- Production slumps to four-year low in 2020
- COVID-19 threw Nigeria’s oil industry into turmoil
- Sector anxiously awaits passage of PIB in 2021
Nigeria’s oil industry looks set for a difficult 2021 as a delay in implementing key legislative reforms compounds problems for a sector still reeling under the weight of OPEC+ output cuts and the impact of the coronavirus.
Oil and gas remain the mainstay of the Nigerian economy.
However, analysts say Nigeria has not been able to draw on its huge gas resources to bail it out from the economic woes, after passage of the landmark energy reform legislation the Petroleum Industry Bill (PIB) stalled.
“The non-passage of the PIB is the biggest problem, creating uncertainty and eroding confidence in our industry. It is not an industry problem, but a national problem,” Oluseye Fadahuinsi, executive director Pillar Oil, said.
Hopes were raised that the PIB would be passed by parliament in 2020 but it is now expected to be passed into law by Q1 2021, according to the Nigeria’s oil minister Timipre Sylva.
This key legislation, which is meant to completely overhaul the Nigerian oil industry and provide new fiscal incentives to producers, has been in the works for more than a decade.
The country’s parliament has continued to stall in debating the oil-sector reform bill, while key projects including new licensing rounds for shallow offshore and deep offshore oil blocks remained on the drawing table.
One critical reform that Nigeria did however carry out last year was the cessation of the gasoline subsidy, which is likely to save the country a lot of money, according to analysts.
The deregulation of the country’s downstream oil sector was a much-needed change for a country that depends almost entirely on imports for its gasoline.
The OPEC member is also very keen to grow its gas resources as its oil export revenues continue to taper.
Nigeria is currently ranked as having the ninth largest global gas reserves with over 200 Tcf but it has not started up any new gas projects recently.
“The question is how many greenfield gas projects have come up in Nigeria in recent times. We need to remain focus to get the best out of the Nigerian gas resources,” added Fadahuinsi.
The government says it has launched ambitious programs to harness the gas for use in the domestic market and for exports, and turn the country’s economic fortunes around.
Nigeria’s crude and condensate production slumped to around 1.79 million b/d last year from 2.04 million b/d in 2019, according to S&P Global Platts estimates.
This was the lowest output since 2016 when Niger Delta militants repeatedly attacked key oil infrastructure pushing the country’s production to as low as 1.4 million-1.5 million b/d at points that year.
President Muhammadu Buhari recently admitted that the country has been suffering heavily following a sharp drop in output and depressed global oil prices.
“We are being squeezed to produce at 1.5 million b/d against a capacity to produce 2.3 million b/d… now the oil industry is in turmoil,” Buhari said.
Under the latest OPEC+ deal, Nigeria has committed to keeping its crude output at 1.52 million b/d for January, 313,000 b/d below its baseline under the deal of 1.829 million b/d.
Platts Analytics expects Nigerian crude production to grow from 1.4 million b/d in December to over 1.7 million b/d in April, and then holding at around 1.9 million b/d in the second half of the year.
But Nigeria’s production growth is threatened by fiscal stress, which may pressure amnesty payments to former militants, Platts Analytics added in a recent note.
A presidential amnesty program for militants to maintain peace in the Niger Delta, the country’s main oil producing region, remains in place but there are concerns that militancy might be picking up again.
Faced with the grim prospect of declining demand for oil and consequently lower revenue, Nigeria will aim to trim oil production costs to $10/b in 2021, from the current range of $15-$35/b, head of state energy firm Nigerian National Petroleum Corp. Mele Kyari said.
“In the face of the clear realities on ground, reducing costs of production and eliminating wastages will be the main focus if our oil industry must remain in business and be competitive,” Kyari said, adding: “By the end of 2021, we want to achieve $10/b oil production. No project will be allowed to take-off except we know it can pay for itself.”