Oil Sector: From Crisis to Opportunities

In the last 15 months, the oil industry has gone through what is unarguably one of its most turbulent times since the last century. With the coast now gradually clearing, Emmanuel Addeh writes that the just-concluded Nigeria International Petroleum Summit presented a good opportunity for industry players to reassess the future of hydrocarbons

Although already beset by the usual vicissitudes of the sector, the Covid-19 pandemic further exposed the vulnerability of the global oil and gas market, crippling demand in its aftermath.

Being one of the most oil-dependent nations in the world, the impacts of the combination of internal and external shocks due to the country’s reliance on crude oil sales for fiscal revenues, foreign exchange inflows, fiscal deficit funding and capital flows required to sustain the country’s economy was, to put it mildly, devastating.

The headwinds presented by the challenges in the global market, compelled the Nigerian government to reconsider the key budget assumptions for the 2020 budget as well as that of 2021.

However, all the apprehensions over falling oil prices, although not fully subsided, appears to be waning as the oil market is now in a renewed comeback, as prices last week exceeded $72, the highest in over two years.
So, while the country grapples with trying to surmount the challenges in the sector, the Nigeria International Petroleum Summit (NIPS), provided an opportunity for industry players, from within and outside, to again, deliberate on the future of oil, which, as it were, is currently being threatened by the renewed attention to renewable sources of energy.

Speaking at the five-day 2021 edition of the event, which held in Abuja, President Muhammadu Buhari called on the operators of the Nigerian oil and gas industry to search for more efficient ways of exploiting the product to reduce the cost of production per barrel significantly.

The president stressed that although Nigeria was observing the trend in the global movement toward renewables, he was of the view that oil will remain relevant in the coming years.

Buhari, who was represented on the occasion by the Minister of State, Petroleum, Mr. Timipre Sylva, declared that his administration has demonstrated an unparalleled commitment to the overhauling of the oil and gas industry in Nigeria to make it fit for the future.

Other speakers at the opening session included the Managing Director, Total E&P, Mr. Mike Sangster; Senate President, Dr. Ahmed Lawan; Speaker, House of Reps, Hon. Femi Gbajabiamia, and several stakeholders in the industry from both foreign and other African nations.

Buhari hinted that he had continued to receive updates on the Petroleum Industry Bill (PIB) and expressed the hope that the National Assembly will pass it into law soon, noting that the current administration’s drive for the discovery of more reserves and ramping up oil production was irrevocable.

“The ambitious goal of ramping up crude oil production to at least 4 million barrels per day, and building a reserve of 40 billion barrels remains sacrosanct and guiding principle to our overall outlook for the industry, creating the conducive business environment for hydrocarbon industry to thrive, is no longer a choice. It is a necessity,” he said.

The president opined that the accelerated and unprecedented oil demand disruption and the supply glut that generated the crisis in the global economy, has presented both challenges and opportunities.

While calling for stringent measures to reduce production cost, Buhari posited that if strategies are not quickly put in place, the country may witness a situation in which expected oil revenues will be wiped out by costs, admitting that the energy remains a formidable challenge to the oil industry.

“However, energy transition is real, renewable technologies are getting cheaper and investors are increasingly conscious of environmental issues and are beginning to turn their back on hydrocarbon investments, but history has shown that human beings have such appetite for energy, which renewables do not have the capacity to cope with in the foreseeable future.

“Experts project that about 80 per cent of the world’s energy mix in 2040 will still come from hydrocarbons. Fossil fuels will continue to be the source of dozens of petrochemicals and petrochemical feedstock that companies transform into versatile and valued materials for modern life,” he said.

The Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, described cost as, “everything” in the future of the industry.

He argued that the COVID-19 crisis has shown that only the best of producers will survive, because cost control has become a major issue for the industry, assuring that the corporation and its partners were working together to make sure that it is achieved.

He mentioned funding as another major issue in industry today due to paucity of resources across the globe and overall reluctance by investing companies or banking authorities to divest from oil-related businesses.

“This is what we have to live with and what we have to contend with. Obviously, the best of the business that will survive are the ones that try to translate into much more climate-friendly businesses,” he stressed.

Kyari added that security remains a major issue for the industry in the country, but assured that there is concerted effort across the industry in the Niger Delta and all other locations to make sure that all the security threats are dealt with.

He noted that the industry must work together to look at advantages that are inherent in the transition, while moving from fossil fuels to renewables forms of energy.

The GMD noted: “And to do this, you must automate, you must reduce your cost, you must be more efficient and also, we must be more collaborative in our approaches and this has paid off for us.”

In a separate session, he called on International Oil Companies (IOCs) operating in the country to be more accountable to the Nigerian people and not just to their respective shareholders and companies.

He stated that although oil companies plying their trade in the country have a responsibility to their home companies, they must also strive to incorporate the interest of the government and its people.

He added that shareholders expect companies to deliver value, which is reflected in the dividends that they are able to deliver, noting that beyond that, they expect that chief executives should act responsibly.

According to him, acting responsibly means recognising that there are citizens of that country that have different expectations.

Secretary General of the Organisation of Petroleum Exporting Countries (OPEC), Dr. Sanusi Barkindo, in his address, noted that participating countries have taken proactive and pre-emptive action to help reduce volatility, stabilise the oil market, and provide a flexible platform for recovery with potentially broader participation in the coming years.

He added that countries have subsequently reviewed the decisions on a monthly basis to proactively anticipate market developments and improve the core principles upon which the oil enterprise was founded.
He listed the principles as transparency, equity and fairness, emphasising that conformity levels with the production adjustments have been a testimony to the depth of member countries’ commitment.

In one of the sessions, the NNPC predicted that oil price could climb as much as $200, as banks and major International Oil Companies (IOCs) withdraw from funding critical projects in the industry, leading to supply shortage and huge upsurge in the amount the commodity is sold.

The national oil company contended that with the accelerated push to migrate to low carbon-intensive alternatives, time will tell whether the decisions that are currently being taken “very hastily” by some big oil companies will remain the right decisions.

Group General Manager, National Petroleum Investment Management Services (NAPIMS), a subsidiary of NNPC, Mr Bala Wunti, who spoke on the fourth day of the event, argued that the impact of the current decision to stop investing in the sector will begin to manifest in about five years, shooting oil price to around $200.

“I was talking to one of my senior colleagues yesterday, and he said, well, it is time for someone to speak the truth. If nothing is done and this trend continues, guys, we should be ready for a $200 per barrel of oil. Reason is simple, if you stop investment in the oil and gas sector, you can only produce what you have today.

“And what you have today, in many instances in five years, it will start declining, that is, if you we are not already in a declining mode, because many in Nigeria are in declining mode.

“So, if there’s no fresh capital for either brownfield or Greenfield investment, we cannot grow production; if we don’t grow the production, the consequence is that we’re building a short supply for tomorrow.

“In basic economics, short supply means higher price. So this is the world. This is the world that we see today and this has presented some very emergent trends,” he said.

Sangster, a major participant at the event, said Nigeria must remain competitive in the global energy market , despite the shifting focus on renewable sources of fuels.

The Total Energies Nigeria boss declared that the current transition to carbon free sources of energy will continue and urged the country to see the opportunities in the ongoing global development.

Sangster, who is Chairman of the Oil Producers Trade Section (OPTS), the umbrella body of major international and indigenous oil companies, stated that as the world progressively starts to mitigate the impact of the pandemic, all stakeholders must work to ensure that the country remains attractive for investment.

Sangster pointed out that the world was starting to see signs of a resurgence of global economic growth, explaining that this will present Nigeria with new opportunities to develop its abundant natural resources.

He added that 2020 accelerated momentum towards the energy transition and how there was substantial global reduction in demand for fossil fuels, stressing that “it’s clear to me that this trend will continue”.

“So, I think this really is a perfect opportunity for all the key actors, government regulators, national companies, private companies and all the suppliers to the industry to work together to ensure that Nigeria is competitive in the international landscape, and as an attractive destination for investment.

“It’s our hope, and indeed it’s our expectation that this will help to identify and proffer solutions towards ensuring the sustained development of Nigeria’s resources, particularly gas,” he said.

On a separate panel with the theme: “ New Strategies for the New Era,” the Deputy Managing Director, Deep Water, Total, Mr Victor Bandele, stated that Nigeria has not fully taken advantage of its oil and gas facilities.

Bandele noted that even within Africa, collaboration has been quite rare, explaining that the joint use of oil and gas facilities will help drive down costs in the industry.

On the last day of the programme, Director of the Department of Petroleum Resources (DPR), Mr Sarki Auwalu, noted with enthusiasm that the quantum of associated gas in Nigeria now stands at 100.73TCF, while non-associated gas is 105.8 TCF to arrive at the new figure, taking Nigeria’s gas reserves to 206.53 TCF.

Some of the private organisations advocated the use of technology to confront the challenges in the industry. For instance, Huawei Technologies Company Nigeria Limited, said that when fully utilised , technology can help in reducing headwinds and improve process optimisation in the country’s oil and gas industry.

Speaking on the theme “Data to Barrel”, Managing Director, Huawei Technologies, Michael Zhuang, said his firm was dedicated to promoting digital transformation and reducing the digital gap in the oil and gas industry.

Zhuang explained that the company had continued to work with local oil companies in the upstream, midstream and downstream arms to promote new oil and gas digital frontiers.

On his part, the Managing Director of the Nigerian LNG, Mr. Tony Attah, reiterated that energy demand is set to grow by more than 30 per cent, while the world’s population will add 2 billion by 2050, noting that sustainability remains crucial.

He said the whole world is now talking about de-carbonisation, which is about sustainability, adding that the environment must be preserved for generations unborn.

At the end of the programme, the federal government renamed NIPS as the Nigeria International Energy Summit (NIES), from the next edition.

Sylva said the change was in line with the move of government towards energy transition and declaration of the decade of gas, stressing that successful hosting of the 2021 NIPS was an indication of resilience and determination of government to ensure transition into a gas economy.

Will the 2021 recommendations be implemented? Only time will tell.