Billion dollar Bonga, Zabazaba fields, militancy to influence oil, gas sector in 2018
Nigeria’s crude production outlook in 2018 will depend on multi-billion dollar projects such as Shell’s Bonga South West and Agip’s Zabazaba fields. It will also hinge largely upon the capacity of the federal government to completely eliminate internal and external factors that may trigger militancy in the Niger Delta.
The Bonga project includes a new Floating Production, Storage and Offloading facility, with an expected peak production of 225,000 barrels of oil per day and 270 million standard cubic feet per day of gas.
The Zabazaba fields have proven reserves of 560 million barrels of oil as a standalone development in the eastern portion of the Niger Delta in water depths ranging from 1,200 to 2,400 metres. It also includes the construction of Floating Production Storage Offloading (FPSO) units, subsea installations and drilling rigs.
“We expect to see awards for new projects including contracts on US$1 billion+ Bonga Southwest and Zabazaba, both offshore Nigeria, West Africa,” said Shell in a statement late last year after the release of their third quarter results.
But for Nigeria to sustain last year’s production momentum in 2018, it would have to curb the threats of militancy in the Niger Delta. The horizon does not look promising though as there is yet no concrete engagement with militants despite the existing ceasefire by Niger Delta militants.
“We think that the worst is behind us,” said Pade Durotoye, CEO of Oando Plc when the Forcados terminal came back online.
2017 marked significant recovery of the oil and gas sector after a bruising militancy campaign cut a third of crude oil output and national revenue took a beating from a slump in crude oil prices.
The sector witnessed mild recovery when the Forcados terminal resumed operations in June after a militant group, the Niger Delta Avengers, bombed it. This added about 250,000 barrels a day crude oil output and took Nigeria out of recession.
Nigeria quickly grew output to 1.8million barrels after militants decided to sheathe their swords. But this also removed the exempt status Nigeria was accorded when OPEC members and some non-members including Russia agreed to cut 1.8million from global oil output.
Oil prices began the year at $40 per barrel but on December 22, 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.
This has led to a surge in government revenue, surpassing 2017 budget benchmark of $44.50 per barrel by 18 percent in the last ten months. Data from the National Bureau of Statistics (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.
Nigeria has granted a local firm license to OML 11 in Ogoni lands, which Shell abandoned since 1993, following sustained agitations by the community. To resume drilling is rousing fresh concern but the Federal Government is yet to make good on its word to clean up fuel spills in the community.
In December last year, the Federal Government also approved the review of the fiscal terms for Production Sharing Contracts, which has cost the economy over $21billion in lost investments in 20 years. But the challenge is getting the lawmakers amend the law.
For over a decade, the Petroleum Industry Bill (PIB) has been stuck in the national assembly. In May 2017, the Senate passed a governance portion of the bill but the House of Representatives is yet to pass the bill. The host community aspect as well as the fiscal aspects is yet to be considered. The passage of this bill would determine how much reforms and investments the sector is able to attract in 2018.
In 2017, Nigeria could not organise a marginal fields bid rounds contrary to expectations. Marginal fields are undeveloped discoveries in the last 10 years, located in oil blocks held by oil majors operating in the country.
This development affected plans by local oil companies who have been strategizing to acquire significant blocks. In 2018, the stakes would be higher as analysts fear conducting the bid rounds a year to the election raises concerns about transparency in the process and expose the administration to accusations of buying influence ahead of the 2019 general elections.
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