Business a.m.
The Nigerian oil industry is facing mounting criticism and pressure to address its underperforming production levels, which have consistently missed both budget benchmarks and Organization of the Petroleum Exporting Countries (OPEC) quotas. This,experts warn, is an indication that Nigeria is at risk of losing its footing as a major player in the global oil market unless decisive steps are taken to improve its competitiveness and attractiveness to investors.
According to experts, the factors contributing to Nigeria’s declining oil production have not yet been adequately addressed and, without urgent intervention, could worsen in the coming months. They also caution that the current output shortfall could result in a N1 trillion reduction in oil revenue by the end of the year, severely impacting the government’s projected N15.7 trillion revenue for the 2024 fiscal year.
According to industry data, Nigeria’s oil production has fallen short of the OPEC quota of 1.5 million barrels per day, with about 3.011 million barrels production shortfall in the first five months of the year, equating to approximately N400 billion in revenue loss at an average Bonny Light price of $88 per barrel.
Furthermore, recent reports indicate that the country’s oil output has declined to approximately 1.2 million barrels per day, a drop from its peak production of 2.5 million barrels per day in the early 2000s.
Average oil production in Nigeria from January to May was 1.43 million barrels per day (mbpd) in January, 1.32 mbpd in February, 1.43 mbpd in March, 1.28 mbpd in April, and 1.25 mbpd in May, reflecting a downward trend in the country’s output.
Also worrisome is the fact that the federal government has acknowledged the possibility of falling short of its anticipated revenue target for the fiscal year, largely due to the inadequate performance of the oil sector.
Voicing his concerns about the country’s plunging oil output, Abdulrazaq Isa, chairman of the Independent Petroleum Producers Group (IPPG), remarked that Nigeria is producing oil at a level that is significantly below its actual capacity, indicating that the country is not utilising its full potential.
Isa noted that despite Nigeria’s vast hydrocarbon reserves, which include 37 billion barrels of proven crude oil reserves, 207 trillion cubic feet (tcf) of proven gas reserves, and 600 tcf of contingent gas reserves, the country’s daily production has dropped to around 1.3 million barrels of oil and 8.5 billion cubic feet (bcf) of gas.
“This is way below our capacity as a nation and by all globally acceptable standards, this reserves-to-production ratio is extremely low and a clear indicator that the industry is in a dire situation.
“In addition, we now run the risk of partial implementation of our national budget considering an estimated deficit of 400,000 bpd from the forecasted 1.78 million bpd,” he pointed out.
In his analysis, Isa warned that the current decline in oil production poses a dire risk to the future of Nigeria’s refining capacity. He added that with installed domestic refining capacity rapidly approaching 1.2 million barrels per day, the country may soon find itself unable to meet the demands of its domestic refineries or even becoming a net importer of crude oil.
Mele Kyari, the Group CEO of NNPC Limited, has attributed the current difficulties facing the oil sector to the departure of both investors and international contractors from the market. He revealed that there is only one international contractor currently active in the deep water space, highlighting the significant reduction in activity in the industry.
Kyari also pointed to the lack of new projects and activity in the sector, noting that the number of active rigs in the Nigerian environment has dropped considerably.
Kyari identified several factors contributing to the challenges facing the Nigerian oil sector, including insufficient investment, rampant oil theft, and an aging pipeline network.
To address the issue, he said the NNPC is leading efforts to completely replace the two critical export pipelines to Excravos and Bonny. This initiative is intended to improve the efficiency and reliability of the country’s oil transport infrastructure, thereby bolstering its position in the global market.
On other measures the NNPC is taking towards improving the country’s oil production, the NNPC group CEO stated, “We have also taken another step, we will set up a rig share club with our partners. So that everyone can put on the table drilling programme so that we can all align and when rigs come here they can stay three to five years. Then we can be sure that the trend in production can increase.”
In explaining the benefits of this approach, Kyari noted that it is common practice in other jurisdictions to prioritise the replacement of obsolete infrastructure. However, he lamented that this approach has not been implemented in Nigeria due to the widespread corruption in the procurement process.
According to Kyari, certain individuals have exploited the procurement process to their own financial advantage, thereby impeding efforts to modernise the country’s oil infrastructure and support the development of the industry.
