A Review of the Nigerian Energy Industry

Oil price: Nigeria may record $10bn revenue drop – Total boss

Elisabeth Proust, Managing Director of Total Upstream Companies in Nigeria.
Elisabeth Proust, Managing Director of Total Upstream Companies in Nigeria.

25 April 2015, Abuja — With the weekly fluctuations of crude oil price in the international market, Nigeria’s revenue from crude sales this year may decline by as much as $10 billion or 30 per cent of its 2014 revenue.

At an average price of $53 a barrel of crude oil so far this year, compared to an average of $77.5 in 2014, according to Managing Director of Total Upstream Companies in Nigeria and chairman, Oil Producers Trade Section (OPTS), Elisabeth Proust, the difference could be as much as that.

Speaking on Thursday at the 2015 Oloibiri Lecture Series and Energy Forum (OLF) in Abuja, Proust noted that low crude oil prices have significantly reduced the level of investable funds at a time when competition for investments is increasing.

According to her, “there is no doubt that the low crude oil prices that we are experiencing today are having a severe adverse impact on the revenues of both producers and host governments globally.

“Unfortunately, Nigeria is not immune to this revenue squeeze. We estimate that if crude oil prices average $53 per barrel in 2015, compared to $77.5 in 2014, FGN oil and gas revenue will decline by $10 billion this year, or a gut-wrenching 30 per cent”.

The Total Up-stream boss explained that the advent of shale oil in the United States, Brazil’s deep-water development which is attracting huge share of global investment, as well as both Mozambique’s and Tanzania’s massive offshore gas discoveries, now constitute enormous competition to Nigeria.

This is worsened, she continued, by the fact that Nigeria has some in-country risk factors that hinder its ability to compete in the market.

Proust listed these issues to include: Crude oil theft, pipeline vandalism and associated product shut-ins, insecurity of industry personnel and assets which had been identified by operators in the country as part of challenges hampering Nigeria from competing well in the global space.

She said: “The advent of shale oil is underpinning an oil industry renaissance in the USA and propelling USA crude production to levels unthinkable 10 years ago, attracting massive investments in the upstream and downstream as well as infrastructure build-out.

“Deepwater developments in Brazil are attracting a growing share of global investment, while the massive offshore gas discoveries in Mozambique and “Tanzania are expected to draw tens of millions of dollars in investment, competing in Nigeria’s own backyards.”

Worse still, she noted, the exacerbating competition for investment funds.

Consequently, Proust said it is critical to push for new technologies such as subsea and floating LNG, which could drive down costs and help unlock deep-water oil and gas, stressing that the use of fibre optics technologies for monitoring pipelines would help in integrity surveillance and security issues in onshore and shallow water production.

Also speaking at the event, Nigerian National Petroleum Corporation (NNPC) Group Coordinator, Corporate Planning and Strategy, Timothy Okon, said passage of the Petroleum Industry Bill (PIB), restructuring of public finance, scrapping of petrol subsidy regime, review of capital expenditure, focus on profitable subsidiaries of the NNPC, and exploration of the Asian market could serve as a game changer for Nigeria against the price instability.

Okon also listed quick delivery of domestic gas and Liquefied Natural Gas (LNG) projects, as well as optimisation of domestic crude oil refining as part of the measures that could keep Nigeria competitive in the industry.

He said: “No one can confidently predict the length and severity of the current oil price slump. Therefore, it is critical for the Nigerian government to identify a clear set of scenarios for where oil prices may go, and to develop a set of practical options for how to respond to continuous evolutions in the prices at present and in the future.

“Given the oil prices at record lows, the cost of procuring fuel for Nigeria, both domestic supply chain or product importation is also declining. This should enable the government to remove fuel subsidies and establish pure market-based mechanisms for fuel pricing,” Okon said.

For him however “hard times call for a hard-nosed examination of existing plans to spend large significant capital in the oil and gas sector. It will be important for FGN and for NNPC to maintain a prudent level of capital spending to support cash generation in the medium term and to develop critical infrastructure to build the country’s gas and power sector”.
*Obas Esiedesa – Daily Independent

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