Report: $15bn Investments Lost Annually to Non-passage of PIB

•OPEC: Nigeria’s oil production hit record low in May

By Emmanuel Addeh

A new report by Financial Derivatives Company Limited (FDC) has indicated that Nigeria’s oil and gas industry loses as much as $15 billion in investments annually due to the delayed passage of the Petroleum Industry Bill (PIB), currently before the National Assembly.

The bill, which seeks to overhaul the oil and gas industry and offer new fiscal incentives to investors, according to the Minister of State for Petroleum Resources, Mr. Timipre Sylva, and Senate President, Dr. Ahmad Lawan, is set to be passed this month.

However, FDC in its latest bi-monthly publication stated that even if the PIB is passed today, the country has already lost investment opportunities due to the lack of urgency attached to the passage of the legislation which was first transmitted to the lawmakers over 14 years ago.

“Its delay has sparked a great deal of uncertainty and led to an estimated loss of over $15 billion annually in lost investments to Nigeria’s oil and gas industry. With the global shift from fossil fuels to renewable forms of energy picking up pace, the passage of the PIB may just be too little, too late,” the FDC report added.

It said it was unlikely that Nigeria would be able to make up for either the lost time or the lost investment, adding that information available to it suggests that the bill is currently undergoing last-minute modifications in three key areas to enhance its effectiveness.
It listed the areas as the deregulation of the price of gas supplied to power plants, the Nigerian National Petroleum Corporation’s (NNPC’s) public offer and the adoption of a single regulator for the industry.

According to the report, price deregulation of gas supplied to power plants is a key ingredient in incentivising power output in Nigeria.
He added that while this is likely to translate to increased tariffs for electricity, it is needed to attract investment in both the gas and electricity generating industry.

On the NNPC’s public offer, it stated that selling shares to the public will mean that the corporation will be able to source its own funding and come under a higher level of corporate governance and scrutiny.

Besides, it said while the adoption of a single regulator would ensure more efficiency and allow for enhanced cohesion in regulating the entire industry value chain, the PIB as currently constructed, recommended two regulators-one for the upstream and another for the midstream and downstream sectors.

FDC said it envisaged a situation where the PIB could also become a source of acrimony as it gives legal backing to the complete price deregulation of the downstream segment of the oil and gas industry.
It said: “The Nigeria Governors’ Forum (NGF), made up of the governors of the 36 states, has proposed the implementation of the full deregulation of the downstream oil industry and determined that the pump price of petrol will be somewhere around N385/litre (137.65 per cent above the current fuel pump price of N165/litre).

“While this will bring relief to the state governments that have been grappling with lower revenues, the chance of the federal government allowing such a spike in the near term is slim because of the negative impact on the poor.

“The subsidy will cripple the government’s finances if sustained, but deregulation is the only way to unlock domestic refining. There is simply no easy way around or through the dilemma. Something is going to have to give.”

The report said the International Oil Companies (IOCs) were already squarely in the thick of the energy transition, while some were on well laid-out paths that would see them fully evolve to clean-energy companies.

For instance, it stated that Royal Dutch Shell is in talks with the federal government to divest from its onshore oil fields and focus on its offshore and gas operations citing recurring incidents of theft, sabotage, and oil spillage.

“The IOCs have stated that Nigerian onshore business is incompatible with their long-term strategy, which focuses on climate change and net-zero carbon emissions by 2050,” the FDC document said.
FDC added that foreign oil companies have been gradually disposing of their onshore assets over the last decade, emphasising that beyond the obvious reasons of insecurity and unrest in the Niger Delta stated by Shell, the protracted stalemate in passing the PIB remains a major factor in the oil giant’s decision to exit its onshore operations in Nigeria.

With slightly under 40 per cent of Nigeria’s crude and condensate production capacity, FDC stated that while Shell’s move to offload its onshore oil fields could have implications on Nigeria’s oil and gas output, it could also send wrong signals to international investors considering doing business in Nigeria.
It added: “Other IOCs, Chevron and Mobil, have also begun to gradually dispose of their Nigerian assets in response to their changing goals and strategies, which have been influenced by climate change and the need to go green. A number of questions arise.

“What will happen to Shell’s onshore assets? Are they going to be acquired by the NNPC through its upstream arm, Nigerian Petroleum Development Company (NPDC) or does the government invite bids from indigenous and foreign producers?
“Do the indigenous producers have the capacity to acquire these assets even as we expect more divestments in the future across the continent? Does this create an opportunity for indigenous players in the oil and gas sector to grow the continental footprint?”

The report noted that it remains uncertain how the events will play out, adding that what is certain is that the passage of the PIB should have happened at least a decade ago and would have been crucial in the federal government’s drive to achieve production of 4mbpd and domestic oil refining for regional exports.

OPEC: Nigeria’s Oil Production Hit Record Low in May

Meanwhile, Nigeria’s crude oil production output hit record low levels in May, the June Monthly Oil Market Report (MOMR) of the Organisation of Petroleum Exporting Countries (OPEC), has shown.
The monthly report indicated that in the first quarter of 2021, Nigeria’s average production was 1.410 million barrels per day.

April production stood at 1.460mbpd and it was 1.388 barrels per day in May, leading to the loss of 72,000 daily barrels during the month.
But based on direct communication with OPEC, the cartel put the figure at 1.429 million barrels per day in March, 1.372 barrels per day in April and 1.344 mbpd in May, resulting in a shortage of 28,000 barrels between April and May.

It wasn’t immediately clear why production has remained low even after the country announced earlier in the year that it had fully complied with the OPEC cuts after defaulting initially and the cartel’s decision to gradually open the taps since April.

The country’s average crude oil production based on secondary sources was 1.78 Mbpd in 2019 and 1.57mbpd in 2020, while total OPEC 13-member crude oil production averaged 25.46 mb/d during May.
“In May 2021, production was up by 0.39 mb/d m-o-m. Crude oil output increased mainly in Saudi Arabia, Venezuela and Iran, while production decreased primarily in Nigeria and Angola,” OPEC said.

In terms of oil rig count, Nigeria’s total was 13 in 2018, 16 in 2019 and 11 in 2020, according to the report, but the number of operational rigs fell to five in April and rose by one to six rigs last month.
The OPEC report showed that Africa’s demand for crude oil was 3.43 million bpd in 2019, which fell to a 4.37million bpd in Q1, 2020. It further fell to 3.76 million bpd in Q2,2020, was 3.94 mbpd in Q3,2020 and 4.27 mbpd in Q4, 2020.

The MOMR indicated that Nigeria’s real Gross Domestic Product (GDP) advanced 0.5 per cent y-o-y in Q1, 2021, following a 0.1 per cent y-o-y rise in the last quarter of 2021.
It said the country registered the second consecutive quarterly growth since Nigeria’s economy faced recession in the third quarter of 2020, amid the easing of COVID-19 restrictions and an improvement in oil prices.

OPEC added: “Non-oil sector expanded 0.8 per cent y-o-y in 1Q21 following a 1.7 per cent y-o-y growth in 4Q20. The current growth was powered by the agriculture sector, which expanded by 2.3 per cent y-o-y.
“Industrial activity moved back into the growth of 0.9 per cent y-o-y, after dropping by 5.6 per cent on average in 2020. Moreover, the annual inflation rate declined to 18.12 per cent in April 2021, from a four-year high of 18.17 per cent in March, but producer inflation accelerated to a significantly high level, amid raw material shortages and unfavourable exchange rate depreciation.”

The report said Nigeria’s business sentiment remained optimistic, driven by the current expansion in manufacturing operations as well as higher oil prices.
But OPEC stuck to its prediction of a strong world oil demand recovery in 2021 led by the United States and China despite uncertainties stemming from the pandemic, pointing to a need for more oil from the producer group.

The cartel said demand would rise by 6.6 per cent or 5.95 million barrels per day this year, remaining unchanged for a second consecutive month, despite a slower-than-expected recovery in the first half of this year.

“Global economic recovery has been delayed due to the resurgence of COVID-19 infections and renewed lockdowns in key economies, including the Eurozone, Japan and India.
“Overall, the recovery in global economic growth, and hence oil demand is expected to gain momentum in the second half,” OPEC said in the monthly report.

The cartel stated that it sees 2021 world economic growth at 5.5 per cent, unchanged from last month, assuming the impact of the pandemic will have been “largely contained” by the beginning of the second half.
“The ongoing vaccination efforts, a growing share of recovered cases leading to increasing herd immunity, and the easing of lockdown restrictions lend optimism that the pandemic could be contained in the few months to come,” OPEC said.

In April, OPEC and its allies, known as OPEC+, had agreed to gradually ease oil output cuts from May to July and confirmed the decision at a meeting on June 1.
The report showed higher OPEC oil output, reflecting the decision to pump more and gains from Iran, which is exempted from making voluntary cuts due to U.S. sanctions, increasing May output to 390,000 bpd to hit 25.46 million daily production from the oil cartel.