As Nigeria celebrates her 57th Independence Anniversary, there is renewed hope in the oil and gas industry, as the third quarter 2017 witnessed recovery of oil prices and crude oil production. Ejiofor Alike reports
When this present administration assumed office on May 29, 2015, Nigeria’s crude oil production was around 2.1 million barrels per day. But sustained attacks by the Niger Delta militants led to consistent production disruptions and deferments.
From this peak level of 2.1 million barrels per day, the country’s daily output had dropped steadily to a half decade low of 1.3 million barrels per day sometimes in 2016.
The level of disruption on Nigeria’s crude output in 2016 could be compared to the 2009 experience which prompted the late President Umaru Musa Yar’Adua to declare amnesty for repentant militants to end the hostilities against oil and gas workers, and installations.
The devastating impact of militancy and vandalism on the country’s oil production in 2016, no doubt eclipsed the giant strides recorded in the areas of stabilising fuel supply, improving the oil and gas sector’s transparency, accountability, corporate governance, and the country’s increasing relevance in the global energy dynamics.
According to statistics released by the Security Subcommittee of the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry (LCCI), Nigeria lost over 130 million barrels of crude oil from January to November 2016 to activities of 32 militant groups in the Niger Delta region, led by the Niger Delta Avengers (NDA).
As Nigeria’s crude oil production was declining, it was a double jeopardy for the country as the price of crude in the international was also dropping.
Crude price hit the bottom level of $27 per barrel in February 2016, from the $147 peak in June 2014.
OPEC’s relief and oil prices
To remove the excess inventory in the oil market, which was believed to have caused the drop in crude oil prices, the Organisation of the Petroleum Exporting Countries (OPEC), Russia and other producers resolved to cut oil supply to the global market by 1.8 million barrels per day for six months beginning January 1, 2017.
OPEC and its allies had since agreed to extend the output cut until March 2018.
This was the decision reached in their May 2017 meeting where the producers decided to extend cuts in oil output by nine months to March 2018.
Indications had since emerged that the producers are discussing a further extension of the oil production cuts ahead of a ministerial meeting scheduled for late November in Vienna, Austria.
However, in order to help Nigeria and Libya’s oil and gas industries to recover from years of unrest, OPEC exempted the two countries from the output cut.
The output cut by OPEC and non-OPEC had propelled crude prices above $58 per barrel in January 2017 but they later since slipped back to a $45 to $50 range as at August 2017.
However, with the sustained commitment by OPEC and its allies, there has been a gradual recovery of crude oil prices, with global benchmark crude, Brent touching a five-month high in the middle of September 2017, when it hit a session high of $55.99, its highest since April 13, 2017.
On that same day, the US West Texas Intermediate touched $50.50, its highest since May 25, 2017 and surpassed its 200-day moving average.
A week ago, precisely on September 25, the prices of crude oil hit a new 2017 high, thus continuing a rally fueled by improving demand and expectations that the OPEC and non-OPEC producers will extend output cuts until the end of 2018.
While the International benchmark, Brent crude rose to $58.38 per barrel, surpassing the highest level in 2017, the United States West Texas Intermediate crude, however, remained well below its 2017 high at $51.72 per barrel.
Earlier on September 20, crude oil had headed for its largest third-quarter gain in 13 years as prices rose after the Iraqi oil minister said OPEC and its partners were considering extending or deepening output cuts.
While the West Texas Intermediate crude settled at $50.35 a barrel and headed for its highest settlement since late May 2017, the global benchmark, Brent, settled at $56.19 a barrel, thus setting for the highest finish since mid-April.
In fact, Brent was on course for a rise of nearly 16 per cent in third quarter 2017, which would make this year’s rise the highest for any third quarter since 2004.
Recovery of Nigeria’s crude output
As the oil prices are recovering in the third quarter 2017, it is a double blessing for Nigeria as her crude oil output is steadily rising as a result of the constructive engagements with all the agitating groups in the Niger Delta by the Vice President, Prof. Yemi Osinbajo and the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu.
With Nigeria’s daily production below 1.4 million barrels per day at a point in 2016 as a result of militant attacks on oil facilities, OPEC exempted Nigeria from its production cut when the output deal was sealed in November 2016.
Kachikwu had in July 2017 hinted that Nigeria would voluntarily join the cut when her production level recovered appreciably.
It was a relief for Nigeria when OPEC and non-OPEC producers, led by Russia on July 25, 2017 approved the decision of the federal government to cap Nigeria’s oil production at a sustainable volume of 1.8 million barrels per day (mbpd).
Today, Nigeria’s crude oil production is already above 2 million barrels per day but this includes large volumes of condensates, which are in high demand by foreign refineries but are not included in OPEC cut.
Despite this improvement, the producers after a meeting in Vienna, Austria, on September 22, extended Nigeria’s exemption from crude oil production cut.
The meeting endorsed the country’s position that the exemption granted it at the November 2016 Ministerial Conference and extended by the May 2017 Ministerial Conference should be sustained until it stabilises its crude oil production.
Kachikwu, who led Nigeria’s delegation to the meeting, had argued that although Nigeria’s production recovery efforts have made some appreciable progress since October last year, Nigeria is not yet out of the woods.
He noted that even though Nigeria hit 1.802 million barrels per day in the month of August 2017, the improvement was not enough justification for a call by some countries for Nigeria to be brought into the fold.
The President of the OPEC Conference and Minister of Energy, Industry and Mineral Resources of the Kingdom of Saudi Arabia, Khalid A. Al-Falih, who participated in the meeting by telephone, thanked Libya and Nigeria for their positive engagement and their ongoing coordination with the participating countries in the Declaration of Cooperation.
Passage of reform bill
After the failure of the previous administrations to consolidate all the existing legislations in Nigerian oil and gas sector in the form of Petroleum Industry Bill (PIB) and pass it into one law, the present administration had split the PIB into four separate reform bills to facilitate quicker passage.
One of the recent successes recorded was the passage of one of the reform bills – the Petroleum Industry Governance Bill (PIGB), by the Senate in May 2017.
The bill, when concurred to by the House of Representatives and assented to by the president, would institute a new governance structure in the management of the nation’s oil industry assets and its manager, the Nigerian National Petroleum Company (NNPC).
The Senate President, Dr. Bukola Saraki said last week that the Senate would pass the remaining versions of the petroleum reform bills – Petroleum Industry Administration Bill (PIAB), Petroleum Industry Fiscal Bill (PIFB), and Petroleum Host Community Bill (PHCB) within the next six months.
Speaking at the opening session of a three- day Nigeria Oil and Gas Industry Research and Development Fair and Conference 2017 organised in Lagos by the Nigerian Content Development and Monitoring Board (NCDMB), Saraki, who was represented by the Chairman of Senate Committee on Petroleum Resources (Upstream), Senator Tayo Alasoadura said the senate had done tremendous work on the bills, adding that it was working towards passing them by December and in the event of that not achievable, they would be passed at the latest first quarter of 2018.
The previous PIB had sought to replace about 16 obsolete legislative and administrative instruments in Nigeria’s oil and gas industry and transform them into a single law.
Failed promises on refineries
As the country’s oil and gas sector counts the gains of the recovery of oil production and crude prices, opening up the oil and gas sector to public scrutiny, and restoring the confidence of investors, the government’s promise to revamp the refineries has remained an unfulfilled promise.
The federal government had in May 2016 taken a bold step to encourage private sector to invest in the downstream and private refineries when it partially liberalised the downstream sector by ending the subsidy regime and increasing the pump price of petrol from N86.50 to N145 per litre, thus ensuring uninterrupted availability of petrol across the country.
But the issue of revamping the refineries to boost Nigeria’s local refining capacity and make the country less dependent on petrol importation has remained a mirage.
Kachikwu had in September 2015, as the then Group Managing Director of NNPC, given a 90-day ultimatum to the Warri Refining and Petrochemicals Company (WRPC), to commence full production at 125,000 barrels per day.
However, exactly 24 months after the expiration of the ultimatum, the poor performance of the country’s refineries in Warri, Port Harcourt and Kaduna have forced the country to depend solely on imported petroleum products.
After failing to bring back the refineries to full production, the government is wooing private investors to invest in the old refineries and in the co-location of refineries.