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UGO AMADI
The hope for Nigeria’s oil and gas sector to get a much-needed revamp in 2020 may be a day dream as President Muhammadu Buhari’s state-led economic model will likely strangle reform and blunt efforts to increase oil production in the near term and further out.
This is as key highlights from PwC’s annual Africa oil & gas review 2019 released by PwC indicated that Africa’s oil & gas industry holds the potential for further growth mainly driven by an increase in investor appetite and a rebound in prices.
More so, new oil & gas finds off the coast of Africa have led to an increase in investment in infrastructure, technological advances, updates in regulation and improved governance, as well as the development of new skills.
However, President Buhari’s radical move in November to hike taxes on companies operating in its lucrative deepwater blocks may have raised the government’s share of the revenue from oil but could backfire by deterring international oil companies from Africa’s largest producer and hindering output growth.
According to energy expert , Ed Hobey-Hamsher, a senior Africa analyst at consultancy Verisk Maplecroft noted that “The prospect of more IOC divestment from Nigeria is looming, especially as [the] 20-year deepwater production sharing contract agreed in the mid-1990s begins to expire,”. “No one will want to be last major holding a PSC, and a race to divest will depress prices.
“Buhari shows no willingness to further projects that might rekindle oil and gas development,” Hobey-Hamsher added.
“He believes retaining his control of existing projects is crucial to maintaining his grip on power.”
Buhari’s shift comes as other producers in the region, like Angola and Gabon, sweeten fiscal terms to attract foreign investment into their beleaguered oil sectors.
“A 10% royalty hike marginally reduces Nigeria’s competitive advantage, in a country where investors must also weigh persistent security risks,” Paul Sheldon, geopolitical advisor at Platts Analytics, said in a recent note.
On production growth stifled, Nigeria, OPEC’s biggest African producer, saw its oil production grow sharply in 2019 thanks to the startup of the 200,000 b/d deepwater Egina field, with output averaging a five-year high of 1.91 million b/d in 2019, according to Platts estimates.
Militancy in the Niger Delta remained largely dormant in 2019, which helped keep production at elevated levels. But the security situation in the Niger Delta remains fraught as history has shown the region is just a few sparks away from a conflict.
Buhari has been managing militancy in the restive Niger Delta by continuing amnesty payments, and this will continue into 2020, according to the country’s budget.
“The real threat is aging infrastructure,” Hobey-Hamsher said, “Dilapidated pipelines would exacerbate the production disruption caused by even a minor increase in theft or sabotage by up to 300,000-400,000 b/d.” Key export flows on the Trans Forcados pipeline and Nembe Creek trunk line were frequently targeted by thieves resulting in shutdown on several occasions in 2019.
The country’s oil production prospects, however, remained stunted by the government’s budget deficits.
Platts Analytics said Nigeria’s persistent fiscal deficits, projected by the IMF at 5% of GDP and nearly 40% of the budget in 2019 and 2020, raise short- and medium-term risks to oil supply growth.
“Fiscal stress puts a spotlight on amnesty payments to Niger Delta militants, which risk being gradually whittled away as 2016 recedes further from memory,” Sheldon said.
“However, a cut to amnesty payments could quickly change regional security dynamics.”
Nigeria saw its production plummet to a 30-year low of around 1.4 million b/d in mid-2016 due to devastating attacks on oil installations by Niger Delta militants.
On Legislation Slowdowns, Nigeria’s singular piece of legislation aimed at introducing radical reform in its oil sector, the Petroleum Industry Governance Bill, or PIGB, is still gathering dust in the parliament as it continues to bounce between legislative and executive arms of government.
The PIGB, which would change the organizational structure and fiscal terms governing the Nigerian oil industry, has been in the works since 2008. Foreign oil companies have said billions of dollars in investments in the Nigerian oil industry have been held up due to the non-passage of the PIB.
Nigeria aims to increase oil production from to 3 million b/d by 2023, according to a government document. But industry analysts say the target may elude the country due to the climate of uncertainty the non-passage of the PIB has created.
Most analysts do not expect the bill to be passed this year, which means international oil firms are unlikely to increase their investment in the country unless more attractive terms are offered.
“Buhari could provide a positive signal to investors and temper tumbling investor confidence through a speedy passing of the PIGB in 2020, a prospect, however, that remains remote,” Hobey-Hamsher said.
The country’s petroleum minister, Timipre Sylva, however, said he will be striving to get the PIGB passed by mid-2020.
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