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2016: Petroleum industry blighted by fuel crisis, salvaged by reforms

By Michael Eboh

The Nigerian petroleum industry, in spite of the gloom in the global market, recorded remarkable achievements and giant strides in 2016. Specifically, 2016 can be tagged as the year of ground-breaking developments and significant reforms in the petroleum industry, starting with the partial deregulation in the downstream petroleum industry, which saw the price of Premium Motor Spirit, PMS, also known as petrol, rising sharply from N87 to N145 per litre.

The year 2016 started on a sour note for the industry, as the first four months of the year was blighted by a severe fuel scarcity which saw motorists spending hours and days on queues to get the commodity.


The scarcity brought about chaos in the industry and the country in general, as many businesses threatened to suspend operations; black marketers had a field day, while oil marketers further fuelled the crisis by engaging in sharp practices.

However, the crisis was addressed when the Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, introduced far-reaching reforms, including a transparent bidding process for the petroleum products trading and crude oil trading and lifting contracts, as well as the introduction of the Direct-Sale-Direct-Purchase contract.

Kachikwu also introduced an arrangement whereby oil marketers are matched with upstream petroleum companies to boost the marketers’ access to foreign exchange for the import of petroleum products.

With the resolution of the fuel crisis, efforts shifted to the review of existing Joint Venture Cash Call, JVCC, arrangements and Production Sharing Contracts, PSC, while critical reform documents — the Draft National Oil Policy and the Draft National Gas Policy — was muted, presented to stakeholders and sent to the Federal Executive Council, FEC, for approval.

Also, in the course of the year, the Nigeria National Petroleum Corporation, NNPC, officially exited the JVCC arrangement, which it claimed would help the country generate about $2 billion annually.

Furthermore, in the year under review, major milestones were achieved in the petroleum industry as the Federal Government, towards the tail end of the year, disclosed that crude oil had been discovered in Borno State. This was in addition to the discovery in Lagos, which exploration commenced in 2016.

Again, the crisis in the Niger Delta, which forced down crude oil output to as low as 800,000 barrels per day was partially addressed, with the Federal Government getting key militant groups in the region to agree to a ceasefire.

This ceasefire in hostilities brought about a significant improvement to oil production and export, as Nigeria’s crude oil output rose to an average of 1.8 million barrels per day.

In addition, the transparency pursued by the Federal Government in the NNPC, continued, with the NNPC releasing its financials and operations reports on a monthly basis, while its remittances to the Federal Account improved significantly.

However, many significant challenges remained in the year under review, as the Federal Government was still not able to address the problems of the non-functional refineries and dilapidated pipeline network.

In addition, the NNPC failed to conclude the review of the PSCs and has refused to publish its budget, despite promising to do so.

In the course of the year, crude oil price which dropped to as low as $30 per barrels rose to about $55 per barrel. Many oil and gas companies, as well as servicing companies were negatively impacted, as majority of the international oil companies had to suspend majority of the oil and gas projects. As a result, most of the companies were forced to lay off their staff.

It is expected that the full impact of the varied reforms in the petroleum industry would be felt from 2017, when the reforms fully come on stream.

In their forecast for 2017, Business Monitor International, BMI, Research, a Fitch Rating company, projected that the Nigerian petroleum industry holds a promising prospects for 2017.

According to the company, Nigeria’s oil production would rebound strongly in 2017 and maintain an incremental growth over the next three years.

In addition, it said, “While the problems in the Niger Delta are far from resolves, we are positive about the outcome of the ongoing dialogue between the militant groups, Niger Delta leaders and the Nigerian government.”

The company also projected that the country’s refineries would continue to perform abysmally below their nameplate capacities until they receive the necessary investment required to improve their efficiencies.

BMI further disclosed that while there have been some notable reforms in the NNPC, there is still a long way to go in order to create a transparent and profitable company that encourages investment and helps the country reach its hydrocarbon potential.

Giving a hint of what to expect in 2017, Osinbajo disclosed that plans are underway to introduce measures that would ensure that every drop of crude oil that is extracted and exported from Nigeria is adequately accounted for.

He said exiting JVCC would boost additional investments and raise daily production levels to about 2.8 million barrels per day in the long term.

Kachikwu, on his own part, said that in addition to boost Nigeria’s crude oil output, the JVCC exit would bring about a reduction in crude oil Unit Technical Costs from $27.96 per barrel oil equivalent (boe) to $18 per boe.


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