The oil and gas sector is the most critical to the economic and social development of Nigeria, contributing over 90 per cent of our country’s foreign exchange earnings and about 80 per cent of recurrent and capital expenditure, writes Thompson ABISOLA
Critical stakeholders in the industry are of the view that investments in oil and gas exploration and production generates substantial economic gains and business activity across a spectrum of industries, though hydrocarbon extraction, which is the process of mining oil and gas, has its downsides.
Not only does the process generate pollution as a direct consequence of oil spillage of differing intensity resulting from burst pipelines and drilling operations, among others, it similarly occasions grave consequences on both aquatic and terrestrial life. Thus, giving rise to restiveness, hostilities and often fatal engagements with the aggrieved citizens of the host communities in the Niger Delta.
In spite of these salient issues, there seems to be no end in sight, as hydrocarbon extractions in the Niger Delta are still ongoing, and with the call for further investments in that sector, they will be for some time.
Little wonder the Honourable Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu, stated that over the next two to three years, Nigeria needs an investment portfolio of about 100 billion dollars to drive that sector and yield more benefits to the Nigerian economy.
While there might be several factors that promote the success of the Minister’s call for further investments in the Nigerian Oil and Gas Industry, other factors such as insecurity and hostility in the host communities, may disincentivise investments in that sector.
The Chairman of the Integrated Oil and Gas, Mr Emmanuel Iheanacho, has urged the oil and gas industry stakeholders to work towards the expansion of the Nigerian economy by extending their investment frontiers to cover all aspects of the industry rather than looking to the developed economies in the west or east for opportunities.
Iheanacho stated that opportunities for massive investment expansion are abound in the country especially in the oil and gas sector of the economy and also the power sector.
The Integrated Oil chairman who x-rayed the trends in the international energy market explained that with the recent technological breakthrough and raising crude oil price at the international market , if not utilized adequately, there could be a lull in the demand for Nigeria’s oil and gas.
“With this development, we should be looking elsewhere for opportunities. We could look to Europe in the West or Asia in the East. But rather than look to the West or the East, I think we should look inwards; we should develop the local market by tapping into the opportunities being provided by the federal government,” he said.
Managing Director, Frontier Energy, Mr. Thomas Dada, said there is need for government to incentivize the gas market, adding that government should also look into liberalising the market to attract investors.
Dada said the federal government’s plan to boost power generation from7,000 megawatts (Mw) to 40,000Mw presents ample opportunity for oil and gas producers within the country as about 80 per cent of the projected 36,000Mw increase will be produced from gas-fired thermal stations.
He said explained that besides linking the power stations, the ongoing gas pipelines would serve as backbone for gas supply to other gas-based industries like petrochemicals and fertilizer plants across the country.
To ensure that government achieves its quest to transform from a cost-centre to a commercially viable entity, the Frontier Energy boss stated that the NNPC should outline a growth trajectory.
It would be recalled that a significant decline was recorded in foreign investment inflow into the Nigeria’s oil and gas industry in the second quarter of 2018, as total capital imported into the industry between April and June 2018, dipped by 70.98 per cent, compared with the amount imported in the first three months of the year.
According to data obtained from the National Bureau of Statistics (NBS), Nigerian Capital Importation report for the second quarter of 2018, foreign capital inflow into the oil and gas industry declined by $60.77 million about N18.6 billion, to $24.85 million about N7.6 billion in the second quarter of 2018, compared to $85.62 million about N26.2 billion recorded in the first quarter.
However, no reason was given for the sharp drop in foreign capital inflow into the oil and gas industry, but analysts had consistently blamed the decline in investment on uncertainty in the industry, following the delay in the assent of the Petroleum Industry Governance Bill (PIGB), and the non-passage of the remaining variants of the Petroleum Industry Bill (PIB).
Also, energy experts had disclosed that investors are sceptical about investing in the nation’s petroleum industry as a result of the uncertainty trailing the forthcoming general elections.
The report further stated that the oil and gas industry accounted for 0.45 per cent of the $5.514 billion total capital imported into the economy in the second quarter compared to its contribution of 1.36 per cent to the $6.3 billion total capital imported in the industry in the first quarter.
Giving a breakdown of foreign capital inflow in the second quarter of 2018, the NBS report noted that in April, May and June 2018, $19.64 million, $4.13 million and $1.08 million capital were imported into the industry, representing 9.1 per cent, 2.9 per cent and 0.56 per cent of $2.16 billion, $1.43 billion and $1.92 billion total capital imported into the economy respectively.
This was compared to foreign investment inflow of $22.12 million, $4.05 million and $59.45 million recorded in January, February and March 2018 respectively, accounting for 8.48 per cent, 2.47 per cent and 28.9 per cent of $2.61 billion, $1.64 billion and $2.06 billion total capital imported into the economy in January, February and March 2018 respectively.
Impact of PIB, commenting on the effect of the non-passage of the PIB, National Coordinator of Publish What You Pay, PWYP, Mr. Peter Egbule, stated that Nigeria is losing N3 trillion annually for failing to put in place a proper legislation for the oil and gas industry.
According to him, the passage and signing of the bills into law is in the collective interest of all Nigerians, as this will create a more functional administrative structure, significantly reduce financial leakages, encourage foreign and domestic investments, provide succour for host communities, among others.
He appealed to the National Assembly to immediately focus on the passage of the bills, and dedicate substantial time for the legislative processes required for the passage of the bills, especially before they become engrossed in the heightening political activities towards the 2019 general elections.
Egbule also implored both the National Assembly and the Presidency to carry out their respective actions without further delay in the interest of the dwindling economy and the lives being affected by the continuous delay in the passage of the bills.
Furthermore, the NBS stated that the total value of capital importation into Nigeria stood at $5.513 billion in the second quarter of 2018, dropping by 12.53 per cent compared to first quarter 2018, and a 207.62 per cent increase compared to the second quarter of 2017.
However, there are indications that the new funding options adopted by stakeholders will increase investment and stability in Nigeria’s oil and gas industry.
Managing Director of Shell Petroleum Development Company (SPDC) and Country Chair of Shell Companies in Nigeria, Mr. Osagie Okunbor, who expressed this optimism in an interview with global accounting and services firm, KPMG, said: “I have become more confident of prospects in this sector now more than any time in the recent past.
“This is essentially because of what we have been able to achieve in partnership with the Nigerian National Petroleum Corporation (NNPC) and the Nigerian government on JV funding.
“We still have a few areas to cover, in particular 2016 arrears, but even that is good progress.” “This has been running for a year, so we can say there is some stability and we can seriously consider investments.
“Following a meeting we held recently with Mr. President in London, our global CEO said that if we get all the conditions right, together with our partners, we will be able to make significant investments in the sector. That is a major indicator of what we are able to do, but it is underpinned by a lot more confidence in the ability of the country to meet its obligations.”
“I am pretty confident that if we can sustain this momentum, we will see investments flow into this sector. The multiplier effect when this happens will be tremendous. As you may have heard the Honourable Minister of State for Petroleum Resources often say, ‘we need to diversify our economy,’ but we need oil to get out of oil. So, investments in this sector will be very important.”
The Shell boss further stated that a number of critical enablers are required and will need to be addressed to sustain the forward momentum in the sector, such as creating the right fiscal environment, effectively managing the Niger Delta issues and shortening the country’s contracting cycle.
Okunbor said: “First and foremost, we require the right fiscal environment. The on-going discussions at the National Assembly on the four bills that make up what used to be the PIB including the Petroleum Industry Governance Bill which has been harmonised and passed, is a step in the right direction.
“So we are paying very close attention to the outcome of these bills because ultimately, we need the right legal and fiscal frameworks to enable companies like us to make some big bets. If we don’t get this right, the country is at risk of losing investment capital to other competing jurisdictions. “
Secondly, we need to ensure that the security situation, especially in the Niger Delta, is effectively managed. A resurgence of violence in the region in 2016 severely impacted oil production negatively. It is therefore very important for the industry to work with the government to provide the safe environment for oil and gas assets and for production.
“The contracting cycle is the third major enabler that needs to be addressed. Oil Producers Trade Section (OPTS), has looked at contracting cycles across jurisdictions and Nigeria is an outlier because of our lengthy contract cycle. We need to explore avenues to shorten the length and examine contract thresholds, which is a significant part of the JVs and contracting cycles.
“Oil, as a major component of the global and local energy mix, will continue to remain relevant in the medium term, but expectations have changed. Oil will remain a relevant component of global energy mix, and even more so for Nigeria, over the next 10 to 15 years, if not more. The mix will not radically change.
“What is clear is that society expects low-carbon footprints going into the future. I think that is key and everyone, particularly those who are as big as Shell understands that and will work with society to change.
“We are cutting our carbon footprint by a significant proportion going forward, not just in terms of what we directly produce, but also our usage and our by-products. This requires that we continue to refine our systems and processes to ensure that the carbon intensity of our production continues to go down.”
