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    2022: Underwhelming Year for Nigeria’s Oil, Gas Industry

    27 Dec 2022

    Marked by huge challenges, the outgoing year was one in which the oil and gas industry in Nigeria failed to impress on all fronts…well, almost, writes Emmanuel Addeh.

    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.

    A critical industry, it failed to live up to the expectation of being Nigeria’s key revenue earner, floundering in its capacity to take advantage of rising international oil prices and back home, falling short in making important fuels available for consumers.

    It was a year in which scarcity of petrol nationwide, especially in Abuja and surroundings, became the norm rather than the exception; in which the availability of aviation fuel became as unpredictable as the weather and diesel prices skyrocketed to the heavens, literally making it unaffordable.

    The year saw the deferment of the implementation of key parts of the Petroleum Industry Act (PIA), especially the part which codified the deregulation of the petroleum downstream. The year also witnessed the embarrassing confusion which heralded President Muhammadu Buhari’s approval/disapproval of the Seplat/ExxonMobil acquisition deal.

    In retrospect, 2022 saw the payment of high amounts of fuel subsidies never before seen in the history of Nigeria, hitting over N4 trillion in all, curtailing investment in critical sectors and deepening Nigeria’s debt crisis.

    The year saw the massive theft of Nigeria’s crude oil, which practically crumbled the activities of operators in the country’s oil and gas industry, subsequently almost bringing the economy to its knees.

    As if those were not enough troubles for a single year, in 2022 , the Nigerian National Petroleum Company Limited (NNPC) halted payments to the Federation Account, a joint pool from where the federal, state and local governments draw revenues at the end of every month.

    In the first quarter of 2022, Nigeria witnessed the importation of adulterated petrol, causing an unprecedented disruption to product supply, damaging private and commercial vehicles and leading to the usual blame game. The authorities vowed to punish defaulters.

    “ All defaulting suppliers have been put on notice for remedial actions and NNPC will work with the authority to take further necessary actions in line with subsisting regulations,” a statement from the NNPC stated.

    Buhari followed the NNPC’s avowal with his own. According to the president, the persons involved must “be held accountable for substandard services and or products sold by them”.

    Like many Nigerians predicted , till today, there’s no public record that those who were clearly responsible for the negligence were punished or even reprimanded. In the same vein , Nigerians whose vehicles were impacted by the bad fuel have been left to lick their wounds.

    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.

    SCARCITY OF FUELS

    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.

    As for the recurring aviation fuel scarcity, domestic airlines under the aegis of the Airline Operators of Nigeria (AON) last week warned Nigerians of impending disruptions in scheduled flight operations due to the scarcity of the fuel.

    “While we do our utmost best to manage the situation and ensure safe flight operations, we plead for the understanding of the travelling public in the circumstance.

    “We also call on the concerned authorities including product importers and marketers to do their best to resolve this ugly situation so as to ease the stress it brings on the travelling public,” Prof Obiora Okonkwo, spokesman of the group said.

    But earlier in the year, the Minister of Aviation, Senator Hadi Sirika, said the current aviation fuel scarcity in the country with its attendant high cost was not peculiar to Nigeria.

    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.

    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.

    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).

    SOME HOPE

    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.

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