Major developments that shaped the oil, gas sector in 2017
The current fuel scarcity could easily mask the gains in the oil sector in the year but 2017 indeed marked a recovery for Nigeria from a turbulent 2016 where oil prices fell 75 percent leading to massive decline in government revenue.
A lull in militancy culminating in the return of the Forcados terminal knocked out by the Niger Delta Avengers in June, added about 250,000 barrels a day crude oil output. 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.
“We think that the worst is behind us,” said Pade Durotoye, CEO of Oando Plc at the time.
Few months later, Nigeria ramped 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. 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.
Experts say this decision has implications for Nigeria’s 2018 budget. Adeola Adenikinju, gas policy analyst for the World Bank and professor of Economics at University of Ibadan told BusinessDay that capping Nigeria’s production at 1.8million bpd means that the 2018 budget assumptions would need to be reviewed.
“Definitely, we have to revise our budget projections, because it is fundamental to our budget. Since we cannot be seen to working against OPEC, so this means we need to diversify our economy away from oil and do more about getting gas and linking up gas with the rest of the economy ,” said Adenikinju.
On the other hand, oil prices began the year at $40 per barrel but last week, 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 mid-week, 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. 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.
The Nigerian National Petroleum Corporation (NNPC) in a statement last week said that oil has sold at an average of $52.49 per barrel between January and October indicating an 18 percent increase from the 2017 budget oil benchmark of $44.50 per barrel. The oil sector was significant in getting Nigeria out of recession.
The year 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.
“Under the deep offshore act, there was a provision in 1993 that once the price of crude exceeds $20 a barrel, the government will take steps to ensure that that premium element is then distributed at an agreed premium level for the federal government so that we get more for our oil. But over the last 20 years, nothing really was done,” said Kachikwu.
Nigeria successfully passed the PIGB bill in the Senate but remained stuck in the House of Representatives. The fiscal and host community aspects of the bill are yet to be passed.
In November, the Federal Government announced its intention to sell down stakes in the Joint Ventures and move them to unincorporated JVs to raise N710billion which would partly fund the 2018 budget.
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.
But it was not all uhuru for the sector in 2017. 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.
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.
In 2017 senior Royal Dutch Shell executives as well the company and Eni, were charged in Italy for their role in a vast bribery scheme that deprived Nigerian of over a billion dollars in the controversial OPL 245.
Under president Buhari’s administration Nigeria has ramped efforts 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 a late military head of state said to be part of the proceeds from the controversial Malabu oil deal scam.
U.S. banking giant, JP Morgan, was sued in November by Nigeria for $875million in the London courts over its alleged failure to block payments made from a massive oil deal that is subject to a string of international corruption investigations.
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