Nigeria Oil Industry in Turbulent Year

Peter Uzoho chronicles the events that shaped the Nigeria oil and gas industry in 2020

The oil and gas industry globally has witnessed its most tempestuous experience in history in 2020. The outbreak of the COVID-19 pandemic from Wuhan, China, and its threat to lives and businesses led to the introduction of lockdowns and other stringent restriction of movement measures across cities of the world.

Nigeria like other countries had begun the 2020 business year on a very promising note. The Nigeria oil and gas industry entered the year basking in the euphoria of a major milestone that was recorded in the twilight of 2019 –the eventual signing of the Final Investment Decision (FID) for the seventh plant or train 7 of the Nigeria Liquefied Natural Gas (NLNG).

The $10 billion project which had been delayed for about 10 years was expected to complement the existing six trains and raise the total production capacity from the current 22 metric tonnes per annum (MTPA) of gas to 30MTPA.

This implied an increase of the facility’s production capacity by 35 per cent. The industry players had described the project as a game-changer for the oil and gas industry as well as a major catalyst for Nigeria’s economic transformation.

The train 7 was said to deliver at least $20 billion of net revenue per annum for the federation and create about 12,000 direct and 40,000 indirect jobs to Nigerians.
In February 2020, the Nigeria oil and gas industry recorded another significant milestone with the launch of the National Gas Transportation Network Code (NGTNC) initiated by the Department of Petroleum Resources (DPR).

The code formally launched in Abuja during the third edition of the Nigeria International Petroleum Summit (NIPS), by the Minister of State for Petroleum Resources, was designed to open up access, enhance availability and affordability of gas for domestic use.

The code, according to the DPR, is a set of rules that guide the use of the gas transportation system in Nigeria and would essentially govern the operations of all the network players including suppliers, transporters, shippers and agents.

It is also a contractual framework between the network operator and network users, serving as an important negotiation component of the gas business and transactions in the Nigerian domestic gas market.

The NGTNC was patterned after the United Kingdom’s Uniform Code (UNC) and modeled on a methodology that is established, recognised and practiced globally within matured gas markets, which, when implemented, shall entrench transparency in the gas industry.

The Pandemic

However, on the heels of the fast-spreading of the COVID-19 pandemic, the world began to tremble. The global oil market began to feel the hit of the effect of the virus when countries began to impose lockdowns and restriction to contain the spread of the ravaging COVID-19.

The development fueled sharp drop in the demand for crude and refined petroleum products, leading to the demand-supply imbalance and the collapse of the crude price. The oil price which was trading above $60 per barrel began to nosedive almost on a daily basis. The crisis in the global oil market escalated due to the war of supremacy between the two oil giants, Saudi Arabia and Russia over crude production and supply, leading to over-supply of crude amidst fewer buyers. This led to the price of Brent crude, the global benchmark for oil price, plunging at a time, to as low as $15 per barrel and recording an 18-year low in April.

During the period, Nigeria saw her economic projections for the year shattered as the country’s revenue from crude oil plummeted.

The 2020 national budget had to be reviewed in order to keep it in tandem with the unfolding economic realities. The Nigerian National Petroleum Corporation (NNPC) at the time, declared that a number of Nigerian crude vessels were hovering the sea with no buyers in sight, and even at some point, was begging buyers to take Nigerian crude.

Amid the turbulence and the need to survive the hit, the NNPC began to re-strategise on how to produce at a more efficient and cost-friendly manner, so as to be able to save and generate more money for the federation. Under its current Group Managing Director, Mallam Mele Kyari, the corporation announced its plan to cut oil production cost to $10 per barrel and rallied its partners to key into the plan.

As part of the measures to cushion the negative impact of the pandemic-induced lockdowns and restrictions imposed on the people, the federal government announced the reduction in the pump price of petrol from then N145 to N125 per litre. The price was subsequently slashed to N121.50. It, however, went up again with the gradual recovery of oil price.

In the midst of the revenue crisis confronting the government, the government finally listened to the voice of reason and announced the removal of petrol subsidy to enable it channel the resources to more critical areas. The move brought to an end the many years of waste arising from the subsidy payment. It had been estimated that subsidy on petrol had cost Nigeria over N10 trillion in a period of 10 years. The subsidy removal was the commencement of the deregulation of the downstream sector of the Nigerian oil and gas industry by the federal government.

Oil & Gas Operators’ Response

Meanwhile, in supporting the government to adequately confront the effect of the pandemic and help the nation’s recovery from the plague, the Nigerian oil and gas industry had in March, launched the industry-wide initiative against COVID-19.

A coalition of 33 industry operators led by the NNPC contributed $30 million (N11 billion) to help the federal government combat the virus in the country under three thematic areas of Provision of medical consumables; Deployment of logistics and in-patient support system; and Delivery of medical infrastructure.

Rising to the health and safety challenge posed to the industry operations and operators by the pandemic, the DPR, issued guidelines to industry players on managing the spread of the virus in offshore and remote locations.

The agency, in its industry circular, said that, “while strategies adopted by industry operators during this period is anchored on health & safety of personnel, compliance, stakeholders’ alignment, ensuring work-life balance, leveraging technology as well as ensuring continuity of businesses & operations, it has become imperative to adopt similar measures in onshore field locations”.

Fuel Subsidy Removal

In June, the federal government proceeded with the full deregulation of the downstream petroleum sector with the removal of the existing cap on fuel prices, to allow market forces begin to determine the price of petrol at the pump. The pronouncement however, came with the caveat that it would still be advising, through the Petroleum Products Pricing Regulatory Authority (PPPRA), on the monthly prices of petrol through price modulation.

That meant that private marketers who had not been participating in the petrol importation activity, could resume importation. The deregulation basically offered them the window of importing products and selling at prevailing market prices, without the usual price band set by the concerned regulatory agency.
But the marketers who had studied the document conveying the deregulation, pointed out some contradictions which they were not comfortable with.

According to the document, the agency (PPPRA) would only continue to monitor trends in the crude oil market and advise the Nigerian National Petroleum Corporation (NNPC) and oil marketers accordingly.

The marketers argued that if petrol price was to be determined by market forces, it was no longer necessary for the PPPRA to say it would still be advising the NNPC and the marketers on the monthly price of petrol.

AKK Gas Project

Also in June, the oil and gas sector recorded a major mark in its infrastructure development with the flag-off of the epochal 614km Ajaokuta-Kaduna-Kano Gas (AKK) pipeline project by President Muhammadu Buhari. The virtual flag off ceremony was done simultaneously at Ajaokuta, Kogi State and Rigachikun, Kaduna State camp sites.

Excited about the project, Buhari said it was very dear to the people of Nigeria and must succeed, affirming the Nigerian government’s commitment to ensure timely delivery of the landmark AKK pipeline project within budgetary allocation and specifications.

With the steady recovery of crude price, facilitated by the sustained production cuts by the Organisation of Petroleum Countries (OPEC) and its allies, the federal government in September, finally surrendered the fixing of petrol price. It said the decision was to allow cost reflectivity to prevail in the downstream petroleum sector. That action led to the rise of petrol pump price to N162 per litre, and subsequently, to N168 per litre.

But with the difficulty in accessing foreign exchange at the official Central Bank of Nigeria (CBN) rate of about N380 per dollar, the marketers are yet to resume importation as they still depend on the NNPC for the supply of products.

PIB

Also in September, the president transmitted the draft copy of the long-awaited Petroleum Industry Bill (PIB) to the Senate for consideration and passage.

The bill which had lingered for years, seeks to produce a new petroleum law for the country that will replace the outdated Petroleum Act of 1969, as amended.

The president, in a letter dated September 2, 2020, and addressed to the Senate at plenary and read by the Senate President, Mr. Ahmed Lawan, said: “Pursuant to Section 58 of Constitution of the Federal Republic of Nigeria 1999 constitution as amended, I formally request the consideration and passage into law by the Senate the Petroleum Industry Bill 2020.

“In particular, the Senate may wish to note that this bill combines in a single tone, aspects of significant reforms to the laws governing the Nigerian Petroleum Industry, that were previously set out in two distinct draft legislation namely the Petroleum Industry Bill 2020 and the Petroleum Industry Fiscal Bill, 2020. While I trust that the Senate will in their usual expeditious manner favourably consider the passage of this bill into law please accept Mr. Senate President, the assurances of my highest consideration.”

The bill is structured in four parts of Petroleum Industry Governance Bill (PIGB), Petroleum Industry Administration Bill (PIAB), Petroleum Industry Fiscal Bill (PIFB), and Petroleum Industry Host Communities Bill (PIHB). When passed, the NNPC will be replaced with the Nigerian National Petroleum Company Limited, which makes it a commercial entity. The PPPRA and the Petroleum Equalisation Fund (PEF) and some other agencies may cease to exist.

The Senate had promised to pass the bill by the first quarter of 2021.

Waltersmith Modular Refinery

On November 24, 2020, President Buhari equally inaugurated the 5,000 barrels per day Waltersmith modular refinery in Ibigwe, Ohaji/Egbema Local Government Area of Imo State and the groundbreaking ceremony for the 50,000 barrels per day expansion project.

The president, who performed the inauguration virtually, in Abuja, said the establishment of modular refineries in the country would make petroleum products available in the country and eliminate importation.

As part of government’s drive to introduce gas as an alternative to fuel for both affordability and cleaner environment, Buhari in early December, launched the national Autogas policy which was initiated to convert petrol/diesel cars and generators to run on either Liquefied Petroleum Gas (LPG) or Compressed Natural Gas (CNG).

Although, the industry has experienced a very challenging year in 2020 due to the COVID-19 pandemic, as indicated by the huge losses suffered during the period, it was not all pain and sorrow for both the nation and the industry.

A number of laudable achievements have been recoded despite the turmoil, as listed above.

The eventual discovery of the vaccines for COVID-19 obviously portends a brighter business activity for the Nigeria oil and gas industry come next year.

Gh Extractives

Ghextractives.com is an independent multimedia portal that seeks to provide credible information and news content to readers especially players in the extractive sector in Ghana, Africa and beyond. It also provides a unique platform for players in the energy sector to market their products and reach a wider audience

View All Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.