- Oil Reserve Crisis Looms Over Delay of Blocks
The delay in the award of new oil blocks and uncertainties over existing marginal oilfields are upsetting industry players, amid a warning that the country’s economic development could be jeopardised.
Nigeria is projected to witness a shortage of crude oil, as new refineries may have to compete with the sale of the product at the international market where the country earns the bulk of its hard currency. Also, some experts think the Nigerian National Petroleum Corporation’s (NNPC) bid to increase crude oil reserves by one billion barrels yearly to meet targets would remain elusive.
The Federal Government has repeatedly failed to meet a 40-billion reserve target for about eight years. Instead of making progress, the country could be inching backwards, according to statistics from the Department of Petroleum Resources (DPR), showing that the reserves declined by 961.47 million barrels between 2012 and 2016 alone.
Experts said the challenges that have frustrated meaningful exploration and production activities from marginal fields for the past 13 years could spell doom for the future of the nation’s oil sector.The country had recently targeted daily earnings of $4.23 million (N1.29 billion) from an average of 90,000 barrels of oil per day, which the experts said could have been feasible from 18 of about 30 marginal fields awarded in the country, if they were operating optimally. Of the 30 marginal fields awarded since 2004, only 12 are active and currently produce about 2.6 per cent of daily oil production and 2.5 per cent of the estimated 4,000 MMscf gas production in the country.
Considering it has been over a decade since the country conducted a bid round, Minister of State for Petroleum Resources Ibe Kachikwu recently insisted that unless there are new oil and gas regulations, the country might not award oil blocks.Awarding new oil fields or creating the needed environment that would ease exploration, especially for marginal field operators, are key ways the country could add to national oil reserve and boost revenue, especially when demand rises on the backdrop of new refineries and needed supply to the international market.
With the failure of President Muhammadu Buhari to assent to the governance fragment of the four-part Petroleum Industry Bill (PIB) and the delay that has impeded the entire legislation for about two decades, stakeholders said the stagnation would continue to frustrate desired objectives in Nigeria’s oil and gas sector.
The chairman, International Energy Services Limited, Dr. Diran Fawibe, said: “The passage of the PIGB will not really affect the oil bidding angle. We are talking about corporate governance in respect to PIGB. It doesn’t touch the heart of oil and gas upstream development, which is the fiscal arrangement that will govern the operation of the oil and gas sector.
“The ambition to process oil through a number of refineries, whether Dangote or through collocated refineries, will become a challenge because we would have less crude for international markets to sell and earn foreign exchange.”The president, Nigerian Gas Association (NGA), Dada Thomas, whose organisation, Frontier Oil Ltd, plays a leading role in the marginal field, said it was shameful that Nigeria had not held a bid round since 2007.
“In that time, other African countries have held many bid rounds that people have watched and discovered were transparent. But for 11 years, Nigeria has not held one,” he noted.According to him, a new bid round is viable under a new legislation, considering that major oil companies are being deterred by the obscurity in the sector. He however warned that the country must ensure the passage of the PIB before the end of the current administration.
“I am worried and sad for Nigeria. We need to rescue the Nigerian E&P sector. It’s a big problem and we need to solve it collectively as a nation,” he said.On the marginal fields, Thomas said government had been frustrating growth by not honouring the terms of agreement it signed with the operators. “For example, the marginal field was supposed to be taxed at a 55 per cent PPT rate not the 67.5 per cent or 85 per cent that other fields are being taxed. That has never been implemented. Marginal fields are being taxed just like everybody else,” he said.
The former president, Nigerian Association of Petroleum Explorationists (NAPE), Abiodun Adesanya, said any process that would give an individual power to award oil blocks discretionarily must be corrected. He called for a scrapping of bureaucratic rules surrounding the process.
“Licensing rounds are a simple auctioning process that shouldn’t be unnecessarily elongated. We need to look at those processes very well, to be sure that they are smooth, transparent and quick,” he added.When The Guardian enquired at the Ministry of Petroleum Resources, the Director of Press, Idang Alibi, declined to comment, stressing there was a need for wide consultation on the oil block cum marginal bid rounds matter, given the sensitivity of the matter.
On transparency in the process, he said the DPR could equally give details.But as at the time of press, the joint response of the ministry and DPR were yet to be received. A call to DPR spokesperson, Paul Osu, did not yield results, as his phone was switched off.
According to the Managing Director and Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, given the status quo, Nigeria is unlikely to meet the target of the Organisation of Petroleum Exporting Countries (OPEC), if the body goes ahead with its plans to increase members’ output.
According to him, the failure to deregulate the entire petroleum industry, from upstream to downstream, will continue to deter potential investors, whose investments would go a long a long way in boosting operations, especially in the upstream segment.
“Failure to define the industry’s regulation has put oil production at minimal levels, and with OPEC and non-OPEC countries looking to increase output, Nigeria is unlikely to meet up, given its current fiscal regime. Unfortunately, we are not finding it easy meeting up with our 1.8 million barrels per day output target,” Chukwu said.He added: “What happens when output increases is that price will fall. Thus, Nigeria will be unable to benefit from the output increase and will also suffer from the price reduction. We need good regulation to grow production.”