NIGERIA’S OIL AND GAS IN 2022: THE GAINS AND THE LOSSES

December 2022

Africa’s most populous country,  Nigeria’s oil and gas sector was expected to gather momentum coming into 2022 especially with the passage of the Petroleum Industry Act (PIA) and mild recovery from a COVID-19-induced recession; rather it saw one of its most volatile years on record.

Not even in 2020, regarded as the Covid-19 year, did the Nigerian oil and gas sector experience what will turn out be defining series of developments, mostly in the negative, like it did in 2022.

It was also the year crude oil theft rose to the level of heists, forcing oil majors to step up divestment plans, and Russia’s war against Ukraine roiled global oil markets.

The year however also recorded some gains, the Nigerian government began commercial crude oil production in the North, completed bid rounds for marginal oil fields and began the implementation of the PIA, rebranding the national oil company and creating regulatory bodies for the petroleum upstream and midstream sectors.

Below are some significant happenstances of the year 2022 that greatly impacted the life of the citizens of Africa’s most populous country

THE CHALLENGES

MESSY DOWNSTREAM SECTOR AND FUEL SCARCITY

The year began with the revelation that the Nigerian National Petroleum Company (NNPC) and its partners imported adulterated petrol, which destroyed private cars and caused some scarcity of the products, especially in Lagos and Abuja. The situation went downhill from there.

Scarce foreign exchange reduced NNPC’s ability to import even as it burns millions of dollars daily paying for subsidies. The scarcity worsened towards the end of the year again, and Nigerians spent the holidays worrying about fuel in their tanks.

From the unavailability of petrol to the shortage of jet A1 or even the near absence of kerosene, regarded as the fuel of the poor anywhere in the country, 2022 will pass one of the most difficult in terms of disruption in the supply of products to consumers.

The scarcity of the fuels was closely followed by the rising diesel prices which sold for over N800, in a country that cannot believe boast of anything close to reliable power supply.

This has forced businesses to close shop and for those who decided to stay in business, it hugely increased the cost of operations. Inevitably, this cost was pushed to final consumers whose revenues were wiped out by the surging inflation.

The sole fuel importer , the NNPC during the year gave several excuses, including the imported adulterated fuel in February, disruption caused by the Sallah festivities sometime during the year, the flooding which cut Abuja and the north from the rest of the country and recently bad roads in Lagos for the deficit supply.

UNENDING PETROL SUBSIDY

The management of petrol subsidy or the lack of it remained very problematic during the year, resulting in over N4 trillion or roughly 25 per cent of Nigeria’s total budget being spent on a single product.

While the PIA stipulates the removal of fuel subsidy, the implementation of that part of the law has been suspended until around June next year when the Muhammadu Buhari administration must have exited the leadership of the country and effectively pushing the decision to the next government.

The current administration has predicted that retaining petrol subsidy in the current form will cost Nigeria nearly N7 trillion in 2023, further widening deficit spending.

The World Bank had advised Nigeria to phase out petrol subsidy and redirect the fiscal resources to investments in infrastructure, education, and health services, arguing that Nigeria basically subsidises the rich, rather than the much trumpeted poor and vulnerable

GAS EVERYWHERE, NONE TO USE

Nigeria has an almost inexhaustible volume of untapped gas resources, even as much as 208 TCF. But it’s rarely available for deployment when needed because of lack of investment in the subsector and subsequently an almost inexistent infrastructure.

Despite the large gas reserves, the country is not able to satisfy local consumption, let alone ship enough for export.

During the year, on the back of the Russia-Ukraine war, pressure from Europe for Nigeria to increase supply to the continent as it attempted to wean itself off Russian gas, basically failed to yield fruits.

In spite of the much-talked-about ‘Decade of Gas’, nothing remarkably groundbreaking took place in 2022 to push the envelope towards a gas-powered economy. For the little that was produced in-country, prices skyrocketed, returning many Nigerians to the use of firewood for cooking.

Nigeria’s electricity supply also continued to suffer intermittent failure, due partly to deficit supply of gas to meet their obligations to the power Generation Companies (Gencos).

OIL THEFT AND PIPELINE VANDALISM

Oil prices rose to as high as $130 per barrel in the global market on the back of Russia’s invasion of Ukraine in February, but rampant crude theft forced many producers in Nigeria to shut their fields, ensuring that the country fails to benefit.

In October, the NNPC uncovered an illegal four-kilometre pipeline from Forcados in Delta State to the sea and a loading port that was part of an elaborate crude theft operation for the last nine years.

The country lost its status as the largest oil producer for six months and has been unable to meet its OPEC quota since November 2021.

This forced the government to contract private security companies to secure the pipelines including one associated with a former wanted militant, Government Ekpemupolo, popularly known as Tompolo. The NNPC also said it was building surveillance architecture similar to Saudi Aramco’s to monitor the pipelines.

MASSIVE OPEC PRODUCTION DEFICIT

In the outgoing year, Nigeria produced its lowest Organisation of Petroleum Exporting Countries (OPEC) quota in decades, failing to take advantage of the high crude oil prices induced majorly by the Russia-Ukraine war.

While OPEC’s production share for the most of 2022 averaged  1.8 million bpd for Nigeria, the country fell short in meeting its quota during the year, mostly hovering between 900,000 bpd and 1.2 million barrels per day for the greater part of the year. The federal government and its agencies blame oil theft for the prolonged challenge.

The country largely failed to meet its allocation, which declined steadily from 1.39 million bpd in January of this year to a low of 937,000 barrels in September before rising above 1 million bpd in October and November.

Due to the country’s failure to optimally produce crude oil, it lost its position as Africa’s top crude oil producer for months, indeed coming behind Angola, Algeria and Libya.

The NNPC admitted that a conservative monthly figure of 700,000 bpd losses per day were being recorded, hitting over 21 million barrels per month. A THISDAY review showed that in the first 11 months of this year, the nation may have lost approximately 240 million barrels to oil theft and sabotage, leading to shut-ins.

With oil selling between $80 and $100, this year, that figure remains a huge loss to the country’s economy.

SEPLAT/EXXONMOBIL/NNPC IMBROGLIO

The drama surrounding the botched Seplat Energy’s acquisition of Mobil Producing Nigeria Unlimited from Exxon Mobil Corporation, basically exposed how seemingly uncoordinated the petroleum sector is and how players can work at cross-purposes.

The back-and-forth which heralded Buhari’s approval of the acquisition and then the disapproval by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) hours later sent shock waves to the industry and apparently projected the wrong signals, as it were to foreign investors.

Forty eight hours after the president, who is also the Minister of Petroleum Resources, sanctioned the deal, he had withdrawn his consent, blaming the lack of coordination among the concerned agencies for the confusion. He explained that he had weighed the likely ramifications of the earlier decision.

The N1.283 billion sales and purchase deal which the presidency earlier hailed as being able to draw foreign investment into the oil sector, would have overridden the long-drawn attempt by the NNPC to block the deal.

Being a global industry, the aftermath of the president’s back-and-forth, experts argued, was capable of scaring serious minded investors in the sector in Nigeria.

THE GOOD LININGS

Oil Exploration in the North

President Muhammadu Buhari, in November, flagged off the Kolmani Integrated Development Project in the North-East. It is designed as a fully integrated in-situ development project comprising upstream production, oil refining, power generation and fertilizer. According to the NNPC, there are over one billion barrels of oil reserves and 500 billion cubic feet of gas in the Kolmani area and a huge potential for more deposits as it intensifies exploration efforts.

Memoranda of Association (MoU)

In 2022, NNPC signed various Memoranda of Association (MoU) with many countries, including the national oil companies of Ghana, Gambia, Guinea, Guinea Bissau and Sierra Leone in furtherance of the planned Nigeria-Morocco Gas pipeline project.

The Nigeria-Morocco Gas Pipeline (NMGP) project has been in the works for years and is an initiative of the federal government and the Kingdom of Morocco.

It is a 5,600 kilometres gas pipeline project traversing 13 African countries namely: Nigeria, Benin, Togo, Ghana, Cote d’Ivoire, Liberia, Sierra Leone, Guinea, Guinea Bissau, Gambia, Senegal and Mauritania to Morocco.

Once completed, the project will supply about 3 billion standard cubic feet of gas per day (3bscf/d) from Nigeria to the Kingdom of Morocco and subsequently to Europe.

The year also saw the NNPC Limited, according to the national oil company, sealing a $1.4 billion external project finance agreement for hydrocarbon projects in the Niger Delta.

The agreement, codenamed Project Panther (under the NNPC Limited/Chevron Nigeria Limited joint venture), was sealed at the signing ceremony held in London.

Also, after a prolonged dispute that hobbled oil production of Oil Mining Leases (OMLs) 123, 124, 126 and 137, operated by Addax Petroleum Nigeria Limited, the company reached a close-out and signing ceremony of an asset transfer, settlement and exit agreement with the NNPC.

Although long overdue, Nigeria has also begun the repair of its refineries, which the Minister of Petroleum Resources, Chief Timipre Sylva, says will help stop the importation of petroleum products before or around the third quarter of 2023. It’s unclear how feasible this projection is.

Sylva said the refurbished refinery in the city of Port Harcourt in the oil-producing Niger Delta would be delivering 60,000 barrels per day of refined crude by the end of this December. The year has roughly four days to end.

It’s also the year the federal government and all concerned agencies moved to stop the embarrassing oil theft which had hobbled drilling in the country, hiring local security groups, literally putting the feet of the security agencies to fire. In 2022, the NNPC said it has acquired equipment to monitor its oil and gas assets in real time.

That wasn’t all. The NNPC in 2022, transformed from a government funded organisation to a ‘commercial’, ‘profit-oriented’ organisation, which it said will see it operate in the mould of Saudi Aramco.

During the outgoing year, the national oil company also acquired the assets of OVH Energy Marketing (OVHEM), owner and operator of the Oando downstream assets.

This, it said, was in line with its vision to maintain a leading position in the Nigerian petroleum downstream sector.

Though quite slow, the Ajaokuta-Kaduna-Kano (AKK) natural gas project continued in 2022, raising hope that in years to come, Nigeria could ramp up production despite the current dearth of infrastructure.

During the year, the NNPC posted its second consecutive year of ‘profit’, announcing N674.1 billion in the 2021 financial period and growing it from N287 billion in 2020. The figure represented an increase of N387 billion or 134.8 per cent when compared to the previous N287 billion recorded in 2020.

Maybe not entirely a bad year for the sector, but in the end, Nigerians judged the results, not the seeming activities. In that respect, in 2022, the sector failed to give Nigerians reliable petrol supply, failed to produce enough crude for sale and failed to yield revenue to government coffers, compounding the country’s economic crisis.

Oil Majors’ Divestments

Multinational oil companies stepped up their plans to divest from the Niger Delta due to rising crude theft and pressure from their shareholders to seek cleaner energy sources. ExxonMobil, Chevron and Shell moved their divestment plans ahead, even as they encountered resistance from the NNPC and the Nigerian government.

NNPC blocked the sale of ExxonMobil Nigerian unit shares to Seplat Petroleum Development Company. A court case in Port Harcourt stymied Shell’s divestment plans.

In July, Panoro Energy, a London-based and Oslo-listed oil and gas company, announced the sale of its wholly owned subsidiaries, Pan Petroleum Services Holding BV and Pan-Petroleum Nigeria Holding BV, to PetroNor E&P ASA.

Ikike Oil Field Production

TotalEnergies, which operates Oil Mining Licence 99 in partnership with the NNPC, started production from the Ikike field in Nigeria in July.

The company, which owns 40 percent of the oilfield located 20 kilometres off the coast at a depth of about 20 meters, said the Ikike platform is tied back to the existing Amenam offshore facilities through a 14km multiphase pipeline. According to TotalEnergies, it will deliver peak production of 50,000 barrels of oil equivalent per day by the end of 2022.

Oil Bids

The Nigerian government completed oil marginal fields and in December announced it would offer seven deep offshore oil blocks for investors in its 2022 mini-bid round with the aim of spurring new exploration and drilling activities in the country’s prospective deep waters.

The regulator said the oil blocks under the bid exercise will cover an area of approximately 6,700 kilometre square in water depths of 1,150 metres to 3100 metres.

Agreement Signed For Nigeria’s First Floating Liquefied Natural Gas Project

UTM Offshore signed an agreement with United Kingdom’s Kellogg Brown and Root, Japan Gas Corporation and Technip Energies for the front-end engineering design for Nigeria’s first floating liquefied natural gas (FLNG) project.

The 1.52 million tonnes per annum FLNG facility, with a capacity to process 176 million standard cubic feet of natural gas per day and condensate, will have a storage capacity of 200,000 cubic metres, and would be located 60km from the shore of Akwa Ibom State, Nigeria, was conceived to serve the global energy market