Issues that shaped the Nigerian petroleum industry in 2021

By Akpobor Jirue

The petroleum industry in Nigeria witnessed some memorable developments in the year 2021, these include government pronouncements perceived to be anti people and economic developments such as the thorny issue of petrol subsidy, dwindling revenue earnings from the sector .

Others were the global price of crude oil hitting a decade high, as well as the declaration of the period 2010 to 2030 as ‘Decade of Gas,’ as the price of domestic gas soared out of reach of the common man amidst others.

However, the sector equally recorded some remarkable highpoints such as the passage into law of the Petroleum Industry Bill now Petroleum Industry Act (PIA), the successful sales of marginal oil fields to indigenous firms as well as governments’ commitment to expedite action on the implementation of the PIA.

To date the petroleum industry remains dominant as it generates 90% of government export earnings vis-à-vis foreign exchange (FOREX) and 60% of total revenues. Indeed, the sector is one that when it sneezes the country catches cold.

In view of the importance of the sector to the nation’s economic wellbeing, both the government and citizens are keen, hypersensitive and even suspicious to every development affecting it.

Despite the negative impact of Coronavirus (COVID 19) on the oil and gas industry in 2020, the prospect for 2021 looks bright as the global economy started recovery and the price of crude oil, Nigeria’s main source of income began an upward trend. Even though, the campaign for greener energy source has earned dominance on global space, Nigeria, at the least the government remains confident that fossil fuel will continue to be relevant until 2050 and at the worst focuses on its natural gas.

Much ado about harnessing Natural Gas

The Federal Government at the inception of 2020 declared the year, a year of gas giving the impression that it was prepared to initiate programmes that would harness the abundant gas resources in the country in line with global energy transition campaign.

However, not much was achieved no thanks to COVID 19, the signing of Final Investment Decision and launch of autogas scheme towards the end of year became a parameter on which government based its scorecard and performance; and consequently declared the period 2021 – 2030, ‘Decade of Gas’.

At a virtual event organised to launch the Decade of Gas with the theme, ‘The Decade of Gas: Towards a Gas Powered Economy by 2030,’ all speakers including President Muhammadu Buhari tried to convince Nigerians that the nation was on a new course to salvage its economic development.

President Buhari said, ‘The rising global demand for cleaner energy source has offered Nigeria an opportunity to exploit gas resources for the good of the country. We intend to seize this opportunity.

Mr President also stated that, ‘Gas development and utilization should be a priority to stimulate growth, drive investments and provide jobs for Nigerians.’ But it appears the ordinary Nigerians did not understand the enormity of those statements until later in the year when the price of Liquified Petroleum Gas (LPG) commonly known as cooking gas hit the roof, rising from about N350 per kilo earlier in the year to about N1,000 per kilo between October and November.

Numerous reasons were offered for the price surge but the unfortunate thing was that government seemed not have created the enabling environment before coming out to make the proclamation. How on earth do you explain the fact that Nigeria after so many years of exploration and export of oil and gas still imports LPG from African countries like Algeria and Equatorial Guinea. Even as the country continues to flare its gas at the detriment of the environment.

Petrol Subsidy Removal

Just as if the pains inflated by the hike in price of cooking gas was not enough, government during the year announced its intention to remove subsidy payment on Premium Motor Spirit (PMS) otherwise known as petrol.

Although, the price of crude oil, Nigeria’s primary export product raised from $11 per barrel in 2020 to above $80/barrel in 2021, the rise which should ordinarily portend an upturn in nation’s economy as it implies more oil revenues for the government, has rather become a curse. Due basically to failure on the part of government and her agencies to do the needful.

The inability of the national oil company, Nigerian National Petroleum Corporation (NNPC) to rehabilitate its refinery, hence depends on importation of petroleum product can best be described as a case of saying, ‘Penny wise Pound foolish’. The absence of functional refineries birthed petroleum product subsidy.
Thus, subsidy claims eroded the gains from oil revenue.
Speaking on the impact of petrol subsidy, Group Managing Director of NNPC Limited, Mele Kyari, said NNPC was importing at a market price of N234 per litre but selling at N165 per litre, adding that the government could no longer bear the burden of the difference between the actual market price and what Nigerians were paying for petrol.
Unfortunately, since there was no provision for subsidy payment in the 2021 budget, the NNPC resolved to directly deduct it from the revenue remittance to the federation account allocation committee (FAAC).

The implication was simple, dwindling revenue allocation. For instance, in spite of projected N2.09 trillion revenue remittance to FAAC between January and October 2021, the state-owned oil firm only remitted N511.66 billion during the period, resulting in a N1.58 trillion shortfall.
The federal government has therefore unveiled plans to replace petrol subsidy with N5,000 monthly payment for 40 million the poorest Nigerians, a move seriously opposed by Labour Union and other pro-subsidy advocates.

The Petroleum Industry Act

After almost two decades of political negligence of the need to update the laws governing activities of the Nigerian oil and gas industry, the petroleum industry bill (PIB) was finally passed by the National Assembly and signed into law, the Petroleum industry Act 2021 by President Mohammadu Buhari.

Described by some as an omnibus Act, the PIA aims to overhaul the oil and gas sector in Nigeria as well as strengthens the administrative and governance structure, while adequately addressing the demands of host communities as well as introducing fiscal terms that make the sector more attractive to investors.

Industry experts have argued that perhaps, the most important part of the Act is the fiscal regime as Nigeria has lost circa $50 billion worth of foreign direct investment (FDI) due to the uncertainty in the sector. Nonetheless, there are those who believe that strengthening the administrative, governance structure and host communities will go a long way in enhancing accountability and responsibility of the regulatory agencies; while also ensuring security in the host communities to retain any FDI in the sector.

Award of Marginal oilfields

Another significant development witnessed in the period under review was the award of 57 marginal oilfields to indigenous firms. Coming 18 years after the last bid offer in 2003 the exercise did not only served as a major source of income to government but further strengthened the participation of indigenous firms in the industry especially in the upstream sector.

The now moribund Department of Petroleum Resources (DPR), in 2020 launched its first marginal field bid round in almost 20 years. A total of 57 fields, spread across onshore, swamp and shallow water, were offered. DPR defines a marginal field as a discovered resource that has been left unattended for more than 10 years. These fields remain undeveloped and only a few have been appraised.

The majority of the fields were previously held by Shell, ExxonMobil, Chevron and Total. Industry experts estimate total resources offered to be around 800 mmbbl oil and 4.5 tcf gas. The 25 largest oilfields have the potential to unlock $9.4bn of investment over the first five years and generate over $38bn in revenue over the life of the fields.

Obviously, the gradual transfer of oil assets to indigenous firms and the opening up of the sector to private sector participation enabled by the PIA, Nigerians can only hope that the industry will in no distant time transform the nation’s economy.

Better still, the commitment of government to ensure the full implementation of the PIA is an indication that the pains may soon give way to gains. However, the absence of infrastructure remains a serious issue for government to tackle.