A Review of the Nigerian Energy Industry

Rejuvenated oil output drives up Nigeria’s GDP growth

TO MATCH FEATURE IRAQ-WITHDRAWAL/OILOSCARLINE ONWUEMENYI 18 August 2014, Sweetcrude, Abuja – Nigeria’s crude oil production in the first quarter of the year rose to an average of 2.26 million barrels per day, bpd – 20.8 percent higher than the 1.87 million bpd of the last quarter of 2013, according to data released by the Nigerian Bureau of Statistics in Abuja.

The upturn in crude oil production bolstered the country’s economy, with the growth rate of real GDP in the first quarter of 2014 rising to 6.21 percent as against the 4.45 percent recorded in the corresponding quarter of 2013.

The statistics bureau gave Nigeria’s economic growth expectation as 6.19 percent in 2014, up from 5.5 percent last year, thanks to the rising oil output. However, oil output of 2014 Q1 still falls short (by 1.3 percent) when compared to the average production of 2.29 million bpd in the corresponding period of 2013.

Nigeria continues to suffer large scale theft with a recent United Kingdom report putting the country’s losses from such at £7.2 billion ($12.27 billion) annually. Security challenges, vandalism and poor infrastructure, among other factors, also join to prevent the country from reaching its optimum estimated production capacity of 3.2 million bpd.

In a recent statement, former Group Managing Director of the Nigerian National Petroleum Corporation, NNPC, Mr. Andrew Yakubu, is optimistic on the improvement of the country’s oil production levels. He stated that the Crude output barrel per day (bpd) is expected to rise further as the government clamps down on oil theft and sabotage attacks on production facilities

Yakubu said incessant vandalism of crude oil export pipelines and domestic crude oil and petroleum product pipelines impacted negatively on the economy.

According to him, what Nigeria lost in 2013 was equivalent to the total output of Equatorial Guinea and larger than the entire production of Ghana, Congo Brazzaville, Cameroun and Gabon.

Yakubu said the shut-ins of such significant production had prompted the federal government to take some drastic actions to tackle the situation due to the negative impact on government’s revenue.

“The initiatives included setting aside N15 billion for the purchase of security equipment to checkmate the scourge of oil theft in the Niger Delta, which was approved by the National Economic Council (NEC).

“Utilisation of new technology and radar surveillance to boost maritime security and increase sea patrol by the Nigerian Navy.

“Inauguration of an Inter-Agency Maritime Operations Coordination Committee to provide synergy among agencies operating in the industry to ensure safety and security in the Nigerian maritime industry.

“Provision of air surveillance of Nigeria’s pipelines with modern aircraft manned by Nigerian pilots trained under the Petroleum Technology Development Fund (PTDF) programme. However, these initiatives are in themselves not sufficient to maintain our leading position in oil production in Africa,” he said.

Yakubu said government’s commitment to evolving new strategies to checkmate pipeline vandalism stemmed from the need to improve small field economics, new acreage management systems and a new exploration paradigm shift.

Many analyst, however, have expressed worry that there are actually no agreement on the total number of loses in these criminal acts.

The Attorney General and Minister of Justice, Mr. Mohammed Adoke noted recently that in the petroleum industry, “reliable statistics are painfully scarce. Actual loss may be more, as these figures make no distinction between stolen or spilled oil. Also, sometimes when an operator talks of loss, one is not often certain that this is in terms of potential production loss in consequence of a shut down.”

He noted that, “These losses are primarily attributable to theft, vandalism, bunkering and piracy. The volume and intensity of these activities coupled with the sophistication of their equipment and arsenal lead to the inescapable conclusion that the perpetrators are not only well organised but aided by insiders in the oil industry.

He noted that the recent political history of the Niger Delta region, opaque reporting standards, insincerity on the part of some operators and an obviously out-dated regulatory framework has no doubt worsened the vicious cycle of criminality.

In 2013, crude oil losses caused by theft were estimated at about 55, 210 barrels per day or monthly average of 1,656,281 barrels. The losses imply inability to meet planned oil production forecasts. For example, last year, the budgeted projected oil production target was 2.53 million barrels per day (mbpd). But actual output was less than 2.3 mbpd. This has ensured deficit budgeting which has been prevalent in Nigeria as the country has depended mainly on oil revenues to finance its expenditure. For example, in 1970, oil contributed only 26.28 per cent to total revenue while non-oil proceeds was 73.72 per cent. By 2013, the share of oil in total revenue was 75.33 per cent while non-oil was 24.67 per cent.

Oil theft has also had impact on the nation’s fiscal buffers as the Excess Crude Account (ECA)) balances dropped from US$9.6 billion in 2012 to US$3.2 billion at end 2013. Its impact on Nigeria’s external buffers (Foreign reserves balances) has been negative. It has moved up from foreign reserve balance of US$43.83bn in 2012 to US$44.45bn at end 2013. As at last month, it has dropped by 15.7 per cent to US$37.45 billion.

According to Director General, Budget Office, Federal Ministry of Finance, Dr. Bright Okogu, “If we assume a loss of 300,000 bpd, over a year, net revenue loss to the federation amounts to about N1.4 trillion. This is the budget of at least three key sectors including the entire security, education and works sectors. If shared as statutorily approved, it would have meant a surplus budget for the Federal Government of Nigeria and many states. It would have meant zero government borrowing.”

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