As Nigeria’s oil and gas industry winds up 2016, Ejiofor Alike reports that the giant strides recorded in the areas of stabilising fuel supply, improving transparency and corporate governance, as well as improving the country’s relevance in the global energy dynamics, was eclipsed by the devastating impact of militancy on oil production and revenue
With the raft of measures earlier put in place by the Minister of State for Petroleum, Dr. Ibe Kachikwu to split the defunct Petrol Industry Bill (PIB) for easier passage, enthrone transparency, accountability and also address the funding challenges that plagued Nigeria’s oil and gas industry, there is no doubt that 2016 marked a new beginning in the history of the sector in Nigeria.
However, the giant strides may have paled into oblivion with the militant attacks on oil and gas installations, which plunged Nigeria’s oil production to a 20-year low in 2016, while oil revenues were also halved during the year under review.
President Muhammadu Buhari’s famous ‘body language’ which was said to have stabilised the sector in 2015, and sent vandals and oil thieves into exile, thus boosting oil and gas production and improving power supply, could not perform the same magic in 2016.
Before he assumed office, public perception and audit reports showed that the industry was ridden with corruption, coupled with the unresolved issues of inadequate funding of joint ventures, perennial scarcity of petrol, non-passage of PIB, weak local refining capacity, long contracting cycles and other intractable challenges.
Though much success was recorded in addressing some of these challenges, the lack of deliberate policy on the part of this administration to consolidate on the gains of the Amnesty Programme of the late President Umaru Yar’Adua escalated the security challenges in the oil-rich region in 2016, which culminated in February attacks on Escravos-Lagos Pipeline, and the subsequent bombing of the Forcados subsea pipeline.
With the February 14, 2016 spill on the subsea pipeline, which forced Shell to declare force majeure on February 21, coupled with attacks on other offshore and onshore facilities by the Niger Delta Avengers and other militant groups, the country lost over 900,000 barrels of crude oil per day, plunging daily production to a 20-year low.
The impact of the attacks was so massive that within the first quarter of 2016, Nigeria’s earnings from crude oil and gas, Petroleum Profit Tax (PPT) and Royalties declined by 34.1 per cent or by N205.05 billion, according to the Central Bank of Nigeria (CBN), in its Economic Report for the First Quarter of 2016.
According to the report, the country earned N396.47 billion from the sale of crude oil and gas, PPT and Royalties, as against N601.52 billion recorded in the fourth quarter of 2015.
According to the report, the decline in oil revenue relative to the 2016 budget estimate was attributed to the persistent fall in receipts from crude oil and gas exports, due to the continuous drop in the price of crude oil in the international market as well as a series of shut-ins and shut-downs at some NNPC terminals owing to pipeline vandalism and repairs.
Giving an insider account of the impact of the crisis, the Vice-Chairman of the Security Subcommittee of the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry (LCCI), Mr. Shina Bankole, had revealed that Nigeria lost over 130 million barrels of crude oil from January to November 2016 to the activities of 32 militant groups in the Niger Delta region.
Bankole, who is also the General Manager in charge of Security at Chevron Nigeria Limited, had told a Health Safety and Environment (HSE) Conference in Lagos that between January and November, 58 incidents of sabotage were recorded where oil and gas facilities belonging to the oil companies were vandalised.
Bankole disclosed that of the over 275 cases of kidnappings recorded across 29 states between January and November, 45 cases were related to oil and gas industry personnel and their dependants.
According to him, of the 99 incidents of sea robberies and pirates recorded within the same period, 19 cases involved the oil and gas industry.
So, despite the success that was recorded in the industry, Nigeria actually suffered the worst bout of crude oil disruption that pushed production to the lowest in 20 years in 2016, as a result of attacks on oil and gas facilities.
Before this present administration came on board, Kaduna and Warri Refineries had not been receiving crude oil feedstock through pipelines since 2010 because of vandalism.
Since 2010, marine vessels were used to transport crude oil to the two refineries until April 2016 when the repairs of the Escravos-Warri Pipeline were completed and the refineries started receiving crude through the pipeline.
However, less than two months after the pipeline was repaired, the Niger Delta Avengers bombed the lines and cut off crude supply to the refineries.
Giant strides
President Buhari had used his sound knowledge of Nigeria’s oil and gas industry as a former Minister (then Commissioner) of Petroleum Resources, to put in place measures to open up the sector and enthrone a regime of transparency, due process and accountability in an industry that was then run in an opaque nature.
The appointment of Kachikwu was seen as the strongest signal that President Buhari was determined to break away from the past and reposition the industry.
Kachikwu initiated monthly publication of NNPC’s financial results and a raft of measures targeted at personnel restructuring to enhance transparency and competitiveness of Nigeria’s operating environment.
Before this present administration came on board, Nigerians experienced acute fuel shortages, especially during festive periods.
Even after Buhari assumed office, fuel scarcity almost marred the 2015 Yuletide and 2016 New Year celebrations, despite what seems like the best efforts of the government to curb fuel shortages.
However, with the upward adjustment of petrol price in May 2016, arbitrage, which had encouraged smuggling, was eliminated, thus ensuring steady supply for the country.
The non-passage of the PIB eight years after it was first submitted to the National Assembly was also a challenge inherited by this administration.
Without clarity of terms, investors have continued to claim that they are unable to invest because the operating environment is unpredictable.
But in 2016, the federal government unveiled plans to rename and split the reform bill into three parts to enhance easier passage.
The Ministry of Petroleum has since concluded the first draft of the Petroleum Industry Governance Bill, as the PIB is now called.
Another success recorded in 2016 was the new policy document couched in “The 7 Big Wins,” launched by President Buhari to compressively address the issues of policy and regulation, business environment and investment drive, gas revolution, refineries and local production capacity, Niger Delta and security, transparency and efficiency, as well as stakeholder management and international co-ordination.
Speaking on the impact of the ‘Big Wins,’ Kachikwu had also added that investments in Nigeria’s oil and gas sector, which took a downturn in the recent past would pick up following the conclusion of a review of the country’s JV framework.
“On the issue of JV cash call, we have done a yeoman’s job. We are nearing completion of those negotiations, it would go to the FEC and it does not require a law. Those things are basically MoUs,” he said.
The country’s efforts to resolve the funding challenges paid off recently with the successful signing of the cash call exit agreements between the NNPC and the oil majors.
At the end of the negotiation, the IOCs agreed to be paid their accumulated arrears up to December 2015, over the period of about five years.
The agreement will end the long-standing cash call challenges that have impacted the Nigeria’s oil and gas industry over the years and also ensure that the entire NNPC equity oil and gas revenues are now to be paid directly into the Federation Account.
The federal government will also continue to receive royalties, taxies and profit from its equity share of JV oil and gas production, while the cost of operation is deducted upfront.
Under the new arrangement, the NNPC targets increase in production from the current 2.2million barrels per day to 2.5mbpd by 2019, and also reduce Unit Technical Costs from $27.96 per barrel of oil equivalent (boe) to $18 per boe.
The net payments to the Federation Account is also expected to double from about $7 billion to over $14 billion by 2020 as the immediate effect of the new cash call or will increase net federal government revenue per annum by about $2 billion.
Relevance in global energy politics
Nigeria also witnessed increasing relevance in the global energy politics in 2016 with the successful tenures and handover of the Presidency of four key international energy organisations – Gas Exporting Countries Forum (GECF); Organisation of Petroleum Exporting Countries (OPEC); African Petroleum Producers Association (APPA); West African Gas Pipeline Authority (WAGPA); as well as the successful election of Mohammed Sanusi Barkindo of Nigeria as the Secretary General of OPEC.
The Director of Press at the Federal Ministry of Petroleum Resources, Idang Alibi had also identified the successful mobilisation of OPEC members and non-OPEC oil producers by Kachikwu to dialogue on the stabilisation of the global market in Doha and Algiers, as one of the achievements recorded by the country in 2016.
According to him, the successful mobilisation had culminated into the achievement of freeze on production at the 171st conference of OPEC in Vienna and the subsequent rise in oil prices to around $55 per barrel for the first time in 16 months after negotiations with non-OPEC producers.
The efforts also led to Nigeria’s successful negotiation of an exemption from the production freeze; and the successful hosting of the 52nd Conference of Ministers of African Petroleum Producers Association in March 2016 (APPA).
Kachikwu also provided leadership and support to other APPA members in the development of legislations, institutions and systems for local content in Africa in 2016.
However, these achievements appeared to have paled into insignificance with the huge negative impact of militancy on Nigeria’s crude output and crude oil revenues in 2016, despite the peace efforts spearheaded by the minister to pacify the militants.
