Delay in both federal and state elections has added another layer of risk and uncertainty to the already existing oil price slide challenges facing the country’s oil sector, according to a new report from IHS, the leading global source of critical information and insight.
The political turmoil in the country poses a significant risk to the vitality of the nation’s oil sector as investment uncertainty lingers.
IHS forecasts crude oil production in Nigeria will drop from the 2 million barrels per day in 2011 to below 1.5 million bpd by 2020 without substantial investments in the offshore sector. The steep decline in oil prices is already hurting the country’s finances, the report finds.
The latest report from the Organization of Petroleum Exporting Countries (OPEC) finds oil production from member state Nigeria declined 3.2 percent from January to February to a monthly average of 1.9 million bpd.
According to the Petroleum Minister, Alison-Madueke, at the recent Nigeria Oil & Gas 2015 conference in Abuja, “Persistent depressed oil prices may limit industry scope to manoeuvre in growing long-term production and reaching the target.”
The Federal government’s plan to increase crude oil production in the country from just over 2 million barrels per day to 4 million barrels per day by 2020 is also under threat from current oil prices as well as the uncertain political future in the country.
Industry operators at the recent oil and gas conference in Abuja said global oil prices were not the only problem, with oil theft, growing security challenges, and the uncertain political future in the country also factors hindering growth in Nigeria.
“Elections will be yet another disruptive force for Nigeria,” said Roderick Bruce, principal analyst at IHS Energy and one of the report’s authors.
“Regardless of the election’s outcome, energy investors will continue to face fiscal and regulatory uncertainty as a result of ongoing challenges to the passage of the Petroleum Industry Bill (PIB). That uncertainty has already constrained deepwater exploration and development,” Bruce added in a statement.
According to IHS, deepwater exploration and appraisal drilling in Nigeria has fallen sharply in recent years due to concerns over the PIB. The average number of wells drilled per year had dropped 72 percent since the 2004-2008 period before the first PIB draft emerged.
The elections are likely to worsen the security situation in the oil sector with implications for political violence in the Niger Delta and northeast. Discontented groups from the Niger Delta region have a history of blockading and disrupting oil and gas facilities in order to gain political attention and concessions for the region in the elections.
The elections are expected to divide the political elite further, making the approval of the PIB more challenging. “The only certainty for Nigeria’s oil sector is even more uncertainty,” Bruce said. “If Goodluck Jonathan wins, it is unlikely that we will see any significant change in oil sector policy or structure in the next two years. However, if Buhari wins, he will have more impetus to implement some changes. But deep reform will still be elusive, and we should not expect any substantial changes until after mid-2016.”
DAN OJABO
