Oil and Gas – A tale of

No Comments » May 26th, 2008 posted by // Categories: Energy Development Project




Oil and Gas: A tale of ‘suspended animation’

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By Clara Nwachukwu

Published: Monday, 26 May 2008

To say nothing has changed in the oil and gas sector in the past one year will not be an exaggeration.

Photo file

Oil and Gas

If anything, the industry has fared even worse in the 12 months of President Umaru Yar’Adua.

The delay in the passage of the budget, which was eventually passed by the legislature in April, gave an early indication of a lull in activities, not just in the sector, but the economy generally.

One operator said, “The oil and gas sector has been in a state of suspended animation,” while another noted, “In no area have we made progress beyond where we were when he came in.”

Nigeria’s crude production has dropped to 1.82million barrels per day as at the end of April, compared to 2.13million bpd pre-May 29, 2007.

The implication of this is that Nigeria is fast losing its relevance among the oil producing countries.

Statistics of crude production among the African member countries of the Organisation for Petroleum Exporting Countries, showed Angola as the continent’s current top producer with 1.87million bpd.

Indeed, it was predicted that this was going to happen in view of the continued militancy in the Niger Delta.

However, the prediction, which was expected towards the end of the year, came to pass too soon, as Nigeria was still the leader as at March end with 2.07million bpd, whereas Angola’s production remained steady at 1.87million bpd.

If the Niger Delta crises remain unabated, Nigeria could be relegated to the third African top producer, as it will be probably overtaken by Libya, which production has remained steady at 1.75million bpd since the beginning of the year.

Granted that Nigeria is earning more revenue from the sale of crude oil, which was pegged on $59/bbl in the 2008 budget, against the current price of $132.30/bbl in early trading at the New York Mercantile Exchange on Friday.

But the country cannot earn as much as it would have because militancy had resulted in the shut down of more than a million barrels per day.

Production capacity peaked at close to 3million barrels pre-militancy attacks in 2006.

This buoyed projections of reaching four million barrels per day and 40billion barrels reserves by 2010.

The implication is that not only is Nigeria unable to meet her OPEC quota of 2.2million bpd, which takes effect on June 1, 2008, she might also not be able to finance its capital budget for the current fiscal year.

Already, the National Assembly has raised the alarm of non-implementation of the budget.

Nigeria is a mono-product oil dependent country, as oil and gas account for over 90 per cent of foreign exchange earnings and over 65 per cent of national budget financing.

The sector contributes less than 30 per cent of the Gross Domestic Product, a factor that is given economic observers cause for concern.

In their assessment of Mr. President’s performance so far, most of the operators, particularly in the upstream sector, where the chunk of the money come from, argued that nothing had changed.

But some downstream operators did not think he had faired too badly, particularly, as pump price of petrol remained at N70/litre, in spite of galloping oil prices at the international market.

In deed, any pump price increase would have made Yar’Adua’s administration more unpopular, especially as he came in with a pump price increase of N75/L, bequeathed to him by his predecessor, former President Olusegun Obasanjo, which Yar’Adua later reduced to N70/L.

In his assessment of the situation, the Managing Director, Platform Oil Nigeria Limited, Mr. Austin Avuru, said, “Other than the promise to uphold the rule of law, nothing has happened.

“We are still importing fuel even though the refineries are supposed to be working, the Niger Delta crisis is still there unresolved.”

Agreeing that finding lasting solutions to the crisis was key to the development of the sector, the Managing Director/Chief Executive, International Energy Limited, Dr. Diran Fawibe, said the rule of law had brought in better accountability.

According to him, “There is now better accountability, as Shell and ExxonMobil have been asked to pay $2bn arrears to government. This shows that it will no longer be business as usual.”

He, however, noted that how far the proper auditing of the industry would go depended on how committed government was to the cause.

Notwithstanding this, Fawibe, like Avuru, believed that nothing much had changed in the industry, especially in terms of projects execution, as no new projects had come on stream during the period under review.

Besides, he noted that stakeholders were weary because Yar’Adua had not made true his policy of restructuring the industry.

He recalled, “At inception, the President announced a restructuring programme. It even set up a committee, made up of experts and professionals to fashion out the new structure of the industry, with a view to maximising oil and gas resources.

“From time to time, a presidential adviser was supposed to advise the public on the progress being made. But none of these has happened and the period given to the committee has elapsed.”

Some other operators expect that things would change as soon as the legislation that would back the changes was enacted.

But again, Fawibe said not without resolving the Niger Delta crisis, adding that no meaningful foreign investment would come in until this was done.

He said, “Foreign investors are jittery because the Niger Delta is still very volatile, especially for the service providers.

“With this type of situation, the major pre-occupation is, will one be able to recoup his investment? And the answer is no. So, it will be a tall order to expect fresh investments during a period like this.”

When noted that some investors from Europe and Asia have expressed interest to invest in the country, Fawibe said this was because of the apparent lack of competition for those willing to take the risk.

In spite of the bashing from the upstream operators, thein downstream counterparts believe that maintaining the deregulation policy had helped the market by bringing in new players.

This is in the area of licensing for crude lifting and importation of products.

In view of the high oil prices, there were fears of additional pump price increases as prevalent in most parts of the world, but with the Petroleum Support Fund, this was not to be.

Besides, with the increasing spate of pipeline vandalism, the Nigerian National Petroleum Corporation and its marketing unit, Pipelines and Products Marketing Company, have managed to avert scarcity, which normally trailed such incidence in the past.

According to the Managing Director, Capital Oil and Gas Limited, Mr. Ifeanyi Ubah, “The President has done well in the downstream. Prices have remained stable in the past one year, and we have not seen the perennial scarcity that usually occurs because of high prices, even when all the four refineries were down.”

As often said, the state of the downstream is usually the test of the performance of the upstream and the industry in general.

However, if the upstream collapses, as the militants have threatened, there would be nothing left for the downstream, which behoves on Mr. President to treat


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