nigeria’s has remained flat over the period.
This is largely because the USA has let the markets work to unlock hitherto hidden/ unprofitable oil from shale fields, while the Nigerian government’s interference in the sector has thwarted its development.
“While Nigeria attracted strong portfolio inflows in 2012-13, FDI has remained low and sticky in recent years – below $10bn per year, or less than 2 percent of GDP, based on IMF data.
“This compares poorly with other African oil producers and reflects limited new investment in the oil and gas sector, a situation reinforced by substantial delays in passing the Petroleum Industry Bill,” Standard Chartered analysts led by Samir Gadio, Head of the banks Africa Strategy and FICC Research said in an October 31 note.
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Annual investment in oil and gas in the U.S.A is at a record $200 billion, reaching 20 percent of the country’s total private fixed-structure spending for the first time, according to Bank of America.
Nigeria may have lost at least $28 billion since 2010 in scrapped or deferred investments in the oil sector, due to a lack of movement of key reforms by the government.
Nigeria ranks number-one in Sub-Saharan Africa by the US Geological Survey in terms of size of undiscovered oil and gas resources.
The oil and gas industry which accounts for 75 percent of government revenue and up to 95 percent of dollar earnings, makes up only 14.4 percent of gross domestic product (GDP), according to data from the National Bureau of Statistics (NBS).
While other countries are using the current slide in oil prices to reform their home-grown oil sectors (by increasing investment incentives, boosting domestic demand or shifting the supply mix) Nigerian politicians have yet to wake up from their slumber.
Qatar plans to cut exports of condensate and process more of its light oil into naphtha and other higher-value products that it can market in Asia, where the boom in U.S. shale output is adding competition for sales.
Qatar’s Ras Laffan refinery will double its capacity for processing condensate by 150,000 barrels a day by the end of 2016, officials at state-run oil-marketer Tasweeq said at a conference in the capital Doha, last week.
India’s Prime Minister Narendra Modi has used the timing of the sliding oil prices to press ahead with decisions to lure investors and revive the economy.
Modi freed diesel prices of state control for the first time in over a decade and raised tariffs on natural gas in October, in the biggest steps to curb subsidies and spur output.
Mexico has also recently freed up its oil industry to private capital and in the process attracted billions of dollars.
“The oil subsidy in Nigeria can be cancelled without people noticing it at the pumps as oil prices fall,” said a BusinessDay source, speaking on condition of anonymity.
On the gas side, there are two mega gas finds offshore Nigeria, which have yet to be developed because the government is dragging its feet on commercial terms to develop the fields.
The two fields owned by international oil companies are said to contain up to 3.9 trillion standard cubic feet (SCF) of gas.
“Gas has to be let go by the government (NNPC/NAPIMS). There is no gas available for power plants because there are no terms on which gas will be developed,” said another oil industry source.
“Right now less than 900 million scf of gas gets to the entire power sector when you need 6 bn scf a day.”
Analysts say the import of the crude oil fall is that Nigeria has to drive internal demand for crude oil, gas and other oil derivatives.
“There’s a very strong linkage between oil production growth, economic growth and wage growth across a range of U.S. states,” said Francisco Blanch, head of commodities research at Bank of America.
Nigeria could achieve a production capacity of 4-5Mb/d in the medium term with movement on reforms, according to Ildar Davletshin, an oil and gas analyst at Renaissance Capital.
“Nigeria and other traditional producers cannot influence the development of US shale oil, they can nevertheless change conditions in their own sectors to gain an edge in the competition with tight oil projects,” said Davletshin.
PATRICK ATUANYA
