Nigeria, mired in some of its toughest battles yet to halt resurgent militancy in the oil-rich Niger Delta, is facing longer term threats to its oil wealth; the government’s failure to endorse fiscal and regulatory reforms needed to keep oil investors interested.
While militancy and pipeline vandalism remain the short-term major headache, it is the uncertainty around fiscal terms and the slow progress in implementing key oil and gas legislation that has been the major handbrake on oil growth in sub-Saharan Africa’s largest crude producer.
Lauded as the biggest shake-up in Nigeria’s oil industry for decades, the Petroleum Industry Bill (PIB) aims to bring in sweeping reforms of the country’s dysfunctional sector. But it has been stuck in Nigeria’s legislature for eight years, held up by political wrangling and objections by the IOCs which argue that the significantly higher fiscal terms envisaged in recent PIB drafts are unacceptable, especially in the current low oil price environment.
Nigeria is ripe for a comprehensive review of the fiscal and regulatory framework applicable to its oil and gas industry. Existing laws are severely outdated and in need of change. Though oil and gas accounts for about 80% of government revenues, the state-run Nigerian National Petroleum Corporation (NNPC) is considered one of the most corrupt corporations of any oil-producing nation.
Oil minister Emmanuel Kachikwu, who has been given the task with overseeing the restructuring of the NNPC, wants to break up the corporation into seven units, with each given responsibility for overseeing 20 separate NNPC divisions.
But the NNPC has proven remarkably resilient to past reform initiatives. Faced with plummeting global oil prices and dwindling state coffers, how long can the government afford to allow the NNPC to operate much as it did before?
The delay in passing the bill into law has not only cost Nigeria’s $15 billion a year in lost investments but what is more worrying for the oil-dependent country is the slump in both its output in the past two years and its fast depleting oil and gas reserves. Nigeria’s crude reserves have dropped from 37 billion barrels to 28.2 billion barrels over the last five years, according to NNPC.
Today, with oil production still below the 2.2 million b/d level of early 2016, its deepwater production is standing in for the ongoing losses and shut-ins of shallow water and onshore fields exposed to attacks and oil theft.
According to the Nigerian Association of Petroleum and Explorations (NAPE), there is now a need for investors and the government to look beyond the Niger Delta and at other frontiers such as the Chad Basin with potential for oil and gas resources. But petroleum engineers in Nigeria argue that the hunt for hydrocarbons in the basin could be hampered by the lack of clarity with the review of Nigeria’s hydrocarbons legislation and unwillingness of oil companies to drill outside the Niger Delta with already proven reserves in the current low price environment.
The fall in global oil prices has not only slashed Nigeria’s foreign exchange earnings and plunged the country into its first recession in more than 20 years, it has also exposed the cost of the OPEC member’s failure to reform.
The legislature whose responsibility it is to pass the bill will have to give the PIB the attention it deserves. But the current economic turmoil might finally present the opportunity to pass the PIB and revive much-needed investment. Inertia is no longer an option.
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