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How Nigeria Can Become A Leading Oil and Gas Supplier To The European Market

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Crude oil - Investors King

Apart from retaining its position amongst the leading oil and gas producers in Africa in 2022, Nigeria, with over 37 billion barrels of crude oil reserves, has the potential to improve its energy exports to Europe and help address anticipated crude oil and natural gas shortages. 

With the European Union planning to ban crude oil imports from Russia by increasing trade with other non-Russian economies and the Russian government promising to cut gas supplies if sanctions from western countries continue, potential supply disruptions to Europe are anticipated. Accordingly, the west African country is expected to ramp up production in 2022 and retain its position as Africa’s largest crude oil producer, a development that will enable Nigeria to increase its energy capacity available for exports.

Nigeria’s annual crude oil production is expected to increase to 1.46 million bpd in 2022,  following low production levels in 2021 that were driven by the COVID-19 pandemic. This will provide an opportunity for Nigeria to increase its exports to Europe, become a global energy hub and to fully make use of its hydrocarbon resources for economic growth. Nigeria heavily relies on its offshore projects to sustain crude oil production and supply, with 65% of the country’s total production in 2022 anticipated to come from such projects. However, this will change with Nigeria’s crude oil production anticipated to decline in 2023 onwards due to decreases in production in legacy fields. Nigeria will have to wait for deep water projects to come online to improve its production capacity, according to the African Energy Chamber’s (AEC) Q1 2022 Outlook.

“Nigeria needs to ramp up crude oil production on existing discoveries that have not yet materialised to be able to sustain a secure supply in future to meet local, regional and international demand. Lifting of force majeure at the Brass terminal, Bonny NLNG and Okpai Power Plant comes at the right time. We have to continue paying attention on vandalism, sabotage and theft in oilfields. The close collaboration between the government and Industry could not be more important now” stated NJ Ayuk, Executive Chairman of AEC.

Meanwhile, on the gas front, Nigeria’s massive production capacity in 2022 will place the country among the top three producers in Africa and a potential supplier to meet demand in Europe. Nigeria has an estimated gas reserve of 209 trillion cubic feet and will produce 1,780 billion cubic feet in 2022, up from 1,450 billion feet in 2021. Existing producing projects and the projects currently under development in Nigeria are expected to ensure a resilient supply through 2025. With this portfolio, Nigeria has an advantage for Europe to look up to the west African country as a potential supplier.

In addition, the multi-billion 4,128km Trans-Saharan Natural Gas Pipeline being built by the governments of Nigeria, Niger and Algeria will enable the integration of Trans-Mediterranean, Maghreb-Europe, Medgaz, and Galsi Pipelines for Europe to leverage west and north Africa’s oil and gas resources to meet demand. Once completed, the pipeline will transport 30 billion cubic metres of natural gas per year and Nigeria, as a leading producer in Africa, can produce a significant share of that capacity.

“Nigeria is rich in oil and gas resources but still does not have adequate infrastructure such as a functioning refinery. In order to utilize its oil and gas resources effectively, Nigeria needs to build more infrastructure locally to process its energy. To be able to build the infrastructure needed, there is a need for direct involvement from a combination of the private and public sector partners,” stated Hendrick Malan, the CEO of energy market research firm, Frost & Sullivan, in an exclusive interview with the AEC.

Additionally, Nigeria’s current natural gas producing fields are expected to see a steep decline as we approach mid-2020s, a worrying situation that can reduce the country’s production capacity. Majors including ExxonMobil, Shell and TotalEnergies, who have been top producers of oil and gas in Nigeria, are expected to diversify their portfolios from 2022 onwards and exit the market, a move that might negatively affect production and reduce the ability of the West African country to expand its energy exports to Europe. ExxonMobil has already signed a $1.2 billion deal with local firm Seplat Energy to handover four oil mining licenses and natural gas recovery plants. Factors such as vandalism of infrastructure, a continued lack of investment in new exploration activities and political instability/civil unrest in oil and gas rich regions of Nigeria also continue to disrupt the country’s ability to optimize oil and gas production and increase exports.

Regulatory reforms and market improvement

The recent enactment of the Petroleum Industry Act (PIA) is a game changer for Nigeria’s oil and gas market with the regulation anticipated to increase the entrance of international majors and investors. The PIA is expected to provide clarity to market players on issues around taxation, investment and licensing, that have previously slowed down projects’ deployment. The law will boost investment in oil and gas upstream activities to improve exploration, production, infrastructure development and the country’s energy portfolio.

Despite efforts the Nigerian government has implemented to improve its oil and gas market, the country’s hydrocarbon energy resources remain untapped. Nigeria has not been able to fully leverage its oil and gas reserves to meet local demand and to increase exports. Today, 50% of the Nigerian population is living in energy poverty. AEC’s upcoming annual conference, African Energy Week (AEW) which will take place October 18-21, 2022, in Cape Town, will discuss policy, investment and infrastructure requirements for Nigeria to boost its energy production to meet local demand whilst expanding its energy exports to Europe.

With Europe seeking alternative supply chains to reduce reliance on Russian gas, Nigeria could provide a significant share of the capacity the bloc needs. The European Commission, governments, energy companies and financial institutions can help Nigeria with the funding and technical expertise required to speed up the development of infrastructure for increased production and energy transportation. AEW 2022 will hosts discussions around future Nigeria-Europe partnerships on oil and gas trading.

The African Petroleum Producers Organisation, a consortium of hydrocarbon producing countries, will rally its member countries including Africa’s top oil and gas producers Nigeria, Equatorial Guinea and Algeria to participate at AEW 2022 and discuss continental energy market trends, opportunities and the role its member states can play to ensure global energy security.

AEW 2022 will host panel discussions, round tables, presentations and high-level meetings about how Nigeria and APPO member states can improve exports to Europe whilst addressing energy poverty at continental level.

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Focus More on Port Rehabilitation, Nigerian Ports Authority Tells FG 

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Deep Sea port - Investors King

The Nigerian Ports Authority (NPA) has said the quay walls of the Tin Can Island port require a complete rehabilitation, saying the port is on the verge of collapse.

Managing Director of NPA, Mr. Mohammed Bello-Koko,  while speaking over the weekend stated that the agency had taken a holistic review of the decaying parts of the ports.

“Tin-Can Island Port is practically collapsing. We need to focus our budget on the rehabilitation of those quay walls at the Tin-Can port. We have taken a holistic review of decaying infrastructures at our ports and have decided that it is very important that we rehabilitate Tin-Can and Apapa port,” Bello-Koko stated.

He said the agency had resorted to borrowing in order to sustain the port. It had begun discussions with some lending agencies to lure them into investing in the rehabilitation of ports.

“What we have done is to start talking to lending agencies, even though we don’t intend to lend. We are asking how much money they will invest in the port terminals,” said Bello-Koko, saying the introduction of the Infrastructure Concession Regulatory Commission Act meant that the renewal of concession agreements for terminal operators was no longer done the way it used to be done.

He said the agency had requested for investment companies to invest in the ports.

Bello-Koko also stated that before the agency would also renew the concession agreement of some terminal operators, an agreement must be reached on how to develop the port.

“For us to renew these concession agreements that have expired, about five of them, we need to have categorical commitment from the affected terminal operators on the development of these port terminals. If the terminal operators cannot give us such commitment, then we either give the terminals to someone else or go and borrow money to rehabilitate those ports.”

“However, if we go and borrow money to rehabilitate those ports, then what the terminal operators are paying will have to change. The rates will have to go up. If we don’t do that, these terminal operators will keep managing those places, and the ports will keep collapsing. Because of their financial interest, these terminal operators don’t want us to re-construct the affected port terminals because that will mean stopping them from operating.

“We have had interest from the World Bank, amongst others. Surprisingly, it was the World Bank that actually gave money to the NPA to construct part of Apapa port so many years ago. The World Bank has come again to tell us that if we need funding, they will give it to us.”

He also stated that the agency is watching five terminals to make sure that they are committed to their responsibilities as provided by the port concession agreement.

“Affected terminal operators had been given temporary six-month renewal with conditions to meet before they would have their concession agreement renewed permanently,” Bello-Koko revealed.

“At the point of expiration of any concession agreement, the then Legal Agreement says that the terminal operators can apply for renewal and we will renew. It was after the concession agreement that the ICRC Act came onboard. The ICRC Act requires that there should be a new owner, a new bid and so on and so forth,” he added.

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EFCC Grills Suspended Accountant-General of The Federation, Discovers 17 Properties 

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Ahmed Idris - Investors King

The Economic and Financial Crimes Commission (EFCC) said it has traced not less than properties to the Accountant-General of the Federation, Ahmed Idris. 

On Wednesday, the Minister of Finance, Budget and National Planning, Zainab Ahmed, announced the suspension of Idris who is currently being grilled by the EFCC for fraud amounting to N80bn.

The letter titled: ‘Letter of Suspension’, read in part: “Following your recent arrest by EFCC on allegations of diversion of funds and money laundering, I write to convey your suspension from work without pay effective May 18, 2022.”

Investors King can confirm that an anonymous EFCC official revealed that the 17 properties linked to the former AG of the Federation are located in the UK, Dubai, Abuja, Lagos, and Kano. 

However, he said preliminary investigations showed that the nation’s chief accountant allegedly used proxies to buy some of these properties. The commission would therefore need to invite some of the proxies of the accountant-general.

The official added that from all indications, these properties were purchased while Idris was in office and did not declare them before the Code of Conduct Bureau as stipulated by law.

 “About 17 houses in London, Lagos, Kano, Abuja and Dubai have been traced to him. In Abuja, some of the houses are located in serviced estates,” he added.

Investors King reported earlier in the week that EFCC had arrested the suspended Accountant-General, saying “the AGF raked off the funds through bogus consultancies and other illegal activities using proxies, family members and close associates.”

“The funds were laundered through real estate investments in Kano and Abuja.

“Mr. Idris was arrested after failing to honour invitations by the EFCC to respond to issues connected to the fraudulent acts.

“It further alleged that the funds were laundered through real estate investments in Kano and Abuja,” EFCC added. 

REcall that Ahmed Idris had been under surveillance since last year following allegations that he offered huge sums of money to a family in order to secure the marriage of their 16-year-old daughter.

 

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Nigeria’s Trade Deficit Rises to $765m in Q1 2022  – CBN

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Trade - Investors King

The Central Bank of Nigeria (CBN) has said the value of Nigeria’s international trade deficit rose by 175.13 percent from $152.94m recorded in January 2022 to $420.79m in March 2022. 

The International Trade Summary on the CBN’s website reports that the total value of international trade as of the first quarter (Q1) of 2022 was $28.77bn. Imports stood at $14.77bn while exports accounted for $14.01bn, reflecting a total trade deficit of N764.69m.

In January 2022, export was $4.74bn and import was $4.89, with a trade deficit of $152.94m.

The value of the trade deficit increases further in February 2022 to hit $190.96m, with exports at $4.70bn and imports at $4.89bn.

There was a massive increase recorded in March 2022 as the trade deficit jumped to $420.79m, with exports at $4.57bn and imports at $4.99bn.

In June 2021, Godwin Emfiele, the CBN Governor has said Nigeria would reduce its imports bill by the first quarter of 2022, especially with the Dangote refinery projected to resume operations. This, he said would help reduce the importation of finished petroleum products.

“Of course for petroleum products, by the time the refinery goes into production by the first quarter of next year and the petrochemical plants we would have reduced our importation by about at least close to 35 per cent,” he said. 

However, Nigeria has failed to cut down on its import bill and the Dangote refinery is yet to be completed and operational. In fact, a recent Fitch report estimated that the refinery won’t be operational until 2024, and that is if Aliko Dangote raises the needed $1.1 billion (N900 billion) necessary for its completion.

In its recent report titled ‘Reforms Towards Resolving Foreign Exchange Challenges in Nigeria’, the Nigerian Economic Summit Group (NESG) explained how a rising trade deficit caning impact the nation’s economy.

According to the NESG, Nigeria will continue to rely on foreign loans via Eurobonds and multilateral financial institutions to bolster its foreign reserves as long as the nation’s trade balance continues to decline.

In part, the report stated: “Owing to the deteriorating trade balance position, the country is increasingly exposed to external borrowing through Eurobonds and multilateral loans to shore up its external reserves. In 2021, the trade deficit widened to N1.9tn from N178.3bn in 2020.

“The country had persistently recorded a trade deficit since the fourth quarter of 2019 when the land borders were shut. However, maintaining a trade surplus consistently coupled with adequate inflows of foreign investments will contribute significantly to improving the net flows of forex through the economy – which crashed from $100.8bn in the first three quarters of 2014 to $44.5bn in the corresponding period of 2021.”

“Huge dependence on imports has limited the CBN’s ability to effectively manage the demand for foreign exchange,” it stated. 

NESG further said, “Meanwhile, the massive dependence on imports has constrained the CBN’s ability to manage forex demand by prohibiting certain commodities that could otherwise be produced locally from accessing forex at the official market since 2015.

“The result of this policy action has heightened demand pressures in the parallel market, leading to a wide gap between the official exchange rate (now the I&E Window exchange rate) and the parallel market exchange rate. The parallel market premium averaged N104.7/US$ in 2021, 64.9 per cent higher than the average premium of N63.5/US$ in 2020.”

 

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