In our 2016 third quarter year review, we examine specific challenges confronting the Nigerian oil and gas sector as it continues to be affected by global externalities in 2016.
This year, the Nigerian petroleum sector continued to confront the downturn in global crude oil prices since the third quarter of 2014. The resultant slowdown in upstream exploration funding and investment is currently having an impact on oil well exploration and developmental programs. Equally, the power sector has had to confront interrelated challenges mostly emanating from supply shortages and gas pricing, the preferred fuel for power.
As NNPC has undergone much-welcomed restructuring in 2016 and Nigeria, in its capacity as an OPEC member continues to engage with fellow OPEC members in addressing global crude oil pricing; industry experts predict that funding and investment in the Nigerian petroleum sector will be positively influenced in the medium to long term if also accompanied by regulatory certainty and reform.
However, the short-term key existential and overriding challenge is militant activity. Since February 2016, midstream infrastructure facilities have come under incessant attack and vandalism by the new militants in the Niger Delta, triggering force majeure on production streams, bringing Nigeria’s production down to 1.2m-1.6m barrels per day for prolonged periods from the 2016 budget production estimate of 2.2m barrels per day and reducing the crude oil feed stock to local refineries.
The former government (2011-2015) had despite the news of continued pipeline vandalism, engaged in a militant amnesty programme substantially reducing the disruptions to industry facilities and enabling production to go back up to previous peaks of approximately 2.5 million barrels per day. Nevertheless, the gains of the amnesty were undermined by the revelation in 2013 that crude oil theft was costing Nigeria between 150,000-400,000 barrels per day.
The present government now seeks to re-evaluate the militant amnesty programme and address key Niger Delta security and environmental remediation issues through the establishment of a Joint (Army-Navy-Airforce) Task Force and the inauguration of the $1 billion Ogoni fund in February 2016 for the environmental restoration of Ogoni lands. The NNPC is also strengthening its collaborations with the Nigeria Security and Civil Defence Corps (NSCDC) to better protect its oil installations/pipelines in the country. In NNPC’s monthly financial and operations reports since September 2015, it has prioritised pipeline security reforms that would ensure reduction in crude oil theft as well as address the loss of other petroleum products.
To date, the NNPC continues to strive to fulfil the mission statement in its monthly report for September 2015 that “A comprehensive reform of the pipeline security situation will unlock several industry upsides, including improved upstream oil production due to reduced pipeline disruptions, improved refinery utilisation due to increased crude oil feed from restored pipelines, and reduction of crude/product losses”.