Nigeria’s National Petroleum Corporation (NNPC) is intensifying its search for oil in places where it has been difficult to find oil for years. In a statement issued on October 31 and available on its website, the Group Managing Director of the NNPC, Maikanti Baru is quoted as saying that the corporation is confident that its “aggressive exploration of the inland basins would soon yield success with hydrocarbon finds in commercial quantity.” The corporation is searching for oil where oil majors had previously searched and not found any. But Baru says that he believes that the oil majors ‘did not drill deep enough.” NNPC is going to drill deeper than the oil majors.
But the question is what quantity of oil is Baru likely to find in the inland basins that will really make any commercial sense especially at a time oil is losing its relevance. Nigeria already has a capacity to produce 2.2 to 2.5 million barrels per day. OPEC quota currently restricts the country’s production to 1.8 million barrels’ day as part of efforts by the oil producers’ cartel to reign in excess supply in the international markets, a prerequisite to ensure crude oil prices do not fall too low as it did early this year.
The country’s total oil reserves are in excess of 37 billion barrels with a capacity to last for another 40 years or more depending on our daily production capacity. Ongoing projects in different oil fields in the Niger Delta could easily add between 200,000 to one million barrels per day to Nigeria’s current average production capacity of 2.2 million barrels per day. In fact, the Egina project which is expected to come on stream in the first quarter of 2018, will add 200,000 barrels per day to the country’s production capacity. Ongoing projects could easily take Nigeria’s oil production capacity to about three million barrels per day by 2020. But we are unlikely to be able to take advantage of that additional capacity because of OPEC quota and the need to balance global crude oil supply.
It could rightly be argued that we will refine any excess capacity locally and export. This is a valid argument except that the refineries are currently operating at less 20 percent capacity. The Dangote refinery, which is expected to come on stream in 2019, will have a capacity for 650,000 barrels per day and could therefore theoretically absorb a good chunk of the excess production the country cannot export, refine for domestic consumption or export to other African countries. But then anyone investing in refineries now, knows that time, and technology is working against them. Increasingly the world is turning to renewable energies. The developed and even some emerging markets have already set clear timelines to transition to non-fossil fuel powered vehicles, the biggest consumers of refined crude.
Faced with this reality, even Saudi Arabia, the world’s biggest crude oil producer on 24 October announced a US$500 billion ambitious plan to dig its economy out of its dependence on crude oil. The plan is to build an industrial zone that extends from Saudi Arabia to Jordan and Egypt. Most interestingly, this new industrial hub will be powered entirely by renewable energy. Saudi has read the sign on the wall and has sown the seed that will break its dependence on the fading power of oil.
The Saudi’s have also been advancing plans to sell five percent stake in the state owned oil company, Saudi Aramco. Tagged the world’s biggest initial public offering (IPO), when it hits the market, the Saudi’s plan to raise as much as US$300 billion from the offer. Besides the money to be raised from the offer, the IPO would help Saudi Aramco operate as a more market focused, profit oriented firm, something that cannot be said about the NNPC.
So while the world’s largest crude oil producer is moving away from oil, Nigeria, through its state owned NNPC is digging in and spending its unimpressive and volatile oil based revenues to find more oil in difficult terrains with doubtful oil reserves. Best estimates, even if Nigeria finds oil in the inland basins, is to add about 100,000 barrels of oil per day to the country’s production capacity. This is an amount that can easily be found in abandoned oil wells in the Niger Delta at less cost and with less effort. This lack of significant potential in the inland basins is the reason that oil majors abandoned oil search in the area. Finding oil in the inland basins is not worth the potential return of making such a find.
There is no doubt that NNPC would be doing the country greater good if it were to spend the billions it is now using searching for oil in the inland basins to make bold investments in solar power in the region, considering the abundant solar resources in the North. Imagine NNPC investing in huge solar farms in the North and seeking to become the leading firm in solar and wind technology in Africa over the next 10 to 20 years. That would be worth the money and brighten the country’s future.
The only reason NNPC is spending billions searching for oil is because it sees itself as an oil company rather than as an energy company. The oil majors including; Shell, Total, Statoil, and ExxonMobil have all in the last two years announced investments in renewable energy technologies. The idea is to diversify away from the volatile and uncertain future of oil into a more stable source of income and position for what looks to be the future of energy.
It is difficult not to argue that the search for oil in the inland basins is driven more by political than commercial or economic considerations. If NNPC was driven by economic considerations, it would be putting more effort into unlocking investments in the exploitation of the country’s still largely untapped reserves of oil in the Niger Delta while we still have some time in our hands. Also largely unexploited in the Niger Delta are 192 trillion cubic feet of gas, which remains largely untapped due to a weak and unclear regulatory framework for gas exploitation. Gas offers a ready alternative to oil, which the NNPC should be focused on rather than shadow chasing oil fields in difficult terrains.
Sadly, lives have even been lost in these vain chase by the NNPC for oil in the inland basins. Billions are also being spent in what is clearly a doubtful venture. Meanwhile, the world is moving on from oil and as usual, Nigeria is fiddling with things that will make no difference to our long term future as a country, while the things that matter are neglected and ignored.