2023: Mixed Bag for Nigeria’s Oil, Power Sectors

Although many issues remained unresolved in the Nigerian oil, gas and power sectors in the outgone year, there were some flashes of light in certain areas, including the removal of subsidy by the federal government, writes Emmanuel Addeh.

There were high hopes for the oil and gas industry when Nigeria stepped into 2023, but it would appear that many of the fruits that were expected to follow the ongoing reforms in the sector, especially with the advent of the Petroleum Industry Act (PIA), failed to materialise during the year.

For Nigeria’s long underperforming power sector, the story did not markedly change for the better.

The country still continued to struggle to supply its 200 million population with just 4,000mw while self-purchased generating sets supplied over 40,000mw per day, a development described as an anomaly.

National power grid collapses were still a thing during the year under review, while incessant blackouts neither reduced nor were they eliminated in 2023. The gas-to-power problem continued to persist, while attacks on major power infrastructure were unabatingly present.

For the country’s oil, gas and power sectors, here are a number of issues that shaped the year.

OPEC Quota Deficit Continued

Still, in the year under review, Nigeria failed to meet its Organisation of Petroleum Exporting Countries (OPEC) oil production quota.

 Although there were improvements, for instance coming from roughly 900,000 bpd in September 2022 to 1.25 million bpd in the November 2023 output data released recently, Nigeria was still far from meeting its 1.74 million bpd target.

In fact, the disagreement between OPEC and Nigeria on the slashing of the country’s production from 1.74 million bpd in 2023 to 1.38 million bpd for 2024 remained one of the highlights of the year.

Eventually raised to 1.5 million bpd for 2024 by OPEC, it’s unclear how Nigeria, which has a budget oil benchmark of 1.78 million bpd for the year will meet the projected target, having agreed to stick with the OPEC allocation unlike Angola that has exited the producers’ group for same reason.

Fight Against Oil Theft

Majorly, during the year, Nigeria continued to blame its inability to ramp up oil production significantly and meet its OPEC quota on massive stealing of oil and sabotage of critical national assets in the Niger Delta.

In 2023, the ongoing ‘fight’ against oil thieves and pipelines vandals continued, with no clear victories and no definite timeline as to when the fight is expected to end.

Nigeria remains arguably the only resource-rich country globally facing the issue of oil theft and vandalism in the scale it is happening in the country.

The authorities continue to regale Nigerians about how many illegal refineries were bombed or seized every week and how many illegal tapping points were discovered.

But if the bottom line was to meet OPEC production or raise output significantly, the efforts did not yield the expected results in the outgone year.

Waiting for Marginal Field Winners

In 2021, the federal government announced that it had concluded the marginal oilfield bid round meant to boost Nigeria’s crude oil production.

The federal government thereafter said it was expecting most of the marginal fields, which investors bid for in the concluded bid round, to achieve first oil starting from mid 2022.

Two years later, it is unclear if any of the over 50 bid winners has found first oil. The programme has been bogged down by several complaints from the bid winners.

Government has now said that going forward, subsequent bid rounds will be more focused on developing Nigeria’s oil fields, rather than the sole focus on huge signature bonuses, which operators have said hobbled their forecasts.

PIA: Still Awaiting Results

The PIA was primarily meant to debottleneck the oil and gas industry and attract the much-needed investment in the sector.

The law, seen as one of the most audacious attempts to overhaul the petroleum sector in Nigeria in a long time, seeks to provide legal, governance, regulatory and fiscal framework for the industry.

But results from the landmark passage of the law in 2021 appear to be stifled. Investors are still not coming in droves as expected and operators keep complaining about rough edges in the Act while international oil companies continue to divest their operations from Nigeria.

Fuel Subsidy Removal

In the downstream, unarguably the biggest issue in 2023 was the removal of petrol subsidy by President Bola Tinubu on May 29. While very much needed at the time, many Nigerians believe that the aftermath wasn’t well managed by the government.

The payments on subsidy, which had been described as opaque and corrupt by previous administrations and indeed the current one, was gulping roughly N4 trillion per year and weighing heavily on Nigeria’s finances.

With Tinubu’s famous “petrol subsidy is gone” pronouncement during his inauguration, the price of the critical product has risen by over 200 per cent in the last six months from about N195 nationally to between N600 and N700 currently.

The decision has consequently contributed in raising inflation to 28.2 per cent, impacting the prices of food stuff, transportation and energy costs.

There are insinuations that the federal government is still paying some form of subsidy on petrol, even though this has been refuted by the Nigerian government and the Nigerian National Petroleum Company Limited (NNPC).

Hope for In-country Refining

Although no refinery in the country is currently refining a drop of petrol, 2023 saw the ‘mechanical completion’ of the first phase of the rehabilitation of the Port Harcourt crude oil refinery.

What that implied was that the fixing of the refinery’s equipment and systems had been completed while the actual production from the 60,000 bpd facility is still being awaited.

Earlier in May, the 650,000 bpd Dangote Refinery and Petrochemical Limited was inaugurated by former President Muhammadu Buhari, even though it was yet to begin actual production as of December 2023.

However, there is real hope now that give or take, the Port Harcourt refinery and the Dangote asset which received its first 1 million barrels of Agbami crude grade from the Shell International Trading and Shipping Company Limited (STASCO) on December 8, will begin to run from Q1 , 2024.

The CNG Initiative

To ameliorate the impact of the removal of fuel subsidy, the federal government said it was backing the Compressed Natural Gas (CNG) initiative floated by the Muhammadu Buhari administration, but this time with sufficient action.

The government assured that it would  ensure mass deployment of CNG vehicles in all states for public transportation.

“The new CNG conversion kits will start coming in very soon as all hands are on deck to fast-track the usually lengthy procurement process,” Tinubu said during one of his speeches.

On October 27, 2023, the initiative was officially inaugurated, with some CNG-powered buses handed over to the state house.

Chairman of the steering committee of the Presidential CNG Initiative (PCNGI), Zacch Adedeji,  said state governments had indicated investment interest in the CNG buses, with several states eventually rolling out the initiative.

It’s still early days yet and the current efforts seem like a drop in the ocean, but the coming months and years will show if it will be all talk, no action like the previous administration before this, or whether Nigerians will begin to have alternatives to the use of petrol-powered vehicles.

Still No Light in Power Sector

In 2023, the idiomatic expression, “light at the end of the tunnel “, didn’t seem to apply to Nigerian power consumers. Nigeria’s power sector continued to struggle with no significant improvement in supply in sight.

However, during the year, the electricity bill, which established a legal and administrative framework for the operation of Nigeria’s electricity market, was enacted into law on June 8, 2023.

Essentially, the Electricity Act 2023, endorsed by the president aims to promote the transition from fossil fuels to renewable energy in Nigeria.

It also introduces provisions, such as feed-in tariffs and renewable purchase obligations, to address energy security, reduce greenhouse gas emissions, and support economic development.

Experts believe that proper implementation of the Electricity Act 2023 can position Nigeria as a leader in renewable energy, mitigating both electricity supply issues and climate change impacts.

One of the highlights of the Act is that it now empowers states, companies and individuals to generate, transmit, and distribute electricity within their jurisdictions.

The new electricity law repeals the Electricity and Power Sector Reform Act of 2005 and consolidates the laws relating to the Nigerian Electricity Supply Industry (NESI).

The year also saw Nigeria revive the Siemens power deal which would have enabled the country to ramp up electricity generation, transmission and distribution to Nigerian homes.

Siemens, headquartered in Munich, agreed in 2019 to help raise Nigeria’s electricity output to 7,000 megawatts in the first phase targeting a total generation and output capacity of 25,000 mw come 2025.

The original understanding was that Siemens Energy would scale the country’s grid operational capacity from below 5,000 mw to 7,000 mw by 2021, expand it to 11,000 mw by 2023 and deliver 25,000 mw by 2025. That has remained a pipe dream till now.