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Kachikwu’s Two Years of Impactful Reforms

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  • Kachikwu’s Two Years of Impactful Reforms

This month, Dr. Emmanuel Ibe Kachikwu will mark two years as the leading policy driver of Nigeria’s petroleum and gas industry under the leadership of President Muhammadu Buhari. He was first appointed Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) by the President and eleven months later, Minister of State, Petroleum Resources was added to his portfolio. In July last year, Dr. Maikanti Baru was appointed GMD of NNPC. This allowed Kachikwu to focus squarely on policy formulation and coordination as Minister of State.

The last two years under Kachikwu’s watch easily qualify as one of the most reform focused periods in the history of the country’s oil and gas industry. He has led with vision and an infectious passion to make a difference. The minister has introduced innovative initiatives and set in motion groundbreaking changes in the sector. These initiatives are helping to manage the fallouts of turbulent global oil prices on the Nigerian economy as well as redefine and adjust the longstanding structures of the industry. They are also laying a stronger foundation for a more vibrant, more efficient and more profitable sector that can contribute sustainably to the national coffers.
A good place to start a review of his track record is the latest target which the minister has set: leading the country to achieve self-sufficiency in local refining capacity and end fuel importation in 2019. Like many of his moves, it has the audacious Kachikwu stamp.

The plan is to seek financing from reputable international oil companies to fund, rehabilitate and jointly operate the three refineries in Port Harcourt, Warri and Kaduna so as to boost them to optimal production capacity. According to a recent report from the NNPC, the refineries, installed to refine 440,0000 barrels of crude oil daily, worked at only 8.55% of their combined capacities from January 2015 to September 2016.

Kachikwu’s plan is to get the refineries to optimal capacity which if achieved would significantly reduce reliance on petroleum imports to meet domestic demand currently put at about 35million litres per day.

Another component of the plan is to support investors in Greenfield refinery projects. The biggest of these is the proposed Dangote refinery which is expected to provide an additional 650,000 barrels per day refining capacity by 2019. The combined refining capacity of the three government refineries at full capacity of 450,000 barrels per day and the Dangote refinery would put the country in the over one million per day category and will enable the country meet 100% of local demand.

This sounds like a tall order. But Kachikwu’s impressive track record of performance, personal credibility and the clear action plan that he has drawn up suggests that with the support of critical stakeholders in the industry, this task would be achievable.

Significantly, the minister has reported that several IOCs have indicated interest in supporting and financing the refinery revamp project. Dangote is on track to deliver on the refinery as scheduled. In spite of teething problems, things seem to be moving in the right direction.

One of the defining features of Kachikwu’s two years at the helm is that, with the support of the President, the minister has progressed the deregulation of the downstream sector which has reduced the cost of running the corporation by 30 percent and taken significant pressure off the country’s finances. It has also opened the sector to investment – local and international. Kachikwu has therefore succeeded in reducing the subsidy burden on the nation’s coffers and saved the country monies that are being re-directed to the financing of critical projects that will impact ordinary Nigerians and strengthen the economy.

As a result, queues have significantly disappeared from filling stations across the length and breadth of the country. “We are currently witnessing a period of calm and predictability in the petroleum industry not seen in the country in over two decades. The fuel queues have literally disappeared. Filling stations are always sufficiently supplied to meet demand” said Mr. Nantim M. Joseph, a public affairs analyst who resides in Abuja.

Kachikwu’s passionate and constant engagement with major stakeholders in the Niger Delta has also helped to foster peace and reduce militancy in the oil producing areas. A notable initiative in this regard was the meeting he organized in November 2016 between the Pan Niger Delta Forum (PANDEF) and the President, Muhammadu Buhari. At the meeting – which served the purpose of breaking the ice and building confidence – the group of elders from the region presented a 16-point list of things they wanted the federal government to address. He has been consistent in facilitating dialogue between key interest groups in the Niger Delta and the federal government to address areas of concerns. This has despite recurring incidents of pipeline vandalisms, significantly helped to increase oil production.

Kachikwu also reversed the opaqueness and outright secrecy which defined the operations of the industry for decades by introducing full transparency into the finances of the NNPC and the entire oil and gas sector. Months into his appointment as GMD of the Corporation, he started publishing full monthly operational accounts of NNPC. With this act, Kachikwu signaled a new era of openness and empowered Nigerians with knowledge about the workings of the industry that is the backbone of the nation’s commonwealth.

Another Kachikwu landmark: for the first time in thirty years, the country is executing a sustainable plan to tackle the perennial problem of inadequate financing for oil and gas operations. This was achieved by the elimination of the old cash call financing scheme. It will be recalled that the National Economic Council (NEC) had approved the proposal of the Petroleum Ministry for a new private sector-led funding regime for Joint Venture (JV) oil and gas operations in the country to be known as Unincorporated Joint Ventures (UJVs). The key objective of the scheme is speed up the development of the sector by allowing International Oil Companies (IOCs) to charge the cost for technical production before sending the net amount to the federation account.

This new funding regime is a huge positive for the growth of the local oil and gas industry. Unlike the previous one, it puts the private sector in the driving seat of financing oil and gas operations. The implication is that the government will no longer directly contribute to the JV projects. Rather its contribution will be funded by banks under an arrangement that will allow the banks to recover their monies; the federal government will only collect dividends from the profits. This will free-up the government from the annual budgetary cash call obligations and increase the funds available for budget financing.

Related to this is the successful negotiation and agreement with IOCs which will see the country reduce the accumulated Cash Call obligation of $6.8bn dollars to $5.1bn. Under the terms of this agreement with the oil majors, Nigeria is to pay Shell, ExxonMobil, Eni, Chevron and Total $5.1bn to cover arrears of exploration and production costs between 2010 and 2015. The balance is to be paid within five years at zero interest from incremental volumes not current volumes.

The net effect of this deal for Nigeria is about $7 – $8bn in savings over 5 years. About $15 billion fresh investment is expected to flow into the country as a result of this measure and will help to reduce the cost of oil production from about $27 to $18 per barrel thereby increasing government revenues. The deal which is to be finalized before the end of the year will bring to an end the protracted dispute over the arrears between the country and the oil majors and create a conducive environment for greater foreign investment in the sector.

Another significant milestone of the past two years is the $15 billion cash-raising oil deal with India to raise foreign exchange to meet the shortfall in national revenues. The Indian government, one of the world’s top crude oil buyers, will upon completion of the deal make upfront payment for future crude oil purchases. This is to be repaid on the basis of firm term crude contracts over some years and in consideration for Indian companies collaborating in the refining sector as well as exploration and production activities on a government-to-government basis.

No doubt, Kachikwu has focused strongly on establishing a structured and sustainable financing scheme to enable the downstream sector to adequately fund itself without putting pressure on the federal purse. It was also to this end that the minister, during an investor roadshow in China, signed Memorandums of Understanding (MoUs) with several Chinese firms totaling over $80 billion in new investments that will span over five years. The deal will cover pipelines, refineries, gas and power, facility refurbishments and upstream financing to bridge the infrastructure funding gaps in the Nigerian oil and gas sector.

Also key are the secured commitments from Sinopec and China National Offshore Oil Corporation (CNOOC) to commit to further investments in Nigeria’s upstream oil sub-sector to the tune of $20 billion. These unprecedented financing deals would cumulatively bring the total amount of prospective investments by Chinese firms over a five-year period to over $100 billion.

The clear progress made possible by Kachikwu’s reforms gives hope that a modern efficient and profitable petroleum industry is possible. His strong track record in the industry, vibrant leadership and “can do” spirit have delivered measurable benefits to the economy and taken the sector many notches higher. He is indeed the game changer.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Nigeria Pumps 236.2 Million Barrels in First Half of 2024

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Nigeria pumped 236.2 million barrels of crude oil in the first half of 2024, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

This figure represents an increase from the 219.5 million barrels produced during the same period in 2023.

In January, Nigeria produced 44.2 million barrels of crude oil while February saw a slight dip to 38.3 million barrels, with March following closely at 38.1 million barrels.

April and May production stood at 38.4 million barrels and 38.8 million barrels, respectively. June’s output remained consistent at 38.3 million barrels, demonstrating a stable production trend.

Despite the overall increase compared to 2023, the 2024 production figures still fall short of the 302.42 million barrels produced in the same period in 2020.

This ongoing fluctuation underscores the challenges facing Nigeria’s oil sector, which has experienced varying production levels over recent years.

On a daily basis, Nigeria’s crude oil production showed some variability. In January, the average daily production peaked at 1.43 million barrels per day (mbpd), the highest within the six-month period.

February’s production dropped to 1.32 mbpd, with a further decrease to 1.23 mbpd in March. April saw a modest increase to 1.28 mbpd, which then fell again to 1.25 mbpd in May. June ended on a positive note with a slight rise to 1.28 mbpd.

The fluctuations in daily production rates have prompted government and industry leaders to address underlying issues.

Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPC), has highlighted the detrimental effects of oil theft and vandalism on Nigeria’s production capabilities.

Kyari emphasized that addressing these security challenges is critical to boosting production and attracting investment.

Kyari also noted recent efforts to combat illegal activities, including the removal of over 5,800 illegal connections from pipelines and dismantling more than 6,000 illegal refineries.

He expressed confidence that these measures, combined with ongoing policy reforms, would support Nigeria’s goal of increasing daily production to two million barrels.

The Nigerian government remains focused on stabilizing and enhancing oil production. With recent efforts showing promising results, there is cautious optimism that Nigeria will achieve its production targets.

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Oil Prices Steady Amid Mixed Signals on Crude Demand

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Oil prices remained stable on Thursday as investors navigated conflicting signals regarding crude demand.

Brent crude oil, against which Nigerian oil is priced, settled at $85.11 a barrel, edging up by 3 cents, while U.S. West Texas Intermediate (WTI) crude dipped by 3 cents to $82.82 a barrel.

The stability comes as the U.S. economy shows signs of slowing, with unemployment benefit applications rising more than expected.

Initial claims increased by 20,000 to a seasonally adjusted 243,000 for the week ending July 1, prompting speculation that the Federal Reserve might cut interest rates sooner than anticipated. Lower rates could boost spending on oil, creating a bullish outlook for demand.

Fed officials suggested that improved inflation and a balanced labor market might lead to rate cuts, possibly by September.

“Healthy expectations of a Fed rate cut in the not-so-distant future will limit downside,” noted Tamas Varga of oil broker PVM.

However, rising jobless claims signal potential economic easing, which could dampen crude demand.

John Kilduff of Again Capital highlighted the impact of a slowing economy on oil consumption despite a significant drop in U.S. crude inventories last week.

Global factors also weighed on the market. China’s economic policies remain steady, though details are sparse, affecting investor sentiment in the world’s largest crude importer.

Meanwhile, the European Central Bank maintained interest rates, citing persistent inflation.

An upcoming OPEC+ meeting in August is expected to assess market conditions without altering output policy, according to sources. This meeting will serve as a “pulse check” for market health.

Overall, oil prices are caught between economic concerns and hopes of a rate cut, maintaining a delicate balance.

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Oil Prices Slide on China Demand Concerns, Brent Falls to $83.73

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Crude Oil - Investors King

Oil prices declined on Tuesday for the third consecutive day on growing concerns over a slowing Chinese economy and its impact on global oil demand.

Brent crude oil, against which Nigerian oil is priced, dipped by $1.12, or 1.3% at $83.73 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped $1.15, or 1.4%, to close at $80.76.

The dip in oil prices is largely attributed to disappointing economic data from China, the world’s second-largest economy.

Official figures revealed a 4.7% growth in China’s GDP for the April-June period, the slowest since the first quarter of 2023, and below the forecasted 5.1% growth expected in a Reuters poll.

This slowdown was compounded by a protracted property downturn and widespread job insecurity, which have dampened fuel demand and led many Chinese refineries to cut back on production.

“Weaker economic data continues to flow from China as continued government support programs have been disappointing,” said Dennis Kissler, Senior Vice President of Trading at BOK Financial. “Many of China’s refineries are cutting back on weaker fuel demand.”

Despite the bearish sentiment from China, there is a growing consensus among market participants that the U.S. Federal Reserve could begin cutting its key interest rates as soon as September.

This speculation has helped stem the decline in oil prices, as lower interest rates reduce the cost of borrowing, potentially boosting economic activity and oil demand.

Federal Reserve Chair Jerome Powell noted on Monday that the three U.S. inflation readings over the second quarter “add somewhat to confidence” that the pace of price increases is returning to the central bank’s target in a sustainable fashion.

This has led market participants to believe that a turn to interest rate cuts may be imminent.

Also, U.S. crude oil inventories provided a silver lining for the oil market. According to market sources citing American Petroleum Institute figures, U.S. crude oil inventories fell by 4.4 million barrels last week.

This was a much steeper drop than the 33,000 barrels decline that was anticipated, indicating strong domestic demand.

The International Monetary Fund (IMF) also weighed in, suggesting that while the global economy is set for modest growth over the next two years, risks remain.

The IMF noted cooling activity in the U.S., a bottoming-out in Europe, and stronger consumption and exports for China as key factors in the global economic landscape.

In summary, while oil prices are currently pressured by concerns over China’s economic slowdown, the potential for U.S. interest rate cuts and stronger domestic demand for crude are providing some support.

Market watchers will continue to monitor economic indicators and inventory levels closely as they gauge the future direction of oil prices.

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