10 things that shaped the oil, gas sector in 2017
Rising from a turbulent 2016 where crude prices found the floor at $30 per barrel and militants were blowing up pipelines, 2017 marked a significant recovery for the sector. Here are the top ten events that shaped the sector in 2017.
Restart of Forcados pipeline
Nigeria’s economy effectively fell into a recession with the blowing up the 300,000 bpd Forcados pipeline. Forcados Oil Terminal is one of Nigeria’s largest crude grades carrying Forcados , a gasoil-rich sweet crude blend, averaging some 250,000 barrels per day of output. It conveys the crude grade to the Forcados export terminal in Delta state
The first attack stopped the flow of crude in February 2016, it was followed by another in July. Repairs continued until October and the pipeline was restarted, only to be shut down before the month ended, after a bombing from a new militant group. However, in June 2017, the Forcados terminal came back on adding about 250,000 barrels a day crude oil output and lifting Nigeria out of recession.
OPEC adds Nigeria into supply cap deal
Few months the Forcados terminal came on stream Nigeria was able to ramp up crude oil production to 1.8million barrels from below 1.5million recorded for much of 2016. Local oil firms including Seplat recorded better performance.
In November 2016, OPEC members and some non-member countries including Russia agreed to cut global crude oil production by 1.8million to shore up oil prices. Nigeria and Libya were exempted due to crises in their sector. The gamble paid off as oil prices soon rose above $50 per barrel. Nigeria and Libya recovered significant capacity and by November 2017, they were brought into the supply cap deal. But capping Nigeria’s production at 1.8million bpd means that the 2018 budget assumptions based on 2.3m bpd would need to be reviewed.
National oil, gas and other policies
2017 witnessed a flurry of policy approvals including the national oil and national gas policies. In August, a landmark Gas Sales & Aggregation Agreement with Greenville LNG for 74MMscf gas delivery to a $500 million LNG facility located in Rumuji, River State was signed between Nigeria and investors due to the gas policy.
In December, the Federal Government also approved the review of the fiscal terms for Production Sharing Contracts which has cost the economy over $21billion dollars in 20 years.
Restructuring of the Joint Ventures
In November, the Federal Government announced intention to sell down stakes in the Joint Ventures and move them to unincorporated JVs to raise N710billion which would partly fund the 2018.
This along with payment of N591.3 billion as cash repayment to five International Oil Companies (IOCs) including ExxonMobil, Chevron, Shell, Total and Eni between January and July has helped boost oil production.
Passage of the PIGB bill
After being stuck in the national assembly for over a decade, Nigeria successfully passed the PIGB bill in the Senate on May 25, marking a turning point in the administration of its oil and gas sector.
However, the bill has remained stuck in the House of Representatives in the year. Lawmakers are yet to consider the fiscal and host community aspects of the bill.
The House of Representatives amended the Nigeria LNG Act in May which violated the Assurances and Guarantees granted the investors by the country, and reinforced by successive governments, which paved the way for the huge international investment that enabled the country rake in over $6billion income.
Kachikwu/Baru rift highlights governance gaps
In October, Ibe Kachikwu, minister of state for petroleum resources wrote a leaked memo to the president accusing Maikanti Baru, NNPC GMD of insubordination, awarding $25billion contract without board approval and making appointments without due process. Baru’s response that the NNPC’s tenders’ approval was only required highlighted governance gaps in the sector.
OPL 245 scandal returns to haunt oil players
In 2017 senior Royal Dutch Shell executives as well as those from Eni, were charged in Italy for their role in a vast bribery scheme that deprived Nigeria of over a billion dollars in the controversial OPL 245.
In 2011, Shell and Italian oil giant Eni paid $1.1 billion for OPL 245, an oil block located on the southern edge of the Niger Delta allegedly knowing that the money would go to a front company secretly owned by a former Nigerian oil minister, Dan Etete, who had been convicted for money-laundering. Etete was accused of awarding himself the block while in office under the former military dictator Sani Abacha, through Malabu Oil and Gas, a company he owned
This 2017, Nigeria tried to recover the block and lost revenue on account of the deal. In October, Abubakar Malami, the Attorney General of Federation and Minister of Justice, said that Switzerland has agreed to return $321million that was looted from the national treasury by late military head of state said to be part of the proceeds from the controversial Malabu oil deal scam. Nigeria also sued U.S. banking giant, JP Morgan, for $875million in London courts over its alleged failure to block payments made from the Malabu deal
Despite shale, oil prices began to look up
2016 started with oil prices struggling at 30 per barrel. To worsen the situation, shale producers in the US were ramping up production as if oil was going out of fashion. Due to improved fracking technology, they cut production time by half and break even cost became so favourable that US became the world’s biggest oil producer.
Yet increasing demand saw oil prices began hit $40 per barrel in the first quarter of 2017. On December 26, crude prices reached more than two and half year highs on reports that a pipeline explosion in Libya has disrupted about 100,000 barrels a day supply. International benchmark Brent crude rose $1.81, or 2.8 percent, to $67.06, after hitting an intraday peak of $67.10, its highest level since May 2015.
Nigeria’s oil revenues begins to look good
This has led to a surge in government revenue. Based on the 2017 budget, expected crude sales was an average of N1.68 trillion, which comes to average monthly revenue of N140 billion or cumulative revenues of N982 billion from January to July 2017. Data from the NBS shows that the cumulative revenues from crude oil sales between January and July 2017 was N1.07 trillion, about 8.8 percent higher than the set target for the period.
Much of the successes recorded in the sector was however marred in the last month of the year when fuel queues resurfaced in major cities of the country. Contrary to earlier claims by the NNPC that it had a 30-day sufficiency, filling stations around the country could not get supply and resulting fuel queues saw Nigerians keep vigil at filling stations.
To deal with the situation, NNPC said it had ramped importation of petrol by 52 million litres a day and is incurring a subsidy of N26 on each litre for it sell at control price of N145 per litre. Within seven days, BusinessDay estimates over N9.4billion. This soon opened debate on who is bearing the cost. Yemi Osinbajo, Nigeria’s vice president said it was the NNPC.
Marketers and the NNPC close the year fighting over who is culpable for the fuel scarcity.
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