Nigeria risks long term oil decline
Nigeria’s oil production will begin falling soon unless the Federal Government can reduce political uncertainty, corruption and criminality, Reuters has reported.
Rising output of Nigeria’s high grade crude, highly prized by competing U.S. and Chinese buyers, could stall and even sharply reverse, shattering the ambitious development plans of the country. Oil output from ageing onshore fields in the Niger Delta is declining, data analysed by Reuters shows, and while deep offshore production has been steadily increasing over the last decade, it is set to plateau due to a lack of new projects.
Energy consultants Wood Mackenzie forecast Nigeria’s oil production could drop by 20 percent by 2020. “Nigerian oil production from currently commercial projects will be steady until around 2015/2016 but then will drop off sharply unless investment increases,” said Gail Anderson, Africa analyst at Wood Mackenzie.
“The consequences of fiscal uncertainty, inefficiency, bureaucracy, the time taken getting decisions made, will all take their toll.” Nigeria produces an average of around 2.5 million barrels per day (bpd) of oil and light gas liquids and has the world’s seventh largest gas reserves, which due to mismanagement are largely untapped.
Reuters’ data show that while Nigerian oil production from onshore or shallow inshore fields has declined over the last five years, output from offshore and deep-water fields has barely made up for the decline. Much of the vast offshore potential has not been realised, despite early optimism. Nigeria’s oil and gas earnings were growing at double-digits a decade ago but they have been volatile in recent years and shrank by 0.57 percent last year, data from the National Bureau of Statistics (NBS) showed this month.
The ambitious Petroleum Industry Bill (PIB) to overhaul everything from fiscal terms on projects to Nigerian National Petroleum Corporation (NNPC), has been blocked by political wrangling for five years. During that time, oil majors say they have largely stopped investing in big new exploration projects because they have no idea what it might end up costing them.
Widespread corruption and risks associated with oil theft and piracy are also making investing less attractive. Despite deterrents, foreign oil majors seem keen to cling onto producing oil blocks they already own. Exxon agreed a 20-year renewal of its onshore oil licences last month and Shell, Chevron and Eni are lobbying the government to sign-off on theirs – a sign they are still keen to maintain their existing investments in Nigeria, even if they aren’t making many new ones.
With prices at $125 a barrel there would be huge interest in more offshore exploration, if the investment framework was clarified. The major exploration onshore has already taken place and the potential there is likely to be left to smaller Nigerian players, rather than foreign firms, especially since a law that favours indigenous operators was passed last year.
The PIB should set out the terms for long-term investment and pave the way for a fresh offshore licensing round, which could uncover billions of barrels of oil. It is supposed to break up NNPC, whose funding shortfalls in joint ventures have also been a major brake on progress.
So many targets for passing the legislation have been missed that investors are disillusioned. “We have very little reason to be optimistic about progress on the PIB. Momentum has stalled,” a strategist at a major European oil company said, asking not to be identified.
