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Concerns heighten over Nigeria’s oil industry in 2014

As Nigerians entered the year 2014, the growing concerns over the state of the oil and gas industry have continued to engage the attention of experts and stakeholders.

gasThis is because oil accounts for about 90 percent of the nation’s revenue and has been made to be the mainstay of the economy by successive governments. Will the oil industry fare better in 2014?

Mr. Barry Esimone, Chief Executive Officer, CEO, Crusteam Group, an energy and infrastructure company believes that the oil and gas industry in 2013 continued in the trend of decline on effective activities both in upstream and downstream segments. “Exploration activities certainly fell below expected industry standard as no new find was made and very few drilling activities took place.

“On the refining sector, the NNPC refineries did not fare any better as internal refining capacity was still very low, product import continued unabated as the major source of refined products. “A few incidences in the refineries continue to show the level of poor maintenance of the facilities. The only exciting news is the planned Dangote refinery project. However, I think a different model of developing internal refining capacity with potential for massive employment generation should be encouraged,” he said.

Esimone also said that more exploration programmes should be encouraged especially with the planned marginal field bid round coming up this year, while exploration plans of the majors should be looked into with a view to removing any bottlenecks as this has been the major source of Nigeria’s reserve inventory build up. While we encourage the locals to participate, we should not kill the geese that laid the golden eggs.

On the refusal of the International Oil Companies, IOCs, to invest in the last few years, Esimone said that though it is a worrisome trend, the government needs to find out how to break the jinx and make the conditions more flexible until indigenous companies get a good foothold and build financial and technical capacity. Whether we woo the Asians or not, the bottom line is that, the West still controls the technology and may even have hands in the ownership of most of the Asian companies.

As regards the state of the refineries, he said they should be sold outright. “I am an advocate of complete sell off of the refineries. If any business fails to provide the reason for its establishment, after several attempts at reinvigoration, It then means that the problem must be structural.

“In this case the structure is hinged on meddlesomeness, lack of commitment, sabotage etc. We can save the funds being pumped into them without result if we transfer ownership even at a give-away.

“However, I believe that the maximum the government should do is to conduct technical status audit of all the refineries before selling.  The issue with local refinery development is still policy based. The necessary legal framework has to be worked out properly especially with regards to feedstock agreement,” he said.

Esimone’s concern was shared by Taher Najah, an oil industry analyst with the Organisation of Petroleum Exporting Countries (OPEC), who said that Nigeria’s energy usage is expected to rise by 40 per cent between 2010 and 2030. He said that this level of production was required to lift billions of people out of poverty.

Najah explained that with population and incomes projected to rise, the real challenge remained how to manage and meet the energy needs. “The question that begs for an answer is what type of energy will the world use and how much, where it will come from and how new technologies, efficiencies and policies impact on the market.

“With energy use expected to rise by 40 per cent between 2010 and 2030, this is required to lift billions of people out of poverty, “The expectation will be huge gains that producing nations make in terms of market share,” he said.

Najah, however, said that global peak oil production would be expected before 2030 and there existed significant risks that would occur before 2020.

He said that extraction was currently expanding too slowly to mitigate post early peak oil decline in conventional sources, adding that this could be changed by new technologies. Najah said that oil and gas would continue to lead as the largest energy source and the whole world would continue to find itself in a landscape dominated by the intricacies of the oil and gas business.

The OPEC official said that for most developed economies, efficiencies and new technologies remained key solution to mitigating risks.

“Whether Nigeria looks east or west, several puzzles will first have to be resolved internally, before tapping into the opportunities created globally or mitigating the risk the global dynamics presents.

“These sprawling opportunities created by the industry around the world remains an unrivalled stimulus to economies actively engaged in oil and gas,” he said.

For Joseph Ezigbo, Managing Director and Chief Executive Officer of Falcon Petroleum, the passage of the Petroleum Industry Bill (PIB), is the only new year gift that could be appreciated in the industry, because it plays a critical role in national economy.

”If they want to give Nigerians any new year gift, they should pass the PIB. Once they give us the PIB, then we will have a level playing field to grow our economy, we need it to stabilize our economy, because the economy depends on oil and gas resources. So, they should pass the PIB and nothing more”, he said.

He noted that though there are arguments everywhere against and for the PIB, what should be done first of all is to enact the PIB as it is and then see how it is functioning.

According to him, “We can then see what areas need a change, we can now sit down as a group and decide to amend, modify, change or restructure the PIB but as it is at the moment, the amount of money that this country is losing on a daily basis, the pollution going on in the Niger-Delta, the number of people disenfranchised from getting their dues, the volume of corruption in the system, these are things that if we put the PIB in place, it will reduce to the barest minimum. Without the PIB, there is no way we can get back to the basics. The PIB is central. It is the bedrock, the foundation on which we can build this nation.”

Also, corroborating the views of Ezigbo, Emi Membere-Otaji, Managing Director, Elshcon Nigeria Limited, said the expectation in 2014 is for the PIB to be passed into law. “That is the main thing in our view, because we believe there is going to be a lot of positive development from the PIB, especially if the provisions are fair enough to serve as win-win situation for all the stakeholders.”

According to him, the bill would enhance investment profile in the industry and also actualise the local content objectives of the government.

”When the PIB is passed, we also expect that it would be aligned with strict enforcement of the Nigerian content policy, such that it would aid participation of Nigerian companies in the industry”, he said.


The concerns and expectations of stakeholders in the industry may have been informed by the report of the London-based Business Monitor International (BMI) forecasts for first quarter of 2014, which stated that although the Nigerian economy will grow by a robust 7.2 percent in 2014, the downside risks have increased over recent months.

According to the report, “The volatility of the price of oil poses a significant risk to export revenues and government receipts. A significant deterioration in the economies of Europe, the US, or other major markets could see the price again head below our current projections, with negative implications for Nigeria’s economy.

While we believe that security risks will eventually be contained, if the situation significantly deteriorates, this would potentially affect investment, exports, and growth.

Ructions within the ruling party could lead to economically disruptive instability in the lead up to the 2015 elections.”

The concerns of stakeholders no doubt would have been heightened by President Goodluck Jonathan’s statement that oil export might witness a downturn in 2014. The President’s statement which was contained in the Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) submitted to the National Assembly was meant to guide the National Assembly in their approval of the needed benchmark for the price of oil. However, the government’s stance might have been informed by the report of the United Kingdom-based policy think-tank, Chatham House, which stated that Nigeria’s crude oil is being stolen on an industrial scale,

According to the report, “Some of what is stolen is exported. Proceeds are laundered through world financial centres and used to buy assets in and outside Nigeria, polluting markets and financial institutions overseas, and creating reputational, political and legal hazards. It could also compromise parts of the legitimate oil business.”

The report also stated that officials outside Nigeria were aware that the problem existed, and occasionally showed some interest at high policy levels, “but Nigeria’s trade and diplomatic partners have taken no real action, and no stakeholder group inside the country has a record of sustained and serious engagement with the issue.”

The lack of good intelligence means international bodies cannot fully assess whether Nigerian oil theft harms their interests, it stated.

“It is not clear how much of Nigeria’s oil is stolen and exported. The best available data suggest that an average of 100,000 b/d vanished from onshore, swamp and shallow-water areas in the first quarter of 2013.

“This figure does not include what may happen at export terminals. It also assumes the integrity of industry numbers. But whatever the size of the problem, stolen Nigerian oil represents a tiny fraction of global crude supply and consumption, and a diminishing share of rising light sweet crude production globally.


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