Making more of natural resources

Making more of natural resources
Making more of natural resources

Nigeria's oil and gas industry is the largest on the continent and while Nigeria's economy is more diversified than many realise, the government still relies massively on oil revenues. Some 70 percent of government revenues and 95 percent of foreign exchange earnings come from oil. So how can the country best face up to the challenges of a world with falling oil prices? Tajudeen Atitebi finds out

The first major exploration in the Nigerian oil and gas sector was the discovery of crude oil in Olobiri, a remote site in the Niger Delta region. The discovery ended 50 years of unsuccessful oil exploration in the country by various companies and launched Nigeria into the limelight as a petro-state.

Nigeria’s first commercial oil discovery was originally operated by Shell Darcy. The company changed its name to the Shell-BP Petroleum Development Company of Nigeria in 1956 to reflect the BP interest. It also changed its name again to the Shell Petroleum Development Company of Nigeria in 1979 following the nationalisation of BP’s interest by the Nigerian government.

Nigeria exported its first crude oil in February 1958 from the Oloibiri oil field initially at the rate of 5,100 barrels per day. Oil production in the field finally stopped in 1978 and the field was abandoned the same year.

There are other petroleum exportation terminals in the country: Shell owns two, while Mobil, Chevron, Texaco, and Agip own one each. Shell’s Forcados Terminal is capable of storing 13 million barrels of crude oil in conjunction with the nearby Bonny Terminal.

Mobil operates primarily out of the Qua Iboe Terminal in the Akwa Ibom State, while Chevron owns the Escravos Terminal located in the Delta State with storage capacity of 3.6 million barrels. Other operators include Italian company Agip, which operated a terminal in Brass, a town 113 km southwest of Port Harcourt, with a storage capacity of 3.5 million barrels, while US company Texaco operates the Pennington Terminal.

Natural gas reserves in Nigeria are well over 2,800 km³; its gas reserves are three times as substantial as the crude oil reserves. The biggest natural gas initiative is the Nigerian Liquefied Natural Gas Company, which is operated jointly by several companies and the state.

Oil and gas exports account for more than 98 per cent of earnings for Nigeria and about 83 per cent of the federal government’s revenue. It also generates around 14 per cent of Nigeria’s GDP, as well as providing 95 per cent of foreign exchange earnings and 70 per cent of government budgetary revenues.

These contributions to Nigeria’s economy are, however, being threatened by the fall in the international market price and global demand. The oil price, which hovered around US$100 per barrel about two years ago, is currently on average just US$40 dollars per barrel.

Most of Nigeria's oil fields are small and scattered and they account for 62.1 per cent of all Nigerian production. This contrasts with the 16 largest fields, which produce 37.9 per cent of Nigeria's petroleum. As recently as 2010, Nigeria provided about 10 per cent of the US’s oil imports and ranked as its fifth-largest source for oil imports. However, Nigeria ceased exports to the US in July 2014 because of the impact of shale production in and India is now the largest consumer of Nigerian oil.

After several decades of domination by multinationals, Nigeria’s petroleum industry is seeing increasing participation by local operators. Indigenous companies have purchased billions of dollars worth of assets from firms such as Eni, Shell, Chevron and Total in the past five years.

Shell, along with many other oil majors, is going through a broad process of asset sales in the country in an effort to cut costs and boost profits. Other companies, including Total, Eni, Chevron and ConocoPhillips, are divesting from Nigeria’s oil and gas sector, which has been plagued by rising oil spills, sabotage and industrial-scale theft from Nigerian wells and pipelines of up to 150,000 barrels a day.

To increase indigenous participation, the government introduced the Nigerian Oil and Gas Industry Content Development Act 2010, which stipulates that independent operators be given preference in the award of new operating rights. The legislation also established the Nigerian Content Development and Monitoring Board to supervise the implementation of the provisions of the act.

The board has overseen a number of initiatives, including the development of oil and gas industrial parks to promote manufacturing, create jobs and stimulate the development of linkage sectors. So far, two sites of about 20 hectares each have been secured in Bayelsa and Cross River. Construction work has also commenced for two steel pipe mills in Bayelsa and Edo states. These mills will produce about 400,000 metric tonnes a year of pipes for the oil and gas industry.

The government has also introduced other legislation to make the industry more attractive to both local and international investors. Some of these reforms include the Amnesty Programme, whereby militants in the Niger delta are to be disarmed and rehabilitated with a stipend plus job training, and an omnibus piece of legislation called the Petroleum Industry Bill (PIB).

The PIB, currently undergoing legislative processes at the National Assembly, is set to establish the legal and regulatory framework for the Nigerian petroleum industry, reform the sector and improve transparency. Its objectives include enhancing the exploration and exploitation of petroleum resources; significantly increasing domestic gas supplies, especially for industry; creating a competitive business environment for exploitation of oil and gas; establishing a fiscal framework that is flexible, stable and competitively attractive; creating a commercially viable national oil company; creating strong and effective regulatory institutions; and promoting and protecting health, safety and the environment.

With the new federal government, a wind of change has started blowing in all directions, sweeping away years of incompetence, impunity and irresponsibility in the management of the sector. The recent appointment of a new Group Managing Director for the Nigerian National Petroleum Corporation and the retirement of all eight Group Executive Directors by President Muhammadu Buhari demonstrate a real willingness to reboot the sector.